) reported earnings of 25 cents per share in the fourth quarter
of fiscal 2012, surpassing the Zacks Consensus Estimate of 24
cents and year-ago earnings of 20 cents a share. For fiscal 2012,
adjusted earnings per share were 60 cents a share compared with
Total revenue in the reported quarter dipped 0.2% year over
year to $150.9 million, but was ahead of the Zacks Consensus
Estimate of $149.0 million. Comparable store sales (comps) for
the quarter grew 2.3%, mainly on a 2.1% uptick at franchise
drive-ins and a 4.3% rise in company drive-ins. The systemwide
comps growth turned around from the 0.5% increase recorded in the
year-earlier period. In full-fiscal 2012, total revenue was down
0.4% year over year at $543.7 million.
Sonic registered a significant decline in its cost structure.
Food and packaging expenses fell 30 basis points (bps) to 27.9%,
as a percentage of revenue. Payroll and employee benefits and
other operating expenses declined 130 bps and 60 bps to 34.6% and
While the fourth quarter generally experiences sequentially
lower restaurant-level margins due to higher utility costs
related to summer, drive-in level margins improved 220 basis
points to 16.5% on the back of improved same-store sales growth
and abating commodity inflation. Continued growth in margins
calls for an improving fundamental in the company.
Oklahoma-based Sonic opened 18 and closed 11 franchised
drive-ins in the fourth quarter. Sonic also closed one
company-owned drive-in. The drive-in fast food chain operator
presently has 3,556 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
$52.6 million, long-term debt due after one year was $466.6
million and shareholders' equity was $59.2 million.
For fiscal 2013, Sonic expects positive comps in the low
single digits. Improvement in restaurant level margin will be a
function of 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, and depreciation
and amortization between $41 million to $42 million.
Sonic also expects to generate $45 million to $55 million in
free cash flow in fiscal 2013.
Sonic is gradually moving to a positive direction. The
highlights of the fourth quarter earnings were the turnaround in
comps and margin expansion based on stringent cost control
measures. Efficient management of food costs and many pricing
action augured well for the company. Better performance in
company-owned comps as against franchised ones speaks off Sonic's
building of inherent strength.
Sonic also tapped the important day part of sales, i.e.,
breakfast, to drive sales. Further, menu innovation and the
layered day-part promotional strategy will likely place Sonic in
a better position going forward.
Other initiatives that the company is taking are shutting down
underperforming units, and focusing on smaller prototypes to
improve return on investment and cost containment. Execution of a
point-of-sale system over the next few years is also on
Sonic's wish list. The program is scheduled to be spread
across all the company-owned drive-ins within 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 that translates into a
short-term 'Hold' rating. We maintain our long-term 'Neutral'
recommendation on the stock.
BJ'S RESTAURANT (BJRI): Free Stock Analysis
SONIC CORP (SONC): Free Stock Analysis Report
To read this article on Zacks.com click here.