SONC
$24.66
Sonic Cp
$.02
.08%
Earnings Details
3rd Quarter May 2017
Thursday, June 22, 2017 4:05:01 PM
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Summary

Sonic Cp Beats

Sonic Cp (SONC) reported 3rd Quarter May 2017 earnings of $0.43 per share on revenue of $124.0 million. The consensus earnings estimate was $0.41 per share on revenue of $124.2 million. The Earnings Whisper number was $0.42 per share. Revenue fell 25.0% compared to the same quarter a year ago.

The company said it continues to expect fiscal 2017 earnings of $1.20 to $1.29 per share. The current consensus earnings estimate is $1.26 per share for the year ending August 31, 2017.

Sonic Corp operates and franchises a chain of quick-service drive-in restaurants in the United States. It also leases signs and real estate.

Results
Reported Earnings
$0.43
Earnings Whisper
$0.42
Consensus Estimate
$0.41
Reported Revenue
$124.0 Mil
Revenue Estimate
$124.2 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Sonic Reports Improved Sales Trend in Fiscal Third Quarter

Sonic Corp. (SONC), the nation’s largest chain of drive-in restaurants, today announced results for its third fiscal quarter ended May 31, 2017.

Key highlights of the company’s third quarter of fiscal year 2017 included:

Net income per diluted share increased 42% to $0.44 versus $0.31 in the prior-year period; adjusted net income per diluted share remained the same as the prior-year period at $0.43;

System same-store sales declined 1.2%, consisting of a 1.1% same-store sales decrease at franchise drive-ins and a 3.2% decrease at company drive-ins;

-- Company drive-in margins increased by 40 basis points;

-- 15 new drive-ins opened; and

-- The company repurchased 1.2 million outstanding shares.

"Our third quarter results reflect the expected improvement in underlying sales and store profit versus the first half of the fiscal year, driven by a more balanced promotional calendar, including a reinvigorated SONIC Summer Nights promotion featuring our Real Ice Cream Slush," said Cliff Hudson, Sonic Corp. CEO. "Despite continued sluggish traffic, we are working to improve same-store sales this summer and beyond, with new product news, targeted value and quality customer service.

"Our unit growth, capital structure and technology initiatives are on track," continued Hudson. "During the quarter, we continued to build our development pipeline with new and existing franchisee groups, we successfully released our redesigned mobile app that is fully integrated with our POPS network and we repurchased 1.2 million shares of our stock, bringing total shares repurchased to 4.9 million fiscal year to date, representing 9.9% of shares outstanding. We have made significant strides in transitioning to a more highly-franchised business model and look forward to driving increased free cash flow over the next several years."

Same-Store Sales

For the third quarter ended May 31, 2017, system same-store sales decreased 1.2%, which was comprised of a 1.1% same-store sales decline at franchise drive-ins and a decline of 3.2% at company drive-ins.

Financial Overview

For the third fiscal quarter of 2017, the company’s net income totaled $18.8 million or $0.44 per diluted share compared to net income of $15.4 million or $0.31 per diluted share in the same period of the prior year. Excluding the items outlined below, net income decreased 13% and net income per diluted share was flat.

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
May 31, 2017
May 31, 2016
Net
Diluted
Net
Diluted
Net Income
Diluted EPS
Income
EPS
Income
EPS
$ Change
% Change
$ Change
% Change
Reported - GAAP
$
18,751
$
0.44
$
15,353
$
0.31
$
3,398
22
%
$
0.13
42 %
Net gain on refranchising transactions (1)
(814 )
(0.02 )
--
--
Tax impact on refranchising transactions (2)
396
0.01
--
--
Loss from early extinguishment of debt
--
--
8,750
0.18
Tax impact on debt extinguishment (3)
--
--
(3,027 )
(0.06 )
Adjusted - Non-GAAP
$
18,333
$
0.43
$
21,076
$
0.43
$ (2,743 )
(13 )%
$ --
-- %
________________
(1)
During the third quarter of fiscal year 2017, we made adjustments of
$0.8 million to the retained minority investment related to the
refranchising transactions that occurred in the first six months of
the fiscal year. Additionally, we recorded a net loss as a
franchisee initiated exercise of an option to purchase real estate
related to a first quarter refranchising transaction, which was
offset by amortization of the deferred gain recorded for a second
quarter refranchising transaction.
(2)
Tax impact during the period at an adjusted effective tax rate of
48.7%.
(3)
Tax impact during the period at an effective tax rate of 34.6%.

For the first nine months of fiscal year 2017, net income totaled $42.8 million or $0.96 per diluted share compared with net income of $38.6 million or $0.77 per diluted share for the same period in 2016. Excluding the items outlined below, net income and net income per diluted share decreased 15% and 5%, respectively.

