Sonic Reports 25% Increase in Fourth Quarter Earnings

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, 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.

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 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