Accelerating Development and Retrofit Programs, Other Initiatives
Continue to Build Momentum for Fiscal 2008 Sales and Earnings
OKLAHOMA CITY, March 24 /PRNewswire-FirstCall/ -- Sonic Corp.
(NASDAQ: SONC), the nation's largest chain of drive-in restaurants,
today announced results for the second quarter ended February 29,
2008. Highlights of the company's second quarter performance
included: Net income per diluted share of $0.15 versus $0.09 in the
prior year; excluding special items outlined below, this represents
a 15% increase in earnings per share; -- 3.2% increase in
system-wide same-store sales; -- The opening of 34 new drive-ins
during the second quarter, the relocation or rebuild of 16 existing
drive-ins, and the completion of 239 retrofits; -- Improved
operating margins including a 57-basis-point improvement in
restaurant-level margins; and -- The benefit of continued accretion
from the company's recapitalization and ongoing share repurchases.
"Our multi-layered growth strategy with elements focused on driving
revenues, increasing profitability and using capital efficiently,
continues to enhance shareholder value," said Clifford Hudson,
Chairman and Chief Executive Officer. "Successful sales-driving
initiatives, such as the retrofit, Happy Hour and new product news
were strong contributors to system-wide same-store sales growth of
3.2%, with a healthy increase in traffic. These initiatives, along
with strong development activity and the increasingly accretive
effect of our share repurchases, remain key drivers that position
us well for continued strong earnings growth. "Going forward, we
expect the positive impact of Happy Hour, combined with the launch
of our new line of coffee products this month, will further set
Sonic apart as the Ultimate Drink Stop(R)," Hudson added. "In
addition, our increased investment in media, projected to reach
$190 million in fiscal 2008 - with over $95 million dedicated to
system-wide advertising - will drive a strong brand message to
increase sales in both existing and new markets. We'll continue to
enhance these sales-driving strategies, layering opportunities to
grow sales with new products such as our Java Chillers and monthly
offers such as Cinnasnacks(TM), along with other new products, to
emphasize the wide variety of offerings during non-traditional day
parts." Income Statement Overview Net income per diluted share for
the second quarter of fiscal 2008 increased 15% to $0.15 from $0.13
in the year-earlier period, excluding special items outlined below.
The non-GAAP adjustments outlined below are intended to supplement
the presentation of the company's financial results in accordance
with GAAP. The company believes that the presentation of these
items 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. Quarter Ended Quarter Ended Year
Over Year February 29, 2008 February 28, 2007 % Change Net Diluted
Net Diluted Net Diluted Income EPS Income EPS Income EPS Reported -
GAAP $9,253 $0.15 $6,225 $0.09 49% 67% After-tax impact of: Debt
extinguishment charges -- -- 3,421 0.05 Reinstatement of tax credit
-- -- (652) (0.01) Adjusted - Non-GAAP $9,253 $0.15 $8,994 $0.13 3%
15% Six Months Ended Six Months Ended Year Over Year February 29,
2008 February 28, 2007 % Change Net Diluted Net Diluted Net Diluted
Income EPS Income EPS Income EPS Reported - GAAP $22,836 $0.36
$21,511 $0.29 6% 24% After-tax impact of: Debt extinguishment
charges -- -- 3,421 0.05 Reinstatement of tax credit -- -- (652)
(0.01) Rounding -- -- -- (0.01) Adjusted - Non-GAAP $22,836 $0.36
$24,280 $0.32 -6% 13% Debt extinguishment charges are related to
the company's tender offer and associated financing activities
during fiscal year 2007. These charges and the credits related to
tax matters were non-recurring items. Excluding the special items
outlined above, net income per diluted share for the first six
months of fiscal 2008 grew 13% to $0.36 from $0.32. The company's
higher earnings per share for the second quarter and first half of
fiscal 2008 reflect increased sales, improved drive-in level
margins and the positive impact of Sonic's capital management
program, under which the company has repurchased approximately 32%
of its outstanding stock since the beginning of fiscal 2007, with
total expenditures of over $610 million. These share repurchases
are expected to have an increasingly accretive impact over the next
several quarters. As of February 29, 2008, Sonic had remaining
authorization for approximately $10.4 million in share repurchases,
which expires August 31, 2008. Revenues for the second fiscal
quarter rose 8% to $174.6 million from $161.5 million in the
year-earlier period. This increase was attributable to solid
same-store sales gains, new unit growth and higher franchising
income derived from the company's unique ascending royalty rate and
the early conversion of older license agreements, which affected
approximately 790 drive-ins beginning in April 2007. For the first
six months of the fiscal year, revenues increased 8% to $364.8
million from $336.2 million in the same period last year.
