Sonic Reports Strong Second Fiscal Quarter Results

OKLAHOMA CITY--(BUSINESS WIRE)--

Sonic Corp. SONC, the nation's largest chain of drive-in restaurants, today announced results for the second fiscal quarter ended February 28, 2014.

Key highlights of the company's second fiscal quarter included:

• Net income per diluted share was $0.07 compared with reported net income per diluted share of $0.06 in the second fiscal quarter of 2013; excluding certain adjustments in the second fiscal quarter of 2013 as outlined below, net income per diluted share increased 40% in the second fiscal quarter of 2014;
• System-wide same-store sales increased 1.4%, consisting of an increase of 1.5% at franchise drive-ins and an increase of 1.3% at company drive-ins;
• Company drive-in margins improved 80 basis points; and
• The company repurchased approximately $51 million of stock representing almost 5% of its stock outstanding as of the beginning of the quarter.

“We are very pleased with our second quarter results, especially in light of the difficult weather that impacted many of our markets. Our solid sales and financial performance resulted from multiple system-wide initiatives such as increased media efficiency, innovative products and layered day-part promotions. These initiatives complement our focus on service, products and pricing,” said Cliff Hudson, Chairman, Chief Executive Officer and President. “During the quarter we also began to roll out our technology initiatives, as well as signed new franchise development agreements for the development of 26 new drive-ins.

“In addition to great operating results, we used existing cash and free cash flow¹ to repurchase $51 million in shares at an average price of $19.14 per share, representing nearly 5% of our outstanding shares. Since our current repurchase program began in fiscal 2012, we have repurchased more than $125 million of stock representing 17% of our outstanding shares. We have completed these repurchases while improving our balance sheet, which reflects the strength of our franchise business model.

“We will continue to focus on our multi-layered growth strategy, which incorporates same-store sales growth, leverage from higher sales, deployment of free cash flow, increasing royalty revenues and new drive-in development to build shareholder value. We believe all of these initiatives will enable us to continue to achieve double-digit earnings per share growth in the near and long term,” concluded Mr. Hudson.

Same-Store Sales

For the second fiscal quarter ended February 28, 2014, system-wide same-store sales increased 1.4%, which was comprised of a 1.5% same-store sales increase at franchise drive-ins and an increase of 1.3% at company drive-ins.

Financial Overview

For the second fiscal quarter of 2014, the company's net income totaled $4.1 million or $0.07 per diluted share, compared with net income of $3.6 million or $0.06 per diluted share in the same period in the prior year. Net income per diluted share was $0.05 for the second quarter of fiscal year 2013, excluding a $0.9 million tax benefit that included the retroactive reinstatement of the Work Opportunity Tax Credit (“WOTC”) and resolution of certain tax matters, as well as a $0.5 million ($0.3 million after-tax) charge from the write-off of debt origination costs associated with the $20.0 million early extinguishment of debt. Excluding the items outlined below, net income and net income per diluted share increased 35% and 40%, respectively.

The following non-GAAP adjustments are intended to supplement the presentation of the company's financial results in accordance with GAAP. The company believes that the presentation of these items 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.

					Three months ended								Three months ended
					February 28, 2014								February 28, 2013
					Net				Diluted				Net					Diluted					Net Income								Diluted EPS
					Income				EPS				Income					EPS					$ Change				% Change				$ Change				% Change
Reported – GAAP					$	4,107			$	0.07			$	3,577				$	0.06				$	530			15	%			$	0.01			17	%
After-tax loss from early extinguishment of debt						-				-				315					0.01
Retroactive tax benefit of WOTC and resolution of tax matters						-				-				(857	)				(0.02	)
Adjusted - Non-GAAP					$	4,107			$	0.07			$	3,035				$	0.05				$	1,072			35	%			$	0.02			40	%

For the first six months of fiscal 2014, net income totaled $12.3 million or $0.21 per diluted share compared with net income of $9.7 million or $0.17 per diluted share for the same period in 2013. Excluding the items outlined below, net income and net income per diluted share increased 27% and 25%, respectively.

