Sonic Reports First Quarter 2010 Results

Sonic Reports First Quarter 2010 Results

Company to Present at Upcoming Cowen Conference

OKLAHOMA CITY--(BUSINESS WIRE)--Sonic Corp. (NASDAQ: SONC), the nation's largest chain of drive-in restaurants, today announced results for the first fiscal quarter ended November 30, 2009. Key elements of the company's first quarter report included:

  • Net income per diluted share totaled $0.10 versus $0.12 in the year-earlier quarter;
  • System-wide same-store sales declined 6.5% for the first quarter; same-store sales at partner drive-ins (those in which the company owns a majority interest) declined 9.1% in the quarter; and
  • System-wide new drive-in openings totaled 25 for the quarter compared with 39 in the first quarter last year; franchise drive-in openings totaled 22 versus 34 in the same period last year.

"Our results for the first quarter of fiscal 2010 continued to reflect a very challenging operating environment," said Clifford Hudson, Chairman and Chief Executive Officer. "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.

"Clearly, consumers are focused on price, and in the immediate term we will continue to respond to these needs with value-oriented offerings," Hudson added. "At the same time, we will work in 2010 to define value in a uniquely Sonic way by improving our overall value equation for consumers, which emphasizes not only price but also high-quality food and a distinctive customer service experience. This initiative to elevate our brand will touch all aspects of the Sonic experience and be sustained on a long-term basis."

Income Statement Overview

For the first quarter ended November 30, 2009, revenues declined 26% to $136.5 million from $184.1 million in the year-earlier period, 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 $6.2 million or $0.10 per diluted share, declining 13% and 17%, respectively, from $7.1 million or $0.12 per diluted share in the same quarter last year.

Same-Store Sales

For the first fiscal quarter ended November 30, 2009, system-wide same-store sales declined 6.5% versus a decrease of 3.6% for the same quarter last year. The decline in system-wide same-store sales was composed of 6.0% lower same-store sales at franchise drive-ins and a 9.1% decline at partner drive-ins.


System-wide drive-in openings totaled 25 in the first quarter, including 22 franchise 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.

Concluding Comments

"While conditions remain challenging for Sonic and the industry, we believe that, over time, product and service differentiation for value and premium offerings will help set Sonic apart from the majority of the quick-service industry," Hudson said. "In 2010, we will continue to highlight our Everyday Value Menu as needed to deliver products at lower price points. But we also will focus on providing a strong line-up of high-quality, distinctive food with a range of signature drinks, desserts and premium selections. We believe these offerings will resonate with customers of all kinds and strengthen the Sonic brand to take advantage of improved consumer spending as the recession fades."

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% to 6% 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

Sonic also announced that it will participate in Cowen and Company's 8th Annual Consumer Conference, which takes place in New York, January 11-12. Sonic's presentation is scheduled at 1:30 p.m. ET on Monday, January 11, 2010, 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 website. The event will be available for replay for a period of 30 days using the same link.

About Sonic

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 3,500 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

A listen-only simulcast of Sonic's first quarter conference call will begin today at approximately 4:00 p.m. Central Time and can be accessed at the company's web site. An on-demand replay, using the same link, will be available at approximately 7:00 p.m. Central Time today and will continue until February 5, 2010.

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.

The tables that follow provide information regarding the number of partner drive-ins, franchise drive-ins and system drive-ins in operation as of the end of the periods indicated. In addition, these tables provide information regarding franchise sales, system growth in sales, and both franchise and system average drive-in sales and change in same-store sales. System information includes both partner and franchise drive-in information, which we believe is useful in analyzing the growth of our brand. While we do not record franchise drive-in sales as revenues, we believe this information is important in understanding our financial performance since we calculate and record franchise royalties based on a percentage of franchise sales. This information also is indicative of the financial health of our franchisees.

