Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of
drive-in restaurants, today announced results for its second fiscal
quarter ended February 28, 2018.
Key highlights of the company’s second quarter of fiscal year
2018 included:
- Net income per diluted share increased
104% to $0.51 versus $0.25 in the prior-year period; adjusted net
income per diluted share increased 13% to $0.17 versus $0.15 in the
prior-year period;
- System same-store sales declined 2.9%,
consisting of a 2.8% same-store sales decrease at franchise
drive-ins and a 3.7% decrease at company drive-ins;
- Company drive-in margins were favorable
by 40 basis points;
- 8 new drive-ins opened; and
- The company repurchased 1.2 million
outstanding shares.
“Our second quarter same-store sales decline reflected
unfavorable weather and continued aggressive discounting by the
competition. Excluding the impact of weather, which was a
particular challenge in January and February, same-store sales were
flat, consistent with the first quarter and indicative of stable
underlying sales performance during the first half of our fiscal
year,” said Cliff Hudson, Sonic Corp. CEO. “We continued to support
a simplified everyday value message via the Drive-In Duo in
December and January, which featured a cheeseburger and shake for
$3.99, and a Quarter-Pound Jr. Double Cheeseburger and Tots for
$2.99 in February. These types of broadly appealing value offerings
provide a compelling price point and highlight Sonic’s quality
differentiation.
“Looking at the second half of fiscal 2018, updated media
strategies are now in the marketplace, including new television
creative, an increased number of consumer impressions and a
retooled digital presence on both social media and proprietary
channels. On the new product front, our Signature Slinger launched
to considerable fanfare, inviting guests to enjoy a savory burger
with none of the guilt; and our Pretzel Twist has been very well
received by customers. March also saw the launch of the first
full-market rollout of mobile order ahead, backed by the complete
integration of digital and traditional marketing tools, which has
shown strong operational results in the first few weeks. We expect
this relentless focus on delighting our core guest to generate
improved traffic, accelerating operating profit growth and
generating strong free cash flow for shareholders.
“Finally, we continue to optimize our capital structure. During
the quarter, we repurchased 1.2 million shares, bringing the total
to 2.8 million shares through the first half of fiscal year 2018,
or 6% of shares outstanding. Our targeted leverage range remains
3.5-4.5x net-debt-to-EBITDA, and we anticipate concluding the year
at the higher end of the range.”
Financial Overview
For the second fiscal quarter of 2018, the company’s net income
totaled $19.6 million or $0.51 per diluted share compared to net
income of $11.0 million or $0.25 per diluted share in the same
period of the prior year. Excluding the items outlined below, net
income decreased 1% and net income per diluted share totaled $0.17.
The lower tax rate resulting from federal tax reform benefited
adjusted earnings per share by approximately $0.04. Excluding the
total impact of federal tax reform, adjusted net income per diluted
share declined 13% to $0.13 in the second quarter.
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 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, 2018
February 28, 2017
Net Diluted
Net Diluted Net Income Diluted
EPS
Income EPS Income EPS
$ Change
% Change
$ Change
% Change Reported – GAAP
$ 19,607 $
0.51 $ 10,963 $ 0.25 $ 8,644 79 % $ 0.26 104 % Payment card
breach expense (1)
228 0.01 — — Tax impact on payment
card breach expense (2)
(67 ) 0.00 — — Loss
from debt transactions (3)
1,310 0.03 — — Tax impact
on debt transactions (2)
(384 ) (0.01 )
— — Discrete impact of the Tax Cuts and Jobs Act
(14,120
) (0.36 ) — — Net gain on refranchising
transactions (4)
— — (6,788 ) (0.15 ) Tax impact on
refranchising transactions (5)
— —
2,445 0.05 Adjusted -
Non-GAAP (6)
$ 6,574 $ 0.17
$ 6,620 $ 0.15 $ (46 ) (1 )% $ 0.02 13
% ________________ (1) Costs include legal fees,
investigative fees and costs related to customer response. (2) Tax
impact during the period at a consolidated blended statutory tax
rate of 29.3%. (3) Includes a $0.7 million write-off of unamortized
deferred loan fees related to the reduction of the company's
variable funding note commitments, as well as a $0.4 million
write-off of unamortized deferred loan fees related to the
prepayment on its 2013 Fixed Rate Notes and 2016 Fixed Rate Notes.
