Sonic Corp. (NASDAQ:SONC), the nation’s largest chain of
drive-in restaurants, today announced results for its first fiscal
quarter ended November 30, 2016.
Key highlights of the company’s first quarter of fiscal year
2017 included:
- Net income per diluted share increased
17% to $0.28 compared with $0.24 in the same period of the prior
year; adjusted net income per diluted share was flat versus the
prior-year period at $0.24;
- System same-store sales declined 2.0%,
consisting of a 2.0% same-store sales decrease at franchise
drive-ins and 2.4% decrease at company drive-ins;
- Company drive-in margins declined by
150 basis points;
- Fourteen new franchise drive-ins opened
and 56 drive-ins were refranchised; and
- The company repurchased 2.0 million
outstanding shares.
"Our first quarter results reflect a sluggish consumer landscape
and exceptionally strong prior-year performance," said Cliff
Hudson, Sonic Corp. CEO. “Although the business faces even tougher
sales and margin hurdles in the second fiscal quarter, we remain
optimistic in our ability to show sequential same-store sales and
profitability improvement beginning in the second half of fiscal
2017.
“Our unit growth, capital structure, refranchising and
technology initiatives are performing well,” continued Hudson. “We
refranchised 56 drive-ins during the quarter and remain confident
that we will complete our targeted refranchising transactions prior
to the end of the third fiscal quarter, leaving us with a more
efficient, higher-margin portfolio of company-owned stores. We are
also pleased to have repurchased 2 million shares in the first
quarter of 2017, representing 4% of shares outstanding, while
continuing to invest in the people, development and content that
will drive our consumer-facing technology to the next level."
Same-Store Sales
For the first quarter ended November 30, 2016, system same-store
sales decreased 2.0%, which was comprised of a 2.0% same-store
sales decline at franchise drive-ins and a decline of 2.4% at
company drive-ins.
Financial Overview
For the first fiscal quarter of 2017, the company’s net income
totaled $13.1 million or $0.28 per diluted share compared to
net income of $12.5 million or $0.24 per diluted share in the
same period of the prior year. Excluding the items outlined below,
net income declined 9% and net income per diluted share was
flat.
The following analysis of non-GAAP adjustments is intended to
supplement the presentation of the company’s financial results in
accordance with GAAP. The company believes that the presentation of
this analysis provides useful information to investors and
management regarding the underlying business trends and the
performance of the company’s ongoing operations and is helpful for
period-to-period and company-to-company comparisons, which
management believes will assist investors in analyzing the
financial results of the company and predicting future
performance.
(In thousands, except per share
amounts)
Three months ended Three months
ended
November 30, 2016 November 30,
2015
Net Diluted Net
Diluted Net Income Diluted EPS
Income
EPS Income EPS $ Change %
Change $ Change % Change Reported – GAAP
$ 13,118 $ 0.28 $ 12,458 $ 0.24 $ 660 5
% $ 0.04 17 % Loss on refranchising transactions (1)
957
0.02 — — Tax impact on refranchising transactions (2)
(340 ) (0.01 ) — — Gain on sale of
investment in refranchised drive-in operations (3)
(3,795
) (0.08 ) — — Tax impact on sale of investment
in refranchised drive-in operations (2)
1,350 0.03 —
— Adjusted - Non-GAAP
$ 11,290 $
0.24 $ 12,458 $ 0.24 $ (1,168 ) (9 )% $
— — %
__________________________
(1) During the first quarter of fiscal year 2017, we
completed two transactions to refranchise the operations of 56
Company Drive-Ins. Of the proceeds, $3.8 million represents the
initial lease payment for a real estate purchase option that will
be exercised or expire within 24 months, resulting in a loss on the
transactions. Unless and until the option is exercised or expires,
the franchisee will make monthly lease payments of $0.3 million
through November 2017 and $0.1 million thereafter, through November
2018, which will be included in other operating income. Any lease
payments received will be combined with the initial refranchising
transaction above to quantify the net refranchising gain (loss)
once the option is exercised or expires. (2) Tax impact during the
period at an effective tax rate of 35.6%. (3) Gain on sale of
investment in refranchised drive-ins is related to minority
investments in franchise operations retained as part of a
refranchising transaction that occurred in fiscal year 2009. Income
from minority investments is included in other revenue on the
condensed consolidated statements of income.
