Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of drive-in restaurants, today announced preliminary sales results for the fourth quarter and fiscal year ended August 31, 2010. In line with the company’s previously announced expectations, Sonic’s fourth quarter same-store sales declined an estimated 6.4% for the system and 6.1% for company-owned drive-ins.
Sonic also reported that drive-in openings totaled 25 for the fourth fiscal quarter, including 24 by franchisees. For the fiscal year, there were 80 franchise openings compared with 130 in the prior fiscal year, as the pace of new drive-in openings was slowed by the challenging sales environment and difficult economic conditions. New development is generally correlated with sales and profits and is expected to accelerate as system performance improves.
“In the context of turning our business toward more profitable performance and enhancing stockholder value, our fourth fiscal quarter provided direction to just such a turn,” said Clifford Hudson, Chairman and Chief Executive Officer. “The first indicator is the performance of our company-owned drive-ins; their sales and margin performance have the potential for the largest impact on earnings and stockholder value in the near term. In our third fiscal quarter, same-store sales at company-owned drive-ins improved to within three-tenths of a percent of our franchisees’ same-store sales performance, and in the fourth quarter company-owned drive-ins outperformed the system for the first time in nearly three years. With our company-owned drive-ins’ corresponding improved performance on various customer feedback measures, we believe we are seeing positive signs indicating that aspect of our business is improving.
“The second indicator arises from the fact that, throughout fiscal 2010, we implemented new initiatives, including new messaging, a new media allocation strategy, service differentiation that emphasizes skating carhops, and product quality improvements,” Hudson continued. “We expect these strategic initiatives will gain traction and improve system-wide comparable sales performance in fiscal 2011 and beyond.”
Fiscal 2011 Outlook
Sonic’s outlook for fiscal 2011 currently anticipates the following key elements:
- The opening of a total of 40 to 50 new franchise drive-ins;
- Sequentially improving same-store sales throughout the fiscal year, building on our initiatives from fiscal 2010; assuming no change in cost structure and based on fiscal 2010 average unit volumes, each percentage point change in same-store sales impacts diluted earnings per share by approximately three cents;
- A slight improvement in restaurant-level margins as a result of labor efficiencies;
- Selling, general and administrative expenses of $67 to $68 million;
- Depreciation and amortization of $42 to $43 million;
- Interest expense of $31 to $32 million;
- An income tax rate between 37% and 38%; and
- Capital expenditures in the range of $20 to $25 million.
“While we think it is prudent to take a conservative approach to our sales outlook for fiscal 2011, because of the uniquely challenging environment, we do expect improvement in same-store sales as our sales-building initiatives improve traffic,” Hudson added.
Sonic expects to report its fourth quarter and fiscal year end results at the market close on October 19, 2010.