Sonic Corp. (NASDAQ:SONC), the nation’s largest chain of
drive-in restaurants, today announced results for its second fiscal
quarter ended February 28, 2017.
Key highlights of the company’s second quarter of fiscal year
2017 included:
- Net income per diluted share increased
14% to $0.25 versus $0.22 in the prior-year period; adjusted net
income per diluted share declined 17% to $0.15 versus $0.18 in the
prior-year period;
- System same-store sales declined 7.4%,
consisting of a 7.3% same-store sales decrease at franchise
drive-ins and an 8.9% decrease at company drive-ins;
- Company drive-in margins declined by
330 basis points;
- Ten new drive-ins opened and 54
drive-ins were refranchised; and
- The company repurchased 1.8 million
outstanding shares.
"Our second quarter results reflect a sluggish consumer
environment, weather headwinds and share losses following
exceptionally strong performance over the prior two years," said
Cliff Hudson, Sonic Corp. CEO. “As we enter the key spring and
summer seasons, we believe a better balance of new product news and
targeted value will result in sequential improvement in same-store
sales and profitability.
“Our unit growth, capital structure and technology initiatives
are on track,” continued Hudson. “We completed our refranchising
program ahead of schedule with 54 drive-ins divested during the
quarter, leaving us with a stronger portfolio of company-owned
stores. We are also pleased to have repurchased 1.8 million shares
of our stock in the second quarter of 2017, representing 4% of
shares outstanding, while continuing to invest in the development,
people and technology that will drive us to deliver the most
personalized guest experience in the industry."
Same-Store Sales
For the second quarter ended February 28, 2017, system
same-store sales decreased 7.4%, which was comprised of a 7.3%
same-store sales decline at franchise drive-ins and a decline of
8.9% at company drive-ins.
Financial Overview
For the second fiscal quarter of 2017, the company’s net income
totaled $11.0 million or $0.25 per diluted share compared to net
income of $10.8 million or $0.22 per diluted share in the same
period of the prior year. Excluding the items outlined below, net
income and net income per diluted share declined 27% and 17%,
respectively.
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
February 28, 2017
February 29, 2016
Net Diluted
Net Diluted Net Income Diluted
EPS
Income EPS Income EPS $
Change % Change $ Change % Change Reported
– GAAP
$ 10,963 $ 0.25 $ 10,819 $ 0.22
$ 144 1 % $ 0.03 14 % Net gain on refranchising transactions (1)
(6,788 ) (0.15 ) — — Tax impact on
refranchising transactions (2)
2,445 0.05 — — Gain on
sale of real estate
— — (1,875 ) (0.04 ) Tax impact
on real estate sale (3)
— — 664 0.01 Retroactive
benefit of Work Opportunity Tax Credit and resolution of tax
matters
— — (585 ) (0.01 )
Adjusted - Non-GAAP
$ 6,620
$ 0.15 $ 9,023 $ 0.18 $
(2,403 ) (27 )% $ (0.03 ) (17 )%
____________
(1) During the second quarter of fiscal year 2017, we
completed transactions to refranchise the operations of 54
drive-ins, one of which resulted in a gain of $7.8 million, and the
other in a loss of $1.4 million. The loss transaction included a
deferred gain of $1.0 million, which is recorded in other
non-current liabilities, as a result of a real estate purchase
option extended to the franchisee that will be exercised or expire
between January 2020 and December 2023. Additionally, we received
net lease payments of $0.4 million related to the first quarter
transaction detailed in footnote 1 to the table below. (2) Tax
impact during the period at an adjusted effective tax rate of
36.0%. (3) Tax impact during the period at an adjusted effective
tax rate of 35.4%.
For the first six months of fiscal year 2017, net income totaled
$24.1 million or $0.53 per diluted share compared with net income
of $23.3 million or $0.46 per diluted share for the same period in
2016. Excluding the items outlined below, net income and net income
per diluted share decreased 17% and 7%, respectively.
