OKLAHOMA CITY, Okla., March 28 /PRNewswire-FirstCall/ -- Sonic Corp. , the nation's largest chain of drive-in restaurants, today announced financial results for the second quarter and first half of fiscal 2007, which ended February 28, 2007. Highlights of the company's second quarter performance included:
-- System-wide same-store sales growth of 2.0%;
-- The fourteenth consecutive quarter of growth in average drive-in
level profits;
-- An 8% increase in total revenues to $161.5 million from
$148.9 million in the prior-year period;
-- Net income per diluted share of $0.09, as expected, including
special items outlined below totaling $0.07 per diluted share,
versus $0.14 per diluted share in the year-earlier quarter;
-- A 14% increase in net income per diluted share, excluding special
items, to $0.16 from $0.14 per diluted share in fiscal 2006; and
-- The opening of 29 new drive-ins.
Net income per diluted share for the second quarter was $0.09 versus $0.14 in the year-earlier period, while net income totaled $6.2 million versus $12.9 million last year. Net income per diluted share for the first half of fiscal 2007 was $0.29 versus $0.33 in the prior-year period, while net income totaled $21.5 million versus $29.3 million in the first half of 2006. As previously announced, the company's second quarter earnings were reduced by special items totaling $0.07 per diluted share, while the net effect of special items in the first half of 2007 totaled $0.08 per diluted share. The following table shows the impact of special items on reported net income per diluted share:
Second Six
Quarter Months
Ended Ended
--------- --------
February 28, 2007
-----------------------
Net income per share, reported $0.09 $0.29
Debt extinguishment and tender offer
charges 0.05 0.06
Dilution from tender offer 0.03 0.04
Reinstatement of tax credit program
and resolution of tax case (0.01) (0.02)
----- -----
Net income before special items $0.16 $0.37
===== =====
Excluding aforementioned special items, net income per diluted share was $0.16 for the second quarter and $0.37 per diluted share for the first half of 2007, representing year-over-year increases of 14% and 12%, respectively, versus the second quarter and first half of fiscal 2006. All per share amounts are adjusted to reflect Sonic's April 2006 three-for-two stock split.
"Second quarter results reflected continued strength in our business and operating results, especially considering the harsh weather conditions we encountered across many of our markets," said Clifford Hudson, Chairman, Chief Executive Officer and President. "Despite the weather's impact in January, which restrained overall same-store sales growth for the quarter and temporarily delayed some drive-in openings, it was good to see same-store sales above the upper end of our 2% to 4% long-term target range in December and February. We are encouraged by the continuation of this positive trend in March.
"The momentum we maintained through the winter months reflected the ongoing success of our sales-driving strategies," Hudson continued. "These include a steady stream of new product news that helps us stay relevant and compelling to consumers, and increased media support for our brand, with continued emphasis on national cable advertising, which helps us expand our business in non-traditional day parts, particularly the morning and evening day parts. We also have continued to implement our retrofit program and have virtually completed the rollout of our PAYS program (credit card terminal at each drive-in stall). As we begin the third quarter and look ahead to the seasonally stronger summer months, we think these drivers position Sonic to deliver solid sales growth coupled with stronger bottom-line growth now that we have absorbed the costs and impact of our recent tender offer and refinancing."
Sonic's system-wide same-store sales increased 2.0% during the second quarter versus 5.5% in the year-earlier period, reflecting a 2.3% increase at franchise drive-ins and a 0.7% increase at partner drive-ins. For the first half of fiscal 2007, system-wide same-store sales increased 2.7% compared with 5.0% for the first half of fiscal 2006, reflecting a 3.2% increase at franchise drive-ins and a 0.6% increase at partner drive-ins.
Sonic's revenues for the second fiscal quarter rose 8% to $161.5 million from $148.9 million in the year-earlier period, with the year-over-year increase reflecting higher same-store sales, new unit growth, higher franchising income related to new drive-in development, and the benefit of the recent acquisition of eight franchise drive-ins effective January 1, 2007. Revenues for the first half of 2007 increased 9% to $336.2 million from $308.7 million in the same period last year.