Fiscal Year 2017 Outlook
While the macroeconomic environment may impact results, the
company continues to expect adjusted earnings per share for fiscal
year 2017 to be in the range of down 7% to flat year over year. The
outlook for fiscal 2017 anticipates the following elements:
- (2)% to 0% same-store sales for the
system;
- Royalty revenue growth from new unit
development;
- 65 to 75 new franchise drive-in
openings;
- Drive-in-level margins of 16% to 17%,
depending upon the timing of drive-in divestitures and the degree
of same-store sales growth at company drive-ins;
- Selling, general and administrative
expenses of approximately $84.0 million reflecting increased
investment in human resources and technology to support brand
initiatives;
- Depreciation and amortization expense
of $37.5 million to $38.5 million reflecting the divestiture of
company drive-ins as previously announced;
- Net interest expense of approximately
$26.5 million to $27.5 million;
- Capital expenditures of $40 million to
$45 million reflecting ongoing investment into the company’s
technology initiatives;
- Free cash flow(1) of approximately $60
million;
- An income tax rate between 35.0% to
36.0%;
- The planned use of the remaining $122
million share repurchase authorization across the fiscal year,
inclusive of refranchising proceeds; and
- An expected quarterly cash dividend of
$0.14 per share.
Earnings Conference Call
The company will host a conference call to review financial
results at 5:00 PM ET this evening. The conference call can be
accessed live over the phone by dialing (888) 297-0353 or (719)
325-2410 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
2683899. The replay will be available until Wednesday, January
11, 2017. 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/.
About Sonic
SONIC, America's Drive-In is the nation's largest drive-in
restaurant chain serving more than 3 million customers every day.
Nearly 90 percent of SONIC's 3,500 drive-in locations are owned and
operated by local business men and women. Over more than 60 years,
SONIC has delighted guests with signature menu items, more than 1.3
million drink combinations and friendly service by iconic Carhops.
Since the 2009 launch of SONIC's Limeades for Learning
philanthropic campaign in partnership with DonorsChoose.org, SONIC
has donated more than $5 million to public school teachers
nationwide to fund essential learning materials and innovative
teaching resources to inspire creativity and learning in today's
youth. To learn more about Sonic Corp. (NASDAQ/NM:SONC), please
visit sonicdrivein.com and please visit or follow us on Facebook
and Twitter. To learn more about SONIC's Limeades for Learning
initiative, please visit Limeadesforlearning.com.
This press release contains forward-looking statements within
the meaning of the federal securities laws. Forward-looking
statements reflect management’s expectations regarding future
events and operating performance and speak only as of the date
hereof. These forward-looking statements involve a number of risks
and uncertainties. Factors that could cause actual results to
differ materially from those expressed in, or underlying, these
forward-looking statements are detailed in the company’s annual and
quarterly report filings with the Securities and Exchange
Commission. The company undertakes no obligation to publicly
release revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the
occurrence of unforeseen events, except as required to be reported
under the rules and regulations of the Securities and Exchange
Commission.
(1) Free cash flow is defined as net income plus depreciation,
amortization and stock compensation expenses, less capital
expenditures.
The tables that follow provide information regarding the number
of company drive-ins, franchise drive-ins and system drive-ins in
operation as of the end of the periods indicated. In addition,
these tables provide information regarding franchise sales, system
growth in sales, and both franchise and system average drive-in
sales and change in same-store sales. System information includes
both company and franchise drive-in information, which we believe
is useful in analyzing the growth of our brand. While we do not
record franchise drive-in sales as revenues, we believe this
information is important in understanding our financial performance
since we calculate and record franchise royalties based on a
percentage of franchise sales. This information also is indicative
of the financial health of our franchisees.