(In thousands, except per share
amounts)
Six months ended Six months
ended
February 28, 2017
February 29, 2016
Net Diluted
Net Diluted Net Income Diluted
EPS
Income EPS Income EPS $
Change % Change $ Change % Change Reported
– GAAP
$ 24,081 $ 0.53 $ 23,277 $ 0.46
$ 804 3 % $ 0.07 15 % Net gain on refranchising transactions (1)
(5,831 ) (0.13 ) — — Tax impact on
refranchising transactions (2)
2,105 0.04 — — 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 — — Gain on sale of real estate
— —
(1,875 ) (0.04 ) Tax impact on real estate sale (5)
—
— 664 0.01 Retroactive benefit of Work Opportunity Tax
Credit and resolution of tax matters
— —
(585 ) (0.01 ) Adjusted -
Non-GAAP
$ 17,910 $ 0.39
$ 21,481 $ 0.42 $ (3,571 ) (17 )% $ (0.03 ) (7 )%
____________
(1) During the first quarter of fiscal year 2017, we
completed 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, which resulted in a net loss
of $1.0 million. 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. We
are including lease payments received, net of sub-lease expenses,
to quantify the net refranchising gain (loss). Net payments
received during the second quarter totaled $0.4 million. During the
second quarter of fiscal year 2017, we completed transactions to
refranchise the operations of 54 drive-ins, one of which resulted
in a gain of $7.8 million, and the other in a loss of $1.4 million.
The loss transaction included a deferred gain of $1.0 million,
which is recorded in other non-current liabilities, as a result of
a real estate purchase option extended to the franchisee that will
be exercised or expire between January 2020 and December 2023. (2)
Combined tax impact at effective tax rates of 35.6% and 36.0%
during the first and second quarters of fiscal year 2017,
respectively. (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. (4) Tax impact during the period at an adjusted
effective tax rate of 35.6%. (5) 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 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 15.5% to
16.0%, depending upon the degree of same-store sales growth at
company drive-ins;
- Selling, general and administrative
expenses of approximately $81 million to $82 million reflecting
increased investment in human resources and technology to support
brand initiatives, offset by lower incentive compensation;
- 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 $55
to $60 million;
- An income tax rate between 34% to
35%;
- The planned use of the remaining $75
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) 545-1402 or (719)
325-4771 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
8513191. The replay will be available until Tuesday, April 4, 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.
Over 90 percent of SONIC's 3,500 drive-in locations are owned and
operated by local business men and women. For 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.
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
(1) Free cash flow is defined as net income plus depreciation,
amortization and stock compensation expenses, less capital
expenditures.
SONIC CORP. UNAUDITED CONSOLIDATED STATEMENTS OF
INCOME (In thousands, except per share amounts)
Three months ended Six months ended
February 28,2017
February 29,2016
February 28,2017
February 29,2016
Revenues: Company Drive-In sales
$ 64,286 $ 95,313
$ 151,438 $ 199,196 Franchise Drive-Ins: Franchise
royalties and fees
34,328 36,047
74,467 75,969 Lease
revenue
1,675 1,399
3,056 2,991 Other
(131
) 401
748 807 Total revenues
100,158 133,160
229,709 278,963 Costs and expenses:
Company Drive-Ins: Food and packaging
17,616 26,213
41,732 55,159 Payroll and other employee benefits
25,332 35,359
57,098 71,723 Other operating expenses,
exclusive of depreciation and amortization included below
14,278 20,100
33,704 43,008
Total cost of Company Drive-In sales
57,226 81,672
132,534 169,890 Selling, general and administrative
