Mixed 2Q Earnings for Sonic - Analyst Blog
March 28 2013 - 5:40AM
Zacks
Sonic Corp.’s (SONC) second quarter fiscal 2013
adjusted earnings of 5 cents per share increased 66.7% year over
year and beat the Zacks Consensus Estimate by 25.0%. The
year-over-year increase came mainly on the back of cost
efficiency.
Total revenue in the reported quarter dipped 3.5% year over year
to $111.1 million, which missed the Zacks Consensus Estimate of
$113.0 million. Sluggish comparable store sales (comps) led to
lower revenues in the quarter.
System-wide comparable store sales (comps) for the quarter were
flat (versus 3.5% increase recorded last year), which comprised
increases of 1.9% in company-owned outlets (versus 3.1% growth
recorded last year) and 0.3% decline in comps at franchised
drive-ins (versus 3.6% rise in the year-ago period). One less
operating day than the prior year owing to the leap year hurt comps
in the quarter.
This drive-in fast-food restaurant chain saw a significant
decline in its cost structure, driving its profits higher. Food and
packaging expenses fell 20 basis points (bps) to 28.1% as a
percentage of revenues. Other operating expenses declined 130 bps
to 22.5%.
Lower costs led to 140 basis points improvement in company-owned
drive-in margins. Continued growth in margins reflects improving
fundamentals of the company.
Store Update
Oklahoma-based Sonic opened 3 franchised and closed 22
franchised and 4 company-operated drive-ins in the second quarter.
As many as 34 company operated drive ins were sold to franchisees
in the quarter.
As of Feb 28, 2013, the drive-in fast food chain operator had
3,526 drive-in restaurants. Management expects new franchise
drive-in openings to be slightly higher in fiscal 2013 than fiscal
2012. However, Sonic anticipates the rate of growth to accelerate
in 2014.
Outlook
For fiscal 2013, Sonic expects positive comps in the low single
digits. Improvement in restaurant level margin will depend on same
store sales growth and is expected to expand 50–100 basis points.
Sonic also expects to generate $45 million to $50 million in free
cash flow in fiscal 2013.
Our Take
Better performance of company-owned stores as against franchised
ones speaks of Sonic’s efforts to develop inherent strength.
Initiatives that will place the company in a better position in a
competitive setting include closure of underperforming units, focus
on smaller prototypes to improve return on investment;
multi-layered growth strategy, execution of a point-of-sale system
and increased media spending.
However, there is still not much clarity as far as the company’s
sales scenario is concerned. Stiff competition in the marketplace
and waning consumer confidence remain concerns for the company.
Sonic currently retains a Zacks Rank #2 (Buy). Some other
restaurant industry stocks currently performing well include
Red Robin Gourmet Burgers Inc. (RRGB),
Burger King Worldwide Inc. (BKW) and
Cracker Barrel Old Country Store Inc. (CBRL).
While Red Robin carries a Zacks Rank #1 (Strong Buy), Burger King
and Cracker Barrel hold a Zacks Rank #2 (Buy)
BURGER KING WWD (BKW): Free Stock Analysis Report
CRACKER BARREL (CBRL): Free Stock Analysis Report
RED ROBIN GOURM (RRGB): Free Stock Analysis Report
SONIC CORP (SONC): Free Stock Analysis Report
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