Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of
drive-in restaurants, today announced results for its fourth fiscal
quarter ended August 31, 2017.
Key highlights of the company’s fourth quarter of fiscal year
2017 included:
- Net income per diluted share decreased
6% to $0.50 versus $0.53 in the prior-year period; adjusted net
income per diluted share remained the same as the prior-year period
at $0.45;
- System same-store sales declined 3.3%,
consisting of a 3.2% same-store sales decrease at franchise
drive-ins and a 4.8% decrease at company drive-ins;
- Company drive-in margins increased by
230 basis points;
- 27 new drive-ins opened; and
- The company repurchased 1.8 million
outstanding shares.
Key highlights of the company’s fiscal year 2017 included:
- Net income per diluted share increased
12% to $1.45 compared with $1.29 in the prior
year; adjusted net income per diluted share decreased 3% to
$1.25 compared with adjusted net income per diluted share
of $1.29 in the prior year;
- System same-store sales declined 3.3%,
consisting of a 3.2% same-store sales decrease at franchise
drive-ins and a decrease of 4.7% at company drive-ins;
- Company drive-in margins contracted by
60 basis points;
- 66 new drive-ins opened; and
- The company purchased more than 6.7
million shares of its common stock, representing approximately
13.5% of outstanding shares for the fiscal year.
“Our weaker-than-expected same-store sales performance reflects
the intense competitive environment and unfavorable weather we saw
during the quarter, including the devastation caused by Hurricane
Harvey,” said Cliff Hudson, Sonic Corp. CEO. “In addition, our
movie-linked, softer promotional line-up in June and July did not
match the traffic that was driven by product bundling in the summer
of 2016. As we shifted to more aggressive, brand-centric promotions
in late summer, we saw traffic and sales declines moderate.
“With a new marketing leadership team now in place, we continue
to evolve the way we target, market to and engage with our most
loyal drive-in customers. This includes the refinement of current
media strategies to achieve a ten percent increase in reach as well
as a complementary revision to our creative content. Despite
additional weather disruption to start our first fiscal quarter, we
continue to target positive same-store sales in fiscal 2018.
“Although sales were slower than we would have liked, we
accomplished much in fiscal 2017, including the expansion of our
new-store development pipeline with new and existing franchisee
groups, the release of our fully integrated and redesigned mobile
app and the testing of order ahead functionality. In addition, we
repurchased over 6.7 million Sonic Corp. shares in fiscal 2017, or
13.5% of shares outstanding, while paying out over $24 million in
dividends. We have fully transitioned to a more highly franchised
business model and look forward to driving increased cash flow over
the next several years.”
Financial Overview
For the fourth fiscal quarter of 2017, the company’s net income
totaled $20.8 million or $0.50 per diluted share compared to net
income of $25.4 million or $0.53 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 August 31, 2017 August 31,
2016 Net Diluted Net
Diluted Net Income Diluted EPS Income
EPS Income EPS $ Change % Change
$ Change % Change Reported – GAAP
$
20,831 $ 0.50 $ 25,437 $ 0.53 $ (4,606 ) (18
)% $ (0.03 ) (6 )% Net gain on refranchising transactions (1)
(113 ) 0.00 (972 ) (0.02 ) Tax impact on
refranchising transactions (2)
41 0.00 317 0.00
Restructuring charges (3)
1,819 0.04 — — Tax impact
of restructuring charges (2)
(672 ) (0.02
) — — Gain on sale of real estate
(4,702 )
(0.11 ) — — Tax impact on real estate sale (2)
1,738 0.04 — — FIN 48 release of income tax credits
and deductions
— — (3,038 ) (0.06 )
Adjusted - Non-GAAP
$
18,942 $ 0.45 $ 21,744 $
0.45 $ (2,802 ) (13 )% $ — —
%
________________ (1) Includes 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
37.0%. (3) During the fourth quarter of fiscal year 2017 the
company incurred severance costs related to the elimination of
certain corporate positions.
For fiscal year 2017, net income totaled $63.7 million or $1.45
per diluted share compared with net income of $64.1 million or
$1.29 per diluted share for the same period in 2016. Excluding the
items outlined below, net income and net income per diluted share
decreased 14% and 3%, respectively.
