Development Pipeline for New Drive-Ins
Continues to Build
Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of
drive-in restaurants, today announced results for its third fiscal
quarter ended May 31, 2017.
Key highlights of the company’s third quarter of fiscal year
2017 included:
- Net income per diluted share increased
42% to $0.44 versus $0.31 in the prior-year period; adjusted net
income per diluted share remained the same as the prior-year period
at $0.43;
- System same-store sales declined 1.2%,
consisting of a 1.1% same-store sales decrease at franchise
drive-ins and a 3.2% decrease at company drive-ins;
- Company drive-in margins increased by
40 basis points;
- 15 new drive-ins opened; and
- The company repurchased 1.2 million
outstanding shares.
"Our third quarter results reflect the expected improvement in
underlying sales and store profit versus the first half of the
fiscal year, driven by a more balanced promotional calendar,
including a reinvigorated SONIC Summer Nights promotion featuring
our Real Ice Cream Slush," said Cliff Hudson, Sonic Corp. CEO.
“Despite continued sluggish traffic, we are working to improve
same-store sales this summer and beyond, with new product news,
targeted value and quality customer service.
“Our unit growth, capital structure and technology initiatives
are on track,” continued Hudson. “During the quarter, we continued
to build our development pipeline with new and existing franchisee
groups, we successfully released our redesigned mobile app that is
fully integrated with our POPS network and we repurchased 1.2
million shares of our stock, bringing total shares repurchased to
4.9 million fiscal year to date, representing 9.9% of shares
outstanding. We have made significant strides in transitioning to a
more highly-franchised business model and look forward to driving
increased free cash flow over the next several years.”
Same-Store Sales
For the third quarter ended May 31, 2017, system same-store
sales decreased 1.2%, which was comprised of a 1.1% same-store
sales decline at franchise drive-ins and a decline of 3.2% at
company drive-ins.
Financial Overview
For the third fiscal quarter of 2017, the company’s net income
totaled $18.8 million or $0.44 per diluted share compared to net
income of $15.4 million or $0.31 per diluted share in the same
period of the prior year. Excluding the items outlined below, net
income decreased 13% 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 May
31, 2017 May 31, 2016 Net Diluted
Net Diluted Net Income Diluted
EPS Income EPS Income EPS $
Change % Change $ Change % Change Reported
– GAAP
$ 18,751 $ 0.44 $ 15,353 $ 0.31
$ 3,398 22
%
$ 0.13 42 % Net gain on refranchising transactions (1)
(814
) (0.02 ) — — Tax impact on refranchising
transactions (2)
396 0.01 — — Loss from early
extinguishment of debt
— — 8,750 0.18 Tax impact on
debt extinguishment (3)
— — (3,027 )
(0.06 ) Adjusted - Non-GAAP
$
18,333 $ 0.43 $ 21,076 $
0.43 $ (2,743 ) (13
)%
$ — — %
________________
(1) During the third quarter of fiscal year 2017, we made
adjustments of $0.8 million to the retained minority investment
related to the refranchising transactions that occurred in the
first six months of the fiscal year. Additionally, we recorded a
net loss as a franchisee initiated exercise of an option to
purchase real estate related to a first quarter refranchising
transaction, which was offset by amortization of the deferred gain
recorded for a second quarter refranchising transaction. (2) Tax
impact during the period at an adjusted effective tax rate of
48.7%. (3) Tax impact during the period at an effective tax rate of
34.6%.
For the first nine months of fiscal year 2017, net income
totaled $42.8 million or $0.96 per diluted share compared with net
income of $38.6 million or $0.77 per diluted share for the same
period in 2016. Excluding the items outlined below, net income and
net income per diluted share decreased 15% and 5%,
respectively.
(In thousands, except per share
amounts)
Nine months ended Nine months ended May 31,
2017 May 31, 2016 Net Diluted
Net Diluted Net Income Diluted
EPS Income EPS Income EPS $
Change % Change $ Change % Change Reported
– GAAP
$ 42,832 $ 0.96 $ 38,630 $ 0.77
$ 4,202 11
%
$ 0.19 25
%
Net gain on refranchising transactions (1)
(6,645 )
(0.15 ) — — Tax impact on refranchising transactions
(2)
2,501 0.05 — — 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 (4)
1,350 0.03 — —
Loss from early extinguishment of debt
— — 8,750 0.18
Tax impact on debt extinguishment (5)
— — (3,027 )
(0.06 ) Gain on sale of real estate
— — (1,875 )
(0.04 ) Tax impact on real estate sale (6)
— — 664
0.01 Retroactive benefit of Work Opportunity Tax Credit and
resolution of tax matters
— — (585 )
(0.01 ) Adjusted - Non-GAAP
$
36,243 $ 0.81 $ 42,557 $
0.85 $ (6,314 ) (15 )% $ (0.04 ) (5
)%
________________
(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 was applied
as the initial lease payment for an option to purchase the real
estate within 24 months. The franchisee initiated exercise of a
portion of the option during the third fiscal quarter, resulting in
a loss of $0.4 million. Until the option is fully exercised, the
franchisee is making monthly lease payments which totaled $0.6
million for the fiscal year-to-date, net of sub-lease expense.