Additionally, as required by the terms of the 2016 Fixed Rate
Notes, we paid a $0.2 million prepayment premium (4) During the
second quarter of fiscal year 2017, we completed transactions to
refranchise the operations of 54 company drive-ins. (5) Tax impact
during the period at an effective tax rate of 36.0%. (6) Sum of per
share data may not agree to the total amounts due to rounding.
For the first six months of fiscal year 2018, the company’s net
income totaled $31.0 million or $0.79 per diluted share compared to
net income of $24.1 million or $0.53 per diluted share in the same
period of the prior year. Excluding the items outlined below, net
income increased 3% and net income per diluted share increased 21%
to $0.47. The lower tax rate resulting from federal tax reform
benefited adjusted earnings per share by approximately $0.04.
Excluding the total impact of federal tax reform, adjusted net
income per diluted share improved 10% to $0.43 in the first six
months of fiscal year 2018.
Six months ended Six months ended
February 28, 2018 February
28, 2017
Net Diluted Net
Diluted Net Income Diluted EPS
Income
EPS Income EPS $ Change % Change
$ Change % Change Reported – GAAP
$
31,037 $ 0.79 $ 24,081 $ 0.53 $ 6,956 29% $
0.26 49% Payment card breach expense (1)
870 0.02 — —
Tax impact on payment card breach expense (2)
(312 )
(0.01 ) — — Loss from debt transactions (3)
1,310 0.03 — — Tax impact on debt transactions (4)
(384 ) (0.01 ) — — Discrete impact of
the Tax Cuts and Jobs Act
(14,120 ) (0.36
) Net gain on refranchising transactions (5)
—
— (5,831 ) (0.13 ) Tax impact on refranchising transactions
(6)
— — 2,105 0.04 Gain on sale of investment in
refranchised drive-in operations (7)
— — (3,795 )
(0.08 ) Tax impact on sale of investment in refranchised drive-in
operations (8)
— — 1,350 0.03
Adjusted - Non-GAAP (9)
$
18,401 $ 0.47 $ 17,910 $
0.39 $ 491 3% $ 0.08 21% ________________ (1)
Costs include legal fees, investigative fees and costs
related to customer response. (2) Combined tax impact at
consolidated blended statutory tax rates of 38.2% and 29.3% during
the first and second quarters of fiscal year 2018, respectively.
(3) Includes a $0.7 million write-off of unamortized deferred loan
fees related to the reduction of the company's variable funding
note commitments, as well as a $0.4 million write-off of
unamortized deferred loan fees related to the prepayment on its
2013 Fixed Rate Notes and 2016 Fixed Rate Notes. Additionally, as
required by the terms of the 2016 Fixed Rate Notes, we paid a $0.2
million prepayment premium (4) Tax impact during the period at a
consolidated blended statutory tax rate of 29.3%. (5) During the
first and second quarters of fiscal year 2017, we completed
transactions to refranchise the operations of 110 company
drive-ins. (6) Combined tax impact at effective tax rates of 35.6%
and 36.0% during the first and second quarters of fiscal year 2017,
respectively. (7) 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. (8) Tax impact during the period at
an adjusted effected tax rate of 35.6%. (9) Sum of per share data
may not agree to the total amounts due to rounding.
Fiscal Year 2018 Outlook
While the macroeconomic environment may impact results, the
company now expects adjusted earnings per share for fiscal year
2018 to be between $1.43 and $1.50 inclusive of tax reform.
Excluding the impact of tax reform, the company expects an increase
of 2% to 7% year over year. The outlook for fiscal 2018 anticipates
the following elements:
- Same-store sales for the system to be
down 1% to up 1% year over year;
- Royalty revenue growth from new unit
development;
- 55 to 65 new franchise drive-in
openings;
- Drive-in-level margins of 15.0% to
15.5%, depending upon the degree of same-store sales growth at
company drive-ins;
- Selling, general and administrative
expenses of $76 million to $78 million;
- Depreciation and amortization expense
of $39 million to $41 million;
- Net interest expense of $32 million to
$34 million;
- Capital expenditures of approximately
$40 million;
- Free cash flow(1) of $60 million to $63
million;
- An income tax rate of approximately
25.0% to 26.0%;
- The repurchase of approximately $160
million in shares across the fiscal year; and
- An expected quarterly cash dividend of
$0.16 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 (800) 263-0877 or (323)
794-2094 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
4289913. The replay will be available until Tuesday, April 3, 2018.
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
$9.5 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.
