Sonic Earnings Per Share Rise 47% for the Fourth Fiscal Quarter of 2015

OKLAHOMA CITY–(hospitalitybusinessnews.com)–Sonic Corp., the nation’s largest chain of drive-in restaurants, today announced results for its fourth fiscal quarter and year ended August 31, 2015.

“Looking forward, we believe product innovation, combined with our promotional, media and technology initiatives, will continue to drive consistent positive same-store sales and EPS growth. Record unit volumes in existing and new drive-ins give us continued confidence in the growing strength of the Sonic brand”

Key highlights of the company’s fiscal year 2015 included:

  • Net income per diluted share was $1.20 compared with net income per diluted share of $0.85 in fiscal 2014; excluding certain adjustments outlined below, net income per diluted share increased 31% to $1.10 compared with $0.84 in fiscal 2014;
  • System same-store sales increased 7.3%, consisting of a 7.3% same-store sales increase at franchise drive-ins and an increase of 6.9% at company drive-ins;
  • Company drive-in margins improved by 90 basis points;
  • 41 new drive-ins were opened, and 30 drive-ins were rebuilt; and
  • The company repurchased $124 million in stock representing 7.4% of the company’s outstanding shares as of the beginning of the fiscal year.

Key highlights of the company’s fourth quarter of fiscal year 2015 included:

  • Net income per diluted share was $0.50 compared with net income per diluted share of $0.34 in the prior-year period; excluding certain adjustments outlined below, net income per diluted share increased 26% to $0.43 compared with $0.34 in fiscal 2014;
  • System same-store sales increased 4.9%, consisting of a 4.9% same-store sales increase at franchise drive-ins and an increase of 4.5% at company drive-ins;
  • Company drive-in margins improved by 100 basis points; and
  • 18 new drive-ins were opened.

“By every measure fiscal 2015 was a great year for our customers and franchisees. We completed our fifth consecutive fiscal year of positive same-store sales growth with a 7.3% system same-store sales increase for the year. Incremental profits for our franchisees were the highest since the onset of the Great Recession. These results drove a 31% increase in fiscal 2015 earnings per share, on an adjusted basis,” said Clifford Hudson, Sonic Corp. CEO. “Our strong financial performance has also been complemented by a disciplined approach to capital allocation. While we have invested in long-term initiatives to drive system sales performance, we have also returned substantial capital to shareholders. In fact, since 2011 we have returned a combined $289 million to shareholders via dividends and the repurchase of over 25% of our outstanding shares.

“Looking forward, we believe product innovation, combined with our promotional, media and technology initiatives, will continue to drive consistent positive same-store sales and EPS growth. Record unit volumes in existing and new drive-ins give us continued confidence in the growing strength of the Sonic brand,” concluded Hudson.

Same-Store Sales

For the fourth fiscal quarter ended August 31, 2015, system same-store sales increased 4.9%, which was comprised of a 4.9% same-store sales increase at franchise drive-ins and an increase of 4.5% at company drive-ins. For the 12 months ended August 31, 2015, system same-store sales increased 7.3%, including a 7.3% same-store sales increase at franchise drive-ins and a 6.9% increase at company drive-ins.

Financial Overview

For the fourth fiscal quarter of 2015, the company’s net income increased to $26.3 million or $0.50 per diluted share compared with net income of $18.8 million or $0.34 per diluted share in the same period in the prior year. Excluding the items outlined below, net income and net income per diluted share increased by 23% and 26%, respectively.

The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company’s financial results in accordance with GAAP. The company believes that the presentation of this analysis 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, 2015 August 31, 2014
Net Diluted Net Diluted Net Income Diluted EPS
Income EPS Income EPS $ Change % Change $ Change % Change
Reported – GAAP $ 26,296 $ 0.50 $ 18,825 $ 0.34 $ 7,471 40 % $ 0.16 47 %
Federal tax benefit of prior-year statutory tax deduction (1,477 ) (0.03 )
Change in deferred tax valuation allowance (1,701 ) (0.04 )
Adjusted – Non-GAAP $ 23,118 $ 0.43 $ 18,825 $ 0.34 $ 4,293 23 % $ 0.09 26 %

For fiscal 2015, net income totaled $64.5 million or $1.20 per diluted share compared with net income of $47.9 million or $0.85 per diluted share for fiscal 2014. Excluding the items outlined below, net income and net income per diluted share increased by 26% and 31%, respectively.

