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Sonic Reports 22% Earnings Growth for First Quarter 2013

2013-01-07

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Sonic Corp System-wide same-store sales increased 3.0% during the first quarter, with an increase of 4.2% at company drive-ins and 2.9% at franchise drive-ins

Sonic Corp. (NASDAQ: SONC), the nation's largest chain of drive-in restaurants, today announced results for the first quarter ended November 30, 2012.

“We are pleased the momentum in our business continues to build with a strong start in fiscal 2013”

Key highlights of the company's first quarter report included:

The company's net income per diluted share increased 22% to $0.11 compared with net income per diluted share of $0.09 in the first quarter of fiscal 2012;
System-wide same-store sales increased 3.0% during the first quarter, with an increase of 4.2% at company drive-ins and 2.9% at franchise drive-ins;
Company drive-in margins improved by 80 basis points; and
The company purchased $18 million of stock representing 3% of its outstanding stock.

“We are pleased the momentum in our business continues to build with a strong start in fiscal 2013,” said Cliff Hudson, Chairman and Chief Executive Officer. “Sustaining positive same-store sales during the quarter was the result of our improved day-part promotional strategy and effective creative messaging, complemented by our long-standing initiatives to improve customer service, product quality and value perception. This growth in sales led to an 80 basis point improvement in drive-in margins. In addition, during the quarter, we purchased $18 million of stock representing more than 1.8 million shares or approximately 3% of our outstanding stock. These three factors – same-store sales growth, operating leverage and use of free cash flow¹– are key components in our multi-layered growth strategy.

“We will continue to focus on key initiatives to drive our multi-layered growth strategy in calendar 2013. Starting this month, we will enhance our media purchasing by allocating a greater percentage of our media spend to national cable. In addition, over the next two to three years, initiatives such as our new point-of-sale system will complement our same-store sales initiatives to increase sales and profits and the new lower-cost small building prototype will improve return on investment on new drive-ins, spurring increased development,” added Hudson. “We are confident our multi-layered growth strategy, which incorporates same-store sales growth, leverage from higher sales, deployment of free cash flow, increasing royalty revenues 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 first fiscal quarter ended November 30, 2012, the company's net income totaled $6.1 million or $0.11 per diluted share compared with net income of $5.5 million or $0.09 per diluted share in the same period prior year. Company drive-in sales in the first quarter of fiscal 2013 declined by $3.3 million compared to the first quarter of fiscal 2012 as a result of the refranchising of 34 company drive-ins during the second fiscal quarter of 2012, partially offset by an increase in same-store sales.

Same-Store Sales

For the first fiscal quarter ended November 30, 2012, system-wide same-store sales increased 3.0%, which was comprised of a 4.2% increase at company drive-ins and a 2.9% increase at franchise drive-ins.

Development

Across the Sonic system, one new franchise drive-in was opened in the first quarter of fiscal 2013 versus two new franchise drive-in openings during the first quarter of fiscal 2012. New franchise drive-in openings in fiscal 2013 are expected to be slightly higher than new franchise drive-in openings in fiscal 2012.

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;
Restaurant-level margins to improve between 50 to 100 basis points;
Slightly more new franchise drive-in openings than in fiscal 2012;
Selling, general and administrative expenses of $68 to $69 million;
Subsequent to the end of the quarter, the company completed the sale of real estate that was previously leased to a franchisee. As a result, franchise lease revenue is now expected to be $3 to $3.5 million; and depreciation and amortization is expected to be $40 to $41 million. The company realized net cash proceeds of approximately $30 million and a 24 month note of approximately $9 million on the sale;
Net interest expense of approximately $29 million;
Subsequent to the end of the quarter, legislation was passed that reinstated and extended certain employment tax credits. The company estimates it will realize a tax benefit of $500 thousand to $1 million related to the retroactive portion of the employment tax credit program in the second fiscal quarter and further expects its tax rate to be reduced to the 37% to 38% range in its third and fourth fiscal quarters from the ongoing impact of the reinstated tax credit program;
Capital expenditures of $30 to $35 million which includes a partial point-of-sale system implementation in company drive-ins and supply chain management implementation for the system; and
Free cash flow of $45 to $50 million for fiscal 2013.