(In thousands, except per share amounts)
Nine months ended
Nine months ended
May 31, 2017
May 31, 2016
Net
Diluted
Net
Diluted
Net Income
Diluted EPS
Income
EPS
Income
EPS
$ Change
% Change
$ Change
% Change
Reported - GAAP
$
42,832
$
0.96
$
38,630
$
0.77
$
4,202
11
%
$
0.19
25
%
Net gain on refranchising transactions (1)
(6,645 )
(0.15 )
--
--
Tax impact on refranchising transactions (2)
2,501
0.05
--
--
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
--
--
Loss from early extinguishment of debt
--
--
8,750
0.18
Tax impact on debt extinguishment (5)
--
--
(3,027 )
(0.06 )
Gain on sale of real estate
--
--
(1,875 )
(0.04 )
Tax impact on real estate sale (6)
--
--
664
0.01
Retroactive benefit of Work Opportunity Tax Credit and resolution of
--
--
(585 )
(0.01 )
tax matters
Adjusted - Non-GAAP
$
36,243
$
0.81
$
42,557
$
0.85
$ (6,314 )
(15 )%
$
(0.04 )
(5 )%
________________
(1)
During the first quarter of fiscal year 2017, we completed two
transactions to refranchise the operations of 56 company
drive-ins. Of the proceeds, $3.8 million was applied as the
initial lease payment for an option to purchase the real estate
within 24 months. The franchisee initiated exercise of a portion
of the option during the third fiscal quarter, resulting in a loss
of $0.4 million. Until the option is fully exercised, the
franchisee is making monthly lease payments which totaled $0.6
million for the fiscal year-to-date, net of sub-lease expense.
During the second quarter of fiscal year 2017, we completed
transactions to refranchise the operations of 54 company
drive-ins, one of which resulted in a gain of $7.8 million and
another in a loss of $1.4 million. The loss transaction reflects a
deferred gain of $0.9 million as a result of a real estate
purchase option extended to the franchisee. The deferred gain is
being amortized into income through January 2020 when the option
becomes exercisable. During the third quarter of fiscal year 2017,
we made adjustments of $0.8 million to the retained minority
investment related to the refranchising transactions that occurred
in the first six months of the fiscal year.
(2)
Combined tax impact at an effective tax rate of 35.6% during the
first quarter of fiscal year 2017 and at adjusted effective tax
rates of 36.0% and 48.7% during the second and third quarters of
fiscal year 2017, respectively.
(3)
Gain on sale of investment in refranchised drive-in operations 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 effective tax rate of 35.6%.
(5)
Tax impact during the period at an effective tax rate of 34.6%.
(6)
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 decline 2% to 5% year over year. The outlook for fiscal 2017 anticipates the following elements:

-- An approximate 2.5% same-store sales decline for the system;

-- Royalty revenue growth from new unit development;

-- 65 to 75 new franchise drive-in openings;

Drive-in-level margins of 15.3%, depending upon the degree of same-store sales growth at company drive-ins;

Selling, general and administrative expenses of approximately $81 million;

Depreciation and amortization expense of $39.0 million to $39.5 million reflecting the divestiture of company drive-ins and the shorter depreciable life of technology investments;

-- Net interest expense of approximately $27.5 million to $28.0 million;

Capital expenditures of $46 million to $48 million; excluding spending on build-to-suit drive-in development, capital outlays would be $40 million to $42 million;

-- Free cash flow(1) of approximately $55 to $60 million;

-- An income tax rate between 34.0% to 34.5%;

The planned use of the remaining $45 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) 681-3375 or (719) 457-2601 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 9328359. The replay will be available until Thursday, June 29, 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 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 $8.4 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.

(1) Free cash flow is defined as net income plus
depreciation, amortization and stock compensation expenses, less
capital expenditures and spending on build-to-suit drive-in
development.