Fiscal year ended Fiscal year ended
August 31, 2015 August 31, 2014
Net Diluted Net Diluted Net Income Diluted EPS
Income EPS Income EPS $ Change % Change $ Change % Change
Reported – GAAP $ 64,485 $ 1.20 $ 47,916 $ 0.85 $ 16,569 35 % $ 0.35 41 %
Federal tax benefit of prior-year statutory tax deduction (3,199 ) (0.06 )
Change in deferred tax valuation allowance (1,701 ) (0.04 )
Retroactive effect of federal tax law change 612 0.01
Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters (666 ) (0.01 )
Benefit from the IRS’s acceptance of a federal tax method change (484 ) (0.01 )
Adjusted – Non-GAAP $ 59,531 $ 1.10 $ 47,432 $ 0.84 $ 12,099 26 % $ 0.26 31 %

Fiscal Year 2016 Outlook

While the macroeconomic environment may impact results, the company now expects its initiatives to drive 16% to 20% earnings per share growth for fiscal 2016 as compared to the previous outlook of 14% to 18% growth, reflecting higher share repurchase activity in the first half of the fiscal year. The outlook for fiscal 2016 anticipates the following elements:

  • 2% to 4% same-store sales growth for the system;
  • Royalty revenue growth from same-store sales improvements and new unit development;
  • 50 to 60 new franchise drive-in openings;
  • Drive-in-level margin improvement between 75 to 125 basis points, depending upon the degree of same-store sales growth at company drive-ins;
  • Selling, general and administrative expenses of $81.5 million to $82.5 million reflecting increased investment in human resources to support brand initiatives;
  • Depreciation and amortization expense of $45.5 million to $46.5 million as a result of capital investment in fiscal 2016;
  • Net interest expense of $26.5 million to $27.5 million;
  • Capital expenditures of $35 million to $40 million;
  • Free cash flow1 of $70 million to $75 million;
  • An income tax rate between 36.5% to 37.5%;
  • The planned repurchase of $126 million of stock across the fiscal year, with a higher concentration of share repurchases in the first half of the fiscal year; and
  • An expected quarterly cash dividend of $0.11 per share.

 

