Sonic Reports Fourth Fiscal Quarter And Fiscal 2016 Results

The following excerpt is from the company's SEC filing.

OKLAHOMA CITY (October 24, 2016) – Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of drive-in restaurants, today announced results for its fourth fiscal quarter and year ended August 31, 2016.

Key highlights of the company’s fourth quarter of fiscal year 2016 included:

Net income per diluted share increased 6% to $0.53 compared with $0.50 in the same period prior year; adjusted net income per diluted share increased 5% to $0.45 compared with adjusted net income per diluted share of $0.43 in the prior-year period;

System same-store sales decreased 2.0%, consisting of a 1.8% same-store sales decrease at franchise drive-ins and a decrease of 3.0% at company drive-ins;

Company drive-in margins contracted by 210 basis points;

Eighteen new franchise drive-ins opened;

The company commenced its refranchising initiative to move toward an approximately 95%-franchised system by the end of fiscal year 2017; and

The company purchased 1.3 million shares of its common stock.

Key highlights of the company’s fiscal year 2016 included:

Net income per diluted share was $1.29 compared with $1.20 in the prior year; adjusted net income per diluted share increased 17% to $1.29 compared with adjusted net income per diluted share of $1.10 in the prior

System same-store sales increased 2.6%, consisting of a 2.7% same-store sales increase at franchise drive-ins and an increase of 1.7% at company drive-ins;

Company drive-in margins contracted by 30 basis points;

Thirty-one

net new drive-ins opened;

than 5.2 million shares

, representing approximately 10% of outstanding shares for the fiscal year

"We delivered good overall performance in fiscal 2016, including 2.6% system-wide same-store sales growth. Slowing consumer trends that began in April, however, persisted through the fourth quarter, resulting in lower-than-expected sales and profits in the fourth fiscal quarter,” said Cliff Hudson, Sonic Corp. CEO.  “At the same time, we are pleased to see approximately 1% net unit growth for fiscal 2016

with 31 net

new units, sound progress towards our net unit growth goal of 2% to 3% by the end of the decade.

“While our unit growth, capital structure and refranchising initiatives are performing well, low commodity costs, resulting in an aggressive promotional and pricing environment, are expected to continue to pressure sales and earnings in fiscal year 2017, particularly in the first half of the year.  We believe our current initiatives to deliver one of the most differentiated customer experiences will improve sales late in the fiscal year.  This, combined with a more

highly franchised system, better company drive-in margins, penetration of

digital

POPS units in 80% of our system, a strong development pipeline, and a significantly lower number of shares outstanding, provides a solid foundation for good sales and earnings growth over the next few years.”

Same-Store Sales

For the fourth quarter ended August 31, 2016, system same-store sales decreased 2.0%, which was comprised of a 1.8% same-store sales decline at franchise drive-ins and a decline of 3.0% at company drive-ins.

Financial Overview

For the fourth fiscal quarter of 2016, the company’s net income totaled $25.4 million or $0.53 per diluted share compared to net income of $26.3 million or $0.50 per diluted share in the same period of the prior year. Excluding the items outlined below, net income declined 6% and net income per diluted share increased 5%.

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

August 31, 2015

Diluted

Net Income

Diluted EPS

$ Change

% Change

Reported – GAAP

25,437 

0.53 

26,296 

0.50 

(859)

(3)

0.03 

Gain on sale of Company Drive-Ins

(972)

(0.02)

Tax impact on Company Drive-Ins sale

317 

0.00 

FIN 48 release of income tax credits and deductions

(3,038)

(0.06)

Federal tax benefit of prior-year statutory tax deduction

(1,477)

(0.03)

Change in deferred tax valuation allowance

(1,701)

(0.04)

Adjusted - Non-GAAP

21,744 

0.45 

23,118 

0.43 

(1,374)

(6)

0.02 

Tax impact during the period at an

effective tax rate of 32.6%

For fiscal year 2016, net income totaled $64.1 million or $1.29 per diluted share compared with net income of $64.5 million or $1.20 per diluted share for fiscal year 2015.  Excluding the items outlined below, net income and net income per diluted share increased 8% and 17%, respectively. 

Fiscal Year Ended

64,067 

1.29 

64,485 

1.20 

(418)

(1)

0.09 

Loss from early extinguishment of debt

8,750 

0.18 

Tax impact on debt extinguishment

(3,027)

Gain on sale of real estate

(1,875)

Tax impact on real estate sale

664 

0.01 

Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters

(585)

(0.01)

(666)

(3,199)

Retroactive effect of federal tax law change

612 

64,301 

59,531 

1.10 

4,770 

0.19 

(1)  Tax impact during the period at an

effective tax rate of 32.6%.

(2)  Tax impact during the period at an effective tax rate of 34.6%.

(3)  Tax impact during the period at an adjusted effective tax rate of 35.4%.

