News
Sonic traffic flat, comps down 4.5% for Q4
October 20, 2009
Sonic Corp. has announced systemwide same-store sales were down 4.5 percent for the fourth quarter and fiscal year ended Aug. 31 versus a decline of 0.6 percent for the same quarter last year. Same-store sales at partner drive-ins (those in which the company owns a majority interest) were down 5.3 percent in the quarter.
For the year, systemwide same-store sales were down 4.3 percent versus an increase of 0.9 percent in the prior year. The decline in systemwide same-store sales reflected 3.9 percent lower same-store sales at franchise drive-ins and a 6.4 percent decline at partner drive-ins.
For the quarter, revenues were down 23 percent to $173.8 million from $226.9 million in the same period last year, reflecting primarily the impact of refranchising on the company's revenue mix as well as lower restaurant sales at partner drive-ins. For the year, revenues were down 11 percent to $718.7 million, compared to $804.7 million last year.
Net income for the quarter was $16.9 million, down 17 percent, compared to $20.2 million in the same quarter last year. For the year, net income was down 18 percent to $49.4 million, compared to $60.3 last year.
"The past quarter and year have been challenging for us," said Clifford Hudson, Sonic chairman and CEO, in a news release. "While sales performance is not where we would like it to be, we do feel positive about our ability to maintain traffic at a relatively flat level. Given the level of consumer confidence and the state of the restaurant industry, we think this is a notable achievement."
Last year at this time, Sonic responded to a changing market by implementing a number of new initiatives, including a new strategic pricing program and renewed emphasis on customer service, both of which have proven successful. Hudson said in the company's earnings call that the quarter's flat traffic level was better than the quick-service segment overall. Sales were impacted, however, by consumers' desire for value as they took advantage of half-priced beverages during Happy Hour and special priced offerings, such as the burger and shake for $2.99.
Stephen Vaughan, Sonic's chief financial officer, told analysts during the earnings call that the company expects to launch promotions on the upper end of its barbell pricing strategy as the economy improvrosed, with "less discounting as we move into the back half of the fiscal year."
"Clearly, the past year has been a period of rebuilding," Hudson said in a news release. "We are pleased with the concrete steps we have taken to strengthen our sales and operating performance over time, and move our brand forward in difficult times. We believe these steps will position us for improved sales and operational performance as consumer discretionary spending improves."
Development
Systemwide new drive-in openings totaled 41 compared with 58 in the fourth quarter of last year, reflecting primarily the company's recent decision to slow partner drive-in development in conjunction with its refranchising initiative. Franchisees opened 40 drive-ins vs. 45 drive-ins in the same period last year. The company also completed refranchising of 11 partner drive-ins during the quarter, bringing the total number of drive-ins refranchised during fiscal 2009 to 205.
The refranchising program, launched last year at this time, was originally intended as a multi-year program to increase the mix of franchise drive-ins from 80 percent to 86 percent - 88 percent of the chain. Because of the favorable response this program received among new and existing franchisees, the bulk of the planned refranchising was completed in just one year with the sale of those 205 partner drive-ins. The mix of franchised drive-ins is now at approximately 87 percent of the chain.
For the year, systemwide drive-in openings totaled 141, including 130 franchise drive-ins versus 169 in the year-earlier period, including 140 franchise drive-ins. Sonic expects to open approximately 115 to 125 new drive-ins during fiscal 2010.
Although Sonic experienced a slowdown in the pace of new franchise drive-in openings during the past year as the credit markets tightened, company management said it was pleased to see the company's overall development program remain at a solid level and well above the industry average.
Continuing the momentum seen in recent years with new market expansion, Sonic opened its first Sonic Drive-Ins in Maryland, Massachusetts, Montana, New York, and Wisconsin during fiscal 2009, helping to increase the breadth of the company's brand footprint to 42 states, up from 29 just four years ago. Importantly, these new drive-ins have received very warm receptions from avid customers, with great crowds that continue to drive record sales volumes and demonstrate the effectiveness of Sonic's national cable advertising strategy.
Franchising incentive
Scott McLain, Sonic president, said during the company's earning call that the credit market has impacted and will continue to affect the pace of store openings in the next fiscal year. To address the issue, the company has launched an an incentive program for franchisees to develop in under-penetrated markets and for those franchisees opening multiple stores during fiscal 2010. The incentive package for under-penetrated markets features free franchisees fees and multiple-year royalty relief for drive-ins built by March 2011.
For franchisees who build multiple stores during this next fiscal year, the program features a reduced franchisee fee on the second store opening and no franchisee fees beginning with the third drive-in. "While we anticipate that this program may have a dampening impact on franchise fees and royalty revenues in the short term, we believe that it will have a positive impact to our development and the brand over the longer term," McLain said.
An on-demand replay of Sonic's fourth quarter conference can be accessed at the company's Web site until Nov. 20, 2009.
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