SONIC CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three months ended Fiscal year ended
August 31, August 31,
2015 2014 2015 2014
Revenues:
Company Drive-In sales $ 125,215 $ 119,002 $ 436,031 $ 405,363
Franchise Drive-Ins:
Franchise royalties and fees 46,967 41,818 161,342 138,416
Lease revenue 1,970 1,609 5,583 4,291
Other 1,114 1,340 3,133 4,279
Total revenues 175,266 163,769 606,089 552,349
Costs and expenses:
Company Drive-Ins:
Food and packaging 34,573 34,871 121,701 116,325
Payroll and other employee benefits 41,752 38,831 151,801 139,939
Other operating expenses, exclusive of
depreciation and amortization included below 24,952 23,796 90,436 85,845
Total cost of Company Drive-In sales 101,277 97,498 363,938 342,109
Selling, general and administrative 21,711 18,885 79,336 69,415
Depreciation and amortization 11,258 11,123 45,892 42,210
Provision for impairment of long-lived assets 1,393 85 1,440 114
Other operating income, net (902 ) (110 ) (945 ) (176 )
Total costs and expenses 134,737 127,481 489,661 453,672
Income from operations 40,529 36,288 116,428 98,677
Interest expense 6,133 6,287 25,114 25,382
Interest income (118 ) (96 ) (408 ) (469 )
Net interest expense 6,015 6,191 24,706 24,913
Income before income taxes 34,514 30,097 91,722 73,764
Provision for income taxes 8,218 11,272 27,237 25,848
Net income $ 26,296 $ 18,825 $ 64,485 $ 47,916
Basic income per share $ 0.51 $ 0.35 $ 1.23 $ 0.87
Diluted income per share $ 0.50 $ 0.34 $ 1.20 $ 0.85
Weighted average basic shares 51,736 54,022 52,572 55,164
Weighted average diluted shares 52,936 55,419 53,953 56,619
SONIC CORP.
Unaudited Supplemental Information
Three months ended Fiscal year ended
August 31, August 31,
2015 2014 2015 2014
Drive-Ins in Operation
Company:
Total at beginning of period 394 389 391 396
Opened 2 3 3
Sold to franchisees (7 ) (6 ) (7 )
Closed (net of re-openings) (1 ) (1 )
Total at end of period 387 391 387 391
Franchise:
Total at beginning of period 3,118 3,121 3,127 3,126
Opened 18 15 38 37
Acquired from the company 7 6 7
Closed (net of re-openings) (4 ) (9 ) (32 ) (43 )
Total at end of period 3,139 3,127 3,139 3,127
System-wide:
Total at beginning of period 3,512 3,510 3,518 3,522
Opened 18 17 41 40
Closed (net of re-openings) (4 ) (9 ) (33 ) (44 )
Total at end of period 3,526 3,518 3,526 3,518
Three months ended Fiscal year ended
August 31, August 31,
2015 2014 2015 2014
($ in thousands) ($ in thousands)
Sales Analysis
Company Drive-Ins:
Total sales $ 125,215 $ 119,002 $ 436,031 $ 405,363
Average drive-in sales 319 305 1,116 1,043
Change in same-store sales 4.5 % 4.9 % 6.9 % 3.5 %
Franchised Drive-Ins:
Total sales $ 1,121,219 $ 1,058,640 $ 3,931,365 $ 3,627,395
Average drive-in sales 360 343 1,261 1,170
Change in same-store sales 4.9 % 4.5 % 7.3 % 3.5 %
System-wide:
Change in total sales 5.9 % 5.2 % 8.3 % 3.9 %
Average drive-in sales $ 355 $ 338 $ 1,244 $ 1,153
Change in same-store sales 4.9 % 4.6 % 7.3 % 3.5 %

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,
2015 2014 2015 2014
(In thousands) (In thousands)
Revenues
Company Drive-In sales $ 125,215 $ 119,002 $ 436,031 $ 405,363
Franchise Drive-Ins:
Franchise royalties 46,259 41,317 158,813 137,125
Franchise fees 708 501 2,529 1,291
Lease revenue 1,970 1,609 5,583 4,291
Other 1,114 1,340 3,133 4,279
Total revenues $ 175,266 $ 163,769 $ 606,089 $ 552,349
Three months ended Fiscal year ended
August 31, August 31,
2015 2014 2015 2014
Margin Analysis (percentage of Company Drive-In sales)
Company Drive-Ins:
Food and packaging 27.6 % 29.3 % 27.9 % 28.7 %
Payroll and employee benefits 33.4 32.6 34.8 34.5
Other operating expenses 19.9 20.0 20.8 21.2
Cost of Company Drive-In sales 80.9 % 81.9 % 83.5 % 84.4 %
August 31, August 31,
2015 2014
(In thousands)
Selected Balance Sheet Data
Cash and cash equivalents $ 27,191 $ 35,694
Current assets 85,438 95,712
Property, equipment and capital leases, net 421,406 441,969
Total assets $ 620,024 $ 650,972
Current liabilities, including capital lease obligations and
long-term debt due within one year $ 87,821 $ 79,511
Obligations under capital leases due after one year 20,763 23,050
Long-term debt due after one year 428,238 427,527
Total liabilities 602,591 588,297
Stockholders’ equity $ 17,433 $ 62,675
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