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

About Sonic

Sonic, America's Drive-In, originally started as a hamburger and root beer stand in 1953 in Shawnee, Oklahoma called Top Hat Drive-In, and then changed its name to Sonic in 1959. The first drive-in to adopt the Sonic name is still serving customers in Stillwater, Oklahoma. Sonic has more than 3,500 drive-ins coast to coast, where approximately three million customers eat every day.


SONIC CORP.
Unaudited Supplemental Information
(In thousands, except per share amounts)

	First Quarter Ended
	November 30,
		2012			2011
Statement of Operations
Revenues:
Company Drive-In sales	$	93,456		$	96,782
Franchise Drive-Ins:
Franchise royalties and fees		29,920			29,076
Lease revenue		1,486			1,288
Other		1,146			1,133
		126,008			128,279
Costs and expenses:
Company Drive-Ins:
Food and packaging		26,632			27,725
Payroll and other employee benefits		33,465			35,084
Other operating expenses, exclusive of
depreciation and amortization included below		21,976			22,911
		82,073			85,720

Selling, general and administrative		16,130			15,417
Depreciation and amortization		10,595			10,466
Other operating (income) expense, net		7			(78	)
		108,805			111,525
Income from operations		17,203			16,754

Interest expense		7,675			8,041
Interest income		(141	)		(164	)
Net interest expense		7,534			7,877
Income before income taxes		9,669			8,877
Provision for income taxes		3,536			3,378
Net income	$	6,133		$	5,499

Net income per share:
Basic	$	0.11		$	0.09
Diluted	$	0.11		$	0.09
Weighted average shares used in calculation:
Basic		57,672			61,693
Diluted		58,085			61,737


SONIC CORP.
Unaudited Supplemental Information

	First Quarter Ended
	November 30,
		2012			2011
Drive-Ins in Operation
Company:
Total at beginning of period		409			446
Opened		-			-
Sold to franchisees		-			-
Closed (net of re-openings)		-			-
Total at end of period		409			446
Franchise:
Total at beginning of period		3,147			3,115
Opened		1			2
Acquired from company		-			-
Closed (net of re-openings)		(8	)		(8	)
Total at end of period		3,140			3,109
System-wide:
Total at beginning of period		3,556			3,561
Opened		1			2
Closed (net of re-openings)		(8	)		(8	)
Total at end of period		3,549			3,555



	First Quarter Ended
	November 30,
		2012			2011
	($ in thousands)
Sales Analysis
Company drive-ins:
Total sales	$	93,456		$	96,782
Average drive-in sales		230			218
Change in same-store sales		4.2	%		-0.1	%
Franchised drive-ins:
Total sales	$	808,660		$	781,703
Average drive-in sales		262			251
Change in same-store sales		2.9	%		0.2	%
System-wide:
Change in total sales		2.7	%		0.5	%
Average drive-in sales	$	258		$	247
Change in same-store sales		3.0	%		0.1	%

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.


SONIC CORP.
Unaudited Supplemental Information

	First Quarter Ended
	November 30,
	2012		2011
Margin Analysis (percentage of Company Drive-In sales)
Company Drive-Ins:
Food and packaging	28.5	%	28.6	%
Payroll and employee benefits	35.8	%	36.3	%
Other operating expenses	23.5	%	23.7	%
	87.8	%	88.6	%


					November 30,	August 31,
					2012	2012
Balance Sheet Data					(In thousands)
Cash and cash equivalents					42,730	52,647
Current assets					122,775	107,151
Property, equipment and capital leases, net					399,064	443,008
Total assets					656,807	680,760

Current liabilities, including capital lease obligations and long-term debt due within one year					70,550	80,516
Obligations under capital leases due after one year					26,300	27,377
Long-term debt due after one year					462,854	466,613
Total liabilities					608,161	621,513
Stockholders' equity					48,646	59,247