First Quarter 2012 Results Reported By Sonic

Sonic Corp. (NASDAQ: SONC), announced results for its first fiscal quarter ended November 30, 2011. Key highlights of the company's first quarter report included:

“We will continue to refine our strategies, particularly our promotional and creative strategies, to strengthen awareness of our differentiated high-quality products and unique carhop service across all dayparts, which we believe will drive more consistent and sustained same-store sales growth going forward.”

• The company's net income for the first quarter of fiscal 2012 was $0.09 per diluted share compared with net income per diluted share of $0.12 in the first quarter of fiscal 2011; excluding a tax benefit of $0.02 per diluted share from a favorable tax settlement, net income per diluted share was $0.10 in the first quarter of fiscal 2011;
• System-wide same-store sales increased 0.1% during the first quarter, with an increase of 0.2% at franchise drive-ins and a 0.1% decrease at company drive-ins; and
• The company repaid $3.8 million of fixed rate debt and repurchased $10.5 million of its common stock.

“While our fiscal first quarter reflected continued sales volatility, we remain pleased with our long-term initiatives,” said Cliff Hudson, Chairman and Chief Executive Officer. “We will continue to refine our strategies, particularly our promotional and creative strategies, to strengthen awareness of our differentiated high-quality products and unique carhop service across all dayparts, which we believe will drive more consistent and sustained same-store sales growth going forward.

“Our business continues to generate strong cash flow for debt paydown and share repurchases,” added Hudson. “We expect to generate $35 million to $40 million in free cash flow¹ during the current fiscal year. Over the next two to three years we will continue to utilize the strength and flexibility of our business model to grow operating income and use our free cash flow to invest in our brand, opportunistically pay down debt and repurchase stock.”

Financial Overview

For the first fiscal quarter ended November 30, 2011, revenues decreased 0.7% to $128.3 million from $129.1 million in the year-earlier period. The company's net income for the first quarter of fiscal 2012 totaled $5.5 million or $0.09 per diluted share compared with reported net income of $7.2 million or $0.12 per diluted share in the year-earlier quarter. Excluding a tax benefit of $0.02 per diluted share from a favorable tax settlement in the quarter ended November 30, 2010, net income per diluted share was $0.10 for the first quarter of fiscal 2011.

Management believes that the comparability from excluding the favorable tax settlement provides useful information to investors 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.

Same-Store Sales

For the first fiscal quarter ended November 30, 2011, system-wide same-store sales increased 0.1%. Same-store sales reflected an increase of 0.2% at franchise drive-ins and a 0.1% decrease at company drive-ins.

Restaurant Operating Margins

Company drive-in restaurant margins decreased by 130 basis points. The decrease was caused by higher commodity costs as well as higher operating expenses resulting from higher drive-in level technology costs and credit card processing fees, slightly offset by labor efficiencies.

Development

Across the Sonic system, two new franchise drive-ins were opened in the first quarter of fiscal 2012 versus nine new franchise drive-in openings during the first quarter of fiscal 2011. New franchise drive-in openings in fiscal 2012 are expected to total between 30 and 40.

Fiscal Year 2012 Outlook

The company expects its initiatives to drive sales improvements going forward; however, uncertainty with regard to the external environment and its impact on consumer confidence may result in continued sales volatility. The second fiscal quarter is seasonally Sonic’s lowest in sales volume and most volatile period, as it is more susceptible to adverse weather conditions. The company’s outlook for fiscal 2012 anticipates the following elements:

• The opening of 30 to 40 new franchise drive-ins;
• Positive same-store sales; a 1% change in same-store sales equates to approximately $0.03 in net income per diluted share;
• Slightly unfavorable restaurant-level margins as a result of commodity cost increases and higher operating expenses, particularly in the first half of the fiscal year, partially offset by labor efficiencies;
• Selling, general and administrative expenses of $68 million to $69 million;
• Depreciation and amortization of $41 million to $42 million;
• Net interest expense of approximately $32 million;
• An income tax rate of between 37.5% and 38.5%; and
• Capital expenditures in the range of $25 million to $30 million.

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

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