Sonic Reports 15% Earnings Per Share Growth in Third Fiscal Quarter

System-wide Same-Store Sales Increased 5.3%

OKLAHOMA CITY - June 23, 2014 - (BUSINESS WIRE) - Sonic Corp. (NASDAQ:SONC), the nation's largest chain of drive-in restaurants, today announced results for the third fiscal quarter ended May 31, 2014.

Key highlights of the company's third fiscal quarter included:

  • Net income per diluted share was $0.30 compared with net income per diluted share of $0.26 in the third fiscal quarter of 2013;
  • System-wide same-store sales increased 5.3%;
  • Company drive-in margins improved by 40 basis points;
  • Ten new drive-ins were opened; and
  • The company repurchased approximately $11 million of stock bringing total repurchases for the year to $69.4 million, representing more than 6% of its outstanding shares as of the beginning of the fiscal year.

"Same-store sales for the quarter were especially strong, driven by our innovative product news, layered day-part promotional strategy and increased media efficiency. The multiple initiatives we have in place to increase sales, profits and new drive-in development are working together nicely to optimize shareholder value," said Clifford Hudson, Sonic Corp. CEO. "We have implemented our new point-of-sale system in all of our company drive-ins and expect to have the new digital point-of-purchase technology implemented in all of our company drive-ins by the end of summer. Our multi-year implementation of these systems in franchisee-owned drive-ins will begin this fall. Going forward, these technology initiatives to improve operational efficiency and enhance customer engagement will be an important contributor to increased sales and profits for our entire system.

Hudson continued, "We are confident our multi-layered growth strategy, which incorporates same-store sales growth, leverage from higher sales, deployment of free cash flow, increasing royalty revenues and new drive-in development, will continue to result in double-digit earnings per share growth in the near and long term."

Same-Store Sales

For the third fiscal quarter ended May 31, 2014, system-wide same-store sales increased 5.3%, which was comprised of a 5.3% same-store sales increase at franchise drive-ins and an increase of 5.2% at company drive-ins.

Financial Overview

For the third fiscal quarter of 2014, the company's net income increased to $16.8 million or $0.30 per diluted share, compared with net income of $14.8 million or $0.26 per diluted share in the same period in the prior year, resulting in earnings per share growth of 15%.

For the first nine months of fiscal 2014, net income totaled $29.1 million or $0.51 per diluted share compared with net income of $24.5 million or $0.43 per diluted share for the same period in fiscal 2013. Excluding the items outlined below, net income and net income per diluted share would have both increased by 19%.

The following non-GAAP adjustments are intended to supplement the presentation of the company's financial results in accordance with GAAP. The company believes that the presentation of these items provides useful information to investors and management regarding the underlying business trends and the performance of the company's ongoing operations and is helpful for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the financial results of the company and predicting future performance.

      Nine months ended   Nine months ended                    
      May 31, 2014   May 31, 2013                    
      Net   Diluted   Net   Diluted     Net Income   Diluted EPS  
      Income   EPS   Income   EPS     $  Change   %  Change   $  Change   %  Change  
Reported - GAAP     $ 29,091     $ 0.51     $ 24,503     $ 0.43       $ 4,588   19 %   $ 0.08   19 %  
Tax benefit from the IRS' acceptance of a federal tax method change       (484 )     (0.01 )     -       -                      
After-tax loss from early extinguishment of debt       -       -       315       0.01                      
Retroactive tax benefit of Work Opportunity Tax Credit ("WOTC") and resolution of tax matters       -       -       (743 )     (0.02 )                    
Adjusted - Non-GAAP     $ 28,607     $ 0.50     $ 24,075     $ 0.42       $ 4,532   19 %   $ 0.08   19 %  
                                                               

Development

During the third fiscal quarter, nine new franchise drive-ins and one new company drive-in were opened versus five new franchise drive-in openings during the third fiscal quarter of 2013. Fiscal year-to-date, 22 new franchise drive-ins have opened versus nine drive-ins in the first nine months of fiscal 2013.

Share Repurchase Update

The company continued to use its existing cash and free cash flow1 to repurchase shares. In the third quarter the company repurchased $11 million of stock and fiscal year-to-date has purchased $69.4 million at an average price of $19.32 per share representing more than 6% of its outstanding shares.

