Net income rose 13% to $8.5 million versus $7.5 million in the first quarter of fiscal year 2000 and was up 19% to $0.31 per diluted share from $0.26 per diluted share last year (all per share amounts have been adjusted for a three-for-two stock split distributed on November 30, 2000). Sonic's revenues for the quarter increased 8% to $71.0 million compared with $65.9 million in the year-earlier period.
Commenting on the results, Clifford Hudson, chairman and CEO, noted that the company's ongoing earnings momentum in the first quarter highlights the impact of Sonic's multi-layered growth strategies. "These strategies provide balanced opportunities to drive our profits through continued expansion of the chain and the positive impact that has on our franchising income, strong media support for our brand-building efforts, a steady flow of new product news, and increased leverage of corporate-level expenses,'' he said. "Although sales during the latter part of the quarter were, as previously announced, restrained by unseasonably cold and wet weather across many of our markets, we are pleased that our multi-layered growth strategies have continued to produce solid gains in earnings and a strong return on equity.''
According to Hudson, Sonic's system-wide same-store sales declined 1.1% in the first quarter. The late fall and winter months are seasonally slower periods of the year for Sonic and, thus, sales volumes in these months are more easily disrupted by harsh weather conditions, which continued during December in many areas of the country. Moreover, weather conditions in November and December have been unusually mild in recent years, so Sonic's same-store sales comparisons for fiscal 2001 also come against very strong prior-year results.
"Despite slower sales in November and December, we continue to believe that initiatives are in place, weather permitting, to support same-store sales growth of between 2% and 4% during the remaining months of the fiscal year,'' he said. "We anticipate that media expenditures, which will increase 20% to over $80 million this year, will help fuel sales growth in the months to come and continue to improve Sonic's advertising awareness versus competitors. In addition, we plan a steady stream of product promotions and new product news, and we intend to continue to focus on initiatives to build our business in underserved day parts.''
During the first quarter, Sonic opened a total of 46 new drive-ins, including 40 franchised restaurants, marking a solid start to system expansion in the new year. With a strong development pipeline in place for new company-owned and franchised locations, Sonic expects to open at least 200 new drive-ins during fiscal year 2001. "The primary thrust of our system development remains on the franchise side of our business, which reduces operating risk for the company and allows it to achieve stronger returns on equity,'' Hudson said.
"Combined with the ascending nature of our royalty agreements, this strategy also has resulted in a strong and growing base for franchising income. In addition, this focus has enabled Sonic to generate higher levels of free cash flow to reduce bank borrowings—as we did during the first quarter, to support our ongoing share repurchase program—which has a remaining authorization of $20 million, and to fund other opportunistic initiatives—like the purchase of 10 Dallas-area franchised drive-ins scheduled to close January 3, 2001.''
Concluding, Hudson added: "Sonic's business fundamentals remain very healthy and the outlook for continued success in expanding the chain and providing the differentiated fast-food dining experience that customers demand is as strong as ever. These achievements have been the hallmark of our success in the past and they give us the confidence to look for continued earnings growth in the range of 18% to 20% for fiscal year 2001.''
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