Sonic Announces 4.6% System Same-Store Sales Increase for Fourth Fiscal Quarter

OKLAHOMA CITY–(hospitalitybusinessnews.com)– Sonic Corp. today announced results for the fourth fiscal quarter and fiscal year ended August 31, 2014.

“Our same-store sales growth over the past fiscal year reflects not only the success of our promotional strategy but also improvements in our core menu and base business.”

Key highlights of the company’s fiscal year 2014 included:

  • Net income per diluted share was $0.85 compared with net income per diluted share of $0.64 in fiscal 2013; excluding certain adjustments outlined below, net income per diluted share increased 17% to $.84 compared with $0.72 in fiscal 2013;
  • System same-store sales increased 3.5%, consisting of a 3.5% same-store sales increase at both franchise and company drive-ins;
  • Company drive-in margins improved by 90 basis points;
  • 40 new drive-ins were opened; and
  • The company repurchased $80 million in stock representing 7% of the company’s outstanding shares as of the beginning of the fiscal year.

Key highlights of the company’s fourth fiscal quarter included:

  • Net income per diluted share was $0.34 compared with net income per diluted share of $0.21 in the fourth fiscal quarter of 2013; excluding certain adjustments outlined below, net income per diluted share increased 13%;
  • System same-store sales increased 4.6% over a 5.9% increase in the fourth quarter of fiscal 2013, consisting of a 4.5% same-store sales increase at franchise drive-ins and an increase of 4.9% at company drive-ins;
  • Company drive-in margins improved by 150 basis points versus the fourth quarter of fiscal 2013;
  • 17 new drive-ins were opened; and
  • The company repurchased approximately $10.6 million of stock.

“Our fourth quarter capped off a great year for Sonic, and we believe that the business is well positioned for continued growth,” said Cliff Hudson, Sonic Corp. CEO, “Our same-store sales growth over the past fiscal year reflects not only the success of our promotional strategy but also improvements in our core menu and base business.

“We continue to implement our technology initiatives, which include new digital menu boards and a new point-of-sale system. In fiscal 2014, we completed implementation of these initiatives in all company drive-ins, and we will begin the roll-out to franchise locations this winter. We expect these initiatives to complement our innovative product pipeline and media strategies to drive improved sales and profits over the next several years.”

Hudson continued, “We are confident our multi-layered growth strategy, which incorporates same-store sales growth, leverage from higher sales, deployment of free cash flow1, increasing royalty revenues and new drive-in development, will continue to result in double-digit earnings per share growth for the next several years. We also believe that our initiation of a quarterly cash dividend and our $105 million share repurchase program, announced in August, highlight the confidence we have in our brand and our commitment to increasing value for shareholders.”

Same-Store Sales

For the fourth fiscal quarter ended August 31, 2014, system same-store sales increased 4.6%, which was comprised of a 4.5% same-store sales increase at franchise drive-ins and an increase of 4.9% at company drive-ins. For the 12 months ended August 31, 2014, system same-store sales increased 3.5%, including a 3.5% same-store sales increase at franchise drive-ins and a 3.5% increase at company drive-ins.

Financial Overview

For the fourth fiscal quarter of 2014, the company’s net income increased to $18.8 million or $0.34 per diluted share compared with net income of $12.2 million or $0.21 per diluted share in the same period in the prior year, resulting in earnings per share growth of 62%. Excluding the items outlined below, net income and net income per diluted share increased by 9% and 13%, respectively.

For fiscal 2014, net income totaled $47.9 million or $0.85 per diluted share compared with net income of $36.7 million or $0.64 per diluted share for fiscal 2013. Excluding the items outlined below, net income and net income per diluted share increased by 15% and 17%, respectively.

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.

