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This Fast Food Chain is Up 70 Percent and Nobody Even Noticed

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Fast food can be hit-or-miss. Right now, Sonic Corp. (NASDAQ: SONC) is a hit.

The Oklahoma City drive-in chain’s shares have climbed 70 percent since last spring, according to CNBC. And, the company reported second-quarter adjusted earnings of five cents per share on revenue of $111.1 million Monday.

Sonic’s good news comes at a time when McDonald’s (NYSE: MCD) reported zero U.S. sales growth, Wendy’s (NASDAQ: WEN) seems stuck in neutral, and Yum Brands (NYSE: YUM), mostly due to the food scare in China, has garnered short attention by some investors.

William Blair analyst Sharon Zackfia said earnings were slightly ahead of her forecast, causing her to reaffirm a "Market Perform" rating.

Sterne Agee, on the other hand, downgraded Sonic from Buy to Neutral in a report released Friday.

Sonic Corp. executives are not sitting still. The company is producing a new series of their popular “Two Guys” television ads and working on a loyalty program according to Nation’s Restaurant News. The chain is looking to boost traffic and maintain profit margins in a “strike while the iron is hot” strategy that may be one of the reasons the company continues to do well.

Sonic’s Chairman and Chief Executive Clifford Hudson, told Nation’s Restaurant News that beginning this past January, approximately 70 percent of the company’s media dollars have been invested in national cable. The rest, according to Hudson, has gone into local television and other advertising mediums.

Focusing on the “Two Guys” as brand-builders has been part of Sonic’s strategy since February 2012, when the company re-introduced the well-known duo to the public. The challenge now, Hudson says, is to keep the two comical spokesmen fresh and relevant.

In addition to focused advertising, executives who spoke with analysts Monday indicated they are working on a customer loyalty program to help drive traffic for the brand. Customer loyalty programs are rare in fast food, but Sonic believes they have a high number of regular customers who deserve to be rewarded for their allegiance.

And, of course, the additional traffic generated by the proposed program will not hurt the company’s bottom line.

The company is also working on increasing individual store profitability. A new, smaller building prototype is part of that strategy and one that reduces non-land costs by 15 percent to 20 percent, according to Stephen C. Vaughn, the company’s chief financial officer.

As of Feb. 28, Sonic had 3,526 drive-in units in 43 states. Sonic shares closed Tuesday at $12.87, up $1.14 or almost 10 percent on the day.

Posted-In: Analyst Color CNBC Earnings Long Ideas News Downgrades Reiteration Retail Sales Best of Benzinga


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