Sonic Reports 25% Increase in Fourth Quarter Earnings

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Sonic Reports 25% Increase in Fourth Quarter Earnings

OKLAHOMA CITY--(BUSINESS WIRE)-- Sonic Corp. (NAS: SONC) , the nation's largest chain of drive-in restaurants, today announced results for the fourth quarter and fiscal year ended August 31, 2012.

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, 2012August, 31,2011Percent Change
Net DilutedNet DilutedNet Diluted
IncomeEPSIncomeEPSIncomeEPS
Reported - GAAP$36,085$0.60$19,225$0.3188%94%
After-tax net loss from early extinguishment of debt----14,4390.24
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.

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. For more information about Sonic Corp. and its subsidiaries, visit Sonic at www.sonicdrivein.com.

Earnings Conference Call

The company will host a conference call and online web simulcast this afternoon beginning at 5:00 p.m. ET. The conference call can be accessed live over the phone by dialing (888) 600-4883 or (913) 312-1298 for international callers. A replay will be available one hour after the call and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 4719115. The replay will be available until Tuesday, October 23, 2012. An online replay of the conference call will be available approximately two hours after the conclusion of the live broadcast. A link to this event will be available on the investor section of the company's website, www.sonicdrivein.com.

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those expressed in, or underlying, these forward-looking statements are detailed in the company's annual and quarterly report filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

The tables that follow provide information regarding the number of company drive-ins, franchise drive-ins and system drive-ins in operation as of the end of the periods indicated. In addition, these tables provide information regarding franchise sales, system growth in sales, and both franchise and system average drive-in sales and change in same-store sales. System information includes both company and franchise drive-in information, which we believe is useful in analyzing the growth of our brand. While we do not record franchise drive-in sales as revenues, we believe this information is important in understanding our financial performance since we calculate and record franchise royalties based on a percentage of franchise sales. This information also is indicative of the financial health of our franchisees.

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

SONIC CORP.
Unaudited Supplemental Information
(In thousands, except per share amounts)
    
Fourth Quarter EndedFiscal Year Ended
August 31,August 31,
2012201120122011
Statement of Operations
Revenues:
Company Drive-In sales$110,406$113,366$404,443$410,820
Franchise Drive-Ins:
Franchise royalties36,00935,477125,989124,127
Franchise fees1,1734732,0241,744
Lease revenue1,9701,6766,5756,023
Other 1,382  192  4,699  3,237 
150,940151,184543,730545,951
Costs and expenses:
Company Drive-Ins:
Food and packaging30,76431,957113,775115,516
Payroll and other employee benefits38,16840,676144,531149,417
Other operating expenses, exclusive of depreciation and amortization included below
 23,265  24,538  89,164  91,303 
92,19797,171347,470356,236
 
Selling, general and administrative16,72116,16565,17364,943
Depreciation and amortization10,65010,41941,91441,225
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 operations30,90227,24888,94083,308
 
Interest expense7,8018,18631,60832,600
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 taxes23,25419,24557,96228,379
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 EndedFiscal Year Ended
August 31,August 31,
2012 2011 2012 2011 
Drive-Ins in Operation
Company:
Total at beginning of period409445446455
Opened1313
Acquired from (sold to) franchisees-1(35)(5)
Closed (net of re-openings)(1)(3)(3)(7)
Total at end of period409 446 409 

 

446 
Franchise:
Total at beginning of period3,1413,1143,1153,117
Opened17143640
Acquired from (sold to) the company-(1)355
Closed (net of re-openings)(11)(12)(39)(47)
Total at end of period3,147 3,115 3,147 

 

3,115 
System-wide:
Total at beginning of period3,5503,5593,561

 

3,572
Opened181737

 

43
Closed (net of re-openings)(12)(15)(42)

 

(54)
Total at end of period3,556 3,561 3,556 

 

3,561 
  Fourth Quarter Ended Fiscal Year Ended
August 31,August 31,
2012 20112012 2011
($ in thousands)($ in thousands)
Sales Analysis
Company drive-ins:
Total sales$110,406$113,366$404,443$410,820
Average drive-in sales270255958920
Change in same-store sales4.3%0.4%2.8%1.8 Read Full Story

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