News

Sonic sales down, but improved

January 4, 2011

Sonic Corp. has announced results for its first fiscal quarter ended Nov. 30, which included a system-wide same-store sales decline of 2.4 percent. Although down, however, this was an improvement from its 4Q10 results, which yielded a 6.4 percent drop.

The upswing has caused optimism throughout the company.

"We are pleased by improvements in Sonic's same-store sales trends, especially the continued strengthening of company-owned drive-in sales that began at the end of last fiscal year," said Clifford Hudson, chairman and CEO. "These improvements underscore the positive impact of our strategic initiatives."

Among those initiatives are a broader emphasis on personalized service with skating Carhops and the introduction of premium products such as real ice cream, Footlong Quarter Pound Coneys and bigger burgers.

Other details of the fiscal report include:

• A 5 percent revenue decline – to $129.1 million from $136.5 million in the year-earlier period. This was due primarily to the refranchising of 16 drive-ins;
• Net income totaled $7.2 million, or 12 cents per diluted share, compared with $6.2 million or 10 cents per diluted share from 1Q10.
• Same-store sales at franchise drive-ins declined 2.5 percent in the first quarter, while same-store sales at company-owned drive-ins declined 1.9 percent; and
• Franchise drive-in openings totaled nine for the quarter. This is compared to 25 new drive-in openings during 1Q10.

Moving forward, management remains focused on sales and operational improvements at company-owned drive-ins rather than expansion, so most new drive-in openings in fiscal 2011 will be by franchisees, and Sonic continues to expect those openings to total approximately 40 to 50 for the fiscal year.

"We have a number of initiatives focused on improving both sales at company-owned drive-ins and for the system," Hudson said. "In the near term, company-owned drive-in sales and margin performance have the potential for the largest impact on earnings and stockholder value. After trailing the system for almost three years, sales at company-owned drive-ins outperformed the system for the past two quarters even as system sales trends have improved."

Additionally, Sonic continues to use excess cash to reduce debt and strengthen its capital structure. Subsequent to quarter's end, Sonic repurchased $62.5 million of senior notes in a privately negotiated transaction, realizing a gain of approximately $5 million on the extinguishment of the notes.

Sonic's outstanding debt now totals approximately $520 million, and the company has more than $30 million of unrestricted cash available for general corporate uses.

"We believe Sonic is gaining traction with the initiatives we implemented in fiscal years 2009 and 2010 aimed at operational and food quality improvements," Hudson said. "We also believe new management talent in operations, technology and marketing added over the past year positions us well for improvements in the near term and for solid growth of the brand over the long term. We expect our brand and system performance will continue to strengthen, underscored first by improving sales and profitability, and later by stronger franchise development trends."