OKLAHOMA CITY Sonic Corp. executives said they have a menu of new food items, value marketing initiatives and service improvements on tap to counter a disappointing loss in the second quarter.
The parent of 3,560 drive-ins posted a net loss of $642,000, or one cent a share, for the Feb. 28-ended quarter, compared with a profit of $8.7 million, or 14 cents per share, in the same period last year, which reflected a 6-cent per-share gain from the early extinguishment of debt. Latest-quarter revenue plummeted 33 percent, to $112.8 million.
The company blamed extraordinarily harsh winter weather, especially in its core trade areas of Oklahoma and Texas, and budget-stretched consumers for a 13.2-percent decline in systemwide same-store sales. Same-store sales at partner drive-ins in which the company owns a majority interest declined 14.9 percent in the quarter, while franchised locations saw same-store sales fall 12.9 percent.
In an conference call Tuesday, Sonic said it would introduce several new products during its traditionally busy spring-summer season, including milk-based ice cream and a meatier 12-inch Coney hot dog.
Set to debut in May, the new ice cream and improved toppings will help drive traffic and position Sonic as the quick-service dessert leader, said J. Clifford Hudson, Sonic's chairman and chief executive.
“The new ice cream ... is richer, it is thicker, it is creamier than our current soft serve, which is what we have to call it because that is what it has been; a non-ice cream, lower-fat dairy product,” he said. “In fact, this is real ice cream and it is coming with improved toppings, improved chocolate, improved pineapple and so on.”
Sonic is also improving its extra-long cheese Coney, which this summer will go from 2.6 ounces of meat to 4 ounces of meat. “It will help rebuild the customer’s image of having a good product quality when they come to Sonic,” Hudson said.
Sonic said it will still emphasize value moving forward. However, instead of expanding its Dollar Menu, the chain said it will continue to offer free side items with premium sandwiches. In February, Sonic offered a free order of onion rings with its premium Steak Melt Toaster. In March, it is offering a free order of tater tots with its Super Sonic Cheeseburger.
“We will continue to focus on how to speak about value to the customer but doing it in a way we think is more aligned with our brand,” Hudson said.
Ayear ago, the value menu was running about 11 to 12 percent of sales, said chief financial officer Stephen Vaughan, but this year that figure has fallen to 6 to 7 percent of sales.
Hudson said customers want to know a value menu exists, but they want something more. That attitude has shifted recently, he said, to “I want good food and I want enough food but I want a deal.”
W. Scott McLain, president of Sonic, told analysts: “I guess what we would prefer to do rather than duke it out on the everyday value menu is we would like to try to play on the playing field where we have a clear advantage. That is on our items that are distinctively Sonic like Coney's, ice cream, tater tots and [house-made] onion rings.”
Sonic also will put more emphasis on its other distinctive features, such as its roller-skating car hops, which Vaughan said are being adopted more at its partner drive-ins.
“The feedback we have gotten is with the introduction of more skating in the drive-ins and the amount of tips our car hops get has actually increased by that skating initiative,” Vaughan said.
Contact Ron Ruggless at [email protected].