During the second quarter, Sonic opened 29 new drive-ins, including 22 franchise drive-ins, compared with a total of 33 in the year-earlier period, which included 26 by franchisees. Through the first half of the year, the total number of drive-in openings was 66, equal to the number opened during the year-earlier period. Sonic anticipates opening a total of 180-190 new drive-ins in fiscal 2007, including approximately 150-160 by franchisees.
In the second quarter, the company continued to implement its new retrofit program, which Sonic began testing in 2003. Testing and the final determination of prototype elements were completed late last summer. Through the first half of fiscal 2007, Sonic retrofitted 54 partner drive-ins, including 41 in the second quarter. The company also extended the rollout of this program to its franchisees, who completed the retrofit of five drive-ins during the second quarter. The reception of Sonic's new look by customers and franchisees has been very encouraging, providing momentum for this multi-year retrofit program. The company plans to retrofit a total of 150 partner drive- ins this fiscal year, along with 250 to 300 franchise drive-ins.
The company noted that it recently has offered franchisees the option of converting to a newer form of license agreement that will extend the franchisees' license agreement term for 20 years from the date of conversion. The new agreement will go into effect April 1, 2007. Based upon the initial indications of intent to convert, the company expects incremental franchise royalty income of more than $1.0 million in the second half of fiscal 2007 and an additional $1.5 million to $2.0 million in fiscal 2008.
Concluding, Hudson added, "With the proven success of our multi-layered strategies, including planned system-wide marketing expenditures for the year that we recently raised another $10 million to a projected total of more than $170 million, and the positive impact we are seeing from our new retrofit program, we begin the second half of the year with a solid outlook. Importantly, these strategies not only energize our business and our brand, they continue to provide concrete benefits for our franchisees by pushing drive-in level sales and profits higher, thereby creating greater incentives for future chain expansion."
In the third fiscal quarter ending May 31, 2007, Sonic estimates that diluted earnings per share will total approximately $0.30 to $0.31 versus diluted earnings per share of $0.27 in the third quarter last year. The company bases this outlook on the following assumptions:
-- Total revenue growth of between 10% and 12% for the quarter.
Factors expected to contribute to this revenue growth include:
-- Same-store sales growth in the range of 2% to 4%, consistent
with the company's long-term target, driven by ongoing new product
news, continued penetration of non-traditional day parts,
including mornings, afternoons and evenings, increased media
expenditures, and the continued benefit of the rollout of the
company's PAYS program.
-- The opening of between 50 and 55 new drive-ins (including 40
to 45 franchise drive-ins).
-- The contribution of eight franchise drive-ins acquired
effective January 1, 2007.
-- Growth in the company's franchising income of approximately
$2.5 million to $3.0 million, which includes both franchise fees
and franchise royalties and reflects the impact of additional
drive-ins and higher volumes based on the company's unique
ascending royalty rate, as well as the impact of the license
conversion mentioned earlier.
-- Restaurant-level costs that are expected to be slightly favorable, as a
percentage of sales, on a year-over-year basis, as the benefit from
price increases and the leverage of higher sales volumes is anticipated
to be offset by increases in labor costs, primarily driven by higher
minimum wage rates in several states in which the company operates
partner drive-ins.
-- Growth in selling, general and administrative expenses in the 10%
to 12% range.
-- An increase in depreciation and amortization expense in the range
of 10% from the prior year due to asset additions.
-- A tax rate expected to be in the range of 35% to 36% for the quarter.
-- An ongoing outlook for capital expenditures of approximately
$80 million for the year, excluding acquisitions, for the cost of
partner drive-in development as well as higher expenditures for the
retrofit of approximately 150 partner drive-ins (at an average
projected cost of $125,000 to $135,000 each) during the year.
-- Continued positive cash flow, which is expected to be used in the third
and future quarters to fund capital expenditures and, on an
opportunistic basis, to repurchase company stock or purchase
franchise drive-ins.
