Sonic Reports Strong Earnings Growth for Third Quarter 2012

$30 Million Share Repurchase Program Completed

OKLAHOMA CITY--()--Sonic Corp. (NASDAQ: SONC), the nation's largest chain of drive-in restaurants, today announced results for its third fiscal quarter ended May 31, 2012. Key highlights of the company's third quarter report included:

  • The company's net income per diluted share for the third quarter of fiscal 2012 was $0.24 compared with a net loss per diluted share of $0.08 for the third quarter of fiscal 2011; excluding debt extinguishment costs in the year-earlier quarter, net income per diluted share was $0.21;
  • System-wide same-store sales increased 2.8% during the third quarter, with an increase of 3.7% at company drive-ins and a 2.7% increase at franchise drive-ins; and
  • Restaurant-level operating margins improved 140 basis points to 17%.

“Strong third quarter sales were driven by a layered day-part promotional strategy anchored by an integrated creative campaign that showcased multiple existing and new products appealing across all day-parts. We believe this effective use of creative and day-part promotional strategy complements the company’s strong foundation of improved service, product quality and pricing and will help us achieve consistent, sustainable sales growth going forward,” said Clifford Hudson, Chairman and Chief Executive Officer. “We are working to increase shareholder value using a multi-layered growth strategy which incorporates sales growth, leverage from higher sales, use of cash, increasing royalty revenue and new drive-in development to achieve double digit earnings per share growth. We were very pleased that positive same-store sales in the third quarter fueled other layers in our multi-layered growth strategy including operating leverage and increased franchising revenue resulting in a 14% increase in earnings per share, on an adjusted basis.

“With respect to return on capital, we are pleased to report Sonic completed its $30 million share repurchase program in early June. Fiscal year to date, stock repurchases totaled approximately four million shares or over 6% of the stock that was outstanding as of the beginning of our fiscal year,” added Hudson. “Over the next two to three years we will continue to utilize the strength and flexibility of our business model to grow operating income and use our free cash flow(1) to opportunistically invest in our brand, repurchase stock and pay down debt. We expect each of the layers in our growth strategy to contribute to our ability to grow earnings per share at a rate in the low-to-mid teens in both the near term and longer term.”

Financial Overview

For the third fiscal quarter ended May 31, 2012, the company's net income totaled $14.4 million or $0.24 per diluted share compared with a net loss of $4.7 million or $0.08 per diluted share in the year-earlier quarter, which reflected costs associated with the May 2011 refinancing of Sonic's previously outstanding debt. Excluding the $17.8 million after-tax costs from the early extinguishment of debt in the quarter ended May 31, 2011, net income per diluted share was $0.21 for the third 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.

  Three Months Ended

May 31, 2012

    Three Months Ended

May 31, 2011

    Year-Over-Year

Percent Change

Net Income   Diluted

EPS

Net

Income (Loss)

  Diluted

EPS

Net Income   Diluted

EPS

Reported – GAAP $ 14,407 $   0.24 $   (4,651 ) $   (0.08 ) n/a n/a
After-tax loss from early extinguishment of debt -- -- 17,760 0.29

 

       
Adjusted - Non-GAAP $ 14,407 $   0.24 $   13,109   $   0.21   10 % 14 %
   

For the first nine months of fiscal 2012, net income on a year-to-date basis totaled $21.6 million or $0.36 per diluted share compared with net income of $6.9 million or $0.11 per diluted share for the same period in 2011. Excluding the items outlined below, net income and net income per diluted share increased 6% and 9%, respectively.

  Nine Months Ended

May 31, 2012

    Nine Months Ended

May 31, 2011

    Year-Over-Year

Percent Change

Net Income   Diluted

EPS

Net

Income

  Diluted

EPS

Net Income   Diluted

EPS

Reported – GAAP $ 21,583 $ 0.36 $ 6,939 $ 0.11 211 % 227 %
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 $ 21,583 $ 0.36 $ 20,305   $ 0.33   6 % 9 %
 

Same-Store Sales

For the third fiscal quarter ended May 31, 2012, system-wide same-store sales increased 2.8% versus 3.9% in the same quarter in the prior year. These sales reflected an increase of 3.7% at company drive-ins and a 2.7% increase at franchise drive-ins. For the first nine months of fiscal 2012, system-wide same-store sales increased 2.2% versus an increase of 0.9% in the first nine months of fiscal 2011. These sales reflected a 2.3% increase in same-store sales at company drive-ins and a 2.2% increase at franchise drive-ins.

Development

Across the Sonic system, seven new franchise drive-ins were opened in the third quarter of fiscal 2012 versus 12 new franchise drive-in openings during the third quarter of fiscal 2011. For the first nine months of fiscal 2012, 19 new franchise drive-ins were opened compared to 26 during the same period prior year.

Fourth Fiscal Quarter of 2012 Outlook

The company’s outlook anticipates the following elements:

  • The opening of 15 to 20 new franchise drive-ins;
  • Positive same-store sales in the low single digits, the extent of which will be dependent upon the degree of external economic challenges;
  • Favorable restaurant-level margins;
  • Selling, general and administrative expenses of $17 million to $18 million;
  • Depreciation and amortization of $10.5 million to $11 million;
  • Net interest expense of approximately $7.5 to $8 million;
  • An income tax rate of between 37.5% and 38.5%, depending upon the reinstatement of employment tax credit programs; and
  • Annual capital expenditures in the range of $20 million to $25 million.

