Sonic takes 1-2 punch from hurricane, malware attack

It's been a rough quarter for Sonic. Two weeks before releasing rather dismal Q4 financial results today, the chain revealed on Oct. 4 that it had experienced a malware attack that might have compromised its customers' credit and debit card numbers. The company said the numbers might have been acquired without authorization at certain Sonic Drive-in locations.

Sonic is offering two years of free fraud and identity theft protection to guests who used their cards at Sonic Drive-in locations this year, as the investigation continues.

While the toll from Sonic's data breach has yet to be measured, the Q4 financial results have been calculated and the news is not good. Chain leadership said that the less-than-glowing numbers reflect both the hyper-competitive restaurant environment and the massive toll that a weather event like Hurricane Harvey can take on a chain.

Results for the quarter ending Aug. 31 showed a 3.3 percent drop in same-store sales and a 6 percent drop in net income per diluted share, a news release said.

 "Our movie-linked, softer promotional line-up in June and July did not match the traffic that was driven by product bundling in the summer of 2016," Sonic CEO Cliff Hudson said in the release. "As we shifted to more aggressive, brand-centric promotions in late summer, we saw traffic and sales declines moderate."

Other Q4 results:

  • Net income per diluted share decreased to 50 cents, compared with 53 cents for the prior-year period.
  • Adjusted net income per diluted share remained flat at 45 cents.
  • Franchise same-store sales declined 3.2 percent.
  • Company same-store sales dropped 4.8 percent.
  • Company drive-in margins increased by 230 basis points.

Net income per diluted share increased 12 percent to $1.45,  compared with $1.29 in the prior year, while adjusted net income per diluted share dropped 3 percent to $1.25 compared with $1.29 in the prior year.

The company purchased more than 6.7 million shares of its common stock, representing approximately 13.5 percent of outstanding shares for the fiscal year.

“Although sales were slower than we would have liked, we accomplished much in fiscal 2017, including the expansion of our new-store development pipeline with new and existing franchisee groups, the release of our fully integrated and redesigned mobile app and the testing of order-ahead functionality," Hudson said in the release.

“With a new marketing leadership team now in place, we continue to evolve the way we target, market to, and engage with our most loyal drive-in customers. This includes the refinement of current media strategies to achieve a 10 percent increase in reach, as well as a complementary revision to our creative content. Despite additional weather disruption to start our first fiscal quarter, we continue to target positive same-store sales in fiscal 2018."

Topics: Business Strategy and Profitability, Financial News

Companies: Sonic

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