Did Somebody Turn Up the Heat Around Sonic Corporation?
Source: Sonic Corporation
If anybody has a right to complain about the weather it should be Sonic Corporation . Cold temperatures affect this restaurant as rolling down your window to grab an ice cold milkshake is probably not the first thing that comes to your mind when you're in the middle of a blizzart. Yet after looking at last quarter's earnings report you would have thought there was a national heat wave.
Perhaps Red Robin Gourmet Burgers described the driver behind this in its conference calls. Red Robin calls it a "cabin fever" effect. This occurs when a brand is so strong that bad weather can actually help it. After the weather finally clears up people tend to swarm to what they crave and indulge to the point where Red Robin sees a huge spike in sales. Last quarter Red Robin saw same-store sales jump 5.4% and diluted earnings per share leaped 24%.
Flying like a robin
And I thought Red Robin was one of the only burger joints with huge same-store sales growth during the colder months. While many restaurant chains complained that the bad weather continued into March and remained on the cold side in April, Sonic pulled a Red Robin and didn't even flinch.
Hudson rattled off a bunch of other metrics and attributes such as a new point-of-sale system, new digital point-of-purchase technology, and the like that the company is implementing. He believes they will be "an important contributor to increased sales and profits for [the] entire system." He's calling for double-digit earnings-per-share growth in both the near and long term.
Driving in the results
On June 23, Sonic reported its fiscal third-quarter results. Systemwide same-store sales leaped 5.3% to nearly match Red Robin. Earnings per share popped 15% to $0.30. Clifford Hudson, CEO of Sonic, credited the gains to "innovative product news, layered day-part promotional strategy and increased media efficiency."
What also helps drive sales
One thing that Red Robin credits for its sales bump is simply innovation. Red Robin introduced a new Half Pound Black Angus Burger for $12.99 which is a big step up in price from others on its menu. Many guests have opted to spend more on the bigger burger. For Sonic, innovation and higher price points are likewise drivers.
Sonic raised its prices by another 1% in May for a total of 3% on a year-over-year basis which is also helping. According to the Sonic conference call, particular help in terms of innovation has come from new menu items that cut across all five different day-parts. Hudson gave slush shakes as an example. Some people order them with breakfast and they are still perfect with lunch, dinner, late afternoon snacks, and late night meals. Five chances to increase sales.
Hudson stated, "We would anticipate over time as we continue to build sales and we talk to our operators about how we're going to build sales that we'll do that across all day-parts." Sonic continues to test new product ideas with a focus on
what will sell throughout the day rather than at just one time of the day. That's probably easier for Red Robin though as burgers work for many people at any time from lunch onward.
Foolish final thoughts
One neat thing about Sonic is that it is the largest drive-in restaurant chain in the country, and it would seem unlikely that another one would emerge as a competitor any time soon. As long as the company continues to deliver great innovation and a great experience, it should be able to continue to grow earnings per share by a double-digit percentage for many years to come. Fools may want to take a closer look at this unique quick serve restaurant.
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The article Did Somebody Turn Up the Heat Around Sonic Corporation? originally appeared on Fool.com.Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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