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) 397-5335 or (719) 325-2157 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 1501824. The replay will be available until Wednesday, June 27, 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 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, change in system 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.

SONC-G

 
SONIC CORP.
Unaudited Supplemental Information
(In thousands, except per share amounts)
           
Third Quarter Ended Nine Months Ended
May 31, May 31,
  2012     2011     2012     2011  
Statement of Operations
Revenues:
Company Drive-In sales $ 110,070 $ 113,745 $ 294,037 $ 297,454
Franchise Drive-Ins:
Franchise royalties 35,599 34,825 89,980 88,650
Franchise fees 202 385 851 1,271
Lease revenue 2,056 1,828 4,605 4,347
Other   1,500     1,315     3,317     3,045  
149,427 152,098 392,790 394,767
Costs and expenses:
Company Drive-Ins:
Food and packaging 30,600 31,996 83,011 83,559
Payroll and other employee benefits 38,539 40,466 106,363 108,741
Other operating expenses, exclusive of
depreciation and amortization included below   22,261     23,549     65,899     66,765  
91,400 96,011 255,273 259,065
 
Selling, general and administrative 16,951 17,212 48,452 48,778
Depreciation and amortization 10,288 10,139 31,264 30,806
Provision for impairment of long-lived assets   203     49     376     313  
  118,842     123,411     335,365     338,962  
Other operating income (expense), net   151     (20 )   613     255  
Income from operations 30,736 28,667 58,038 56,060
 
Interest expense 7,836 7,991 23,807 24,414
Interest income (174 ) (161 ) (477 ) (513 )
Net loss from early extinguishment of debt   -     28,230     -     23,025  
Net interest expense   7,662     36,060     23,330     46,926  
Income (loss) before income taxes 23,074 (7,393 ) 34,708 9,134
Provision (benefit) for income taxes   8,667     (2,742 )   13,125     2,195  
Net income (loss) $ 14,407   $ (4,651 ) $ 21,583   $ 6,939  
 
 
Net income (loss) per share:
Basic $ 0.24   $ (0.08 ) $ 0.36   $ 0.11  
Diluted $ 0.24   $ (0.08 ) $ 0.36   $ 0.11  
Weighted average shares used in calculation:
Basic   59,936     61,842     60,736     61,723  
Diluted   59,961     62,000     60,767     61,873  
 
 
SONIC CORP.
Unaudited Supplemental Information
         
Third Quarter Ended Nine Months Ended
May 31, May 31,
  2012     2011     2012     2011  
Drive-Ins in Operation
Company:
Total at beginning of period 412 451 446 455
Opened - - - -
Sold to franchisees (1 ) (4 ) (35 ) (6 )
Closed (net of re-openings)   (2 )   (2 )   (2 )   (4 )
Total at end of period   409     445     409  

 

  445  
Franchise:
Total at beginning of period 3,138 3,104 3,115 3,117
Opened 7 12 19 26
Acquired from company 1 4 35 6
Closed (net of re-openings)   (5 )   (6 )   (28 )   (35 )
Total at end of period   3,141     3,114     3,141  

 

  3,114  
System-wide:
Total at beginning of period 3,550 3,555 3,561

 

3,572
Opened 7 12 19

 

26
Closed (net of re-openings)   (7 )   (8 )   (30 )

 

  (39 )
Total at end of period   3,550     3,559     3,550  

 

  3,559  
 
Third Quarter Ended Nine Months Ended
May 31, May 31,
  2012     2011     2012     2011  
($ in thousands) ($ in thousands)
Sales Analysis
Company drive-ins:
Total sales $ 110,070 $ 113,745 $ 294,037 $ 297,454
Average drive-in sales 268 256 688 665
Change in same-store sales 3.7 % 6.5 % 2.3 % 2.4 %
Franchised drive-ins:
Total sales $ 934,449 $ 906,401 $ 2,431,649 $ 2,352,065
Average drive-in sales 298 292 779 760
Change in same-store sales 2.7 % 3.6 % 2.2 % 0.8 %
System-wide:
Change in total sales 2.4 % 4.7 % 2.9 % 1.3 %
Average drive-in sales $ 294 $ 287 $ 768 $ 747
Change in same-store sales 2.8 % 3.9 % 2.2 % 0.9 %
 
Note: Change in same-store sales based on restaurants open for a minimum of 15 months.
 
 
SONIC CORP.
Unaudited Supplemental Information
         
Third Quarter Ended Nine Months Ended
May 31, May 31,
2012 2011 2012 2011
Margin Analysis (percentage of Company
Drive-In sales)
Company Drive-Ins:
Food and packaging 27.8 % 28.1 % 28.2 % 28.1 %
Payroll and employee benefits* 35.0 % 35.6 % 36.2 % 36.5 %
Other operating expenses 20.2 % 20.7 % 22.4 % 22.5 %
83.0 % 84.4 % 86.8 % 87.1 %
 

* 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.

 
May 31, Aug. 31,
2012 2011
Balance Sheet Data (In thousands)
Cash and cash equivalents 41,672 29,509
Current assets 97,946 93,457
Property, equipment and capital leases, net 444,944 464,875
Total assets 666,714 679,742
 
Current liabilities, including capital lease obligations and long-term debt due within one year 71,401 71,279
Obligations under capital leases due after one year 28,735 30,302
Long-term debt due after one year 470,562 481,835
Total liabilities 617,829 628,046
Stockholders' equity 48,885 51,696

Contacts

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

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Contacts

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