Fiscal Year 201

Outlook

While the macroeconomic environment may impact results, the company expects adjusted earnings per share for fiscal year 2017 to be in the range of down 7% to flat

year over year

. The outlook for fiscal 2017 anticipates the following elements:  

(2)% to 0% same-store sales for the system;

Royalty revenue growth from new unit development;

new franchise drive-in openings;

Drive-in-level margins of 16-17%, depending upon the timing of drive-in divestitures and the degree of same-store sales growth at company drive-ins;

Selling, general and administrative expenses of approximately $85.0 million to $86.0 million reflecting increased investment in human resources and technology to support brand initiatives;

Depreciation and amortization expense of $42.0 million to $44.0 million reflecting the divestiture of company drive-ins as previously announced;

Capital expenditures of $40 million to $45 million reflecting ongoing investment into the company’s technology initiatives;

Free cash flow

of approximately $60 million to $65 million;

An income tax rate between 35.0% to 36.0%; 

The planned repurchase of at least $173 million of stock 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) 419-6590

719) 325-

for international callers.  A replay will be available one hour after the call and can be accessed by dialing

(877) 870-5176

(858) 384-5517

for international callers; the conference ID is

5500371

.  The replay will be available until

Monday

October 

2016.  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

http://ir.sonicdrivein.com/

About Sonic

SONIC, America's Drive-In is the nation's largest drive-in restaurant chain serving more than 3 million customers every day. Nearly 90 percent of SONIC's 3,500 drive-in locations are owned and operated by local business men and women. Over more than 60 years, SONIC has delighted guests with signature menu items, more than 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 more than $5 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

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.

SONC-F

Free cash flow is defined as net income plus depreciation, amortization and stock compensation expenses, less capital expenditures.

SONIC CORP.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

Revenues:

Company Drive-In sales

111,456 

125,215 

425,795 

436,031 

Franchise Drive-Ins:

Franchise royalties and fees

47,663 

46,967 

170,319 

161,342 

Lease revenue

2,327 

1,970 

7,459 

5,583 

672 

1,114 

2,747 

3,133 

Total revenues

162,118 

175,266 

606,320 

606,089 

Costs and expenses:

Company Drive-Ins:

Food and packaging

30,888 

34,573 

118,136 

121,701 

Payroll and other employee benefits

38,625 

41,752 

150,260 

151,801 

Other operating expenses, exclusive of

depreciation and amortization included below

22,974 

24,952 

88,424 

90,436 

Total cost of Company Drive-In sales

92,487 

101,277 

356,820 

363,938 

19,748 

21,711 

82,089 

79,336 

10,956 

11,258 

44,418 

45,892 

Provision for impairment of long-lived assets

155 

1,393 

232 

1,440 

Other operating (income) expense, net

(1,543)

(902)

(4,691)

(945)

Total costs and expenses

121,803 

134,737 

478,868 

489,661 

Income from operations

40,315 

40,529 

127,452 

116,428 

Interest expense

7,249 

6,133 

26,714 

25,114 

Interest income

(190)

(118)

(516)

(408)

Debt extinguishment costs

Net interest expense

7,059 

6,015 

34,948 

24,706 

Income before income taxes

33,256 

34,514 

92,504 

91,722 

Provision for income taxes

7,819 

8,218 

28,437 

27,237 

Basic income per share

0.54 

0.51 

1.32 

1.23 

Diluted income per share

Weighted average basic shares

47,237 

51,736 

48,703 

52,572 

Weighted average diluted shares

48,037 

52,936 

49,669 

53,953 

Unaudited Supplemental Information

Drive-Ins in Operation:

Company:

Total at beginning of period

375 

394 

387 

391 

Opened

Sold to franchisees

(29)

(7)

(38)

Closed (net of re-openings)

(2)

(5)

Total at end of period

345 

Franchise:

3,168 

3,139 

3,127 

Acquired from the company

(4)

(17)

(32)

3,212 

System-wide:

3,543 

3,512 

3,526 

3,518 

41 

(22)

(33)

3,557 

($ in thousands)

Sales Analysis:

Total sales

Average drive-in sales

313 

1,142 

1,116 

Change in same-store sales

(3.0)

4.5 

1.7 

6.9 

Franchised Drive-Ins:

1,125,655 

1,121,219 

4,092,303 

3,931,365 

355 

360 

1,301 

1,261 

(1.8)

4.9 

2.7 

7.3 

Change in total sales

(0.8)

5.9 

3.5 

8.3 

351 

1,284 

1,244 

(2.0)

2.6 

Note:  Change in same

store sales based on restaurants open for a mini

um of 15 months.

(In thousands)

47,126 

46,259 

168,691 

158,813 

Franchise fees

537 

708 

1,628 

2,529 

Margin Analysis (percentage of Company Drive-In sales):

27.7 

27.6 

27.9 

Payroll and employee benefits

34.7 

33.4 

35.3 

34.8 

20.6 

19.9 

20.8 

Cost of Company Drive-In sales

83.0 

80.9 

83.8 

83.5 

Selected Balance Sheet Data:

Cash and cash equivalents

72,092 

27,191 

Current assets

137,657 

85,438 

Property, equipment and capital leases, net

402,162 

421,406 

Total assets

659,995 

620,024 

Current liabilities, including capital lease obligations and

long-term debt due within one year

74,663 

87,821 

Obligations under capital leases due after one year

17,391 

20,763 

Long-term debt due after one year

577,521 

428,238 

Total liabilities

735,638 

602,591 

Stockholders' equity (deficit)

(75,643)

17,433 

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Sonic Declares Quarterly Dividend - April 12, 2018
Southeastern Asset Management, Inc. just provided an update on activist position in Sonic Corp. - April 4, 2018
Sonic Reports Second Fiscal Quarter 2018 Earnings Per Share Growth - March 27, 2018

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