Fiscal Year 2014 Outlook

The company expects its initiatives to drive 14% to 15% earnings per share growth in fiscal 2014 as compared to the adjusted non-GAAP earnings per share for fiscal 2013. The macroeconomic environment and its impact on consumer confidence, in addition to the pacing of capital investments, may impact results. The outlook for the fourth fiscal quarter of 2014 anticipates the following elements:

  • Positive same-store sales in the low single digit range for the system;
  • 15 to 20 new drive-in openings and fewer drive-in closings than in fiscal 2013;
  • Company drive-in margins improving between 75 to 125 basis points, depending upon the degree of same-store sales growth at company drive-ins and the level of commodity cost inflation over the summer months;
  • Selling, general and administrative expense of $17.5 million to $18.5 million;
  • Depreciation and amortization expense of $11 million to $11.5 million;
  • Net interest expense of approximately $6 million; and
  • An income tax rate between 36.5% to 37.5%.

In addition, the outlook for fiscal 2014 anticipates the following elements:

  • Capital expenditures of $75 million to $80 million for the fiscal year, which reflects implementation of a new point-of-sale system and digital point-of-purchase technology in company drive-ins;
  • Free cash flow of approximately $10 million to $15 million for the fiscal year; and
  • The repurchase of $80 million of stock across the fiscal year utilizing existing cash on hand and free cash flow.

Earnings Conference Call

The company will host a conference call and online web simulcast this afternoon beginning at 5:00 p.m. ET. The conference call can be accessed live by dialing (888) 228-5293 or (913) 312-1447 for international callers. A replay will be available one hour after the call and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 6253335. The replay will be available until Monday, June 30, 2014. An online replay of the conference call will be available approximately two hours after the conclusion of the live broadcast. A link to this event may be found on the company's investor relations website at http://ir.sonicdrivein.com/.

About Sonic

SONIC®, America's Drive-In®, is the nation's largest chain of drive-in restaurants with more than 3,500 drive-ins serving approximately 3 million customers every day. Over the past 60 years, SONIC has delighted guests with signature menu items, more than 1 million drink combinations, friendly service by iconic Carhops and ongoing support of education through its award-winning Limeades for Learning® program. SONIC received top honors as America's "#1 burger quick service restaurant," ranking in the top 5 of all brands in the 2014 Temkin Experience Ratings report. For more information about Sonic Corp. (NASDAQ/NM: SONC) and its subsidiaries, please visit sonicdrivein.com. Customers can also connect with SONIC atfacebook.com/sonicdrivein or on Twitter @sonicdrive_in.

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 company 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 company 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.

1 Free cash flow is defined as net income plus depreciation, amortization and stock compensation expenses, less capital expenditures.

SONC-F

                     
                     
SONIC CORP.  
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME  
(In thousands, except per share amounts)  
   
      Three months ended   Nine months ended  
      May 31,   May 31,  
      2014      2013      2014      2013  
Revenues:                    
Company Drive-In sales     $ 111,014     $ 108,445     $ 286,361     $ 285,607    
Franchise Drive-Ins:                    
Franchise royalties and fees       38,795       35,833       96,598       91,749    
Lease revenue       1,081       1,089       2,682       3,524    
Other       1,297       1,267       2,939       2,903    
Total revenues       152,187       146,634       388,580       383,783    
                     
Costs and expenses:                    
Company Drive-Ins:                    
Food and packaging       32,175       30,776       81,454       80,954    
Payroll and other employee benefits       37,737       37,924       101,108       102,837    
Other operating expenses, exclusive of                    
depreciation and amortization included below       21,805       21,356       62,049       62,143    
Total cost of Company Drive-In sales       91,717       90,056       244,611       245,934    
                     
Selling, general and administrative       17,639       16,943       50,530       48,540    
Depreciation and amortization       11,022       9,783       31,087       30,447    
Other operating (income) expense, net       128       (142 )     (37 )     (353 )  
Total costs and expenses       120,506       116,640       326,191       324,568    
Income from operations       31,681       29,994       62,389       59,215    
                     
Interest expense       6,328       7,170       19,095       22,293    
Interest income       (112 )     (153 )     (373 )     (462 )  
Loss from early extinguishment of debt       -       -       -       492    
Net interest expense       6,216       7,017       18,722       22,323    
Income before income taxes       25,465       22,977       43,667       36,892    
Provision for income taxes       8,689       8,184       14,576       12,389    
Net income     $ 16,776     $ 14,793     $ 29,091     $ 24,503    
                     
