) fourth quarter fiscal 2013 adjusted earnings of 30 cents per
share increased 20% year over year and were in line with the
Zacks Consensus Estimate. The year-over-year increase came mainly
on the back of higher revenues. Also, lower share count led to
earnings per share growth.
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Total revenue in the reported quarter grew 5.2% year over year to
$158.8 million, which beat the Zacks Consensus Estimate of $156.0
million by 1.8%. Considerable upside in comparable store sales
(comps) led to the revenue beat.
System-wide comparable store sales (comps) grew 5.9% in the
quarter (versus 2.3% increase recorded last year), which
comprised increases of 5.2% in company-owned outlets (versus 4.3%
growth recorded last year) and 6.0% jump in comps at
franchised drive-ins (versus 2.1% rise in the year-ago period).
The Summer of Shakes promotion and the limited time pretzel dogs
offer boosted comps in the quarter.
This drive-in chain witnessed a slight decline in costs that
helped its profits margin. Expenses for payroll and employee
benefits fell 60 bps (basis points) to 34% as a percentage of
revenues. Other operating expenses declined 40 bps to 20.6% as a
percentage of revenues. However, this improvement was somewhat
overshadowed by higher food and packaging cost. Food costs
related to promotions were adversely affected by the product mix
shift. Altogether, cost of company drive-ins sales declined 10
Fiscal 2013 Update
In fiscal 2013, adjusted earnings per share were 72 cents, up 20%
year over year primarily on the back of cost efficiency. Total
revenue dipped 0.2% year over year to $542.6 million due to lower
franchise royalties and lease revenue. Improvement in comps was
also sluggish at 2.3%, up 10 bps year over year.
Oklahoma-based Sonic opened one company-operated and 16
franchised drive-ins in the fourth quarter. The company also
closed 12 company-owned and 9 franchised units in the reported
As of Aug 31, 2013, the drive-in fast food chain operator had
3,522 drive-in restaurants.
Sonic expects positive same-store sales in low-single digit for
fiscal 2014, driven by sales-building initiatives. Same-store
sales growth will pick up in the second half of the year with the
implementation of a new point-of-sale system and digital
point-of-purchase technology. The improvement will be more
pronounced in the company-owned drive-ins.
Initiatives that will place the company in a better position amid
a competitive setting include closure of underperforming units,
focus on smaller prototypes to improve return on investment, a
multi-layered growth strategy, execution of a point-of-sale
system and increased media spending. These initiatives are
expected to drive fiscal 2014 earnings by 14% to 15% compared to
Drive-in-level margins are expected to improve 75 to 100 basis
points backed by labor efficiencies and comps growth. Selling,
general and administrative expenses are expected in the range of
$69-$70 million and depreciation and amortization expenses are
projected in the $42.5-$43 million range for fiscal 2014.
For 2014, the company projects interest expenses of roughly $25.0
million and income tax rate of approximately 37% to 37.5%.
Capital spending is estimated in the $65-$70 million range.
Free-cash flow is expected to range between $15 million and $25
million, a portion of which will be used to repurchase shares.
The company is expected to buyback $40 million of stock.
Sonic expects to open 40-50 new franchise drive-ins in 2014. New
company-owned drive-ins are however not on the agenda as Sonic
remains focused on performance rather than expansion. There will
be lesser number of shutdowns compared to 2013.
Considerably better comps performance both at the company-owned
as well as franchised levels indicates that Sonic is gradually
moving in a positive direction. We expect the implementation of
the new point-of-sale and point-of-purchase systems to provide
further impetus to Sonic's performance.
Sonic currently retains a Zacks Rank #2 (Buy). Others players in
the same industry, which look attractive at current levels
AFC Enterprises Inc.
Cracker Barrel Old Country Store, Inc.
Bob Evans Farms, Inc.
), all carrying a Zacks Rank #2.