CORRECTING and REPLACING Sonic Reports Improved Sales and Operating Income

CORRECTION...by Business Wire

OKLAHOMA CITY--()--Please replace release due to revisions to the Sales Analysis information found in the Unaudited Supplemental Information tables.

The corrected release reads:

SONIC REPORTS IMPROVED SALES AND OPERATING INCOME

Sonic Corp. (NASDAQ: SONC), the nation's largest chain of drive-in restaurants, today announced results for its second fiscal quarter ended February 29, 2012. Key highlights of the company's second quarter report included:

  • The company's net income per diluted share for the second quarter of fiscal 2012 was $0.03 compared with net income per diluted share of $0.07 for the second quarter of fiscal 2011; excluding a gain on early extinguishment of debt, net income per diluted share was $0.02 in the second quarter of fiscal 2011;
  • System-wide same-store sales increased 3.5% during the second quarter, with an increase of 3.6% at franchise drive-ins and a 3.1% increase at company drive-ins; and
  • The company opened 10 franchise locations during the second quarter of fiscal 2012 compared to five franchise openings in the prior-year same period.

“We are pleased with our second quarter results and believe they reflect our ongoing focus on improving our products and service,” said Cliff Hudson, Chairman and Chief Executive Officer. “We believe a continued focus on innovative and distinctive products to drive sales across multiple day-parts, combined with our new creative strategy which was implemented at the end of the quarter, will continue to distinguish Sonic from the competition and will help drive more consistent and sustained same-store sales growth going forward. We are especially pleased with the addition of James O’Reilly as our new Chief Marketing Officer. His depth of experience in the quick-service restaurant industry will assist our efforts to build on these initiatives.”

“Despite commodity cost pressure, we were able to improve drive-in level margins reflecting leverage from improved sales. From a capital perspective, we expect to generate $50 million to $55 million in free cash flow1 during the current fiscal year. As we have done in the recent past, we will utilize the strength and flexibility of our business model to grow operating income and use our free cash flow to invest in our brand, opportunistically pay down debt or repurchase stock,” concluded Hudson.

Financial Overview

For the second fiscal quarter ended February 29, 2012, revenues increased 1.4% to $115.1 million from $113.5 million in the year-earlier period. The increase was primarily comprised of improved same-store sales partially offset by a decline from the refranchising of 31 stores during the quarter. The company's net income for the second quarter of fiscal 2012 totaled $1.7 million or $0.03 per diluted share compared with reported net income of $4.3 million or $0.07 per diluted share in the year-earlier quarter. Excluding a $5.2 million ($3.3 million after-tax) gain from the early extinguishment of debt in the quarter ended February 28, 2011, net income per diluted share was $0.02 for the second quarter of fiscal 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.

           
Quarter Ended Quarter Ended
February 29, 2012 February 28, 2011
Net   Diluted Net   Diluted Net Income Diluted EPS
Income   EPS Income   EPS

$ Change

  % Change  

$ Change

  % Change

Reported - GAAP

$ 1,677 $ 0.03 $ 4,348 $ 0.07 ($2,671 ) -61 % ($0.04 ) -57 %

 

After-tax impact of gain from early extinguishment of debt

- - (3,321 ) (0.05 ) - - - -
                                               
Adjusted - Non-GAAP $ 1,677   $ 0.03 $ 1,027     $ 0.02   $ 650     63 % $ 0.01     50 %
 

Net income for the first half of fiscal 2012 totaled $7.2 million or $0.12 per diluted share compared with $11.6 million or $0.19 per diluted share in the first half of fiscal 2011. Excluding a $1.1 million tax benefit recognized in the first fiscal quarter of 2011 and the gain on early extinguishment of debt recognized in the second fiscal quarter of 2011, net income for the first half of fiscal 2011 was $7.2 million and net income per diluted share for the first half of fiscal 2011 was $0.12.