Unaudited Supplemental Information
(In thousands, except per share amounts)
First Quarter Ended
November 30,
2009 2008
Income Statement Data
Partner Drive-In sales $103,584 $153,047
Franchise Drive-Ins:
Franchise royalties 29,450 29,055
Franchise fees 692 1,171
Other 2,773 793
136,499 184,066

Costs and expenses:
Partner Drive-Ins:
Food and packaging 28,671 42,424
Payroll and other employee benefits 34,325 49,863
Other operating expenses 24,966 34,523
87,962 126,810
Selling, general and administrative 16,132 16,162
Depreciation and amortization 10,666 13,019
Provision for impairment of long-lived assets -- 414
114,760 156,405
Income from operations 21,739 27,661
Interest expense 9,804 12,053
Interest income (284) (387)
Net interest expense 9,520 11,666
Income before income taxes 12,219 15,995
Provision for income taxes 3,877 5,039
Net income - including noncontrolling interest 8,342 10,956
Net income - noncontrolling interest 2,112 3,825
Net income - attributable to Sonic Corp. $6,230 $7,131
Net income per share:
Basic $0.10 $0.12
Diluted $0.10 $0.12
Weighted average shares used in calculation:
Basic 61,086 60,459
Diluted 61,415 61,210
In accordance with Statement of Financial Accounting Standards No.
160, "Noncontrolling Interests in Consolidated Financial
Statements - an amendment of ARB No. 51," net income (after tax)
attributable to noncontrolling interest, previously referred to as
Minority Interest in Earnings of Partner Drive-Ins and reported on
a pre-tax basis under Costs and Expenses-Partner Drive-Ins, is now
reported separately from the net income of the controlling
interest also on a pre-tax basis. The change in presentation has
no effect on the company's reported net income.
Unaudited Supplemental Information
First Quarter Ended
November 30,
2009 2008
Drive-Ins in operation:
Total at beginning of period 475 684
Opened 3 5
Acquired from (sold to) franchisees -- (8)
Closed (2) (1)
Total at end of period 476 680
Total at beginning of period 3,069 2,791
Opened 22 34
Acquired from (sold to) company -- 8
Closed (net of reopening) (7) (8)
Total at end of period 3,084 2,825
Total at beginning of period 3,544 3,475
Opened 25 39
Closed (net of reopening) (9) (9)
Total at end of period 3,560 3,505
Note: Partner Drive-Ins are those Sonic Drive-Ins in which the
company owns a majority interest, typically at least 60%. Most
supervisors and managers of Partner Drive-Ins own a minority
equity interest.
Unaudited Supplemental Information
($ in thousands)
First Quarter Ended
November 30,
2009 2008
Sales Analysis
Partner Drive-Ins:
Total sales $103,584 $153,047
Average drive-in sales 218 226
Change in same-store sales -9.1% -6.6%
Franchise Drive-Ins:
Total sales $786,344 $757,443
Average drive-in sales 255 270
Change in same-store sales -6.0% -2.9%
Change in total sales -2.3% 1.2%
Average drive-in sales $250 $262
Change in same-store sales -6.5% -3.6%
Note: Change in same-store sales based on drive-ins open for at
least 15 months.
Unaudited Supplemental Information
($ in thousands)
First Quarter Ended
November 30,
2009 2008
Margin Analysis (percentage of Partner Drive-In sales)
Partner Drive-Ins:
Food and packaging 27.7 % 27.7 %
Payroll and employee benefits 33.1 % 32.6 %
Other operating expenses 24.1 % 22.6 %
Cost of sales, as reported 84.9 % 82.9 %
Noncontrolling interest 2.0 % 2.5 %
Pro forma cost of sales, including noncontrolling interest 86.9 % 85.4 %
November 30, August 31,
2009 2009
(In thousands)
Balance Sheet Data
Total assets $832,132 $849,041
Current assets 192,696 202,132
Current liabilities 111,151 117,319
Obligations under capital leases, long-term debt, and other 715,769 734,074
non-current liabilities
Stockholders' equity (deficit) 5,212 (2,352)

SOURCE: Sonic Corp.


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