(In thousands, except per share
amounts)
Fiscal year
endedAugust 31, 2017 Fiscal year endedAugust
31, 2016 Net Diluted Net
Diluted Net Income Diluted EPS Income
EPS Income EPS $ Change % Change
$ Change % Change Reported – GAAP
$
63,663 $ 1.45 $ 64,067 $ 1.29 $ (404) (1) % $
0.16 12 % Net gain on refranchising transactions (1)
(6,758
) (0.15 ) (972 ) (0.02 ) Tax impact on
refranchising transactions (2)
2,542 0.06 317 0.00
Gain on sale of investment in refranchised drive-in operations (3)
(3,795 ) (0.09 ) — — Tax impact on sale
of investment in refranchised drive-in operations (4)
1,350
0.03 — — Restructuring charges (5)
1,819 0.04
— — Tax impact of restructuring charges (6)
(672 )
(0.02 ) — — Gain on sale of real estate
(4,702
) (0.11 ) (1,875 ) (0.04 ) Tax impact on real
estate sale (7)
1,738 0.04 664 0.01 FIN 48 release of
income tax credits and deductions
— — (3,038 ) (0.06
) Loss from early extinguishment of debt
— — 8,750
0.18 Tax impact on debt extinguishment (8)
— — (3,027
) (0.06 ) Retroactive benefit of Work Opportunity Tax Credit and
resolution of tax matters
— — (585 )
(0.01 ) Adjusted - Non-GAAP
$
55,185 $ 1.25 $ 64,301 $
1.29 $ (9,116 ) (14 )% $ (0.04 ) (3 )% ________________ (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 exercised the option in the last six months
of the fiscal year. Until the option was fully exercised, the
franchisee made monthly lease payments which totaled $0.8 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 $0.8
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. (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%, 48.7% and 37.0% during the second, third and fourth
quarters of fiscal year 2017, respectively; tax impact during
fiscal year 2016 at an adjusted effective tax rate of 32.6%. (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 consolidated statements of income. (4) Tax impact during the
period at an effective tax rate of 35.6%. (5)
During the fourth quarter of fiscal year
2017 the company incurred severance costs related to the
elimination of certain corporate positions.
(6) Tax impact during the period at an adjusted effective tax rate
of 37.0%. (7) Tax impact during fiscal year 2017 at an adjusted
effective tax rate of 37.0%; tax impact during fiscal year 2016 at
an adjusted effective tax rate of 35.4%. (8) Tax impact during the
period at an effective tax rate of 34.6%.
Fiscal Year 2018 Outlook
While the macroeconomic environment may impact results, the
company continues to expect adjusted earnings per share for fiscal
year 2018 to increase 5% to 10% year over year. The outlook for
fiscal 2018 anticipates the following elements:
- Approximately 0% to 2% same-store sales
growth for the system;
- Royalty revenue growth from new unit
development;
- 70 to 80 new franchise drive-in
openings;
- Drive-in-level margins of 15.1% to
15.7%, depending upon the degree of same-store sales growth at
company drive-ins;
- Selling, general and administrative
expenses of approximately $76 million to $78 million;
- Depreciation and amortization expense
of $40 million to $42 million;
- Net interest expense of approximately
$32 million to $34 million;
- Capital expenditures of $38 million to
$40 million; excluding spending on build-to-suit drive-in
development, capital outlays would be $34 million to $36
million;
- Free cash flow(1) of approximately $60
million to $65 million;
- An income tax rate of approximately
35.0%;
- The repurchase of approximately $160
million in shares across the fiscal year; and
- An expected quarterly cash dividend of
$0.16 per share.
Update on Investigation into Payment Card Breach
On September 18, 2017, the company was informed by its payment
card processor that there appeared to be suspicious activity
involving credit and debit cards used at certain Sonic Drive-In
locations. Upon learning of the suspicious activity, the company
immediately contacted and began working with law enforcement to
investigate the matter. At the same time, the company immediately
launched its own investigation with the help of experienced
third-party forensics firms. On October 4, 2017, from its
investigations to date, the company issued a public statement
notifying guests and the public that it had discovered that credit
and debit card numbers may have been acquired without authorization
as part of a malware attack experienced at certain Sonic Drive-In
locations. As a precautionary measure, the company offered 24
months of free fraud detection and identity theft protection
through Experian’s IdentityWorks program to guests who used their
cards at Sonic Drive-In locations this year. The company’s
investigation is ongoing, and the company continues to work closely
with experienced forensics firms and law enforcement officials to
further investigate the matter.
