) reported first quarter 2012 earnings of 9 cents per share, in
line with the Zacks Consensus Estimate, but below the year-ago
quarter earnings of 12 cents per share.
Total revenue in the reported quarter inched down 0.7% year over
year to $128.3 million. However, comparable store sales (comps) for
the quarter inched up 0.1%, mainly due to a 0.2% uptick at
franchise drive-ins, partially offset by a 0.1% drop in company
drive-ins. The comps growth marked a turnaround from the 2.8%
plunge recorded in the year-earlier period.
Food and packaging expense and other operating cost increased a
respective 80 basis points (bps) and 70 bps to 28.6% and 23.7%, as
percentage of revenue. Food and packaging expenses spiked mainly
due to steeper beef and dairy costs. However, payroll and other
employee benefits decreased 20 bps to 36.3% as a result of improved
labor controls. Hence, restaurant-level margins fell 130 bps during
Operating margin contracted 70 basis points to 13.1% in the
first quarter of fiscal 2012, attributed to lower revenues,
commodity pressures and higher technology expenses, partially
offset by labor efficiencies at the store level and lower selling,
general and administrative expenses. Selling, general and
administrative expenses declined 5.3% to $15.4 million.
Sonic opened 2 and closed 8 franchised drive-ins in the first
quarter of 2012. The drive-in fast food chain operator presently
has 3,555 drive-in restaurants and expects to open 30-40 new
franchise drive-ins in 2012. New company-owned drive-ins are
however not in the agenda as Sonic remains focused on performance
rather than expansion.
At the end of the quarter, current assets were $82.6 million;
long-term debt due after one year was $478.1 million and
shareholders' equity was $46.9 million. With a strong capital
structure, Sonic expects to generate $35 million to $40 million in
free cash flow for fiscal 2012.
During the quarter, Sonic repaid $3.8 million of its debt and
repurchased $10.5 million of stock.
Sonic expects positive same-store sales for 2012.
Restaurant-level margins are expected to be slightly adverse
attributed to cost inflation, particularly in the first half of the
fiscal year and investment in improving the quality of product,
partially offset by labor efficiencies. Selling, general and
administrative expenses are expected in the range of $68-$69
million and depreciation and amortization between $41 million and
The company projects interest expense of roughly $32.0 million
and capital spending in the $25-$30 million range.
The company's upcoming second quarter remains seasonally weak
due to unpleasant weather conditions. Moreover, with food cost
inflation and waning consumer spending due to uncertain economic
environment, we expect estimates to go down in the coming days.
However, to drive traffic management continues to focus on
service and product initiatives. Additionally, we expect the
company to benefit from its franchising strategy as around 87% of
total restaurants are currently franchised. We believe that
franchising a large chunk of its system will provide another engine
for EPS growth and ROE expansion, as the company will reduce its
capital requirements. Alongside, free cash flow will continue to
grow, allowing reinvestment for increasing brand recognition and
enhancing shareholders' return.
Sonic currently retains a Zacks #3 Rank, which translates into a
short-term 'Hold' rating. We also maintain our long-term Neutral
recommendation on the stock. One of Sonic's prime competitors,
BJ's Restaurants Inc.
) reported third-quarter 2011 adjusted earnings of 24 cents per
share, in line with the Zacks Consensus Estimate and higher than
the prior-year earnings of 20 cents.
BJ'S RESTAURANT (
): Free Stock Analysis Report
SONIC CORP (
): Free Stock Analysis Report
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