18,296 20,785
38,050 41,725 Depreciation and
amortization
9,734 11,057
20,011 22,056 Other
operating income, net
(7,725 ) (2,566 )
(10,565 ) (2,965 ) Total costs and expenses
77,531 110,948
180,030 230,706
Income from operations
22,627 22,212
49,679
48,257 Interest expense
7,227 6,467
14,416 12,689
Interest income
(262 ) (105 )
(756 )
(205 ) Net interest expense
6,965 6,362
13,660 12,484 Income before income
taxes
15,662 15,850
36,019 35,773 Provision for
income taxes
4,699 5,031
11,938
12,496 Net income
$ 10,963 $ 10,819
$ 24,081 $ 23,277 Basic income
per share
$ 0.25 $ 0.22
$
0.54 $ 0.47 Diluted income per share
$
0.25 $ 0.22
$ 0.53 $ 0.46
Weighted average basic shares
43,794 48,977
44,757 49,599 Weighted average diluted
shares
44,550 49,988
45,547
50,656
SONIC CORP. Unaudited
Supplemental Information
Three months ended
Six months ended
February 28,2017
February 29,2016
February 28,2017
February 29,2016
Drive-Ins in Operation: Company: Total at beginning of
period
286 382
345 387 Opened
1 —
1 —
Sold to franchisees
(54 ) (7 )
(110 )
(9 ) Closed (net of re-openings)
— —
(3
) (3 ) Total at end of period
233 375
233 375 Franchise: Total at beginning of
period
3,273 3,147
3,212 3,139 Opened
9 5
23 18 Acquired from the company
54 7
110 9
Closed (net of re-openings)
(7 ) (6 )
(16
) (13 ) Total at end of period
3,329 3,153
3,329 3,153 System-wide: Total at
beginning of period
3,559 3,529
3,557 3,526 Opened
10 5
24 18 Closed (net of re-openings)
(7
) (6 )
(19 ) (16 ) Total at end of period
3,562 3,528
3,562 3,528
Three months ended Six months ended
February 28,2017
February 29,2016
February 28,2017
February 29,2016
($ in thousands) ($ in thousands)
Sales Analysis: Company
Drive-Ins: Total sales
$ 64,286 $ 95,313
$
151,438 $ 199,196 Average drive-in sales
236 253
506 522 Change in same-store sales
(8.9 )% 6.3
%
(5.5 )% 5.3 % Franchised Drive-Ins: Total sales
$ 856,514 $ 886,313
$ 1,830,399 $
1,854,828 Average drive-in sales
262 283
566 593
Change in same-store sales
(7.3 )% 6.5 %
(4.5
)% 5.9 % System-wide: Change in total sales
(6.2
)% 7.8 %
(3.5 )% 6.7 % Average drive-in sales
$ 260 $ 280
$ 561 $ 585 Change in
same-store sales
(7.4 )% 6.5 %
(4.6 )%
5.9 %
Note: Change in same-store sales
based on restaurants open for a minimum of 15 months.
SONIC CORP. Unaudited Supplemental Information
Three months ended Six months
ended
February 28,2017
February 29,2016
February 28,2017
February 29,2016
(In thousands) (In thousands)
Revenues: Company Drive-In
sales
$ 64,286 $ 95,313
$ 151,438 $
199,196 Franchise Drive-Ins: Franchise royalties
34,138
35,807
74,021 75,269 Franchise fees
190 240
446 700 Lease revenue
1,675 1,399
3,056 2,991
Other
(131 ) 401
748 807
Total revenues
$ 100,158 $ 133,160
$ 229,709 $ 278,963
Three
months ended Six months ended
February 28,2017
February 29,2016
February 28,2017
February 29,2016
Margin Analysis (percentage of Company Drive-In sales):
Company Drive-Ins: Food and packaging
27.4 % 27.5 %
27.6 % 27.7 % Payroll and employee benefits
39.4 37.1
37.7 36.0 Other operating expenses
22.2 21.1
22.2 21.6 Cost
of Company Drive-In sales
89.0 % 85.7 %
87.5
% 85.3 %
February 28,2017
August 31,2016
(In thousands)
Selected Balance Sheet Data: Cash and
cash equivalents
$ 33,890 $ 72,092 Current assets
94,840 137,657 Property, equipment and capital leases, net
359,119 392,380 Total assets
$ 571,664 $
648,661 Current liabilities, including capital lease obligations
and long-term debt due within one year
$ 56,681 $
74,663 Obligations under capital leases due after one year
16,270 17,391 Long-term debt due after one year, net of debt
issuance costs
593,147 566,187 Total liabilities
729,355 724,304 Stockholders' equity (deficit)
$
(157,691 ) $ (75,643 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170328006448/en/
Sonic Corp.Corey Horsch, (405) 225-4800Vice President of
Investor Relations and Treasurer
Sonic (NASDAQ:SONC)
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