-- The benefit of common stock repurchases totaling approximately
$482 million since the beginning of the fiscal year, representing
approximately 25% of the company's stock outstanding as of the
beginning of the fiscal year; as of March 27, 2007, Sonic had
authorization for stock repurchases of approximately $64 million
for the remainder of fiscal 2007.
-- Net interest expense in the range of $11 million to $12 million,
up from $2.2 million in the year-earlier quarter, which reflects
approximately $525 million in additional debt; as a result of the
company's share repurchases this year, weighted average outstanding
common shares for the third quarter of fiscal 2007 are expected to
decline to approximately 68 million to 69 million from 89 million in
the third quarter of fiscal 2006; this decline will be largely offset
by higher interest expense, resulting in slight accretion to reported
earnings per share of approximately one-half of $0.01 per share for the
quarter; the company expects the impact of the share repurchases and
issuance of additional debt to be accretive by slightly more than
$0.01 per diluted share during the fourth quarter of the fiscal year.
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 29, 2007. An on-demand replay, using the same link, will be available at approximately noon tomorrow and will continue until April 29, 2007.
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 more than 3,200 drive-ins coast to coast and in Mexico, 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/.
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-wide drive-ins in operation as of the end of the periods indicated. In addition, these tables provide information regarding franchise sales, system-wide growth in sales, and both franchise and system-wide average drive-in sales and change in same-store sales. System-wide information includes both Partner and Franchise Drive-In information, which we believe is useful in analyzing the growth of the 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 Financial Highlights
(In thousands, except per share amounts)
Second Quarter Ended Six Months Ended
February 28, February 28,
-------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Revenues $161,452 $148,948 $336,242 $308,748
Income from
operations 23,902 23,122 54,421 50,704
Debt extinguishment
and other costs 4,818 -- 6,076 --
Net income 6,225 12,904 21,511 29,334
Net income per
share - diluted 0.09 0.14 0.29 0.33
Weighted average
shares - diluted 70,026 89,261 74,757 89,891
All per share information reflects the company's April 2006 three-for-two stock split.
SONIC CORP.
Unaudited Supplemental Information
Second Quarter Ended Six Months Ended
February 28, February 28,
-------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Drive-Ins in operation:
Partner:
Total at beginning
of period 626 592 623 574
Opened 7 7 10 10
Acquired from
(sold to) franchisees 8 -- 8 15
Closed (2) -- (2) --
------ ------ ------ ------
Total at end of
period 639 599 639 599
------ ------ ------ ------
Franchise:
Total at beginning
of period 2,598 2,473 2,565 2,465
Opened 22 26 56 56
Acquired from
(sold to) company (8) -- (8) (15)
Closed (net of
reopening) (6) (9) (7) (16)
------ ------ ------ ------
Total at end of
period 2,606 2,490 2,606 2,490
------ ------ ------ ------
System-wide:
Total at beginning
of period 3,224 3,065 3,188 3,039
Opened 29 33 66 66
Closed (net of
reopening) (8) (9) (9) (16)
------ ------ ------ ------
Total at end of
period 3,245 3,089 3,245 3,089
====== ====== ====== ======
Core markets 2,457 2,372 2,457 2,372
Developing markets 788 717 788 717
------ ------ ------ ------
All markets 3,245 3,089 3,245 3,089
====== ====== ====== ======
Note: Partner Drive-Ins are those Sonic Drive-Ins in which the company owns a majority interest, typically at least 60%. Most supervisors and managers of Partner Drive-Ins own a minority equity interest.
Markets are identified based on television viewing areas and further classified as core or developing markets based upon the number of drive-ins in a market and the level of advertising support. Market classifications are updated periodically.
SONIC CORP.