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) 806-6231 or (719)
325-4876 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
8522917. The replay will be available until Monday, October 23,
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 will be available on the investor section of
the company's website, 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
$8.5 million to public school teachers nationwide to fund essential
learning materials and innovative teaching resources to inspire
creativity and learning in their students. 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 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 net of 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 endedAugust
31, Fiscal year endedAugust 31,
2017
2016 2017 2016 Revenues: Company Drive-In
sales
$ 72,601 $ 111,456
$ 296,101 $
425,795 Franchise Drive-Ins: Franchise royalties and fees
47,840 47,663
170,527 170,319 Lease revenue
1,962 2,327
7,436 7,459 Other
1,165 672
3,203 2,747 Total revenues
123,568 162,118
477,267 606,320 Costs and expenses:
Company Drive-Ins: Food and packaging
19,859 30,888
80,971 118,136 Payroll and other employee benefits
24,789 38,625
107,477 150,260 Other operating
expenses, exclusive of depreciation and amortization included below
13,923 22,974
61,463 88,424
Total cost of Company Drive-In sales
58,571 92,487
249,911 356,820 Selling, general and administrative
19,874 19,748
78,687 82,089 Depreciation and
amortization
9,717 10,956
39,248 44,418 Provision for
impairment of long-lived assets
148 155
1,140 232
Other operating income, net
(2,897 ) (1,543 )
(14,994 ) (4,691 ) Total costs and expenses
85,413 121,803
353,992 478,868
Income from operations
38,155 40,315
123,275
127,452 Interest expense
7,472 7,249
29,206 26,714
Interest income
(351 ) (190 )
(1,398 )
(516 ) Debt extinguishment costs
— —
—
8,750 Net interest expense
7,121 7,059
27,808 34,948 Income before
income taxes
31,034 33,256
95,467 92,504 Provision
for income taxes
10,203 7,819
31,804
28,437 Net income
$ 20,831 $
25,437
$ 63,663 $ 64,067 Basic
income per share
$ 0.50 $ 0.54
$
1.47 $ 1.32 Diluted income per share
$
0.50 $ 0.53
$ 1.45 $ 1.29
Weighted average basic shares
41,309 47,237
43,306 48,703 Weighted average diluted
shares
41,985 48,037
44,043
49,669
SONIC CORP. Unaudited
Supplemental Information
Three months endedAugust 31, Fiscal year
endedAugust 31, 2017 2016 2017
2016 Drive-Ins in Operation: Company: Total at
beginning of period
230 375
345 387 Opened
— 1
3 1 Sold to franchisees
(2 ) (29 )
(117
) (38 ) Closed (net of re-openings)
— (2 )
(3 ) (5 ) Total at end of period
228
345
228 345 Franchise: Total at
beginning of period
3,341 3,168
3,212 3,139 Opened
27 18
63 52 Acquired from the company
2 29
117 38 Closed (net of re-openings)
(5 ) (3 )
(27 ) (17 ) Total at end of period
3,365
3,212
3,365 3,212 System: Total
at beginning of period
3,571 3,543
3,557 3,526 Opened
27 19
66 53 Closed (net of re-openings)
(5
) (5 )
(30 ) (22 ) Total at end of period
3,593 3,557
3,593 3,557
Three months endedAugust 31,
Fiscal year endedAugust 31,
2017 2016
2017 2016 Sales Analysis: Company Drive-Ins:
Total sales
$ 72,601 $ 111,456
$
296,101 $ 425,795 Average drive-in sales
316 313
1,134 1,142 Change in same-store sales
(4.8 )%
(3.0 )%
(4.7 )% 1.7 % Franchised Drive-Ins: Total
sales
$ 1,136,856 $ 1,125,655
$
4,112,062 $ 4,092,303 Average drive-in sales
344 355
1,260 1,301 Change in same-store sales
(3.2 )%
(1.8 )%
(3.2 )% 2.7 % System: Change in total sales
(2.2 )% (0.8 )%
(2.4 )% 3.5 % Average
drive-in sales
$ 342 $ 351
$ 1,250 $
1,284 Change in same-store sales
(3.3 )% (2.0 )%
(3.3 )% 2.6 %
Note: Change in same-store sales based on restaurants open for a
minimum of 15 months.
SONIC CORP. Unaudited Supplemental Information
Three months
endedAugust 31, Fiscal year endedAugust
31,
2017 2016 2017 2016 (In
thousands) (In thousands)
Revenues: Company Drive-In sales
$ 72,601 $ 111,456
$ 296,101 $ 425,795
Franchise Drive-Ins: Franchise royalties
47,434 47,126
169,344 168,691 Franchise fees
406 537
1,183
1,628 Lease revenue
1,962 2,327
7,436 7,459 Other
1,165 672
3,203 2,747
Total revenues
$ 123,568 $ 162,118
$ 477,267 $ 606,320
Three months endedAugust 31, Fiscal year
endedAugust 31,
2017 2016 2017
2016 Margin Analysis (percentage of Company Drive-In
sales): Company Drive-Ins: Food and packaging
27.4
% 27.7 %
27.3 % 27.7 % Payroll and employee
benefits
34.1 34.7
36.3 35.3 Other operating expenses
19.2 20.6
20.8 20.8 Cost
of Company Drive-In sales
80.7 % 83.0 %
84.4
% 83.8 %
August 31, August 31,
2017 2016 (In thousands)
Selected Balance
Sheet Data: Cash and cash equivalents
$ 22,340 $
72,092 Current assets
89,184 137,657 Property, equipment and
capital leases, net
312,380 392,380 Total assets
$
561,744 $ 648,661
Current liabilities, including capital lease obligations and
long-term debt due within one year
$ 58,616 $ 74,663
Obligations under capital leases due after one year
16,167
17,391 Long-term debt due after one year, net of debt issuance
costs
628,116 566,187 Total liabilities
763,502
724,304 Stockholders' deficit
$ (201,758 ) $
(75,643 )
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version on businesswire.com: http://www.businesswire.com/news/home/20171016006207/en/
Sonic Corp.Corey Horsch, 405-225-4800Vice President of Investor
Relationsand Treasurer
Sonic (NASDAQ:SONC)
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