Sales Drop for Sonic – Analyst Blog

Oklahoma-based Sonic Corp. (SONC) announced its preliminary sales results for the fourth quarter and fiscal year 2010. Same store sales dropped 6.4% for the system, within the company’s guided range of a decline of 4% to 8%. Company-owned drive-ins fell 6.1%.

 

During fourth quarter, the company’s drive-in openings totaled 25 (24 by franchisees). However, franchise openings in the year slipped from 130 in 2009 to 80 in 2010 (lower-end of the guided range of 80-85) due to a challenging economic environment.

 

Sonic currently looks forward to new franchise drive-in openings; totaling 40-50 in fiscal 2011 and sequential improvement in same-store sales throughout the fiscal year. Restaurant-level margins are expected to improve slightly due to labor efficiencies. Selling, general and administrative expenses are expected to range within $67-$68 million, while depreciation and amortization within the $42-$43 million range.

 

Interest expense is projected to be roughly $31-$32 million and income tax rate to be approximately 37%-38%. Capital spending is likely to amount to $20-$25 million range.

 

The company is scheduled to report its fourth quarter and fiscal year 2010 results on October 19, 2010 after market closes.

 

The company was founded in 1953 as Top Hat Drive-In and was given the name Sonic in 1959. The company currently has more than 3,500 drive-ins, serving approximately three million customers who eat every day.

 

For the fourth quarter of 2010, Sonic expects de-leveraging and higher-than-expected beef costs to negatively impact restaurant-level margins, which would come to approximately 150 to 250 basis points; and the tax rate would be within the 37.5%-38.5% range.

 

For the fiscal year 2010, depreciation and amortization is expected to range within $42-$43 million, interest expenses within $6.5-$7 million; while an income tax decline in interest expense would reflect lower debt levels for the year; capital expenditures are likely to be within $25-$30 million.

 

We currently maintain a Neutral recommendation on the stock.