Industry News | October 17, 2012

Sonic Sees Net Income Jump 25% in Q4

Sonic Corp., the nation's largest chain of drive-in restaurants, announced results for the fourth quarter and fiscal year ended August 31, 2012.

The company's net income per diluted share increased 25 percent to $0.25, compared with net income per diluted share of $0.20 in the fourth quarter of fiscal 2011.

System-wide same-store sales increased 2.3 percent during the fourth quarter, with an increase of 4.3 percent at company drive-ins and 2.1 percent 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 percent increase in earnings per share,” says Cliff Hudson, chairman and CEO.

“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 daypart promotional strategy to drive consistent same-store sales growth,” he continues. “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 flow 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,” Hudson adds. “We are confident our multilayered 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.”

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.

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.

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 50–100 basis points, depending upon the degree of same-store sales growth at company drive-ins;
  • Selling, general, and administrative expenses of $68–$69 million;
  • Depreciation and amortization expense of $41–$42 million;
  • Net interest expense of approximately $29 million;
  • An income tax rate of between 38 percent and 38.5 percent, which may vary depending upon the reinstatement of employment tax credit programs;
  • Capital expenditures of $30–$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–$55 million.

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