Sonic Reports 25% Increase in Fourth Quarter Earnings
System-wide same-store sales increased 2.3% during the fourth quarter, with an increase of 4.3% at company drive-ins and 2.1% at franchise drive-ins.
Sonic Corp. (NASDAQ: SONC), announced results for the fourth quarter and fiscal year ended August 31, 2012.
“We are pleased to conclude fiscal 2012 with solid same-store sales growth in the fourth quarter, resulting in increased franchising revenue and operating margins which combined with our share repurchase program, drove a 25% increase in earnings per share”
Key highlights of the company's fourth quarter report included:
- The company's net income per diluted share increased 25% to $0.25 compared with net income per diluted share of $0.20 in the fourth quarter of fiscal 2011; and
- System-wide same-store sales increased 2.3% during the fourth quarter, with an increase of 4.3% at company drive-ins and 2.1% at franchise drive-ins.
“We are pleased to conclude fiscal 2012 with solid same-store sales growth in the fourth quarter, resulting in increased franchising revenue and operating margins which combined with our share repurchase program, drove a 25% increase in earnings per share,” said Cliff Hudson, Chairman and Chief Executive Officer. “In fiscal 2013, we expect to build upon our fiscal 2012 initiatives with a continued focus on new and differentiated products combined with iconic creative and a layered day-part promotional strategy to drive consistent same-store sales growth. This in turn is expected to drive further margin expansion. In addition, with the strength and flexibility of our business model, we are able to generate sufficient free cash flow1 to invest in our business, pay down debt and repurchase shares to enhance shareholder value.
“Over the next two to three years, initiatives such as our new point-of-sale system and the new small building prototype will complement our same-store sales initiatives to increase sales and profits,” added Hudson. “We are confident our multi-layered growth strategy which incorporates same-store sales growth, leverage from higher sales, deployment of cash, increasing royalty revenue and new drive-in development will enable us to achieve double-digit earnings per share growth in the near and long term.”
Financial Overview
For the fourth fiscal quarter ended August 31, 2012, the company's net income totaled $14.5 million or $0.25 per diluted share compared with net income of $12.3 million or $0.20 per diluted share in the year-earlier quarter.
For fiscal 2012, net income totaled $36.1 million or $0.60 per diluted share compared with net income of $32.6 million or $0.53 per diluted share, on an adjusted basis for the same period in 2011.
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.
| Fiscal Year Ended | Fiscal Year Ended | Year-Over-Year | |||||||||||||||||
| August 31, 2012 | August, 31,2011 | Percent Change | |||||||||||||||||
| Net | Diluted | Net | Diluted | Net | Diluted | ||||||||||||||
| Income | EPS | Income | EPS | Income | EPS | ||||||||||||||
| Reported – GAAP | $ | 36,085 | $ | 0.60 | $ | 19,225 | $ | 0.31 | 88 | % | 94 | % | |||||||
| After-tax net loss from early extinguishment of debt | -- | -- | 14,439 | 0.24 | |||||||||||||||
| Tax benefit from favorable tax settlement | -- | -- | (1,073 | ) | (0.02 | ) | |||||||||||||
| Adjusted - Non-GAAP | $ | 36,085 | $ | 0.60 | $ | 32,591 | $ | 0.53 | 11 | % | 13 | % | |||||||
Same-Store Sales
For the fourth fiscal quarter ended August 31, 2012, system-wide same-store sales increased 2.3%, which was comprised of a 4.3% increase at company drive-ins and a 2.1% increase at franchise drive-ins. For the 12 months ended August 31, 2012, system-wide same-store sales increased 2.2%, which was comprised of a 2.8% increase at company drive-ins and a 2.2% increase at franchise drive-ins.
Development
For fiscal 2012 there were 37 new drive-in openings including 36 new franchise drive-ins. Across the Sonic system, a total of 18 new drive-ins were opened in the fourth quarter of fiscal 2012, of which 17 were opened by franchisees, versus 17 new drive-in openings during the fourth quarter of fiscal 2011, of which 14 were franchise drive-ins.
