Sonic Reports First Quarter 2010 Results

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.

Development

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.

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