Basic income per share     $ 0.31     $ 0.26     $ 0.52     $ 0.43    
Diluted income per share     $ 0.30     $ 0.26     $ 0.51     $ 0.43    
                     
Weighted average basic shares       54,382       56,005       55,544       56,492    
Weighted average diluted shares       55,753       56,845       57,020       57,118    

 

                       
                       
SONIC CORP.  
Unaudited Supplemental Information  
                       
      Three months ended     Nine months ended  
      May 31,     May 31,  
      2014      2013        2014      2013  
Drive-Ins in Operation                      
Company:                      
Total at beginning of period     388     405       396     409    
Opened     1     1       1     1    
Acquired from (sold to) franchisees     -     1       (7 )   1    
Closed (net of re-openings)     -     -       (1 )   (4 )  
Total at end of period     389     407       389     407    
Franchise:                      
Total at beginning of period     3,119     3,121       3,126     3,147    
Opened     9     5       22     9    
Acquired from (sold to) the company     -     (1 )     7     (1 )  
Closed (net of re-openings)     (7 )   (6 )     (34 )   (36 )  
Total at end of period     3,121     3,119       3,121     3,119    
System-wide:                      
Total at beginning of period     3,507     3,526       3,522     3,556    
Opened     10     6       23     10    
Closed (net of re-openings)     (7 )   (6 )     (35 )   (40 )  
Total at end of period     3,510     3,526       3,510     3,526    

 

                         
        Three months ended     Nine months ended  
        May 31,     May 31,  
        2014   2013     2014   2013  
        ($ in thousands)     ($ in thousands)  
Sales Analysis                           
Company Drive-Ins:                           
Total sales       $ 111,014     $ 108,445       $ 286,361        $ 285,607    
Average drive-in sales         286       267         738       704    
Change in same-store sales         5.2 %     (1.1 )%       3.0 %     1.5 %  
Franchised Drive-Ins:                        
Total sales       $ 995,259     $ 937,092       $ 2,560,933     $ 2,469,033    
Average drive-in sales         324       306         828       798    
Change in same-store sales         5.3 %     0.2 %       3.2 %     0.9 %  
System-wide:                        
Change in total sales         5.8 %     0.1 %       3.4 %     1.0 %  
Average drive-in sales       $ 320     $ 301       $ 819     $ 787    
Change in same-store sales         5.3 %     0.1 %       3.1 %     0.9 %  

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.

                                 
                                 
SONIC CORP.
Unaudited Supplemental Information
                                 
          Three months ended     Nine months ended
          May 31,     May 31,
          2014   2013     2014   2013
Revenues (in thousands)                                
Company Drive-In sales         $ 111,014      $ 108,445        $ 286,361      $ 285,607
Franchise Drive-Ins:                                
Franchise royalties           38,519     35,756       95,807     91,491
Franchise fees           276     77       791     258
Lease revenue           1,081     1,089       2,682     3,524
Other           1,297     1,267       2,939     2,903
Total revenues         $ 152,187   $ 146,634     $ 388,580   $ 383,783

 

                             
      Three months ended   Nine months ended  
      May 31,   May 31,  
      2014   2013   2014   2013  
Margin Analysis (percentage of Company Drive-In sales)                            
Company Drive-Ins:                            
Food and packaging     29.0 %      28.4 %      28.4 %      28.3 %  
Payroll and employee benefits     34.0     35.0     35.3     36.0    
Other operating expenses     19.6     19.6     21.7     21.8    
Cost of Company Drive-In sales     82.6 %   83.0 %   85.4 %   86.1 %  

 

               
      May 31,      August 31,
      2014   2013
Selected Balance Sheet Data     (In thousands)
Cash and cash equivalents     $ 34,840   $ 77,896
Current assets       99,135     140,722
Property, equipment and capital leases, net       428,432     399,661
Total assets     $ 641,359   $ 660,794
               

Current liabilities, including capital lease obligations and long-term debt due within one year

    $ 71,937   $ 72,930
Obligations under capital leases due after one year       23,676     22,458
Long-term debt due after one year       430,037     437,380
Total liabilities       583,822     583,330
Stockholders' equity     $ 57,537   $ 77,464

SOURCE Sonic Corp.

Contact:

Claudia San Pedro
Sonic Corp.
405-225-4846
Vice President of Investor Relations,
Communications and Treasurer

News Provided by Acquire Media

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