Industry News | October 17, 2008

Sonic Reports Lower Profits

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Sonic Corp. (NASDAQ: SONC - News) today announced results for the fiscal year and fourth quarter ended August 31, 2008. Key aspects of the company's fiscal year and fourth quarter performance included:

* Net income per diluted share for the fiscal year totaled $0.97 versus $0.91 in the prior year (and was up 1 percent from $0.96 last year excluding special items outlined below); net income per diluted share was $0.33 for the fourth fiscal quarter versus $0.34 in fiscal 2007;

* System-wide same-store sales increased 0.9 percent for the fiscal year; system-wide same-store sales declined 0.6 percent in the fourth quarter, reflecting a more challenging economic climate and lower sales at partner-drive ins (drive-ins in which the company owns a majority interest);

* A total of 169 new drive-ins were opened during the fiscal year, including 140 by franchisees, reflecting the ongoing expansion of the Sonic system; and

* Investments in existing drive-ins grew, with the retrofit of 967 drive-ins during fiscal 2008, including 800 by franchisees, as well as the relocation or rebuild of 64 drive-ins by franchisees.

"Sonic continued to make important progress in many areas during the past year that underscores our confidence in the long-term growth prospects of the brand," Clifford Hudson, chairman and CEO, says. "Most notable was the posting of our 22nd straight year of positive system-wide same-store sales, an accomplishment virtually unmatched in the restaurant industry and one that reflects the success of our multilayered growth strategy. We also were pleased to see significant development activity by our franchisees, which included not only solid new drive-in openings, but an increased number of rebuilds and relocations and accelerated implementation of our retrofit program. Equally important, we continued to expand the reach of our brand, opening in several new markets and new states--including New Jersey, Michigan, and Minnesota--with very strong sales results.

"However, our business continues to face a number of challenges, including weakening consumer sentiment compounded by steadily rising commodity and labor costs," Hudson says. "In addition, during the latter part of the fiscal year, sales performance of our partner drive-ins lagged that of our franchise drive-ins.

"We have taken several actions since the decline in same-store sales performance at partner drive-ins began during the third quarter," Hudson adds, "including organizational restructuring, as well as the implementation of a simplified incentive compensation plan, which places greater emphasis on customer service. While the effect of these changes has not been realized in same-store sales increases to date, customer service scores have improved significantly and are currently closer to parity with franchisee performance than in previous months. It is difficult to predict when partner drive-in sales will rebound; however, it is our belief that a sustained high level of service, coupled with more aggressive marketing efforts, will yield improved results."

As previously announced, the company believes that refranchising underperforming partner drive-ins will allow greater focus on and lead to improved performance at remaining partner drive-ins. Partner drive-ins comprise about 20 percent of the Sonic system. Over time, accelerated expansion by franchisees, combined with the refranchising and more moderate growth of partner drive-ins, is anticipated to reduce this number to 12 percent to 14 percent of the system.

"In light of the external conditions we face, as well as internal challenges with the performance of our partner drive-ins, we continue to refine our approach to our business," Hudson says. "Product and service initiatives implemented should connect with current and changing customer tastes, and enhance our ability to compete at both premium and value price points. This will be a key area of focus for us in fiscal 2009 as we strive to be the best in quality and speed of service, as well as more competitive on price."

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.