Fiscal Year 2013 Outlook
The company expects its initiatives to drive sales improvements going forward. However, uncertainty with regard to the macroeconomic environment and its impact on consumer confidence may result in sales volatility. The outlook for fiscal 2013 anticipates the following elements:
- Positive same-store sales in the low single digit range;
- Slightly more new franchise drive-in openings than fiscal 2012;
- Restaurant-level margins to improve between 50 to 100 basis points, depending upon the degree of same-store sales growth at company drive-ins;
- Selling, general and administrative expenses of $68 million to $69 million;
- Depreciation and amortization expense of $41 million to $42 million;
- Net interest expense of approximately $29 million;
- An income tax rate of between 38% and 38.5%, which may vary depending upon the reinstatement of employment tax credit programs;
- Capital expenditures of $30 million to $40 million, which assumes the implementation of a new point-of-sale system in company drive-ins during calendar year 2013; and
- Free cash flow of $45 million to $55 million.
| SONIC CORP. | ||||||||||||||||
| Unaudited Supplemental Information | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||
| Fourth Quarter Ended | Fiscal Year Ended | |||||||||||||||
| August 31, | August 31, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Statement of Operations | ||||||||||||||||
| Revenues: | ||||||||||||||||
| Company Drive-In sales | $ | 110,406 | $ | 113,366 | $ | 404,443 | $ | 410,820 | ||||||||
| Franchise Drive-Ins: | ||||||||||||||||
| Franchise royalties | 36,009 | 35,477 | 125,989 | 124,127 | ||||||||||||
| Franchise fees | 1,173 | 473 | 2,024 | 1,744 | ||||||||||||
| Lease revenue | 1,970 | 1,676 | 6,575 | 6,023 | ||||||||||||
| Other | 1,382 | 192 | 4,699 | 3,237 | ||||||||||||
| 150,940 | 151,184 | 543,730 | 545,951 | |||||||||||||
| Costs and expenses: | ||||||||||||||||
| Company Drive-Ins: | ||||||||||||||||
| Food and packaging | 30,764 | 31,957 | 113,775 | 115,516 | ||||||||||||
| Payroll and other employee benefits | 38,168 | 40,676 | 144,531 | 149,417 | ||||||||||||
| Other operating expenses, exclusive of depreciation and amortization included below | ||||||||||||||||
| 23,265 | 24,538 | 89,164 | 91,303 | |||||||||||||
| 92,197 | 97,171 | 347,470 | 356,236 | |||||||||||||
| Selling, general and administrative | 16,721 | 16,165 | 65,173 | 64,943 | ||||||||||||
| Depreciation and amortization | 10,650 | 10,419 | 41,914 | 41,225 | ||||||||||||
| Provision for impairment of long-lived assets | 388 | 511 | 764 | 824 | ||||||||||||
| 119,956 | 124,266 | 455,321 | 463,228 | |||||||||||||
| Other operating income (expense), net | (82 | ) | 330 | 531 | 585 | |||||||||||
| Income from operations | 30,902 | 27,248 | 88,940 | 83,308 | ||||||||||||
| Interest expense | 7,801 | 8,186 | 31,608 | 32,600 | ||||||||||||
| Interest income | (153 | ) | (193 | ) | (630 | ) | (706 | ) | ||||||||
| Net loss from early extinguishment of debt | - | 10 | - | 23,035 | ||||||||||||
| Net interest expense | 7,648 | 8,003 | 30,978 | 54,929 | ||||||||||||
| Income before income taxes | 23,254 | 19,245 | 57,962 | 28,379 | ||||||||||||
| Provision for income taxes | 8,752 | 6,959 | 21,877 | 9,154 | ||||||||||||
| Net income | $ | 14,502 | $ | 12,286 | $ | 36,085 | $ | 19,225 | ||||||||
| Net income per share: | ||||||||||||||||
| Basic | $ | 0.25 | $ | 0.20 | $ | 0.60 | $ | 0.31 | ||||||||
| Diluted | $ | 0.25 | $ | 0.20 | $ | 0.60 | $ | 0.31 | ||||||||
| Weighted average shares used in calculation: | ||||||||||||||||
| Basic | 58,103 | 61,954 | 60,078 | 61,781 | ||||||||||||
| Diluted | 58,386 | 62,155 | 60,172 | 61,943 | ||||||||||||
| SONIC CORP. | |||||||||||||
| Unaudited Supplemental Information | |||||||||||||