Three months ended Three months ended
August 31, 2014 August 31, 2013
Net Diluted Net Diluted Net Income Diluted EPS
Income EPS Income EPS $ Change % Change $ Change % Change
Reported – GAAP $ 18,825 $ 0.34 $ 12,198 $ 0.21 $ 6,627 54 % $ 0.13 62 %
After-tax loss from early extinguishment of debt 2,483 0.04
After-tax loss on closure of Company Drive-Ins 1,510 0.03
After-tax impairment charges for point-of-sale assets 1,013 0.02
Adjusted – Non-GAAP $ 18,825 $ 0.34 $ 17,204 $ 0.30 $ 1,621 9 % $ 0.04 13 %
Fiscal year ended Fiscal year ended
August 31, 2014 August 31, 2013
Net Diluted Net Diluted Net Income Diluted EPS
Income EPS Income EPS $ Change % Change $ Change % Change
Reported – GAAP $ 47,916 $ 0.85 $ 36,701 $ 0.64 $ 11,215 31 % $ 0.20 31 %
Tax benefit from the IRS’ acceptance of a federal tax method change (484 ) (0.01 )
After-tax loss from early extinguishment of debt 2,798 0.05
Retroactive tax benefit of WOTC and resolution of tax matters (743 ) (0.02 )
After-tax loss on closure of Company Drive-Ins 1,510 0.03
After-tax impairment charge for point-of-sale assets 1,013 0.02
Adjusted – Non-GAAP $ 47,432 $ 0.84 $ 41,279 $ 0.72 $ 6,153 15 % $ 0.12 17 %

Fiscal Year 2015 Outlook

While the macroeconomic environment may impact results, the company expects its initiatives to drive 18% to 20% earnings per share growth in fiscal 2015, versus adjusted EPS in fiscal 2014. The outlook for fiscal 2015 anticipates the following elements:

  • Positive same-store sales in the low single digit range for the system;
  • Company drive-in same-store sales growth expected to outperform franchisees for the fiscal year as a result of the recent implementation of new digital menu boards and point-of-sale systems, with this outperformance weighted toward the latter portion of the fiscal year;
  • In addition to royalty revenue growth from same-store sales improvements and new unit development, incremental royalty revenue of approximately $8 million as a result of approximately 900 stores converting to a higher royalty rate structure at the beginning of fiscal 2015;
  • 50 to 60 new franchise drive-in openings, resulting in net unit growth for the system;
  • Drive-in-level margin improvement of between 50 to 100 basis points, depending upon the degree of same-store sales growth at company drive-ins and commodity cost inflation;
  • Selling, general and administrative expenses of $75 million to $76 million, reflecting increased investment in human resources to support the brand initiatives described above;
  • Depreciation and amortization expense of $45.5 million to $46.5 million as a result of increased capital investment in fiscal 2014;
  • Net interest expense of $25 million to $25.5 million;
  • An income tax rate of between 37% to 37.5%, which may vary depending upon the reinstatement of certain tax credit programs;
  • Capital expenditures of $30 million to $40 million;
  • Free cash flow of $65 million to $75 million;
  • The planned repurchase of $105 million of stock across the fiscal year; and
  • A quarterly cash dividend of $0.09 per share resulting in an estimated payout of $19 million during the fiscal year.

 

SONIC CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three months ended Fiscal year ended
August 31, August 31,
2014 2013 2014 2013
Revenues:
Company Drive-In sales $ 119,002 $ 116,689 $ 405,363 $ 402,296
Franchise Drive-Ins:
Franchise royalties and fees 41,818 38,988 138,416 130,737
Lease revenue 1,609 1,261 4,291 4,785
Other 1,340 1,864 4,279 4,767
Total revenues 163,769 158,802 552,349 542,585
Costs and expenses:
Company Drive-Ins:
Food and packaging 34,871 33,591 116,325 114,545
Payroll and other employee benefits 38,831 39,674 139,939 142,511

Other operating expenses, exclusive of depreciation and amortization included below

