) first quarter fiscal 2013 earnings of 11 cents per share
increased 22.0% year over year and was in line with the Zacks
Consensus Estimate. The year-over-year increase came mainly on
the back of cost efficiency.
Total revenue in the reported quarter dipped 1.8% year over
year to $126.0 million, which was also in line with the Zacks
Consensus Estimate. The re-franchising of 34 company drive-ins
during the second quarter of 2012 resulted in a 3.4% decline in
company drive-in sales during the reported quarter.
Comparable store sales (comps) for the quarter grew 3.0%
backed by increases of 4.2% in company-owned outlets and 2.9% in
franchised outlets. System- wide comps growth caught up momentum
as it substantially improved from just 0.1% increase recorded in
the year-earlier period. The layered day-part promotional
strategy and efficient messaging helped drive comps growth.
This drive-in fast-food restaurant chain saw a significant
decline in its cost structure, driving its profits higher. Food
and packaging expenses fell 10 basis points (bps) to 28.5%, as a
percentage of revenue. Payroll and employee benefits and other
operating expenses declined 50 bps and 20 bps to 35.8% and 23.5%,
Higher comps coupled with lower costs led to 80 basis points
improvement in company-owned drive-in margins. Continued growth
in margins calls for improving fundamentals of the company.
Oklahoma-based Sonic opened one and closed eight franchised
drive-ins in the first quarter. There was no change in the count
of company-owned drive-ins. The drive-in fast food chain operator
presently has 3,549 drive-in restaurants. Management expects new
franchise drive-in openings to be slightly higher in fiscal 2013
than fiscal 2012. However, Sonic anticipates the rate of growth
to accelerate in 2014.
At the end of the quarter, cash and cash equivalents were
$42.7 million and long-term debt due after one year was $462.9
million. At the end of August 2012, company had cash and cash
equivalents were $52.6 million and long-term debt was $466.6
The company bought back $18 million of stock representing 3%
of its outstanding stock in the first quarter. In December, the
company repurchased additional $6 million of stock leaving
approximately $14.9 million available for repurchase under the
existing $40 million share repurchase program.
For fiscal 2013, Sonic expects positive comps in the low
single digits. Improvement in restaurant level margin will depend
on same store sales growth and is expected to expand 50-100 basis
points. Selling, general and administrative expenses are expected
in the range of $68-$69 million. Sonic also expects to generate
$45 million to $55 million in free cash flow in fiscal 2013.
The highlights of first quarter earnings were strong comps
momentum and margin expansion based on stringent cost control
measures. Better performance of company-owned comps as against
franchised ones speaks of Sonic's efforts to develop inherent
Initiatives that will place the company in a better position
in a competitive setting include closure of underperforming
units, focus on smaller prototypes to improve return on
investment and cost containment; multi-layered growth strategy
and increased media spending.
Execution of a point-of-sale system over the next few years is
also in the scheme of things. The program is likely to be spread
across all the company-owned drive-ins by the end of calendar
However, stiff competition in the marketplace and waning
consumer confidence remain concerns for the company.
Sonic, which competes with the likes of
BJ's Restaurants Inc.
), currently carries a Zacks #3 Rank (Hold). We maintain our
long-term 'Neutral' recommendation on the stock.
BJ'S RESTAURANT (BJRI): Free Stock Analysis
SONIC CORP (SONC): Free Stock Analysis Report
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