SONC-F
(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.
SONIC CORP. UNAUDITED CONSOLIDATED
STATEMENTS OF INCOME (In thousands, except per share
amounts)
Three months
ended Six months ended February 28, February
28,
2018 2017 2018 2017 Revenues:
Company Drive-In sales
$ 53,090 $ 64,286
$
115,630 $ 151,438 Franchise Drive-Ins: Franchise royalties
and fees
33,737 34,328
74,515 74,467 Lease revenue
1,401 1,675
3,085 3,056 Other
(126 )
(131 )
300 748 Total revenues
88,102
100,158
193,530 229,709 Costs and expenses: Company
Drive-Ins: Food and packaging
14,601 17,616
32,314
41,732 Payroll and other employee benefits
21,083 25,332
43,857 57,098 Other operating expenses, exclusive of
depreciation and amortization included below
11,370
14,278
24,949 33,704 Total cost of
Company Drive-In sales
47,054 57,226
101,120 132,534
Selling, general and administrative
16,846 18,296
36,615 38,050 Depreciation and amortization
9,560
9,734
18,926 20,011 Other operating income, net
(272
) (7,725 )
(493 ) (10,565 ) Total costs and
expenses
73,188 77,531
156,168
180,030 Income from operations
14,914 22,627
37,362 49,679 Interest expense
8,138 7,227
15,813 14,416 Interest income
(455 ) (262 )
(837 ) (756 ) Loss from debt transactions
1,310 —
1,310 — Net
interest expense
8,993 6,965
16,286
13,660 Income before income taxes
5,921
15,662
21,076 36,019 Provision for income taxes
(13,686 ) 4,699
(9,961 ) 11,938
Net income
$ 19,607 $ 10,963
$ 31,037 $ 24,081 Basic income per
share
$ 0.51 $ 0.25
$
0.80 $ 0.54 Diluted income per share
$
0.51 $ 0.25
$ 0.79 $ 0.53
Weighted average basic shares
38,284 43,794
38,806 44,757 Weighted average diluted
shares
38,697 44,550
39,291
45,547
SONIC CORP. Unaudited Supplemental
Information
Three months ended Six months
ended February 28, February 28,
2018 2017 2018 2017
Drive-Ins in
Operation:
Company: Total at beginning of period
228 286
228 345
Opened
— 1
— 1 Sold to franchisees
(6 )
(54 )
(6 ) (110 ) Closed (net of re-openings)
— —
— (3 ) Total at end of
period
222 233
222 233
Franchise: Total at beginning of period
3,360 3,273
3,365 3,212 Opened
8 9
13 23 Acquired from the
company
6 54
6 110 Closed (net of re-openings)
(9 ) (7 )
(19 ) (16 ) Total at end of
period
3,365 3,329
3,365 3,329
System: Total at beginning of period
3,588 3,559
3,593 3,557 Opened
8 10
13 24 Closed (net of
re-openings)
(9 ) (7 )
(19 ) (19 )
Total at end of period
3,587 3,562
3,587 3,562
Three months ended
Six months ended February 28, February
28,
2018 2017 2018
2017 Sales Analysis: Company Drive-Ins: Total sales
$ 53,090 $ 64,286
$ 115,630 $ 151,438
Average drive-in sales
234 236
508 506 Change in
same-store sales
(3.7 )% (8.9 )%
(3.4
)% (5.5 )% Franchised Drive-Ins: Total sales
$
851,183 $ 856,514
$ 1,848,318 $ 1,830,399
Average drive-in sales
256 262
557 566 Change in
same-store sales
(2.8 )% (7.3 )%
(2.1
)% (4.5 )% System: Change in total sales
(1.8
)% (6.2 )%
(0.9 )% (3.5 )% Average drive-in
sales
$ 255 $ 260
$ 554 $ 561 Change in
same-store sales
(2.9 )% (7.4 )%
(2.2
)% (4.6 )%
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, February
28,
2018 2017 2018 2017
(In thousands)
Revenues:
Company Drive-In sales
$ 53,090 $ 64,286
$
115,630 $ 151,438 Franchise Drive-Ins: Franchise royalties
33,595 34,138
74,222 74,021 Franchise fees