During the second quarter of fiscal year 2017, we completed
transactions to refranchise the operations of 54 company drive-ins,
one of which resulted in a gain of $7.8 million and another in a
loss of $1.4 million. The loss transaction reflects a deferred gain
of $0.9 million as a result of a real estate purchase option
extended to the franchisee. The deferred gain is being amortized
into income through January 2020 when the option becomes
exercisable. During the third quarter of fiscal year 2017, we made
adjustments of $0.8 million to the retained minority investment
related to the refranchising transactions that occurred in the
first six months of the fiscal year.
(2) Combined tax impact at an effective tax rate of 35.6% during
the first quarter of fiscal year 2017 and at adjusted effective tax
rates of 36.0% and 48.7% during the second and third quarters of
fiscal year 2017, respectively. (3) Gain on sale of investment in
refranchised drive-in operations 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. (4) Tax impact during the period
at an effective tax rate of 35.6%. (5) Tax impact during the period
at an effective tax rate of 34.6%. (6) Tax impact during the period
at an adjusted effective tax rate of 35.4%.
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 decline 2% to 5% year over year. The outlook for
fiscal 2017 anticipates the following elements:
- An approximate 2.5% same-store sales
decline for the system;
- Royalty revenue growth from new unit
development;
- 65 to 75 new franchise drive-in
openings;
- Drive-in-level margins of 15.3%,
depending upon the degree of same-store sales growth at company
drive-ins;
- Selling, general and administrative
expenses of approximately $81 million;
- Depreciation and amortization expense
of $39.0 million to $39.5 million reflecting the divestiture of
company drive-ins and the shorter depreciable life of technology
investments;
- Net interest expense of approximately
$27.5 million to $28.0 million;
- Capital expenditures of $46 million to
$48 million; excluding spending on build-to-suit drive-in
development, capital outlays would be $40 million to $42
million;
- Free cash flow(1) of approximately $55
to $60 million;
- An income tax rate between 34.0% to
34.5%;
- The planned use of the remaining $45
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 (877) 681-3375 or (719)
457-2601 for international callers. A replay will be available one
hour after the call and can be accessed by dialing (844) 512-2921
or (412) 317-6671 for international callers; the conference ID is
9328359. The replay will be available until Thursday, June 29,
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 approximately 3 million customers every
day. Nearly 94 percent of SONIC's 3,500 drive-in locations are
owned and operated by local business men and women. For 64 years,
SONIC has delighted guests with signature menu items, 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
$8.4 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.
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.
(1) Free cash flow is defined as net
income plus depreciation, amortization and stock compensation
expenses, less capital expenditures and spending on build-to-suit
drive-in development.