           
Six Months Ended Six Months Ended
February 29, 2012 February 28, 2011
Net   Diluted Net   Diluted Net Income Diluted EPS
Income   EPS Income   EPS

$ Change

  % Change  

$ Change

  % Change
Reported - GAAP $ 7,176 $ 0.12 $ 11,590 $ 0.19 ($4,414 ) -38 %   ($0.07 ) -37 %
 
After-tax impact of gain from early extinguishment of debt - - (3,321 ) (0.05 ) - - - -
 
Tax benefit from favorable tax settlement - - (1,073 ) (0.02 ) - - - -
                                               
Adjusted - Non-GAAP $ 7,176   $ 0.12 $ 7,196     $ 0.12   $ (20 )   -     -     -  
 

Same-Store Sales

For the second fiscal quarter ended February 29, 2012, system-wide same-store sales increased 3.5% versus the same quarter in the prior year. These sales reflected an increase of 3.6% at franchise drive-ins and a 3.1% increase at company drive-ins. For the first six months of fiscal 2012, system-wide same-store sales increased 1.7% compared to the same period in the prior year, reflecting an increase of 1.7% for franchise drive-ins and an increase of 1.4% for company drive-ins.

Development

Across the Sonic system, 10 new franchise drive-ins were opened in the second quarter of fiscal 2012 versus five new franchise drive-in openings during the second quarter of fiscal 2011. New franchise drive-in openings in fiscal 2012 are expected to total between 30 and 40.

Fiscal Year 2012 Outlook

The company expects its initiatives to drive positive sales going forward; however, uncertainty with regard to the external environment and its impact on consumer confidence may result in continued sales volatility. The company’s outlook for fiscal 2012 anticipates the following elements:

  • The opening of 30 to 40 new franchise drive-ins;
  • Positive same-store sales; a 1% annual change in same-store sales equates to approximately $0.03 in net income per diluted share;
  • Flat to slightly favorable annual restaurant-level margins; despite commodity cost increases and higher operating expenses during the first half of the year, moderating commodity cost increases are expected to result in slightly favorable margins in the second half of the year, depending upon the degree of same-store sales growth;
  • Selling, general and administrative expenses of $67 million to $68 million;
  • Depreciation and amortization of $42 million to $43 million;
  • Net interest expense of approximately $32 million;
  • An income tax rate of between 38% and 39%, depending upon the reinstatement of employment tax credit programs; and
  • Capital expenditures in the range of $25 million to $30 million.

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

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 (877) 397-0250 or (719) 457-2664 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 1205487. The replay will be available until Wednesday, March 28, 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.

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.

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-owned 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-owned 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.

SONC-G

 
SONIC CORP.

Unaudited Supplemental Information

(In thousands, except per share amounts)
     
Second Quarter Ended Six Months Ended
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
  2012     2011     2012     2011  
Income Statement Data
Revenues:
Company Drive-In sales: $ 87,185 $ 86,435 $ 183,967 $ 183,709
Franchise Drive-Ins:
Franchise royalties 25,590 24,813 54,381 53,825
Franchise fees 364 517 649 886
Lease revenue 1,261 1,152 2,549 2,519
Other   684     606     1,817     1,730  
115,084 113,523 243,363

 

242,669
Costs and expenses:
Company Drive-Ins:
Food and packaging 24,686 24,564 52,411 51,563
Payroll and other employee benefits 32,740 32,718 67,824 68,275
Other operating expenses, exclusive of depreciation and amortization included below   20,727     20,810     43,638     43,216  
78,153 78,092 163,873

 

163,054
 
Selling, general and administrative 16,084 15,285 31,501 31,566
Depreciation and amortization 10,510 10,367 20,976 20,667
Provision for impairment of long-lived assets   173     176     173     264  
  104,920     103,920     216,523  

 

  215,551  
Other operating income (expense), net   384     (2 )   462     275  
Income from operations 10,548 9,601 27,302

 

27,393
 
Interest expense 7,930 8,141 15,971 16,423
Interest income (139 ) (149 ) (303 ) (352 )
Gain from early extinguishment of debt   -     (5,205 )   -     (5,205 )
Net interest expense   7,791     2,787     15,668  

 

