Sonic Same-Store Sales Grow 2.0% for Third Fiscal Quarter

Company Outlines Refranchising Initiative

OKLAHOMA CITY - June 23, 2016 - (BUSINESS WIRE) - Sonic Corp. (NASDAQ:SONC), the nation's largest chain of drive-in restaurants, today announced results for its third fiscal quarter ended May 31, 2016.

Key highlights of the company's third quarter of fiscal year 2016 included:

  • Net income per diluted share decreased 18% to $0.31 compared with $0.38 in the same period prior year; adjusted net income per diluted share increased 19% to $0.43 compared with adjusted net income per diluted share of $0.36 in the prior-year period;
  • System same-store sales increased 2.0%, consisting of a 2.1% same-store sales increase at franchise drive-ins and an increase of 0.9% at company drive-ins;
  • Company drive-in margins contracted by 40 basis points;
  • Sixteen new franchise drive-ins opened;
  • The company announced its refranchising initiative to move toward an approximately 95%-franchised system by the end of fiscal year 2017; and
  • The company purchased 1.2 million outstanding shares.

"Although consumer trends slowed somewhat in April and May, our business performed well during the quarter overall, generating 2.0% same-store sales growth for the system and adjusted earnings per share growth of 19%," said Cliff Hudson, Sonic Corp. CEO. "Our system opened fifteen net new drive-ins during the quarter, a strong increase compared to the same period a year ago. The product pipeline remains robust with recent introductions of premium products like Frozen Lemonades and Limeades and Bacon Lovers Chili Cheese Coneys. While the consumer environment has weakened, Sonic remains focused on delivering one of the most differentiated customer experiences in the quick service industry.

"We are also pleased to have completed our debt transaction during the third quarter, allowing us to maintain a solid capital structure while returning excess cash to shareholders," continued Hudson. "As well, we are excited to announce our intention to move toward an approximately 95%-franchised system by the end of fiscal year 2017. We believe the divestiture will improve the capital efficiency of Sonic Corp. and allow our franchisees to optimize performance of the refranchised stores and expand our brand in the same markets."

Same-Store Sales

For the third quarter ended May 31, 2016, system same-store sales increased 2.0%, which was comprised of a 2.1% same-store sales increase at franchise drive-ins and an increase of 0.9% at company drive-ins.

Financial Overview

For the third fiscal quarter of 2016, the company's net income decreased to $15.4 million or $0.31 per diluted share compared with net income of $20.4 million or $0.38 per diluted share in the same period in the prior year. Excluding the items outlined below, net income and net income per diluted share increased 9% and 19%, respectively.

The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company's financial results in accordance with GAAP. The company believes that the presentation of this analysis 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2016

 

May 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net

 

Diluted

 

Net

 

Diluted

 

Net Income

 

Diluted EPS

 

Income

 

EPS

 

Income

 

EPS

 

$ Change

 

% Change

 

$ Change

 

% Change

Reported - GAAP

$

15,353

 

 

$

0.31

 

 

$

20,442

 

 

$

0.38

 

 

$

(5,089

)

 

(25

)

%

 

$

(0.07

)

 

(18

)

%

Loss from early extinguishment of debt

 

8,750

 

 

 

0.18

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax impact on debt extinguishment (1)

 

(3,027

)

 

 

(0.06

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal tax benefit of prior-year statutory tax deduction

 

-

 

 

 

-

 

 

 

(1,722

)

 

 

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

Retroactive effect of federal tax law change

 

-

 

 

 

-

 

 

 

612

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted - Non-GAAP

$

21,076

 

 

$

0.43

 

 

$

19,332

 

 

$

0.36

 

 

$

1,744

 

 

9

 

%

 

$

0.07

 

 

19

 

%

__________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Tax impact during the period at an effective tax rate of 34.60%

 

For the first nine months of fiscal year 2016, net income totaled $38.6 million or $0.77 per diluted share compared with net income of $38.2 million or $0.70 per diluted share for the same period in fiscal year 2015. Excluding the items outlined below, net income and net income per diluted share increased 17% and 27%, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

Nine months ended

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2016

 

May 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net

 

Diluted

 

Net

 

