Sonic reports fiscal Q2 net earnings of US$4.1M, up 13.9% from year-ago period; revenues fall 1.3% to US$109.7M
March 24, 2014
– Same-Store Sales Grow In Spite of Difficult Weather
Sonic Corp. (SONC), the nation's largest chain of drive-in restaurants, today announced results for the second fiscal quarter ended February 28, 2014.
Key highlights of the company's second fiscal quarter included:
Net income per diluted share was $0.07 compared with reported net income per diluted share of $0.06 in the second fiscal quarter of 2013; excluding certain adjustments in the second fiscal quarter of 2013 as outlined below, net income per diluted share increased 40% in the second fiscal quarter of 2014;
System-wide same-store sales increased 1.4%, consisting of an increase of 1.5% at franchise drive-ins and an increase of 1.3% at company drive-ins;
Company drive-in margins improved 80 basis points; and
The company repurchased approximately $51 million of stock representing almost 5% of its stock outstanding as of the beginning of the quarter.
“We are very pleased with our second quarter results, especially in light of the difficult weather that impacted many of our markets. Our solid sales and financial performance resulted from multiple system-wide initiatives such as increased media efficiency, innovative products and layered day-part promotions. These initiatives complement our focus on service, products and pricing,” said Cliff Hudson, Chairman, Chief Executive Officer and President. “During the quarter we also began to roll out our technology initiatives, as well as signed new franchise development agreements for the development of 26 new drive-ins.
“In addition to great operating results, we used existing cash and free cash flow1 to repurchase $51 million in shares at an average price of $19.14 per share, representing nearly 5% of our outstanding shares. Since our current repurchase program began in fiscal 2012, we have repurchased more than $125 million of stock representing 17% of our outstanding shares. We have completed these repurchases while improving our balance sheet, which reflects the strength of our franchise business model.
“We will continue to focus on our multi-layered growth strategy, which incorporates same-store sales growth, leverage from higher sales, deployment of free cash flow, increasing royalty revenues and new drive-in development to build shareholder value. We believe all of these initiatives will enable us to continue to achieve double-digit earnings per share growth in the near and long term,” concluded Mr. Hudson.
For the second fiscal quarter ended February 28, 2014, system-wide same-store sales increased 1.4%, which was comprised of a 1.5% same-store sales increase at franchise drive-ins and an increase of 1.3% at company drive-ins.
For the second fiscal quarter of 2014, the company's net income totaled $4.1 million or $0.07 per diluted share, compared with net income of $3.6 million or $0.06 per diluted share in the same period in the prior year. Net income per diluted share was $0.05 for the second quarter of fiscal year 2013, excluding a $0.9 million tax benefit that included the retroactive reinstatement of the Work Opportunity Tax Credit (“WOTC”) and resolution of certain tax matters, as well as a $0.5 million ($0.3 million after-tax) charge from the write-off of debt origination costs associated with the $20.0 million early extinguishment of debt. Excluding the items outlined below, net income and net income per diluted share increased 35% and 40%, respectively.
For the first six months of fiscal 2014, net income totaled $12.3 million or $0.21 per diluted share compared with net income of $9.7 million or $0.17 per diluted share for the same period in 2013. Excluding the items outlined below, net income and net income per diluted share increased 27% and 25%, respectively.
Company drive-in sales for the second quarter and first six months of fiscal 2014 decreased by $1.9 million and $1.8 million, respectively, compared to the same period in the prior year primarily as a result of the closure of 12 company drive-ins during the fourth fiscal quarter of 2013 and the refranchising of seven company drive-ins during the first fiscal quarter of 2014, partially offset by an increase in same-store sales.
During the second fiscal quarter, six new franchise drive-ins were opened versus three new franchise drive-in openings during the second quarter of fiscal 2013. Fiscal year-to-date, 13 new franchise drive-ins have opened versus four drive-ins in the first half of fiscal 2013.
Fiscal Year 2014 Outlook
The company expects its initiatives to drive 14% to 15% earnings per share growth in fiscal 2014 as compared to the adjusted non-GAAP earnings per share for fiscal 2013. The macroeconomic environment and its impact on consumer confidence, in addition to the pacing of capital investments, may impact results. The outlook for fiscal 2014 anticipates the following elements:
Positive same-store sales in the low single digit range for the system;
Company drive-ins expected to perform above the system average in the latter half of the fiscal year as new digital point-of-purchase technology and a new point-of-sale system are implemented;
40 to 50 new franchise drive-in openings and fewer drive-in closings than in fiscal 2013;
Drive-in-level margins improving between 50 to 100 basis points, depending upon the degree of same-store sales growth at company drive-ins and the level of commodity cost inflation over the spring and summer months;
Selling, general and administrative expenses of $68.5 million to $69.5 million;
Depreciation and amortization expense of $42 million to $42.5 million;
Net interest expense of approximately $25 million;
An income tax rate between 36% to 37% over the second half of the fiscal year;
Capital expenditures of $70 million to $75 million, which assumes the implementation of a new point-of-sale system and digital point-of-purchase technology in company drive-ins during fiscal 2014 and construction of new and relocated drive-ins;
Free cash flow of approximately $15 million to $25 million; and
The repurchase of $80 million of stock across the fiscal year utilizing existing cash on hand and free cash flow.
Earnings Conference Call
The company will host a conference call and online web simulcast this afternoon beginning at 5:00 p.m. ET. The conference call can be accessed live by dialing (866) 454-4208 or (913) 312-0867 for international callers. A replay will be available one hour after the call and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 6821037. The replay will be available until Monday, March 31, 2014. An online replay of the conference call will be available approximately two hours after the conclusion of the live broadcast. A link to this event may be found on the company's investor relations website at http://ir.sonicdrivein.com/.
SONIC®, America's Drive-In®, is the nation's largest chain of drive-in restaurants with more than 3,500 drive-ins serving approximately 3 million customers every day. Over the past 60 years, SONIC has delighted guests with signature menu items, more than 1 million drink combinations, friendly service by iconic Carhops and ongoing support of education through its award-winning Limeades for Learning® program. SONIC received top honors as America's “#1 burger quick service restaurant,” ranking in the top 5 of all brands in the 2014 Temkin Experience Ratings report. For more information about Sonic Corp. (NASDAQ/NM:SONC) and its subsidiaries, please visit sonicdrivein.com. Customers can also connect with SONIC at facebook.com/sonicdrivein or on Twitter @sonicdrive_in.
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