In the second quarter, Sonic Corp. reported same-store sales declines of 7.4 percent year-over-year. It was even more pronounced at company-owned stores, where numbers dropped 8.9 percent and margins plummeted 330 basis points. Understandably, that made Thursday’s third-quarter reveal a bit of a blockbuster for investors.
The company reported that system same-store sales declined 1.2 percent (1.1 percent at franchise drive-ins and 3.2 percent at company-owned). The arrow is still in the red, but at least it’s pointing north.
Net income per diluted share also increased 42 percent to 44 cents versus 31 cents in the prior-year period. Fifteen new stores opened and drive-in margins grew 40 basis points.
During a conference call Thursday, CEO Cliff Hudson spoke about how Sonic’s discounting initiatives derailed the brand in recent quarters. The company’s $5 Boom Box Special, which was released in late May last year, was one example.
“It didn’t drive traffic and did not effectively leverage our strengths, which historically have been more [centered around] innovation, differentiation, talking to customers about customization of products, and the high quality of product,” Hudson said in the call.
Differentiation is a word Hudson used in some form four different times in his opening remarks. Sonic’s promotional calendar is “more balanced” the company said, focusing on its reinvigorated Sonic Summer Nights promotion featuring the Real Ice Cream Slush. There’s also Half-Price Shakes after 8 p.m. in the summer, and “Family Night” on Tuesdays, where cheeseburgers are discounted from 5 p.m. to close. These value-ordered promotions are more in line with what has always defined Sonic, Hudson says.
“We have a long history of competing effectively on differentiated products rather than price,” he said in the call.
“You can ask the question, what are we doing to recapture the momentum in our business?” he added. “… We continue our re-emphasis on pairing premium product innovation with relevant value.” He also pointed to the recently released Pretzel Dog, the Custard Concretes, and Ultimate Chicken Club Sandwich.
There have also been numerous executive changes. On June 15, the company announced that Lori Abou Habib was named chief marketing officer. The 10-year Sonic veteran started as a product pipeline manager. The promotion led to Darin Dugan joining Sonic as vice president of national marketing. Dugan spent 16 years with Kraft and was also senior vice president of marketing and culinary at DineEquity brand Applebee’s. Also, former Golfsmith International head of marketing and e-commerce Kim Lewis was appointed to the newly created position of vice president of digital strategies. Additionally, Hudson said Sonic is currently recruiting a chief brand officer.
“We're reaching a point in the evolution of our business where we can more aggressively evolve our marketing toward 21st century customer engagement consisting of digital, social, one-to-one communication, as well as customization,” he said in the call.
During the quarter, Sonic also released its redesigned mobile app that is fully integrated with the company’s POPS network, also knows as Sonic’s “Point-of-Personalization Service” system, which adds targeted messaging and customized promotions. He said he expects POPS to rollout to 90 percent of stores by the end of the fiscal year in August.
The new mobile app includes in-app order confirmation, offers and rewards, and is now linked to the POPS screen and POS system at the store level, all adding to the integrated customer engagement experience, Hudson said.
Another positive factor is growth. Hudson said Sonic is on track to open 65—75 units this year and the current area development pipeline is 5 percent higher versus this time last year.