Diluted

 

Net Income

 

Diluted EPS

 

Income

 

EPS

 

Income

 

EPS

 

$ Change

 

% Change

 

$ Change

 

% Change

Reported - GAAP

$

38,630

 

 

$

0.77

 

 

$

38,189

 

 

$

0.70

 

 

$

441

 

1

%

 

$

0.07

 

10

%

Loss from early extinguishment of debt

 

8,750

 

 

 

0.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax impact on debt extinguishment (1)

 

(3,027

)

 

 

(0.06

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate

 

(1,875

)

 

 

(0.04

)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax impact on real estate sale (2)

 

664

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters

 

(585

)

 

 

(0.01

)

 

 

(666

)

 

 

(0.01

)

 

 

 

 

 

 

 

 

 

 

 

 

Federal tax benefit of prior-year statutory tax deduction

 

-

 

 

 

-

 

 

 

(1,722

)

 

 

(0.03

)

 

 

 

 

 

 

 

 

 

 

 

 

Retroactive effect of federal tax law change

 

-

 

 

 

-

 

 

 

612

 

 

 

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted - Non-GAAP

$

42,557

 

 

$

0.85

 

 

$

36,413

 

 

$

0.67

 

 

$

6,144

 

17

%

 

$

0.18

 

27

%

__________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Tax impact during the period at an effective tax rate of 34.60%

(2) Tax impact during the period at an adjusted effective tax rate of 35.43%

 

Fiscal Year 2016 Outlook

While the macroeconomic environment may impact results, the company is reaffirming its outlook for adjusted earnings per share growth for fiscal year 2016 of 20% to 25%. The outlook for fiscal 2016 anticipates the following elements:

  • 2% to 4% same-store sales growth for the system;
  • Royalty revenue growth from same-store sales improvements and new unit development;
  • 50 to 60 new franchise drive-in openings;
  • Drive-in-level margins flat-to-up 40 basis points, depending upon the degree of same-store sales growth at company drive-ins;
  • Selling, general and administrative expenses of approximately $83.0 million to $84.0 million reflecting increased investment in human resources and technology to support brand initiatives;
  • Depreciation and amortization expense of $45.0 million to $46.0 million as a result of capital investment in fiscal 2016;
  • Capital expenditures of $35 million to $40 million;
  • Free cash flow(1) of approximately $75 million to $80 million;
  • An income tax rate between 35.5% to 36.5%;
  • The planned repurchase of at least $126 million of stock across the fiscal year; and
  • An expected quarterly cash dividend of $0.11 per share.

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

Earnings Conference Call

The company will host a conference call to review financial results at 5:00 PM ET this evening. The conference call can be accessed live over the phone by dialing (888) 438-5525 or (719) 325-2428 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 746719. The replay will be available until Thursday, June 30, 2016. 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 drive-in restaurant chain serving more than 3 million customers every day. Nearly 90 percent of SONIC's 3,500 drive-in locations are owned and operated by local business men and women. Over more than 60 years, SONIC has delighted guests with signature menu items, more than 1.3 million drink combinations and friendly service by iconic Carhops. Since the 2009 launch of SONIC's Limeades for Learning philanthropic campaign in partnership with DonorsChoose.org, SONIC has donated more than $5 million to public school teachers nationwide to fund essential learning materials and innovative teaching resources to inspire creativity and learning in today's youth. To learn more about Sonic Corp. (NASDAQ/NM: SONC), please visit sonicdrivein.com and please visit or follow us on Facebook and Twitter. To learn more about SONIC's Limeades for Learning initiative, please visit Limeadesforlearning.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.

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.

