News
Sonic comps still negative in Q1
January 5, 2010
Sonic Corp. continues to struggle with negative same-store sales as evidenced by results for the first fiscal quarter ended Nov. 30, 2009, the company announced Tuesday. System-wide same-store sales were down 6.5 percent for the first quarter; same-store sales at partner drive-ins (those in which the company owns a majority interest) were down 9.1 percent in the quarter.
Revenues were down 26 percent to $136.5 million from $184.1 million in the same period last year, reflecting primarily the impact on the company's revenue mix from refranchising 205 partner drive-ins during fiscal 2009. The company now receives franchise royalties from these refranchised drive-ins instead of partner drive-in sales. To a lesser extent, the decline in revenues also included the effect of lower same-store sales on partner drive-in sales and franchise royalties.
Net income for the quarter was down 13 percent at $6.2 million, from $7.1 million in the same quarter last year, following an 18 percent decline in income for fiscal year 2009 ending Aug. 31, 2009.
"Our results for the first quarter of fiscal 2010 continued to reflect a very challenging operating environment," said Clifford Hudson, Sonic chairman and CEO. "The significant level of unemployment and its impact on consumer spending, combined with increased competition for value menu offerings, have negatively affected sales for the industry and for the Sonic system."
Sonic plans to address those challenges with a two-pronged approached: by focusing on its value offferings to meet consumer expectations for lower prices, including its value menu, and on the drive-in chain's unique customer service experience.
Hudson told investors and analysts in Sonic's quarterly earnings call that the company will use a number of initiatives aimed at improving performance levels at its drive-ins, including tools put in place over the last year as a result of customer feedback. Sonic also will promote its "carhops as a point of differentiation" as well as market the brand's focus on quality products and service.
Development, growth plans
System-wide drive-in openings totaled 25 in the first quarter, including 22 franchised drive-ins, versus 39 new drive-in openings during the first quarter of fiscal 2009, including 34 by franchisees. Sonic continues to expect new drive-in openings to total approximately 115 to 125 for fiscal 2010, including 100 to 110 new franchise drive-ins.
Sonic president W. Scott McLain told investors and analysts on the earnings call the company plans to continue its progress toward becoming a national brand, having added locations in 13 states in the past four years.
"Prospects for future development over the longer term also remain solid with almost 1,000 drive-ins scheduled to open under area development agreements over the next several years — almost 50 percent more than what we had three to four years ago," McClain said on the call. "On another positive note we continue to see construction and real estate prices fall in most areas. These factors together with lower interest rates should be very good for us over the longer term if they only serve to increase our franchisee's return on investment."
Sonic will continue to offer its development incentives, including offering free franchise fees and royalty abatement for five years for stores built by March 2011 in specific markets targeted as more challenged and under penetrated. The other development offer, for multiunit development during 2010 only, features a reduced franchise fee on the second store opening and no franchise fees beginning with the third new drive-in. McClain said the incentives will have a short-term negative impact on franchise fees and royalty revenues but a long-term positive impact on development.
Fiscal 2010 revised outlook
Based on Sonic's first-quarter results and the anticipation of a continued challenging economic and credit market environment, management anticipates earnings for 2010 will be flat versus fiscal 2009 earnings, as adjusted. This expectation is primarily based on a projected decline in annual system-wide same-store sales of 4 percent to 6 percent for the fiscal year, reflecting expected improvement in the latter half of the year versus the current trend. The company also anticipates a decline in restaurant-level margins associated with the decline in sales.
Cowen Conference participation
Sonic also announced that it will participate in Cowen and Company's 8th Annual Consumer Conference, which takes place in New York, Jan. 11-12. Sonic's presentation is scheduled at 1:30 p.m. Eastern time on Monday, January 11 and will be available to investors via a live audio webcast. A link to the webcast can be found at the investor section of the company's Web site. The event will be available for replay for a period of 30 days using the same link.
Related Media
Subscribe
Get the latest news and resources from QSR Web.