Same-Store Sales Sonic's system-wide same-store sales increased
3.2% in the second quarter of fiscal 2008. Same-store sales for the
second quarter reflected a 3.4% increase at franchise drive-ins and
a 2.3% increase at partner drive-ins (partner drive-ins are
drive-ins in which the company owns a majority interest). For the
first six months of fiscal 2008, system-wide same-store sales rose
2.6%, representing a 2.6% increase at franchise drive-ins and a
2.8% increase at partner drive-ins. Development and Retrofit During
the second quarter, Sonic opened 34 new drive-ins compared with the
opening of 29 in the year-earlier period. Franchise drive-in
openings increased to 29 in the second quarter from 22 in the
year-earlier quarter. The company expects to open 180 to 200
drive-ins system-wide in fiscal 2008. Existing franchisees continue
to demonstrate their commitment to the brand with the completion of
200 retrofits during the second quarter, for a total of 402 for the
first six months of the fiscal year and 728 since the franchise
retrofit began in early calendar year of 2007. More than 25% of
Sonic's franchise drive-ins have now completed the retrofit. In
addition, Sonic retrofitted a total of 39 partner drive-ins in the
second quarter of fiscal 2008 for a total of 77 partner drive-ins
for the first six months of the fiscal year. The company now has
retrofitted a total of 303 partner drive-ins since the program
began, and currently over 50% of partner drive-ins have the new
look. In fiscal 2008, the company expects to retrofit a total of
150 partner drive-ins along with 600 to 700 franchise drive-ins. In
addition to new store development, franchisees are actively
relocating or rebuilding existing drive-ins. Of the 16 relocations
or rebuilds completed during the second quarter, franchisees
completed 14 compared with nine in the same period of the prior
year. For the first six months of fiscal year 2008, a total of 31
system drive-ins were rebuilt or relocated versus 16 in the same
period a year ago. Continued franchise investment is anticipated in
this area with a total of 60 to 70 system drive-ins expected to be
rebuilt or relocated this fiscal year. Concluding Comments Hudson
added, "The momentum from our multi-layered growth strategy
remained strong during the second quarter, reflecting the positive
impact of our sales-driving initiatives and our capital management
program on sales and earnings for the period. As we enter our third
quarter, which begins the strongest half of our fiscal year, we
continue to expect earnings in the range of 15% to 17% for the full
year, with system-wide same-store sales growth of 2% to 4%."