Unaudited Supplemental Information
($ in thousands)
Second Quarter Ended Six Months Ended
February 28, February 28,
-------------------- ----------------------
2007 2006 2007 2006
-------- --------- ---------- ----------
Sales Analysis
Partner Drive-Ins:
Total sales $137,007 $ 126,376 $ 283,426 $ 261,798
Average drive-in
sales 216 213 451 444
Change in same-store
sales 0.7% 2.5% 0.6% 2.8%
Franchise Drive-Ins:
Total sales $637,843 $ 599,084 $1,328,798 $1,236,985
Average drive-in
sales 245 243 513 500
Change in same-store
sales 2.3% 6.5% 3.2% 5.7%
System-wide:
Change in total sales 6.8% 12.2% 7.6% 11.2%
Average drive-in sales $ 239 $ 235 $ 500 $ 486
Change in same-store
sales 2.0% 5.5% 2.7% 5.0%
Core and Developing
Markets
System-wide average
drive-in sales:
Core markets $ 249 $ 244 $ 521 $ 505
Developing markets 208 202 436 425
System-wide change
in same-store sales:
Core markets 2.2% 6.1% 3.3% 5.5%
Developing markets 1.5% 2.9% 0.4% 3.0%
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
(In thousands, except per share amounts)
Second Quarter Ended Six Months Ended
February 28, February 28,
-------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Income Statement Data
Revenues:
Partner Drive-In
sales $137,007 $126,376 $283,426 $261,798
Franchise Drive-Ins:
Franchise royalties 22,541 20,745 47,623 42,998
Franchise fees 666 879 1,751 1,820
Other 1,238 948 3,442 2,132
-------- -------- -------- --------
161,452 148,948 336,242 308,748
Costs and expenses:
Partner Drive-Ins:
Food and packaging 35,244 33,160 73,779 69,267
Payroll and other
employee benefits 43,644 38,938 88,680 79,940
Minority interest in
earnings of Partner
Drive-Ins 4,955 4,490 9,859 9,321
Other operating
expenses 28,207 26,027 59,212 54,212
-------- -------- -------- --------
112,050 102,615 231,530 212,740
Selling, general
and administrative 14,401 13,214 28,434 25,410
Depreciation and
amortization 11,099 9,997 21,857 19,894
-------- -------- -------- --------
137,550 125,826 281,821 258,044
-------- -------- -------- --------
Income from operations 23,902 23,122 54,421 50,704
Interest expense 10,957 2,271 17,514 4,118
Debt extinguishment
and other costs 4,818 -- 6,076 --
Interest income (653) (175) (1,451) (715)
-------- -------- -------- --------
Net interest expense 15,122 2,096 22,139 3,403
-------- -------- -------- --------
Income before
income taxes 8,780 21,026 32,282 47,301
Provision for
income taxes 2,555 8,122 10,771 17,967
-------- -------- -------- --------
Net income $ 6,225 $ 12,904 $ 21,511 $ 29,334
======== ======== ======== ========
Net income per share:
Basic $ 0.09 $ 0.15 $ 0.30 $ 0.34
======== ======== ======== ========
Diluted $ 0.09 $ 0.14 $ 0.29 $ 0.33
======== ======== ======== ========
Weighted average shares
used in calculation:
Basic 67,325 86,227 71,966 86,821
======== ======== ======== ========
Diluted 70,026 89,261 74,757 89,891
======== ======== ======== ========
All per share information reflects the company's April 2006 three-for-two stock split.
SONIC CORP.
Unaudited Supplemental Information
Second Quarter Ended Six Months Ended
February 28, February 28,
-------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
Margin Analysis
Partner Drive-Ins:
Food and packaging 25.7% 26.2% 26.0% 26.5%
Payroll and employee
benefits 31.9 30.8 31.3 30.5
Minority interest in
earnings of Partner 3.6 3.6 3.5 3.6
Drive-Ins
Other operating
expenses 20.6 20.6 20.9 20.7
-------- -------- -------- --------
81.8% 81.2% 81.7% 81.3%
Feb. 28, August 31,
2007 2006
-------- --------
(In thousands)
Balance Sheet Data
Total assets $719,058 $638,018
Current assets 90,065 42,510
Current liabilities 78,833 78,095
Obligations under capital leases, long-term
debt, and other non-current liabilities 666,456 168,230
Stockholders' equity (26,231) 391,693
