Sonic Reports 25% Increase in Fourth Quarter Earnings

OKLAHOMA CITY--()--Sonic Corp. (NASDAQ: 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 %
Franchised drive-ins:
Total sales $ 946,330 $ 921,758 $ 3,386,218 $ 3,278,208
Average drive-in sales 301 296 1,081 1,054
Change in same-store sales 2.1 % -0.6 % 2.2 % 0.4 %
System-wide:
Change in total sales 2.1 % 0.9 % 2.7 % 1.9 %
Average drive-in sales $ 297 $ 291 $ 1,066 $ 1,037
Change in same-store sales 2.3 % -0.5 % 2.2 % 0.5 %
 
 
Note: Change in same-store sales based on restaurants open for a minimum of 15 months.
SONIC CORP.
Unaudited Supplemental Information
         
Fourth Quarter Ended Fiscal Year Ended
August 31, August 31,
2012   2011   2012   2011  
Margin Analysis (percentage of Company
Drive-In sales)
Company Drive-Ins:
Food and packaging 27.9 % 28.2 % 28.1 % 28.1 %
Payroll and employee benefits 34.6 % 35.9 % 35.7 % 36.4 %
Other operating expenses 21.0 % 21.6 % 22.1 % 22.2 %
83.5 % 85.7 % 85.9 % 86.7 %
 
August 31, August 31,
2012   2011  
Balance Sheet Data (In thousands)
Cash and cash equivalents 52,647 29,509
Current assets 107,151 93,457
Property, equipment and capital leases, net 443,008 464,875
Total assets 680,760 679,742
 
Current liabilities, including capital lease obligations and long-term debt due within one year 80,516 71,279
Obligations under capital leases due after one year 27,377 30,302
Long-term debt due after one year 466,613 481,835
Total liabilities 621,513 628,046
Stockholders' equity 59,247 51,696

SONC-G

Contacts

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

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Contacts

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