23,796 24,010 85,845 86,153
Total cost of Company Drive-In sales 97,498 97,275 342,109 343,209
Selling, general and administrative 18,885 17,482 69,415 66,022
Depreciation and amortization 11,123 9,940 42,210 40,387
Provision for impairment of long-lived assets 85 1,776 114 1,776
Other operating (income) expense, net (110 ) 2,296 (176 ) 1,943
Total costs and expenses 127,481 128,769 453,672 453,337
Income from operations 36,288 30,033 98,677 89,248
Interest expense 6,287 6,805 25,382 29,098
Interest income (96 ) (130 ) (469 ) (592 )
Loss from early extinguishment of debt 3,951 4,443
Net interest expense 6,191 10,626 24,913 32,949
Income before income taxes 30,097 19,407 73,764 56,299
Provision for income taxes 11,272 7,209 25,848 19,598
Net income $ 18,825 $ 12,198 $ 47,916 $ 36,701
Basic income per share $ 0.35 $ 0.22 $ 0.87 $ 0.65
Diluted income per share $ 0.34 $ 0.21 $ 0.85 $ 0.64
Cash dividends declared per common share $ 0.09 $ $ 0.09 $
Weighted average basic shares 54,022 56,061 55,164 56,384
Weighted average diluted shares 55,419 57,408 56,619 57,191
SONIC CORP.
Unaudited Supplemental Information
Three months ended Fiscal year ended
August 31, August 31,
2014 2013 2014 2013
Drive-Ins in Operation
Company:
Total at beginning of period 389 407 396 409
Opened 2 1 3 2
Acquired from (sold to) franchisees (7 ) 1
Closed (net of re-openings) (12 ) (1 ) (16 )
Total at end of period 391 396 391 396
Franchise:
Total at beginning of period 3,121 3,119 3,126 3,147
Opened 15 16 37 25
Acquired from (sold to) the company 7 (1 )
Closed (net of re-openings) (9 ) (9 ) (43 ) (45 )
Total at end of period 3,127 3,126 3,127 3,126
System-wide:
Total at beginning of period 3,510 3,526 3,522 3,556
Opened 17 17 40 27
Closed (net of re-openings) (9 ) (21 ) (44 ) (61 )
Total at end of period 3,518 3,522 3,518 3,522
Three months ended Fiscal year ended
August 31, August 31,
2014 2013 2014 2013
($ in thousands) ($ in thousands)
Sales Analysis
Company Drive-Ins:
Total sales $ 119,002 $ 116,689 $ 405,363 $ 402,296
Average drive-in sales 305 286 1,043 990
Change in same-store sales 4.9 % 5.2 % 3.5 % 2.5 %
Franchised Drive-Ins:
Total sales $ 1,058,640 $ 1,003,216 $ 3,627,395 $ 3,479,880
Average drive-in sales 343 327 1,170 1,125
Change in same-store sales 4.5 % 6.0 % 3.5 % 2.3 %
System-wide:
Change in total sales 5.2 % 6.0 % 3.9 % 2.4 %
Average drive-in sales $ 338 $ 322 $ 1,153 $ 1,109
Change in same-store sales 4.6 % 5.9 % 3.5 % 2.3 %

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.

SONIC CORP.
Unaudited Supplemental Information
Three months ended Fiscal year ended
August 31, August 31,
2014 2013 2014 2013
Revenues (in thousands)
Company Drive-In sales $ 119,002 $ 116,689 $ 405,363 $ 402,296
Franchise Drive-Ins:
Franchise royalties 41,317 38,518 137,125 130,009
Franchise fees 501 470 1,291 728
Lease revenue 1,609 1,261 4,291 4,785
Other 1,340 1,864 4,279 4,767
Total revenues $ 163,769 $ 158,802 $ 552,349 $ 542,585
Three months ended Fiscal year ended
August 31, August 31,
2014 2013 2014 2013
Margin Analysis (percentage of Company Drive-In sales)
Company Drive-Ins:
Food and packaging 29.3 % 28.8 % 28.7 % 28.5 %
Payroll and employee benefits 32.6 34.0 34.5 35.4
Other operating expenses 20.0 20.6 21.2 21.4
Cost of Company Drive-In sales 81.9 % 83.4 % 84.4 % 85.3 %
August 31, August 31,
2014 2013
Selected Balance Sheet Data (In thousands)
Cash and cash equivalents $ 35,694 $ 77,896
Current assets 95,712 140,722
Property, equipment and capital leases, net 441,969 399,661
Total assets $ 650,972 $ 660,794

Current liabilities, including capital lease obligations and long-term debt due within one year

$ 79,511 $ 72,930
Obligations under capital leases due after one year 23,050 22,458
Long-term debt due after one year 427,527 437,380
Total liabilities 588,297 583,330
Stockholders’ equity $ 62,675 $ 77,464
Share Button
About the Author