142
190
293 446 Lease revenue
1,401 1,675
3,085
3,056 Other
(126 ) (131 )
300 748 Total
revenues
$ 88,102 $ 100,158
$
193,530 $ 229,709
Three months ended
Six months ended February 28, February
28,
2018 2017 2018
2017 Margin Analysis (percentage of Company Drive-In
sales): Company Drive-Ins: Food and packaging
27.5
% 27.4 %
28.0 % 27.6 % Payroll and employee
benefits
39.7 39.4
37.9 37.7 Other operating expenses
21.4 22.2
21.6 22.2 Cost
of Company Drive-In sales
88.6 % 89.0 %
87.5
% 87.5 %
February 28, August
31,
2018 2017 (In thousands)
Selected Balance Sheet Data: Cash and cash equivalents
$ 64,238 $ 22,340 Current assets
122,010
89,184 Property, equipment and capital leases, net
310,123
312,380 Total assets
$ 561,536 $ 561,744 Current
liabilities, including capital lease obligations and long-term debt
due within one year
$ 48,579 $ 58,616 Obligations
under capital leases due after one year
14,283 16,167
Long-term debt due after one year, net of debt issuance costs
706,534 628,116 Total liabilities
814,271 763,502
Stockholders' deficit
$ (252,735 ) $ (201,758
)
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 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)
Three months ended Three months ended
February 28, 2018 February 28, 2017 Reported
GAAP Adjustments Adjusted Non-GAAP
Reported GAAP Adjustments Adjusted
Non-GAAP Total Revenues
$ 88,102 $ —
$
88,102 $ 100,158 $ — $ 100,158 Total cost of Company
Drive-in sales
47,054 —
47,054 57,226 — 57,226
Selling, general and administrative
16,846 (228 ) (1)
16,618 18,296 — 18,296 Depreciation and amortization
9,560 —
9,560 9,734 — 9,734 Other operating income,
net
(272 ) —
(272 ) (7,725 )
6,788 (2) (937 ) Total cost and expenses
73,188
(228 )
72,960 77,531 6,788
84,319 Income from Operations
$ 14,914
$ 228
$ 15,142 $ 22,627 $ (6,788
) $ 15,839
________________
(1) Payment card breach expenses recorded in the second
quarter of fiscal year 2018. (2) Includes the $6,788 thousand
pretax gain on refranchising transactions.
Six
months ended Six months ended February 28,
2018 February 28, 2017 Reported GAAP
Adjustments Adjusted Non-GAAP Reported
GAAP Adjustments Adjusted Non-GAAP
Total Revenues
$ 193,530 $ —
$ 193,530
$ 229,709 $ — $ 229,709 Total cost of Company Drive-in sales
101,120 —
101,120 132,534 — 132,534 Selling, general
and administrative
36,615 (870 ) (1)
35,745 38,050 —
38,050 Depreciation and amortization
18,926 —
18,926
20,011 — 20,011 Other operating income, net
(493 ) —
(493 ) (10,565 ) 9,626 (2) (939 ) Total
cost and expenses
156,168 (870 )
155,298
180,030 9,626 189,656 Income from
Operations
$ 37,362 $ 870
$
38,232 $ 49,679 $ (9,626 ) $ 40,053
________________
(1) Payment card breach expenses recorded in the first and
second quarters of fiscal year 2018. (2) Includes the $5,831
thousand pretax net gain on refranchising transactions during the
first and second quarters of fiscal year 2017 and the $3,795
thousand pretax gain on the sale of investment in refranchised
drive-in operations during the first quarter of fiscal year 2017.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180327006321/en/
Sonic Corp.Corey Horsch, 405-225-4800Vice President, Chief
Financial Officer and Treasurer
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