Concluding, Hudson said, "Accelerated implementation of the
retrofit, rebuild and relocation programs reflects the continued
confidence of our franchisees in the Sonic brand across all
markets. This passion for our business at all levels of the
company, combined with our differentiated sales- driving
initiatives and a focus on efficient use of capital, are expected
to drive strong earnings growth in the future." Fiscal 2008 Outlook
Sonic continues to expect that its earnings per diluted share will
increase in the range of 15% to 17% in fiscal 2008 versus fiscal
2007 earnings per diluted share of $0.96, which is adjusted for
prior-year debt refinancing charges. Broadly, the following factors
are anticipated to contribute to this growth: -- An increase in the
range of 2% to 4% in system-wide same-store sales; -- Continued
solid expansion trends for the chain, with the opening of 180 to
200 new drive-ins, including 155 to 165 franchise drive-ins,
reflecting system growth of about 6%; consistent with prior years,
more new drive-in openings will occur in the second half of the
fiscal year; -- The retrofit of approximately 150 partner drive-ins
and 600 to 700 franchise drive-ins; -- An ongoing outlook for
capital expenditures of approximately $75 million to $85 million
for the year, excluding acquisitions. Planned capital expenditures
include the costs of new partner drive-ins and retrofits as well as
expenditures for drive-in remodels, relocations, and new equipment;
-- Continued growth in cash flow from operations, which is expected
to be used to fund capital expenditures, interest and principal
payments associated with the company's securitized financing, and,
on an opportunistic basis, to repurchase company stock or purchase
franchise drive-ins; -- Flat to slightly unfavorable
restaurant-level operating margins due to continued commodity cost
pressures and another federal minimum wage hike scheduled to take
place in mid-July; and -- Share-repurchase authorization of
approximately $10.4 million remaining for fiscal year 2008, after
purchasing more than $578 million in stock in fiscal 2007 and
another $32 million (nearly 1.5 million shares) in the first six
months of fiscal 2008; subject to the level of future share
repurchases, weighted average diluted shares outstanding are
expected to be in the range of 62 million to 63 million shares for
fiscal 2008. For the third fiscal quarter ending May 31, 2008, the
company expects the following: -- Total revenue growth of 9% to 11%
based on: -- Targeted system-wide same-store sales increase of 2%
to 4%; -- The acquisition of 11 franchise drive-ins effective March
1; and -- Increased revenue from franchise and royalty fees as a
result of new development, increased sales and incremental income
from the company's unique ascending royalty rate. -- Flat to
slightly unfavorable restaurant-level costs, as a percentage of
sales over the prior year; -- Net interest expense of $11 million
to $13 million, resulting from increased interest expense related
to the company's recent share repurchase program; and -- A tax rate
in the range of 37.5% to 38.5% for the quarter. About Sonic Sonic,
America's Drive-In, originally started as a hamburger and root beer
stand in 1953 in Shawnee, Okla., called Top Hat Drive-In, and then
changed its name to Sonic in 1959. The first drive-in to adopt the
Sonic name is still serving customers in Stillwater, Okla. Sonic
has almost 3,400 drive-ins coast to coast, where more than a
million customers eat every day. For more information about Sonic
Corp. and its subsidiaries, visit Sonic at
http://www.sonicdrivein.com/. A listen-only simulcast of Sonic's
second quarter conference call can be accessed at the company's web
site. The simulcast will begin at approximately 9:00 a.m. Central
Time tomorrow, March 25, 2008. An on-demand replay, using the same
link, will be available at approximately noon tomorrow and will
continue until April 25, 2008. 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 partner 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 partner 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. SONIC CORP. Unaudited Supplemental Information (In
thousands, except per share amounts) Second Quarter Ended Six
Months Ended, Feb. 29, Feb. 28 Feb. 29 Feb. 28, 2008 2007 2008 2007
Income Statement Data Revenues: Partner Drive-In sales $147,139
$137,007 $306,424 $283,426 Franchise Drive-Ins: Franchise royalties
25,684 22,541 54,323 47,623 Franchise fees 1,019 666 2,259 1,751
Other 779 1,238 1,796 3,442 174,621 161,452 364,802 336,242 Costs