SONC-F

SONIC CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
i"
i"
Three months ended
Nine months ended
May 31,
May 31,
i"
2017
2016
2017
2016
Revenues:
Company Drive-In sales
$
72,062
$ 115,143
$ 223,500
$ 314,339
Franchise Drive-Ins:
Franchise royalties and fees
48,220
46,687
122,687
122,656
Lease revenue
2,418
2,141
5,474
5,132
Other
1,290
1,268
2,038
2,075
Total revenues
123,990
165,239
353,699
444,202
i"
Costs and expenses:
Company Drive-Ins:
Food and packaging
19,380
32,089
61,112
87,248
Payroll and other employee benefits
25,590
39,912
82,688
111,635
Other operating expenses, exclusive of depreciation and amortization
13,836
22,442
47,540
65,450
included below
Total cost of Company Drive-In sales
58,806
94,443
191,340
264,333
i"
Selling, general and administrative
20,763
20,617
58,813
62,342
Depreciation and amortization
9,520
11,405
29,531
33,461
Other operating income, net
(540 )
(106 )
(11,105 )
(3,071 )
Total costs and expenses
88,549
126,359
268,579
357,065
Income from operations
35,441
38,880
85,120
87,137
i"
Interest expense
7,318
6,776
21,734
19,465
Interest income
(291 )
(121 )
(1,047 )
(326 )
Debt extinguishment costs
--
8,750
--
8,750
Net interest expense
7,027
15,405
20,687
27,889
Income before income taxes
28,414
23,475
64,433
59,248
Provision for income taxes
9,663
8,122
21,601
20,618
Net income
$
18,751
$
15,353
$
42,832
$
38,630
i"
Basic income per share
$
0.44
$
0.32
$
0.97
$
0.79
Diluted income per share
$
0.44
$
0.31
$
0.96
$
0.77
i"
Weighted average basic shares
42,402
48,377
43,972
49,192
Weighted average diluted shares
43,093
49,326
44,729
50,213
SONIC CORP.
Unaudited Supplemental Information
i"
Three months ended
Nine months ended
May 31,
May 31,
2017
2016
2017
2016
Drive-Ins in Operation:
Company:
Total at beginning of period
233
375
345
387
Opened
2
--
3
--
Sold to franchisees
(5 )
--
(115 )
(9 )
Closed (net of re-openings)
--
--
(3 )
(3 )
Total at end of period
230
375
230
375
Franchise:
Total at beginning of period
3,329
3,153
3,212
3,139
Opened
13
16
36
34
Acquired from the company
5
--
115
9
Closed (net of re-openings)
(6 )
(1 )
(22 )
(14 )
Total at end of period
3,341
3,168
3,341
3,168
System-wide:
Total at beginning of period
3,562
3,528
3,557
3,526
Opened
15
16
39
34
Closed (net of re-openings)
(6 )
(1 )
(25 )
(17 )
Total at end of period
3,571
3,543
3,571
3,543
i"
Three months ended
Nine months ended
May 31,
May 31,
i"
2017
2016
2017
2016
i"
($ in thousands)
($ in thousands)
Sales Analysis:
Company Drive-Ins:
Total sales
$
72,062
$
115,143
$
223,500
$
314,339
Average drive-in sales
312
307
818
829
Change in same-store sales
(3.2 )%
0.9
%
(4.7 )%
3.6 %
Franchised Drive-Ins:
Total sales
$ 1,145,042
$ 1,107,725
$ 2,971,775
$ 2,963,155
Average drive-in sales
348
352
915
945
Change in same-store sales
(1.1 )%
2.1
%
(3.2 )%
4.5 %
System-wide:
Change in total sales
(0.5 )%
3.3
%
(2.5 )%
5.3 %
Average drive-in sales
$
346
$
347
$
907
$
933
Change in same-store sales
(1.2 )%
2.0
%
(3.3 )%
4.4 %

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.

SONIC CORP.
Unaudited Supplemental Information
i"
i"
Three months ended
Nine months ended
May 31,
May 31,
i"
2017
2016
2017
2016
i"
(In thousands)
(In thousands)
Revenues:
Company Drive-In sales
$
72,062
$ 115,143
$ 223,500
$
314,339
Franchise Drive-Ins:
Franchise royalties
47,890
46,296
121,910
121,565
Franchise fees
330
391
777
1,091
Lease revenue
2,418
2,141
5,474
5,132
Other
1,290
1,268
2,038
2,075
Total revenues
$ 123,990
$ 165,239
$ 353,699
$
444,202
i"
Three months ended
Nine months ended
May 31,
May 31,
i"
2017
2016
2017
2016
Margin Analysis (percentage of Company Drive-In sales):
Company Drive-Ins:
Food and packaging
26.9 %
27.9 %
27.3 %
27.8 %
Payroll and employee benefits
35.5
34.7
37.0
35.5
Other operating expenses
19.2
19.4
21.3
20.8
Cost of Company Drive-In sales
81.6 %
82.0 %
85.6 %
84.1 %
i"
May 31,
August 31,
i"
2017
2016
i"
(In thousands)
Selected Balance Sheet Data:
Cash and cash equivalents
$
52,050
$
72,092
Current assets
117,956
137,657
Property, equipment and capital leases, net
327,527
392,380
Total assets
$
563,834
$ 648,661
i"
Current liabilities, including capital lease obligations and
$
57,558
$
74,663
long-term debt due within one year
Obligations under capital leases due after one year
15,413
17,391
Long-term debt due after one year, net of debt issuance costs
601,631
566,187
Total liabilities
736,932
724,304
Stockholders’ deficit
$ (173,098 )
$ (75,643 )

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SOURCE: Sonic Corp.

Sonic Corp.
Corey Horsch, 405-225-4800
Vice President of Investor Relations and Treasurer