					Six months ended										Six months ended
					February 28, 2014										February 28, 2013
					Net					Diluted					Net					Diluted					Net Income								Diluted EPS
					Income					EPS					Income					EPS					$ Change				% Change				$ Change				% Change
Reported – GAAP					$	12,315				$	0.21				$	9,710				$	0.17				$	2,605			27	%			$	0.04			24	%
Tax benefit from the IRS' acceptance of a federal tax method change						(484	)				(0.01	)				-					-
After-tax loss from early extinguishment of debt						-					-					315					0.01
Retroactive tax benefit of WOTC and resolution of tax matters						-					-					(743	)				(0.02	)
Adjusted - Non-GAAP					$	11,831				$	0.20				$	9,282				$	0.16				$	2,549			27	%			$	0.04			25	%

Company drive-in sales for the second quarter and first six months of fiscal 2014 decreased by $1.9 million and $1.8 million, respectively, compared to the same period in the prior year primarily as a result of the closure of 12 company drive-ins during the fourth fiscal quarter of 2013 and the refranchising of seven company drive-ins during the first fiscal quarter of 2014, partially offset by an increase in same-store sales.

Development

During the second fiscal quarter, six new franchise drive-ins were opened versus three new franchise drive-in openings during the second quarter of fiscal 2013. Fiscal year-to-date, 13 new franchise drive-ins have opened versus four drive-ins in the first half of fiscal 2013.

Fiscal Year 2014 Outlook

The company expects its initiatives to drive 14% to 15% earnings per share growth in fiscal 2014 as compared to the adjusted non-GAAP earnings per share for fiscal 2013. The macroeconomic environment and its impact on consumer confidence, in addition to the pacing of capital investments, may impact results. The outlook for fiscal 2014 anticipates the following elements:

• Positive same-store sales in the low single digit range for the system;
• Company drive-ins expected to perform above the system average in the latter half of the fiscal year as new digital point-of-purchase technology and a new point-of-sale system are implemented;
• 40 to 50 new franchise drive-in openings and fewer drive-in closings than in fiscal 2013;
• Drive-in-level margins improving between 50 to 100 basis points, depending upon the degree of same-store sales growth at company drive-ins and the level of commodity cost inflation over the spring and summer months;
• Selling, general and administrative expenses of $68.5 million to $69.5 million;
• Depreciation and amortization expense of $42 million to $42.5 million;
• Net interest expense of approximately $25 million;
• An income tax rate between 36% to 37% over the second half of the fiscal year;
• Capital expenditures of $70 million to $75 million, which assumes the implementation of a new point-of-sale system and digital point-of-purchase technology in company drive-ins during fiscal 2014 and construction of new and relocated drive-ins;
• Free cash flow of approximately $15 million to $25 million; and
• The repurchase of $80 million of stock across the fiscal year utilizing existing cash on hand and free cash flow.

Earnings Conference Call

The company will host a conference call and online web simulcast this afternoon beginning at 5:00 p.m. ET. The conference call can be accessed live by dialing (866) 454-4208 or (913) 312-0867 for international callers. A replay will be available one hour after the call and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 6821037. The replay will be available until Monday, March 31, 2014. 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 at http://ir.sonicdrivein.com/.

About Sonic

SONIC®, America's Drive-In®, is the nation's largest chain of drive-in restaurants with more than 3,500 drive-ins serving approximately 3 million customers every day. Over the past 60 years, SONIC has delighted guests with signature menu items, more than 1 million drink combinations, friendly service by iconic Carhops and ongoing support of education through its award-winning Limeades for Learning® program. SONIC received top honors as America's “#1 burger quick service restaurant,” ranking in the top 5 of all brands in the 2014 Temkin Experience Ratings report. For more information about Sonic Corp. (NASDAQ/NM:SONC) and its subsidiaries, please visit sonicdrivein.com. Customers can also connect with SONIC at facebook.com/sonicdrivein or on Twitter @sonicdrive_in.

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.

¹ Free cash flow is defined as net income plus depreciation, amortization and stock compensation expenses, less capital expenditures.