and expenses: Partner Drive-Ins: Food and packaging 39,073 35,244
80,151 73,779 Payroll and other employee benefits 45,732 43,644
95,048 88,680 Minority interest in earnings of Partner Drive-Ins
4,796 4,955 10,092 9,859 Other operating expenses 29,896 28,207
63,380 59,212 119,497 112,050 248,671 231,530 Selling, general and
administrative 15,540 14,401 30,454 28,434 Depreciation and
amortization 12,694 11,099 24,900 21,857 Provision for impairment
of long-lived assets 99 -- 99 -- 147,830 137,550 304,124 281,821
Income from operations 26,791 23,902 60,678 54,421 Interest expense
12,827 10,957 25,496 17,514 Debt extinguishment costs -- 4,818 --
6,076 Interest income (613) (653) (1,302) (1,451) Net interest
expense 12,214 15,122 24,194 22,139 Income before income taxes
14,577 8,780 36,484 32,282 Provision for income taxes 5,324 2,555
13,648 10,771 Net income $9,253 $6,225 $22,836 $21,511 Net income
per share: Basic $ 0.15 $ 0.09 $ 0.38 $ 0.30 Diluted $ 0.15 $ 0.09
$ 0.36 $ 0.29 Weighted average shares used in calculation: Basic
60,303 67,325 60,538 71,966 Diluted 62,384 70,026 62,724 74,757
SONIC CORP. Unaudited Supplemental Information Second Quarter Ended
Six Months Ended, Feb. 29, Feb. 28 Feb. 29 Feb. 28, 2008 2007 2008
2007 Drive-Ins in operation: Partner: Total at beginning of period
662 626 654 623 Opened 5 7 10 10 Acquired from (sold to)
franchisees (1) 8 4 8 Closed (1) (2) (3) (2) Total at end of period
665 639 665 639 Franchise: Total at beginning of period 2,706 2,598
2,689 2,565 Opened 29 22 60 56 Acquired from (sold to) company 1
(8) (4) (8) Closed (net of reopening) (7) (6) (16) (7) Total at end
of period 2,729 2,606 2,729 2,606 System-wide: Total at beginning
of period 3,368 3,224 3,343 3,188 Opened 34 29 70 66 Closed (net of
reopening) (8) (8) (19) (9) Total at end of period 3,394 3,245
3,394 3,245 Core markets 2,555 2,457 2,555 2,457 Developing markets
839 788 839 788 All markets 3,394 3,245 3,394 3,245 Note: Partner
Drive-Ins are those Sonic Drive-Ins in which the company owns a
majority interest, typically at least 60%. Most supervisors and
managers of Partner Drive-Ins own a minority equity interest.
Markets are identified based on television viewing areas and
further classified as core or developing markets based upon the
number of drive- ins in a market and the level of advertising
support. Market classifications are updated periodically. SONIC
CORP. Unaudited Supplemental Information ($ in thousands) Second
Quarter Ended Six Months Ended Feb. 29, Feb. 28, Feb. 29, Feb. 28,
2008 2007 2008 2007 Sales Analysis Partner Drive-Ins: Total sales
$147,139 $137,007 $306,424 $283,426 Average drive-in sales 223 216
467 451 Change in same-store sales 2.3% 0.7% 2.8% 0.6% Franchise
Drive-Ins: Total sales $687,268 $637,843 $1,423,543 $1,328,798
Average drive-in sales 255 245 529 513 Change in same-store sales
3.4% 2.3% 2.6% 3.2% System-wide: Change in total sales 7.7% 6.8%
7.3% 7.6% Average drive-in sales $248 $239 $516 $500 Change in
same-store sales 3.2% 2.0% 2.6% 2.7% Core and Developing Markets
System-wide average drive-in sales: Core markets $263 $249 $543
$521 Developing markets 202 208 433 436 System-wide change in
same-store sales: Core markets 5.0% 2.2% 4.1% 3.3% Developing
markets -4.4% 1.5% -3.4% 0.4% Note: Change in same-store sales
based on drive-ins open for at least 15 months. Markets are
identified based on television viewing areas and further classified
as core or developing markets based upon the number of drive-ins in
a market and the level of advertising support. Market
classifications are updated periodically. SONIC CORP. Unaudited
Supplemental Information Second Quarter Ended Six Months Ended Feb.
29, Feb. 28, Feb. 29, Feb. 28, 2008 2007 2008 2007 Margin Analysis
Partner Drive-Ins: Food and packaging 26.5% 25.7% 26.2% 26.0%
Payroll and employee benefits 31.1% 31.9% 31.0% 31.3% Minority
interest in earnings of Partner Drive-Ins 3.3% 3.6% 3.3% 3.5% Other
operating expenses 20.3% 20.6% 20.7% 20.9% 81.2% 81.8% 81.2% 81.7%
February 29, August 31, 2008 2007 (In thousands) Balance Sheet Data
Total assets $776,205 $758,520 Current assets 60,874 73,703 Current
liabilities 92,033 114,487 Obligations under capital leases,
long-term debt, and other non-current liabilities 793,976 750,835
Stockholders' deficit (109,804) (106,802) SONC-F DATASOURCE: Sonic
Corp. CONTACT: Claudia San Pedro, Treasurer and Vice President of
Investor Relations of Sonic Corp., +1-405-225-4846 Web site:
http://www.sonicdrivein.com/
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