Bad Weather Hurts Sonic’s Same-store Sales

Same-store sales reflects slowing consumer trends in April and May 2016

Source: Company's Website
Source: Company’s Website

Sonic Corp. (NASDAQ: SONC), the largest drive-in restaurant chain in the U.S., announced results for its Q3 FY16 ended May 31st, 2016, on June 23rd, 2016. Headquartered in Oklahoma City, Oklahoma, the Company operates and franchises a chain of quick-service drive-in restaurants in the U.S. As of August 31st, 2015, the Company operated 3,526 Sonic Drive-Ins in 44 states, which included 387 company drive-ins and 3,139 franchise drive-ins. The restaurant chain serves more than three million customers every day and nearly 90% of its 3,500 drive-in locations are owned and operated by local businessmen. Read more about Sonic’s financial results below.

Q3 FY16 operational highlights

During the quarter under review, Sonic reported 2% same-store sales growth despite slowing consumer trends in April and May 2016. The same-store sales growth comprised of a 2.1% same-store sales increase at franchise drive-ins and a 0.9% growth at company drive-ins. Bad weather had an adverse impact on company drive-in sales during Q3 FY16.

Revenues grew 8.3% to $164.7 million during Q3 FY16 compared to $152.19 million in the year-ago quarter, due to an increase in company and franchise drive-in sales.

Sonic opened 15 net new drive-ins during Q3 FY16, of which 16 were new franchise drive-ins. The Company spruced up its product pipeline by introducing premium products like Frozen Lemonades and Limeades and Bacon Lovers Chili Cheese Coneys. The Company’s drive-in margins improved 100 basis points during Q3 FY16 driven by technology initiatives, introduction of new menu items, and promotional offers.

Despite the revenue increase, Sonic’s third-quarter profit dropped to $15.4 million, or $0.31 per share, from $20.4 million, or $0.38 per share, in the year-ago period. However, adjusted net income per diluted share increased 19% to $0.43 compared with adjusted net income per diluted share of $0.36 in the prior-year period.

Guidance

For FY16, Sonic reaffirmed its outlook for adjusted earnings per share growth of 20% to 25%. The Company expects 2% to 4% system same-store sales growth along with royalty revenue growth from same-store sales improvements and new unit development. Sonic expects 50 to 60 new franchise drive-in openings in FY16; drive-in margins are projected to grow at flat to 40 basis points, depending upon the degree of same-store sales growth at the company’s drive-ins. Also, Sonic expects to incur selling, general and administrative expenses of approximately $83.0 million to $84.0 million for technology and brand initiatives, capital expenditures of $35 million to $40 million, and depreciation and amortization expense of $45.0 million to $46.0 million as a result of capital investment in FY16. The Company plans to move toward an approximately 95%-franchised system by the end of FY17.

Share repurchase

The company purchased 1.2 million outstanding shares during the quarter under review. It plans to repurchase at least $126 million worth of stocks during FY16.

Stock Performance

S2Sonic’s stock stood at $27.22, up 1.23%, at the close on Monday, June 27th, 2016, having reached an intraday high of $28.31 and a low of $27.01 during the session. The stock’s trading volume was at 2,191,244 for the day. The Company’s market cap was at $1.32 billion as of Monday’s close.

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