Sonic Corp. (SONC) posted fiscal 2010 third quarter results on Monday. The company recorded a 34.6% reduction in GAAP net income to $11.0 million from $16.8 million in the prior-year quarter. Excluding special items, earnings per share came in at 15 cents, which missed the Zacks Consensus Estimate of 19 cents and the year-ago result of 24 cents per share.
Total revenues in the reported quarter slipped 19.4% to $145.9 million from $181.1 million in the year-ago quarter. The sluggish performance was primarily due to an unfavorable revenue mix arising from Sonic’s decision to refranchise 205 partner drive-ins in fiscal 2009 from which the company now receives only royalties rather than partner drive-in sales. In addition, overall revenues were also affected by lower same-store sales in partner drive-ins and reduced franchise royalties.
Sonic’s overall same-store sales fell 6.0% with same-store sales decreasing 6.0% at franchise drive-ins and by 6.3% at partner drive-ins. During the third quarter, Sonic launched 19 drive-ins, compared with 34 in the year-ago period, and expects to open 80 to 85 drive-ins in the entire fiscal 2010.
Sonic’s operating expenses related to partner drive-ins decreased 18.9% year over year to $93.3 million, primarily due to the company’s refranchising initiatives. Selling, general and administrative (SG&A) expenses increased 4.1% to $17.1 million, mainly due to higher bad debt provisions. Lackluster revenues and increased SG&A expenses resulted in a 40.6% year-over-year reduction in operating income to $24.7 million, while operating margin dipped 600 basis points (bps) to 16.9%.
During the quarter, the company deployed $108 million of cash toward debt repayments. Consequently, at the quarter end, Sonic’s long-term debt-to-capitalization ratio reduced to 97.2% from 99.2% in the year-ago period.
Moving forward, Sonic continues to expect earnings of 50 cents to 55 cents per share for the fiscal year ending August 2010, assuming a 4% to 8% decline in overall same-store sales in the fourth quarter. The guidance is in line with the Zacks Consensus Estimate of 51 cents per share, which decreased 5 cents over the past week as 15 of 16 covering analysts lowered expectations.
Sonic Corp. operates and franchises a chain of drive-in restaurants in the U.S. The company’s restaurants offer made-to-order hamburgers and other sandwiches and feature certain signature items, such as footlong coney cheese dogs, hand-battered onion rings, tater tots and specialty soft drinks. As of May 31, 2010, Sonic had a total of 3,570 drive-ins in operation, including 3,112 franchise drive-ins and 458 partner drive-ins.
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