Sonic on its latest burger rivals in Texas

Heard on the Call: Chain prepares for stepped-up competition from In-N-Out, Carl’s Jr.

Sonic Corp. is taking in stride new forays into its backyard by two notable California burger chains.

The Oklahoma City-based drive-in chain has about 1,000 locations in Texas and surrounding states, an area increasingly targeted for development by West Coast competitors In-N-Out Burger and Carl’s Jr.

In-N-Out Burger of Irvine, Calif., is planning eight new stores and a regional distribution center in North Texas, while CKE Restaurants Inc. of Carpinteria, Calif., is expanding its Carl’s Jr. chain in the Lone Star State.

“There is enormous competition in all of our markets,” J. Clifford Hudson, chairman and chief executive of Sonic, said in a conference call Tuesday to discuss second quarter results. “We have 1,000 stores in Texas there. … And so it's a competitive challenge we have to deal with just like we do with any other competitive challenge. And we'll deal with it over time.”

For the Feb. 28-ended second quarter, Sonic swung to a profit from a year-ago loss on positive same-store sales and a one-time gain from the early payment of debt. FULL RESULTS [3]

Other highlights from the conference call:

Planned price increases: “Modest” menu price increases are planned at corporate drive-ins in the current third quarter, said Stephen C. Vaughan, Sonic’s chief financial officer and executive vice president. With an increase in the fall 2010 menu, the cumulative increase would be about 1 percent to 1.5 percent. “We will not receive the full benefit of this increase until the fourth quarter,” he said.

Franchise incentives: Sonic continues to offer development incentives to franchises, though they differ from those of earlier years, said W. Scott McLain, president of Sonic Corp. “They're primarily around some of our more challenged markets and then in markets where some incremental development would allow us to do some better things from a media standpoint,” he said.

Sales increases at corporate stores: Sonic’s corporate stores are narrowing the sales disparity with franchised branches, Hudson said. In 2010, the average unit volume at franchised units was more than $1 million, while corporate units saw less than $900,000 per store. Hudson said increased sales at corporate stores could add another $45 million to revenue.

Openings and closings: Sonic ended the quarter with 3,555 drive-ins in 43 states and plans to open 40 locations this year. The rate of closures had “increased somewhat,” McLain said, but he didn’t consider that unusual for a 57-year-old brand. “We continue to actively evaluate our lower-volume drive-ins, and we do expect that additional closings will occur,” he said. “However, at this point, we expect the magnitude of those closings to be consistent with what we've seen over the last couple of years.”

Contact Ron Ruggless at [email protected]