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,

 

 

2016

 

2015

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Company Drive-In sales

 

$

115,143

 

 

$

118,369

 

 

$

314,339

 

 

$

310,816

 

Franchise Drive-Ins:

 

 

 

 

 

 

 

 

 

 

 

 

Franchise royalties and fees

 

 

46,687

 

 

 

43,704

 

 

 

122,656

 

 

 

114,375

 

Lease revenue

 

 

2,141

 

 

 

1,569

 

 

 

5,132

 

 

 

3,613

 

Other

 

 

1,268

 

 

 

1,106

 

 

 

2,075

 

 

 

2,019

 

Total revenues

 

 

165,239

 

 

 

164,748

 

 

 

444,202

 

 

 

430,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Company Drive-Ins:

 

 

 

 

 

 

 

 

 

 

 

 

Food and packaging

 

 

32,089

 

 

 

32,727

 

 

 

87,248

 

 

 

87,128

 

Payroll and other employee benefits

 

 

39,912

 

 

 

40,898

 

 

 

111,635

 

 

 

110,049

 

Other operating expenses, exclusive of

 

 

 

 

 

 

 

 

 

 

 

 

depreciation and amortization included below

 

 

22,442

 

 

 

22,955

 

 

 

65,450

 

 

 

65,484

 

Total cost of Company Drive-In sales

 

 

94,443

 

 

 

96,580

 

 

 

264,333

 

 

 

262,661

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

20,617

 

 

 

20,699

 

 

 

62,342

 

 

 

57,625

 

Depreciation and amortization

 

 

11,405

 

 

 

11,435

 

 

 

33,461

 

 

 

34,634

 

Other operating (income) expense, net

 

 

(106

)

 

 

(336

)

 

 

(3,071

)

 

 

4

 

Total costs and expenses

 

 

126,359

 

 

 

128,378

 

 

 

357,065

 

 

 

354,924

 

Income from operations

 

 

38,880

 

 

 

36,370

 

 

 

87,137

 

 

 

75,899

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

6,776

 

 

 

6,382

 

 

 

19,465

 

 

 

18,981

 

Interest income

 

 

(121

)

 

 

(91

)

 

 

(326

)

 

 

(290

)

Debt extinguishment costs

 

 

8,750

 

 

 

-

 

 

 

8,750

 

 

 

-

 

Net interest expense

 

 

15,405

 

 

 

6,291

 

 

 

27,889

 

 

 

18,691

 

Income before income taxes

 

 

23,475

 

 

 

30,079

 

 

 

59,248

 

 

 

57,208

 

Provision for income taxes

 

 

8,122

 

 

 

9,637

 

 

 

20,618

 

 

 

19,019

 

Net income

 

$

15,353

 

 

$

20,442

 

 

$

38,630

 

 

$

38,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.32

 

 

$

0.39

 

 

$

0.79

 

 

$

0.72

 

Diluted income per share

 

$

0.31

 

 

$

0.38

 

 

$

0.77

 

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares

 

 

48,377

 

 

 

52,022

 

 

 

49,192

 

 

 

52,851

 

Weighted average diluted shares

 

 

49,326

 

 

 

53,391

 

 

 

50,213

 

 

 

54,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SONIC CORP.

Unaudited Supplemental Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

 

May 31,

 

May 31,

 

 

 

 

2016

 

2015

 

2016

 

2015

Drive-Ins in Operation

 

 

 

 

 

 

 

 

 

 

Company:

 

 

 

 

 

 

 

 

 

 

Total at beginning of period

 

 

 

375

 

 

392

 

 

387

 

 

391

 

Opened

 

 

 

-

 

 

2

 

 

-

 

 

3

 

Sold to franchisees

 

 

 

-

 

 

-

 

 

(9

)

 

1

 

Closed (net of re-openings)

 

 

 

-

 

 

-

 

 

(3

)

 

(1

)

Total at end of period

 

 

 

375

 

 

394

 

 

375

 

 

394

 

Franchise:

 

 

 

 

 

 

 

 

 

 

Total at beginning of period

 

 

 

3,153

 

 

3,116

 

 

3,139

 

 

3,127

 

Opened

 

 

 

16

 

 

4

 

 

34

 

 

20

 

Acquired from the company

 

 

 

-

 

 

-

 

 

9

 

 

(1

)

Closed (net of re-openings)

 

 

 

(1

)

 

(2

)

 

(14

)

 

(28

)

Total at end of period

 

 

 

3,168

 

 

3,118

 

 

3,168

 

 

3,118

 

System-wide:

 

 

 

 

 

 

 

 

 

 

Total at beginning of period

 

 

 

3,528

 

 

3,508

 

 

