Sonic Records 22nd Consecutive Year of Positive Same-Store Sales; Tough Environment Slows Earnings Growth for 2008; Refranchising and New Market Development to Spur Growth in 2009
OKLAHOMA CITY, (BUSINESS WIRE) -- Sonic Corp. (NASDAQ: SONC), the nation's largest chain of drive-in restaurants, today announced preliminary same-store sales for the fourth quarter and fiscal year ended August 31, 2008. While franchise drive-in same-store sales were positive for the fourth quarter, same-store sales for partner drive-ins (drive-ins in which the company owns a majority interest) continued to be significantly negative, resulting in slightly negative system-wide same-store sales. For the fiscal year ended August 31, 2008, estimated system-wide same-store sales were positive, with estimated franchise drive-in same-store sales slightly below the targeted range of 2% to 4%, and partner drive-in sales three to four percentage points below franchise drive-in performance. This marks 22 consecutive years of positive system-wide same-store sales growth for Sonic -- a notable achievement in this tough environment.
Increased commodity and labor costs, combined with the deleveraging impact of lower sales on fixed costs during the third and fourth quarters, resulted in unfavorable restaurant-level margins for fiscal 2008. Investments by franchisees in new and existing development remained solid throughout the year, with the opening of 140 new drive-ins, the relocation or rebuilding of 65 existing drive-ins, and the completion of 800 retrofits for the fiscal year. When compared with fiscal 2007, these factors combined are expected to result in slightly positive growth in earnings per share for fiscal 2008.
"Despite the strength of our business in core and new markets, we face several challenges as we transition from a regional to a national brand, particularly in developing markets," commented Sonic's Chairman and Chief Executive Officer, Cliff Hudson. "In addition, the performance of our partner drive-ins has lagged well behind that of our franchisees. As a result, we plan to refine our strategy by refranchising underperforming partner drive-ins and slowing the growth of partner drive-ins. Reducing the number of partner drive-ins we operate will allow us to improve sales and operations for remaining partner drive-ins while we continue to emphasize new store development, promotions and other initiatives to drive sales for the entire system."
This refranchising initiative is anticipated to occur over the next four years and will target underperforming partner drive-ins in core and developing markets. Currently, partner drive-ins comprise approximately 20% of the entire system. Over time, accelerated expansion by franchisees, combined with the refranchising and slower growth of partner drive-ins, is anticipated to reduce this number to 12% to 14% of the system. Increased development of new franchise drive-ins is expected to continue with particular emphasis on new markets. Further, implementation of the franchise retrofit program will continue to be an important initiative for the Sonic system, with 600 to 700 franchise retrofits and 50 to 60 rebuilds or relocations expected in fiscal 2009. In addition to refranchising efforts, other initiatives, such as increases in media expenditures, new product news and improved sales performance of partner drive-ins, are expected to have a positive impact on earnings in fiscal 2009.
Growth in franchising income, coupled with gains from refranchising efforts, is expected to result in an increase in earnings per diluted share in the range of 12% to 14% for fiscal 2009 versus fiscal 2008 earnings per diluted share. These expectations are based on the following assumptions:
Approximately 100 partner drive-ins and 336 franchise drive-ins across the Gulf Coast area were closed as a result of Hurricanes Gustav and Ike. Partners, franchisees and company employees have been working diligently to restore operations with limited or full menus. As of September 23, however, 23 partner drive-ins and 50 franchise drive-ins remained closed. For the first quarter of fiscal 2009, which ends on November 30, 2008, store closures are anticipated to negatively affect revenues by approximately 1%. This number may vary somewhat as drive-ins that re-open tend to temporarily experience sales levels well above normal.
Sonic expects to report its fourth quarter and fiscal year end results after the close of market on October 16, 2008. The company will provide an online web simulcast of its earnings release conference call on Friday, October 17, 2008, beginning at 10:00 a.m. ET. During that call, management will comment on Sonic's financial and operational results for the fourth quarter and fiscal year. It will also include a review of the company's earnings outlook for fiscal 2009. An online replay of the conference call will be available approximately two hours following the conclusion of the live broadcast and will continue through November 17, 2008. A link to these events may be found at the investor section of the company's website, www.sonicdrivein.com.
Sonic, America's Drive-In, originally started as a hamburger and root beer stand in 1953 in Shawnee, Okla., called Top Hat Drive-In, and then changed its name to Sonic in 1959. The first drive-in to adopt the Sonic name is still serving customers in Stillwater, Okla. Sonic has more than 3,400 drive-ins coast to coast, where more than a million customers eat every day. For more information about Sonic Corp. and its subsidiaries, visit Sonic at www.sonicdrivein.com.
This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those expressed in, or underlying, these forward-looking statements are detailed in the company's annual and quarterly report filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.
SOURCE: Sonic Corp.