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Sonic's 4Q profit falls

OKLAHOMA CITY On the heels of aggressive refranchising, Sonic Corp. reported this week double-digit decreases in fourth-quarter revenue and net income that were largely tied to the sell-off of stores and falling sales.

For the quarter ended Aug. 31, Sonic reported that net income shrank 16.3 percent to about $16.9 million, or 28 cents per share, versus $20.2 million, or 33 cents per share, in the year-ago quarter. Revenue in the quarter fell 23.4 percent to $173.8 million.

The company said that excluding special items -- or the after-tax impacts of refranchising gains and impairment provisions --earnings per share would have been 29 cents in the latest quarter, versus 31 cents a year earlier.

The Oklahoma City-based company also reported a 4.5-percent decline in systemwide same-store sales in the fourth quarter, which included a 5.3-percent decline in same-store sales at partner drive-ins, in which Sonic owns a majority interest, and a 4.4-percent drop at franchised units. In the year-ago quarter, same-store sales fell 6.3 percent at partner drive-ins and rose 0.7 percent at franchised branches.

In all, Sonic said it refranchised 205 restaurants in fiscal 2009, or nearly 30 percent of its preceding-year total number of company-controlled locations. The chain ended fiscal 2009 with 3,544 units, up from 3,475 in 2008.

Clifford Hudson, Sonic Corp.'s chairman and chief executive, acknowledged that “the past quarter and year have been challenging for us.” He added, “While sales performance is not where we would like it to be, we do feel positive about our ability to maintain traffic at a relatively flat level.”

For the full fiscal year, Sonic officials said net income contracted by 18.1 percent to $49.4 million, or 81 cents per share, from $60.3 million, or 97 cents per share, last year. Revenue for the year fell 10.7 percent to $718.8 million, from $804.7 million in fiscal 2008.

Excluding special items represented by the after-tax impacts of refranchising gains, gains from debt purchase and impairment provisions, full-year earnings would have been 72 cents per share for fiscal 2009, compared with 94 cents per share in the preceding year, the company noted.

Systemwide same-store sales in fiscal 2009 fell 4.3 percent, versus growth of 0.9 percent in the prior year. According to Sonic, same-store sales at partner drive-ins declined 6.4 percent for fiscal 2009, versus a 1.6-percent drop a year earlier, and they dipped by 3.9 percent at franchised units, compared with growth of 1.4 percent in the previous 12 months.

The Sonic Drive-In chain saw its systemwide net unit count grow by 2 percent in fiscal 2009. It ended the period with 475 partner drive-ins, down from 684 a year earlier, and 3,069 franchised locations, up from 2,791 last year.

Although it experienced a slowdown in the pace of new franchise drive-in openings during the past year as credit markets tightened, Sonic management said it was pleased that the program remained at a “solid level” and performed “well above the industry average.” During the fiscal year, Sonic said, its chain opened its first restaurants in Maryland, Massachusetts, Montana, New York and Wisconsin, giving it a presence in 42 states, up from 29 states in 2005.

Company officials said the units debuting in new markets in fiscal 2009 drove “record sales volumes,” which they said demonstrated "the effectiveness of Sonic’s national cable advertising strategy.”

With the economy beginning to sour fast at this time last year, Sonic launched a number of initiatives, including its refranchising program, a strategic pricing program that included an ongoing value menu and a renewed focus on customer service. Chain officials said the refranchising program, which was initially designated a multi-year effort, was essentially completed in a single year, as the percentage of franchised restaurants grew from about 80 percent of the systemwide total to 87 percent, falling within the targeted range of 86 percent to 88 percent.

The refranchising program, Sonic said, is aimed at improving the performance of partner drive-ins, reducing the overall risk of Sonic's business and providing a less volatile financial model for stockholders.

Looking forward, Hudson said of Sonic, “We have made tangible progress during the past year in strengthening our foundation in ways that position us to be more competitive and successful in the coming year.”

Contact Alan J. Liddle at [email protected].

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