3,526

 

 

3,518

 

Opened

 

 

 

16

 

 

6

 

 

34

 

 

23

 

Closed (net of re-openings)

 

 

 

(1

)

 

(2

)

 

(17

)

 

(29

)

Total at end of period

 

 

 

3,543

 

 

3,512

 

 

3,543

 

 

3,512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

 

May 31,

 

May 31,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

($ in thousands)

 

($ in thousands)

Sales Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company Drive-Ins:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total sales

 

 

$

115,144

 

 

$

118,369

 

 

$

314,339

 

 

$

310,816

 

Average drive-in sales

 

 

 

307

 

 

 

301

 

 

 

829

 

 

 

797

 

Change in same-store sales

 

 

 

0.9

%

 

 

5.5

%

 

 

3.6

%

 

 

8.0

%

Franchised Drive-Ins:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total sales

 

 

$

1,107,725

 

 

$

1,065,109

 

 

$

2,963,155

 

 

$

2,803,391

 

Average drive-in sales

 

 

 

352

 

 

 

346

 

 

 

945

 

 

 

906

 

Change in same-store sales

 

 

 

2.1

%

 

 

6.1

%

 

 

4.5

%

 

 

8.3

%

System-wide:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in total sales

 

 

 

3.3

%

 

 

7.0

%

 

 

5.3

%

 

 

9.4

%

Average drive-in sales

 

 

$

347

 

 

$

341

 

 

$

933

 

 

$

894

 

Change in same-store sales

 

 

 

2.0

%

 

 

6.1

%

 

 

4.4

%

 

 

8.3

%

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,

 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

(In thousands)

 

(In thousands)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company Drive-In sales

 

 

 

$

115,143

 

$

118,369

 

$

314,339

 

$

310,816

Franchise Drive-Ins:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise royalties

 

 

 

 

46,296

 

 

43,541

 

 

121,565

 

 

112,553

Franchise fees

 

 

 

 

391

 

 

163

 

 

1,091

 

 

1,822

Lease revenue

 

 

 

 

2,141

 

 

1,569

 

 

5,132

 

 

3,613

Other

 

 

 

 

1,268

 

 

1,106

 

 

2,075

 

 

2,019

Total revenues

 

 

 

$

165,239

 

$

164,748

 

$

444,202

 

$

430,823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

 

May 31,

 

May 31,

 

 

2016

 

2015

 

2016

 

2015

Margin Analysis (percentage of Company Drive-In sales)

 

 

 

 

 

 

 

 

 

 

 

 

Company Drive-Ins:

 

 

 

 

 

 

 

 

 

 

 

 

Food and packaging

 

27.9

%

 

27.6

%

 

27.8

%

 

28.0

%

Payroll and employee benefits

 

34.7

 

 

34.6

 

 

35.5

 

 

35.4

 

Other operating expenses

 

19.4

 

 

19.4

 

 

20.8

 

 

21.1

 

Cost of Company Drive-In sales

 

82.0

%

 

81.6

%

 

84.1

%

 

84.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31,

 

August 31,

 

 

 

 

2016

 

2015

 

 

 

 

(In thousands)

Selected Balance Sheet Data

 

 

 

 

Cash and cash equivalents

 

 

 

$

99,362

 

$

27,191

Current assets

 

 

 

 

171,565

 

 

85,438

Property, equipment and capital leases, net

 

 

 

 

391,629

 

 

421,406

Total assets

 

 

 

$

679,666

 

$

620,024

 

 

 

 

 

 

 

 

 

Current liabilities, including capital lease obligations and

 

 

 

 

 

 

 

 

long-term debt due within one year

 

 

 

$

72,900

 

$

87,821

Obligations under capital leases due after one year

 

 

 

 

18,545

 

 

20,763

Long-term debt due after one year

 

 

 

 

577,521

 

 

428,238

Total liabilities

 

 

 

 

738,126

 

 

602,591

Stockholders' equity (deficit)

 

 

 

$

(58,460)

 

$

17,433 

SOURCE Sonic Corp.

Contact:

Corey Horsch
Sonic Corp.
405-225-4800
Vice President of Investor Relations and Treasurer

###

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