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First Impression Of Sonic's Q4

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First Impression Of Sonic's Q4

Reviewing Sonic Corporation (NASDAQ: SONC)'s fiscal fourth-quarter results, Stephens said the quarter was a soft one.

Following the results, the firm maintains its Outperform rating on the shares of the company and its $30 price target.

In pre-market trading, shares of Sonic were down 4.44 percent at $23.70. However, by mid-morning, shares were rallying 2.5 percent at $25.41 after initially jumping over 4 percent and $1.05.

Analyst Will Slabaugh noted that the restaurant chain reported fourth-quarter systemwide same-store sales of a negative 3.3 percent compared to the consensus estimate of a 1.3 percent drop and his estimate for a 3.2 percent decline. However, the analyst noted that earnings per share of 45 cents exceeded estimates.

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The analyst attributed the sluggish top-line trends to aggressive value bundling and price-point advertising by larger peers.

That said, Stephens expressed encouragement at the fact that the company was able to pad declining sales and traffic momentum by more aggressive, brand-centric promotions in late summer.

See also: 3 Reasons Red Robin Is One Of The Best Ideas In Restaurant Sector

Despite seeing no respite from the ongoing discounting environment, the firm said it believes the company is moving in the right direction with price-point focused platforms such as the Carhop Classic at $2.99. The flat quarter-to-date same-store sales trend was due to Carhop Classic, the firm said.

Looking forward, the firm estimates 2018 same-store sales and adjusted earnings per share of 1.1 percent and $1.34, respectively.

Meanwhile, the company looks for same-store sales to be flat to up 2 percent, restaurant-level margins between 15.1 percent and 17.5 percent, adjusted earnings per share growth of 5-10 percent and capital expenditure in the range of $38 million to $40 million, including about $4 million on build-to-suit drive-in development.

Stephens also referred to two ongoing BOH initiatives at the company that will be rolled out through the system in 2018, one involving the implementation of an inventory management tool through the new point of sale system. The second one, the firm said, was a new web-based labor scheduling tool.

The firm said its higher 2018 earnings per share estimate was solely based on the assumption of a headcount reduction at the company's headquarters that brings down its G&A estimate by about $5 million.

Concluding, the firm said it continues to think that Sonic's valuation and cash generation make the 12-month risk/reward attractive.

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Image Credit: By TheDapperDan - Own work, Public Domain, via Wikimedia Commons

Latest Ratings for SONC

DateFirmActionFromTo
Nov 2018DowngradesBuyNeutral
Sep 2018DowngradesOutperformNeutral
Sep 2018MaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for SONC
View the Latest Analyst Ratings

Posted-In: Analyst Color Earnings Long Ideas News Guidance Reiteration Restaurants Analyst Ratings Best of Benzinga

 

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