Sonic Reports 3.2% Increase In System-Wide Same-Store Sales

Accelerating Development and Retrofit Programs, Other Initiatives Continue to Build Momentum for Fiscal 2008 Sales and Earnings

Sonic Corp. (NASDAQ: SONC) , the nation's largest chain of drive-in restaurants, today announced results for the second quarter ended February 29, 2008. Highlights of the company's second quarter performance included:

Net income per diluted share of $0.15 versus $0.09 in the prior year, excluding special items outlined below, this represents a 15% increase in earnings per share,

• 3.2% increase in system-wide same-store sales,

• The opening of 34 new drive-ins during the second quarter, the relocation or rebuild of 16 existing drive-ins, and the completion of 239 retrofits,

• Improved operating margins including a 57-basis-point improvement in restaurant-level margins, and

• The benefit of continued accretion from the company's recapitalization and ongoing share repurchases.

"Our multi-layered growth strategy with elements focused on driving revenues, increasing profitability and using capital efficiently, continues to enhance shareholder value," said Clifford Hudson, Chairman and Chief Executive Officer. "Successful sales-driving initiatives, such as the retrofit, Happy Hour and new product news were strong contributors to system-wide same-store sales growth of 3.2%, with a healthy increase in traffic. These initiatives, along with strong development activity and the increasingly accretive effect of our share repurchases, remain key drivers that position us well for continued strong earnings growth.

"Going forward, we expect the positive impact of Happy Hour, combined with the launch of our new line of coffee products this month, will further set Sonic apart as the Ultimate Drink Stop(R)," Hudson added. "In addition, our increased investment in media, projected to reach $190 million in fiscal 2008 - with over $95 million dedicated to system-wide advertising - will drive a strong brand message to increase sales in both existing and new markets. We'll continue to enhance these sales-driving strategies, layering opportunities to grow sales with new products such as our Java Chillers and monthly offers such as Cinnasnacks(TM), along with other new products, to emphasize the wide variety of offerings during non-traditional day parts."

Income Statement Overview

Net income per diluted share for the second quarter of fiscal 2008 increased 15% to $0.15 from $0.13 in the year-earlier period, excluding special items outlined below. The non-GAAP adjustments outlined below 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.

                           Quarter Ended     Quarter Ended   Year Over Year

                        February 29, 2008 February 28, 2007    % Change

                           Net   Diluted     Net   Diluted   Net   Diluted

                          Income   EPS      Income   EPS    Income   EPS



  Reported - GAAP        $9,253   $0.15    $6,225   $0.09    49%     67%

    After-tax impact of:

    Debt extinguishment

     charges                 --      --     3,421    0.05

    Reinstatement of tax

     credit                  --      --      (652)  (0.01)

  Adjusted - Non-GAAP    $9,253   $0.15    $8,994   $0.13     3%     15%







                         Six Months Ended  Six Months Ended   Year Over Year

                        February 29, 2008  February 28, 2007    % Change

                           Net   Diluted     Net   Diluted    Net   Diluted

                          Income   EPS      Income   EPS     Income   EPS



  Reported - GAAP       $22,836   $0.36   $21,511   $0.29     6%     24%

    After-tax impact

     of:

    Debt extinguishment

     charges                 --      --     3,421    0.05

    Reinstatement of

     tax  credit             --      --      (652)  (0.01)

    Rounding                 --      --        --   (0.01)

  Adjusted - Non-GAAP   $22,836   $0.36   $24,280   $0.32    -6%     13%

Debt extinguishment charges are related to the company's tender offer and associated financing activities during fiscal year 2007. These charges and the credits related to tax matters were non-recurring items. Excluding the special items outlined above, net income per diluted share for the first six months of fiscal 2008 grew 13% to $0.36 from $0.32.

The company's higher earnings per share for the second quarter and first half of fiscal 2008 reflect increased sales, improved drive-in level margins and the positive impact of Sonic's capital management program, under which the company has repurchased approximately 32% of its outstanding stock since the beginning of fiscal 2007, with total expenditures of over $610 million. These share repurchases are expected to have an increasingly accretive impact over the next several quarters. As of February 29, 2008, Sonic had remaining authorization for approximately $10.4 million in share repurchases, which expires August 31, 2008.

Revenues for the second fiscal quarter rose 8% to $174.6 million from $161.5 million in the year-earlier period. This increase was attributable to solid same-store sales gains, new unit growth and higher franchising income derived from the company's unique ascending royalty rate and the early conversion of older license agreements, which affected approximately 790 drive-ins beginning in April 2007. For the first six months of the fiscal year, revenues increased 8% to $364.8 million from $336.2 million in the same period last year.

