Article

Sonic to focus on breakfast, ad exposure

Company's Q1 Fiscal 2012 results include slight increase in same-store sales.

January 5, 2012 by Alicia Kelso — Editor, QSRWeb.com

Sonic Corp. announced results for its first fiscal quarter 2012 ended Nov. 30, 2011, which included a slight dip in profit and a small increase in same-store sales.

During the earnings call earlier this week, Cliff Hudson, chairman and CEO, outlined some of the company's strategies moving forward, including a continued focus on breakfast. Sonic has been promoting the daypart since August and he said it has been a consistent performer and is the daypart that has the most positive momentum right now.

Sonic's breakfast experience is consistent with the QSR segment in general. Foodservice marketing and research firm Technomic estimates that the breakfast segment accounts for 12 percent of the total restaurant industry, generating around $42 billion in annual sales.

Breakfast patronage is up at foodservice locations, particularly at QSRs, where 46 percent of consumers now occasionally purchase weekday breakfasts, compared to just 33 percent in 2009.

Another component Sonic will continue to focus on is the overall improvement of its food quality, as it has with the upgrade of core items such as ice cream, the chili cheese footlong Coney and the new all-beef hot dogs.

"As the year progresses, we're going to promote four differentiated products, but also new product news across multiple dayparts. Over the last couple of years, our customers tell us that we have improved the quality of our food, the quality of our service and the value of our offering," Hudson said.

Sonic has also increased its media exposure and expects the impact to continue through 2012.

"We should be seeing the increased exposure with consumers in terms of seeing our creative on television and beyond. These are the types of things that give us confidence in the base that's already there. We are working to continue the improvement of the creative, so in the coming months, we will move to improve what had helped achieve three out of four positive months and build on that as the year progresses," Hudson said.

Chief marketing officer Danielle Vona is leaving the company and will be replaced either in late winter or early spring. Hudson said her departure will not affect this strategy.

"We operate in a very competitive industry and what we're trying to do is position our brand to play to our points of strength and drive our brand across multiple dayparts, which we've been successful doing with a good media and creative strategy," he said.

Earnings highlights

The company's net income for Q1 was $0.09 per diluted share compared with net income per diluted share of $0.12 in the first quarter of fiscal 2011; excluding a tax benefit of $0.02 per diluted share from a favorable tax settlement, net income per diluted share was $0.10 in the first quarter of fiscal 2011.

The quarter's system-wide same-store sales increased 0.1 percent during the first quarter, with an increase of 0.2 percent at franchise drive-ins and a 0.1 percent decrease at company drive-ins.

Additionally, Sonic repaid $3.8 million of its fixed rate debt and repurchased $10.5 million of its common stock during Q1 '12.

"While our fiscal first quarter reflected continued sales volatility, we remain pleased with our long-term initiatives," Hudson said.

Fiscal year 2012 outlook

The company expects its initiatives to drive sales improvements going forward; however, uncertainty with regard to the external environment and its impact on consumer confidence may result in continued sales volatility. The second fiscal quarter is seasonally Sonic's lowest in sales volume and most volatile period, as it is more susceptible to adverse weather conditions. The company's outlook for fiscal 2012 anticipates the following elements:

• The opening of 30 to 40 new franchise drive-ins;
• Positive same-store sales; a 1 percent change in same-store sales equates to approximately $0.03 in net income per diluted share; and
• Slightly unfavorable restaurant-level margins as a result of commodity cost increases and higher operating expenses, particularly in the first half of the fiscal year, partially offset by labor efficiencies.

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