SONC-F

SONIC CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
						Three months ended												Six months ended
						February 28,												February 28,
						2014						2013						2014						2013
Revenues:
Company Drive-In sales						$	81,848					$	83,706					$	175,347					$	177,162
Franchise Drive-Ins:
Franchise royalties and fees							26,582						25,996						57,803						55,916
Lease revenue							715						949						1,601						2,435
Other							596						490						1,642						1,636
Total revenues							109,741						111,141						236,393						237,149
Costs and expenses:
Company Drive-Ins:
Food and packaging							23,043						23,546						49,279						50,178
Payroll and other employee benefits							30,031						31,448						63,371						64,913
Other operating expenses, exclusive of
depreciation and amortization included below							18,437						18,811						40,244						40,787
Total cost of Company Drive-In sales							71,511						73,805						152,894						155,878
Selling, general and administrative							15,886						15,467						32,891						31,597
Depreciation and amortization							10,031						10,069						20,065						20,664
Other operating income, net							(36	)					(218	)					(165	)					(211	)
Total costs and expenses							97,392						99,123						205,685						207,928
Income from operations							12,349						12,018						30,708						29,221
Interest expense							6,384						7,448						12,767						15,123
Interest income							(144	)					(168	)					(261	)					(309	)
Loss from early extinguishment of debt							-						492						-						492
Net interest expense							6,240						7,772						12,506						15,306
Income before income taxes							6,109						4,246						18,202						13,915
Provision for income taxes							2,002						669						5,887						4,205
Net income						$	4,107					$	3,577					$	12,315					$	9,710
Basic income per share						$	0.07					$	0.06					$	0.22					$	0.17
Diluted income per share						$	0.07					$	0.06					$	0.21					$	0.17
Weighted average basic shares							55,958						55,798						56,125						56,735
Weighted average diluted shares							57,408						56,423						57,653						57,254

SONIC CORP.
Unaudited Supplemental Information
									Three months ended																Six months ended
									February 28,																February 28,
									2014								2013								2014								2013
Drive-Ins in Operation
Company:
Total at beginning of period									388								409								396								409
Opened									-								-								-								-
Sold to franchisees									-								-								(7				)				-
Closed (net of re-openings)									-								(4				)				(1				)				(4		)
Total at end of period									388								405								388								405
Franchise:
Total at beginning of period									3,129								3,140								3,126								3,147
Opened									6								3								13								4
Acquired from the company									-								-								7								-
Closed (net of re-openings)									(16			)					(22				)				(27				)				(30		)
Total at end of period									3,119								3,121								3,119								3,121
System-wide:
Total at beginning of period									3,517								3,549								3,522								3,556
Opened									6								3								13								4
Closed (net of re-openings)									(16			)					(26				)				(28				)				(34		)
Total at end of period									3,507								3,526								3,507								3,526
						Three months ended													Six months ended
						February 28,													February 28,
						2014				2013									2014									2013
						($ in thousands)													($ in thousands)
Sales Analysis
Company Drive-Ins:
Total sales						$	81,848			$	83,706								$	175,347								$					177,162
Average drive-in sales							213				207									452													437
Change in same-store sales							1.3	%			1.9						%			1.6						%							3.1	%
Franchised Drive-Ins:
Total sales						$	725,270			$	712,934								$	1,559,540								$					1,527,736
Average drive-in sales							235				232									502													494
Change in same-store sales							1.5	%			(0.3					)	%			1.8						%							1.3	%
System-wide:
Change in total sales							0.8	%			(0.5					)	%			1.5						%							1.6	%
Average drive-in sales						$	234			$	229								$	499								$					487
Change in same-store sales							1.4	%			-						%			1.8						%							1.5	%

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.

SONIC CORP.
Unaudited Supplemental Information
						Three months ended																		Six months ended
						February 28,																		February 28,
						2014							2013											2014												2013
Revenues (in thousands)
Company Drive-In sales						$	81,848						$		83,706									$	175,347											$	177,162
Franchise Drive-Ins:
Franchise royalties							26,376								25,821										57,288												55,736
Franchise fees							206								175										515												180
Lease revenue							715								949										1,601												2,435
Other							596								490										1,642												1,636
Total revenues						$	109,741						$		111,141									$	236,393											$	237,149
									Three months ended																			Six months ended
									February 28,																			February 28,
									2014									2013										2014								2013
Margin Analysis (percentage of Company Drive-In sales)
Company Drive-Ins:
Food and packaging									28.2					%				28.1						%				28.1		%						28.3		%
Payroll and employee benefits									36.7									37.6										36.1								36.6
Other operating expenses									22.5									22.5										23.0								23.1
Cost of Company Drive-In sales									87.4					%				88.2						%				87.2		%						88.0		%
																				February 28,												August 31,
																				2014												2013
Selected Balance Sheet Data																				(In thousands)
Cash and cash equivalents																				$			35,117									$				77,896
Current assets																							87,784													140,722
Property, equipment and capital leases, net																							415,334													399,661
Total assets																				$			618,623									$				660,794
Current liabilities, including capital lease obligations and
long-term debt due within one year																				$			61,105									$				72,930
Obligations under capital leases due after one year																							25,020													22,458
Long-term debt due after one year																							432,485													437,380
Total liabilities																							572,353													583,330
Stockholders' equity																				$			46,270									$				77,464