BWLD Buffalo Wild Wings, Inc. (delisted)

Sonic Corp. (SONC), the drive-in fast food chain operator, reported third quarter 2011 adjusted earnings of 21 cents per share, which surpassed the Zacks Consensus Estimate of 18 cents and the year-ago quarter's earnings of 15 cents. The better-than-expected results were driven by strong comparable store sales at company-owned drive-in restaurants and a stronger economy.

Total revenue in the reported quarter was $152.1 million, up 4.1% year over year, and was above the Zacks Consensus Estimate of $151 million. Sonic’s overall comps grew 3.9%, driven by higher same-store sales at franchised drive-ins and company-owned drive-ins, up 3.6% and 6.5%, respectively.

Despite a 6.5% spike in food and packaging expense and 1.9% jump in payroll and other employee benefits, restaurant-level margins expanded 240 basis points (bps) during the quarter.

Selling, general and administrative expenses inched up 0.7% to $17.2 million while depreciation and amortization expense dropped 4.8% to $10.1 million. Higher same-store sales resulted in a year-over-year upside of 17.5% in operating income to $29.0 million. 

Store Update

During the third quarter, Sonic launched 12 franchised drive-ins compared with 18 in the year-ago period, and expects to open 15 new franchised drive-ins in the fourth quarter of 2011. Sonic does not plan to open any company-owned drive-ins in 2011, as it remains focused on performance rather than expansion.

Financial Position

At the end of the quarter, current assets were $96.4 million; long term debt due after one year was $521.6 million and shareholders’ equity was $37.9 million.  During the quarter, the company also successfully completed its debt refinancing, which will further boost its free cash flow position.

Outlook

Oklahoma-based Sonic expects sequential improvement in same-store sales in the fourth quarter of 2011, driven by sales-building initiatives and introduction of new products. Restaurant-level margins are expected to be slightly favorable attributed to labor efficiencies and sales growth, but partially offset by cost inflation and investment in improving the quality of product. Selling, general and administrative expenses are expected in the range of $17–$18 million and depreciation and amortization between $10 and $10.5 million.

The company projects interest expense to be roughly $8–$8.5 million and income tax rate to be approximately 36% to 38%. Capital spending is estimated in the $7–$9 million range.

Our Take

As the company continues to take several efforts to attract traffic and drive sales, accelerate unit growth in 2013 and beyond and enhance shareholder value, we expect estimates to go up in the coming days. The current Zacks Consensus Estimates for 2011 and 2012  are pegged at 54 cents and 64 cents, respectively.

Sonic currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We also maintain our long-term Neutral recommendation on the stock.

One of Sonic’s prime competitors, Buffalo Wild Wings Inc.’s (BWLD) reported first quarter 2011 earnings of 81 cents per share exceeding the Zacks Consensus Estimate of 73 cents on the back of higher same-store sales growth and lower wing costs.

 
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