| Fourth Quarter Ended | Fiscal Year Ended | ||||||||||||
| August 31, | August 31, | ||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||
| Drive-Ins in Operation | |||||||||||||
| Company: | |||||||||||||
| Total at beginning of period | 409 | 445 | 446 | 455 | |||||||||
| Opened | 1 | 3 | 1 | 3 | |||||||||
| Acquired from (sold to) franchisees | - | 1 | (35 | ) | (5 | ) | |||||||
| Closed (net of re-openings) | (1 | ) | (3 | ) | (3 | ) | (7 | ) | |||||
| Total at end of period | 409 | 446 | 409 | | 446 | ||||||||
| Franchise: | |||||||||||||
| Total at beginning of period | 3,141 | 3,114 | 3,115 | 3,117 | |||||||||
| Opened | 17 | 14 | 36 | 40 | |||||||||
| Acquired from (sold to) the company | - | (1 | ) | 35 | 5 | ||||||||
| Closed (net of re-openings) | (11 | ) | (12 | ) | (39 | ) | (47 | ) | |||||
| Total at end of period | 3,147 | 3,115 | 3,147 | | 3,115 | ||||||||
| System-wide: | |||||||||||||
| Total at beginning of period | 3,550 | 3,559 | 3,561 | | 3,572 | ||||||||
| Opened | 18 | 17 | 37 | | 43 | ||||||||
| Closed (net of re-openings) | (12 | ) | (15 | ) | (42 | ) | | (54 | ) | ||||
| Total at end of period | 3,556 | 3,561 | 3,556 | | 3,561 | ||||||||
| Fourth Quarter Ended | Fiscal Year Ended | ||||||||||||||||
| August 31, | August 31, | ||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||||||
| ($ in thousands) | ($ in thousands) | ||||||||||||||||
| Sales Analysis | |||||||||||||||||
| Company drive-ins: | |||||||||||||||||
| Total sales | $ | 110,406 | $ | 113,366 | $ | 404,443 | $ | 410,820 | |||||||||
| Average drive-in sales | 270 | 255 | 958 | 920 | |||||||||||||
| Change in same-store sales | 4.3 | % | 0.4 | % | 2.8 | % | 1.8 | % | |||||||||
| Franchised drive-ins: | |||||||||||||||||
| Total sales | $ | 946,330 | $ | 921,758 | $ | 3,386,218 | $ | 3,278,208 | |||||||||
| Average drive-in sales | 301 | 296 | 1,081 | 1,054 | |||||||||||||
| Change in same-store sales | 2.1 | % | -0.6 | % | 2.2 | % | 0.4 | % | |||||||||
| System-wide: | |||||||||||||||||
| Change in total sales | 2.1 | % | 0.9 | % | 2.7 | % | 1.9 | % | |||||||||
| Average drive-in sales | $ | 297 | $ | 291 | $ | 1,066 | $ | 1,037 | |||||||||
| Change in same-store sales | 2.3 | % | -0.5 | % | 2.2 | % | 0.5 | % | |||||||||
| Note: Change in same-store sales based on restaurants open for a minimum of 15 months. | |||||||||||||||||
| SONIC CORP. | |||||||||||||
| Unaudited Supplemental Information | |||||||||||||
| Fourth Quarter Ended | Fiscal Year Ended | ||||||||||||
| August 31, | August 31, | ||||||||||||
| 2012 | 2011 | 2012 | 2011 | ||||||||||
| Margin Analysis (percentage of Company | |||||||||||||
| Drive-In sales) | |||||||||||||
| Company Drive-Ins: | |||||||||||||
| Food and packaging | 27.9 | % | 28.2 | % | 28.1 | % | 28.1 | % | |||||
| Payroll and employee benefits | 34.6 | % | 35.9 | % | 35.7 | % | 36.4 | % | |||||
| Other operating expenses | 21.0 | % | 21.6 | % | 22.1 | % | 22.2 | % | |||||
| 83.5 | % | 85.7 | % | 85.9 | % | 86.7 | % | ||||||
| August 31, | August 31, | ||||||||||||
| 2012 | 2011 | ||||||||||||
| Balance Sheet Data | (In thousands) | ||||||||||||
| Cash and cash equivalents | 52,647 | 29,509 | |||||||||||
| Current assets | 107,151 | 93,457 | |||||||||||
| Property, equipment and capital leases, net | 443,008 | 464,875 | |||||||||||
| Total assets | 680,760 | 679,742 | |||||||||||
| Current liabilities, including capital lease obligations and long-term debt due within one year | 80,516 | 71,279 | |||||||||||
| Obligations under capital leases due after one year | 27,377 | 30,302 | |||||||||||
| Long-term debt due after one year | 466,613 | 481,835 | |||||||||||
| Total liabilities | 621,513 | 628,046 | |||||||||||
| Stockholders' equity | 59,247 | 51,696 | |||||||||||
