Why Sonic Shares Shot Up


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of fast-food chain Sonic were looking hot off the grill today, jumping as much as 10% after the company reported quarterly earnings.

So what: The burger slinger said adjusted earnings per share improved from $0.03 a year ago to $0.05, in line with estimates. Revenue in the quarter fell from $115.1 million to $111.1 million, but gross profit improved slightly. Sonic also said same-store sales increased 1.3% when accounting for the extra day in the calendar last year. The company, which operates both company-owned and franchised locations, saw its total store count decline from 3,550 a year ago to 3,526. For fiscal 2013, the company sees comparable sales growth in the low single digits and a slight increase in franchise store openings.

Now what:Today's jump is somewhat of a surprise after a relatively middling earnings report. The winter quarter is a slow one for Sonic, whose drive-in model is affected by weather, but the slowdown in revenue is concerning. Its reliance on franchising should deliver strong margins, but that hasn't been the case recently. Plus, the stock is not even particularly cheap despite its slow growth. I'd stay away from this one.

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The article Why Sonic Shares Shot Up originally appeared on Fool.com.

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