Same-Store Sales

Sonic's system-wide same-store sales increased 3.2% in the second quarter of fiscal 2008. Same-store sales for the second quarter reflected a 3.4% increase at franchise drive-ins and a 2.3% increase at partner drive-ins (partner drive-ins are drive-ins in which the company owns a majority interest). For the first six months of fiscal 2008, system-wide same-store sales rose 2.6%, representing a 2.6% increase at franchise drive-ins and a 2.8% increase at partner drive-ins.

Development and Retrofit

During the second quarter, Sonic opened 34 new drive-ins compared with the opening of 29 in the year-earlier period. Franchise drive-in openings increased to 29 in the second quarter from 22 in the year-earlier quarter. The company expects to open 180 to 200 drive-ins system-wide in fiscal 2008.

Existing franchisees continue to demonstrate their commitment to the brand with the completion of 200 retrofits during the second quarter, for a total of 402 for the first six months of the fiscal year and 728 since the franchise retrofit began in early calendar year of 2007. More than 25% of Sonic's franchise drive-ins have now completed the retrofit. In addition, Sonic retrofitted a total of 39 partner drive-ins in the second quarter of fiscal 2008 for a total of 77 partner drive-ins for the first six months of the fiscal year. The company now has retrofitted a total of 303 partner drive-ins since the program began, and currently over 50% of partner drive-ins have the new look. In fiscal 2008, the company expects to retrofit a total of 150 partner drive-ins along with 600 to 700 franchise drive-ins.

In addition to new store development, franchisees are actively relocating or rebuilding existing drive-ins. Of the 16 relocations or rebuilds completed during the second quarter, franchisees completed 14 compared with nine in the same period of the prior year. For the first six months of fiscal year 2008, a total of 31 system drive-ins were rebuilt or relocated versus 16 in the same period a year ago. Continued franchise investment is anticipated in this area with a total of 60 to 70 system drive-ins expected to be rebuilt or relocated this fiscal year.

Concluding Comments

Hudson added, "The momentum from our multi-layered growth strategy remained strong during the second quarter, reflecting the positive impact of our sales-driving initiatives and our capital management program on sales and earnings for the period. As we enter our third quarter, which begins the strongest half of our fiscal year, we continue to expect earnings in the range of 15% to 17% for the full year, with system-wide same-store sales growth of 2% to 4%."

Concluding, Hudson said, "Accelerated implementation of the retrofit, rebuild and relocation programs reflects the continued confidence of our franchisees in the Sonic brand across all markets. This passion for our business at all levels of the company, combined with our differentiated sales- driving initiatives and a focus on efficient use of capital, are expected to drive strong earnings growth in the future."

Fiscal 2008 Outlook

Sonic continues to expect that its earnings per diluted share will increase in the range of 15% to 17% in fiscal 2008 versus fiscal 2007 earnings per diluted share of $0.96, which is adjusted for prior-year debt refinancing charges. Broadly, the following factors are anticipated to contribute to this growth:

• An increase in the range of 2% to 4% in system-wide same-store sales,

• Continued solid expansion trends for the chain, with the opening of 180 to 200 new drive-ins, including 155 to 165 franchise drive-ins, reflecting system growth of about 6%, consistent with prior years, more new drive-in openings will occur in the second half of the fiscal year,

• The retrofit of approximately 150 partner drive-ins and 600 to 700 franchise drive-ins,

• An ongoing outlook for capital expenditures of approximately $75 million to $85 million for the year, excluding acquisitions. Planned capital expenditures include the costs of new partner drive-ins and retrofits as well as expenditures for drive-in remodels, relocations, and new equipment,

• Continued growth in cash flow from operations, which is expected to be used to fund capital expenditures, interest and principal payments associated with the company's securitized financing, and, on an opportunistic basis, to repurchase company stock or purchase franchise drive-ins,

• Flat to slightly unfavorable restaurant-level operating margins due to continued commodity cost pressures and another federal minimum wage hike scheduled to take place in mid-July, and

• Share-repurchase authorization of approximately $10.4 million remaining for fiscal year 2008, after purchasing more than $578 million in stock in fiscal 2007 and another $32 million (nearly 1.5 million shares) in the first six months of fiscal 2008, subject to the level of future share repurchases, weighted average diluted shares outstanding are expected to be in the range of 62 million to 63 million shares for fiscal 2008.

For the third fiscal quarter ending May 31, 2008, the company expects the following:

• Total revenue growth of 9% to 11% based on:

• Targeted system-wide same-store sales increase of 2% to 4%,

• The acquisition of 11 franchise drive-ins effective March 1, and

• Increased revenue from franchise and royalty fees as a result of new development, increased sales and incremental income from the company's unique ascending royalty rate.

• Flat to slightly unfavorable restaurant-level costs, as a percentage of sales over the prior year,

• Net interest expense of $11 million to $13 million, resulting from increased interest expense related to the company's recent share repurchase program, and

• A tax rate in the range of 37.5% to 38.5% for the quarter.

Logos, product and company names mentioned are the property of their respective owners.

Reader Comments:

Be the first to leave a comment for this article

Tweet