SONC-F
SONIC CORP. UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME (In thousands, except per share amounts)
Three months ended
November 30,
2016 2015 Revenues: Company Drive-In sales
$ 87,152 $ 103,883 Franchise Drive-Ins: Franchise
royalties and fees
40,139 39,922 Lease revenue
1,381
1,592 Other
879 406 Total revenues
129,551 145,803 Costs and expenses: Company Drive-Ins:
Food and packaging
24,116 28,946 Payroll and other employee
benefits
31,766 36,364 Other operating expenses, exclusive
of depreciation and amortization included below
19,426
22,908 Total cost of Company Drive-In sales
75,308 88,218 Selling, general and administrative
19,754 20,940 Depreciation and amortization
10,277
10,999 Other operating income, net
(2,840 ) (399 )
Total costs and expenses
102,499 119,758
Income from operations
27,052 26,045 Interest expense
7,189 6,222 Interest income
(494 ) (100 ) Net
interest expense
6,695 6,122 Income before
income taxes
20,357 19,923 Provision for income taxes
7,239 7,465 Net income
$ 13,118
$ 12,458 Basic income per share
$
0.29 $ 0.25 Diluted income per share
$
0.28 $ 0.24 Weighted average basic shares
45,720 50,221 Weighted average diluted shares
46,543 51,325
SONIC CORP.
Unaudited Supplemental Information
Three
months ended
November 30,
2016
2015 Drive-Ins in Operation: Company: Total at
beginning of period
345 387 Opened
— — Sold to
franchisees
(56 ) (2 ) Closed (net of re-openings)
(3 ) (3 ) Total at end of period
286
382 Franchise: Total at beginning of period
3,212
3,139 Opened
14 13 Acquired from the company
56 2
Closed (net of re-openings)
(9 ) (7 ) Total at end of
period
3,273 3,147 System-wide: Total at
beginning of period
3,557 3,526 Opened
14 13 Closed
(net of re-openings)
(12 ) (10 ) Total at end of
period
3,559 3,529
Three months
ended
November 30,
2016 2015 ($ in
thousands)
Sales Analysis: Company Drive-Ins: Total sales
$ 87,152 $ 103,883 Average drive-in sales
270
270 Change in same-store sales
(2.4 )% 4.4 %
Franchised Drive-Ins: Total sales
$ 975,782 $ 968,956
Average drive-in sales
304 310 Change in same-store sales
(2.0 )% 5.4 % System-wide: Change in total sales
(0.9 )% 6.4 % Average drive-in sales
$
301 $ 305 Change in same-store sales
(2.0 )%
5.3 %
Note: Change in same-store sales based on restaurants open for a
minimum of 15 months.
SONIC CORP. Unaudited Supplemental Information
Three months ended
November 30,
2016 2015 (In
thousands)
Revenues: Company Drive-In sales
$
87,152 $ 103,883 Franchise Drive-Ins: Franchise royalties
39,882 39,462 Franchise fees
257 460 Lease revenue
1,381 1,592 Other
879 406 Total
revenues
$ 129,551 $ 145,803
Three months ended
November 30,
2016
2015 Margin Analysis (percentage of Company Drive-In
sales): Company Drive-Ins: Food and packaging
27.7
% 27.9 % Payroll and employee benefits
36.4 35.0
Other operating expenses
22.3 22.0 Cost of
Company Drive-In sales
86.4 % 84.9 %
November 30, August 31,
2016 2015
(In thousands)
Selected Balance Sheet Data: Cash and cash
equivalents
$ 41,090 $ 72,092 Current assets
99,132 137,657 Property, equipment and capital leases, net
364,059 392,380 Total assets
$ 593,316 $
648,661
Current liabilities, including capital
lease obligations and long-term debt due within one year
$ 65,519 $ 74,663 Obligations under capital leases
due after one year
17,216 17,391 Long-term debt due after
one year, net of debt issuance costs
566,672 566,187 Total
liabilities
711,509 724,304 Stockholders' equity (deficit)
$ (118,193 ) $ (75,643 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170104006389/en/
Sonic Corp.Corey Horsch, 405-225-4800Vice President of Investor
Relations and Treasurer
Sonic (NASDAQ:SONC)
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