SONC-F
SONIC CORP. UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME (In thousands, except per share amounts)
Three months endedMay
31, Nine months endedMay 31,
2017
2016 2017 2016 Revenues: Company Drive-In
sales
$ 72,062 $ 115,143
$ 223,500 $
314,339 Franchise Drive-Ins: Franchise royalties and fees
48,220 46,687
122,687 122,656 Lease revenue
2,418 2,141
5,474 5,132 Other
1,290
1,268
2,038 2,075 Total revenues
123,990 165,239
353,699 444,202 Costs and expenses:
Company Drive-Ins: Food and packaging
19,380 32,089
61,112 87,248 Payroll and other employee benefits
25,590 39,912
82,688 111,635 Other operating
expenses, exclusive of depreciation and amortization included below
13,836 22,442
47,540 65,450
Total cost of Company Drive-In sales
58,806 94,443
191,340 264,333 Selling, general and administrative
20,763 20,617
58,813 62,342 Depreciation and
amortization
9,520 11,405
29,531 33,461 Other
operating income, net
(540 ) (106 )
(11,105
) (3,071 ) Total costs and expenses
88,549
126,359
268,579 357,065 Income from
operations
35,441 38,880
85,120 87,137 Interest
expense
7,318 6,776
21,734 19,465 Interest income
(291 ) (121 )
(1,047 ) (326 ) Debt
extinguishment costs
— 8,750
—
8,750 Net interest expense
7,027 15,405
20,687 27,889 Income before income
taxes
28,414 23,475
64,433 59,248 Provision for
income taxes
9,663 8,122
21,601
20,618 Net income
$ 18,751 $ 15,353
$ 42,832 $ 38,630 Basic income
per share
$ 0.44 $ 0.32
$
0.97 $ 0.79 Diluted income per share
$
0.44 $ 0.31
$ 0.96 $ 0.77
Weighted average basic shares
42,402 48,377
43,972 49,192 Weighted average diluted
shares
43,093 49,326
44,729
50,213
SONIC CORP. Unaudited
Supplemental Information
Three months endedMay 31, Nine months
endedMay 31, 2017 2016 2017
2016 Drive-Ins in Operation: Company: Total at
beginning of period
233 375
345 387 Opened
2 —
3 — Sold to franchisees
(5 ) —
(115
) (9 ) Closed (net of re-openings)
— —
(3 ) (3 ) Total at end of period
230
375
230 375 Franchise: Total at
beginning of period
3,329 3,153
3,212 3,139 Opened
13 16
36 34 Acquired from the company
5 —
115 9 Closed (net of re-openings)
(6 ) (1 )
(22 ) (14 ) Total at end of period
3,341
3,168
3,341 3,168 System-wide:
Total at beginning of period
3,562 3,528
3,557 3,526
Opened
15 16
39 34 Closed (net of re-openings)
(6 ) (1 )
(25 ) (17 ) Total at end of
period
3,571 3,543
3,571 3,543
Three months
endedMay 31, Nine months endedMay
31,
2017 2016 2017
2016 ($ in thousands) ($ in thousands)
Sales
Analysis: Company Drive-Ins: Total sales
$ 72,062
$ 115,143
$ 223,500 $ 314,339 Average drive-in sales
312 307
818 829 Change in same-store sales
(3.2 )% 0.9 %
(4.7 )% 3.6 % Franchised
Drive-Ins: Total sales
$ 1,145,042 $ 1,107,725
$ 2,971,775 $ 2,963,155 Average drive-in sales
348 352
915 945 Change in same-store sales
(1.1 )% 2.1 %
(3.2 )% 4.5 %
System-wide: Change in total sales
(0.5 )% 3.3 %
(2.5 )% 5.3 % Average drive-in sales
$
346 $ 347
$ 907 $ 933 Change in same-store
sales
(1.2 )% 2.0 %
(3.3 )% 4.4 %
Note: Change in same-store sales based on restaurants open for a
minimum of 15 months.
SONIC CORP. Unaudited Supplemental Information
Three months endedMay 31, Nine months
endedMay 31,
2017 2016 2017
2016 (In thousands) (In thousands)
Revenues:
Company Drive-In sales
$ 72,062 $ 115,143
$
223,500 $ 314,339 Franchise Drive-Ins: Franchise royalties
47,890 46,296
121,910 121,565 Franchise fees
330 391
777 1,091 Lease revenue
2,418 2,141
5,474 5,132 Other
1,290 1,268
2,038 2,075 Total revenues
$ 123,990
$ 165,239
$ 353,699 $ 444,202
Three months endedMay 31,
Nine months endedMay 31,
2017
2016 2017 2016 Margin Analysis
(percentage of Company Drive-In sales): Company Drive-Ins: Food
and packaging
26.9 % 27.9 %
27.3 % 27.8
% Payroll and employee benefits
35.5 34.7
37.0 35.5
Other operating expenses
19.2 19.4
21.3
20.8 Cost of Company Drive-In sales
81.6
% 82.0 %
85.6 % 84.1 %
May
31, August 31,
2017 2016
(In thousands)
Selected Balance Sheet Data: Cash and cash
equivalents
$ 52,050 $ 72,092 Current assets
117,956 137,657 Property, equipment and capital leases, net
327,527 392,380 Total assets
$ 563,834 $
648,661 Current liabilities, including capital lease obligations
and long-term debt due within one year
$ 57,558 $
74,663 Obligations under capital leases due after one year
15,413 17,391 Long-term debt due after one year, net of debt
issuance costs
601,631 566,187 Total liabilities
736,932 724,304
Stockholders' deficit
$ (173,098 ) $ (75,643 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170622006100/en/
Sonic Corp.Corey Horsch, 405-225-4800Vice President of Investor
Relations and Treasurer
Sonic (NASDAQ:SONC)
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