  10,866  
Income before income taxes 2,757 6,814 11,634

 

16,527
Provision for income taxes   1,080     2,466     4,458     4,937  
Net income $ 1,677   $ 4,348   $ 7,176  

 

$ 11,590  
 
Net income per share
Basic $ 0.03   $ 0.07   $ 0.12   $ 0.19  
Diluted $ 0.03   $ 0.07   $ 0.12   $ 0.19  
Weighted average shares used in calculation:
Basic   60,579     61,687     61,136     61,663  
Diluted   60,602     61,865     61,170     61,809  
 
 
SONIC CORP.
Unaudited Supplemental Information
           
Second Quarter Ended Six Months Ended
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
2012 2011 2012 2011
Drive-Ins in Operation
Company:
Total at beginning of period 446 452 446 455
Opened - - - -
Sold to franchisees (34 ) - (34 ) (2 )
Closed (net of reopenings)   -     (1 )   -     (2 )
Total at end of period   412     451     412  

 

  451  
Franchise:
Total at beginning of period 3,109 3,106 3,115 3,117
Opened 10 5 12 14
Acquired from Company 34 - 34 2
Closed (net of reopenings)   (15 )   (7 )   (23 )   (29 )
Total at end of period   3,138     3,104     3,138  

 

  3,104  
System-wide:
Total at beginning of period 3,555 3,558 3,561

 

3,572
Opened 10 5 12

 

14
Closed (net of reopenings)   (15 )   (8 )   (23 )

 

  (31 )
Total at end of period   3,550     3,555     3,550  

 

  3,555  
 
 
Second Quarter Ended Six Months Ended
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
2012 2011 2012 2011
($ in thousands) ($ in thousands)
Sales Analysis
Company drive-ins:
Total sales $ 87,185 $ 86,435 $ 183,967 $ 183,709
Average drive-in sales 201 193 419 409
Change in same-store sales 3.1 % 2.2 % 1.4 % 0.0 %
Franchised drive-ins:
Total sales $

712,903

$ 685,659 $

1,494,126

$ 1,461,951
Average drive-in sales

229

222

480

470
Change in same-store sales

3.6

% 1.0 %

1.7

% -0.9 %
System-wide:
Change in total sales

3.6

% 1.5 %

2.0

% -0.3 %
Average drive-in sales $

225

$

218

$

472

$ 462
Change in same-store sales

3.5

% 1.2 %

1.7

% -0.8 %

 

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.
 
 
SONIC CORP.
Unaudited Supplemental Information
         
Second Quarter Ended Six Months Ended

  Feb. 29,  

  Feb. 28,  

Feb. 29, Feb. 28,
2012 2011 2012 2011

Margin Analysis (percentage of Company Drive-In sales)

Company Drive-Ins:
Food and packaging 28.3% 28.4% 28.5% 28.1%
Payroll and employee benefits* 37.5% 37.8% 36.9% 37.2%
Other operating expenses 23.8% 24.1% 23.7% 23.5%
89.6% 90.3% 89.1% 88.8%
 
* Effective April 1, 2010, the compensation program at the Company Drive-In level was
revised. As a result of these changes, noncontrolling interests are immaterial for the
periods presented and have been included in payroll and other employee benefits.

 

 

  Feb. 29,  

  Aug. 31,  

2012 2011
Balance Sheet Data (In thousands)
 
Cash and cash equivalents 33,949 29,509
Current assets 91,209 93,457
Property, equipment and capital leases, net 450,408 464,875
Total assets 662,246 679,742

 

Current liabilities, including capital lease obligations and long-term debt due within one year

61,576 71,279
Obligations under capital leases due after one year 29,689 30,302
Long-term debt due after one year 474,318 481,835
Total liabilities 613,260 628,046
Stockholders' equity 48,986 51,696

Contacts

Sonic Corp.
Claudia San Pedro, 405-225-4846
Vice President of Investor Relations and Treasurer

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Contacts

Sonic Corp.
Claudia San Pedro, 405-225-4846
Vice President of Investor Relations and Treasurer