Sonic Corp. (SONC) reported fiscal 2010 second-quarter results after the closing bell on Tuesday. The company swung to a net loss of $642,000 million, or a penny per share, from a net income of $8.6 million, or 18 cents in the year-ago quarter.
The result also came in behind the Zacks Consensus Estimate for a profit of 2 cents. The surprise loss led to a more than 2% decline in Sonic’s share price on Wednesday during regular trading hours on the Nasdaq, but has since rebounded roughly 5% today.
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 Feb 28, 2010, Sonic had a total of 3,560 drive-ins in operation, including 457 partner drive-ins and 3,103 franchise drive-ins.
Behind the Headline Numbers
Total revenues plunged 33.3% during the quarter to $112.8 million from $169.0 million in the prior-year quarter. The sluggish performance was primarily attributable to severe winter weather in many core markets, which affected both sales and the pace of new drive-in development. Moreover, Sonic’s revenue was also affected by its decision to refranchise 205 partner drive-ins in fiscal 2009 from which the company now receives only royalties rather than partner drive-in sales.
Overall same-store sales slipped by 13.2% with same-store sales decreasing 12.9% at franchise drive-ins and by 14.9% at partner drive-ins. During the quarter, Sonic opened 17 drive-ins, compared to 27 openings in the year-ago quarter and expects to open 80 to 90 drive-ins in the entire fiscal 2010.
Operating expenses related to partner drive-ins fell by 36% to $75.8 million from $118.7 million in the year-ago period mainly due to the company’s refranchising initiatives. Selling, general and administrative (SG&A) expenses increased by 6.3% year-over-year to $17.3 million, primarily due to higher bad debt provisions amid financial difficulties encountered by Sonic’s franchisees. Sluggish sales coupled with higher SG&A expanses led to a 58.1% year-over-year decline in operating income to $9.0 million, while operating margin slumped by 470 basis points (bps) to 8.0%.
Sonic ended the quarter with cash and cash equivalents of approximately $125 million, compared to $58 million in the year-ago period. Long-term debt at the end of the reported quarter was $617.5 million, compared to $677.6 million in the prior-year quarter.
Moving forward, Sonic continues to expect earnings for the fiscal year ending August 2010 to range between 55 cents and 60 cents per share. The guidance is in-line with the Zacks Consensus Estimate of 56 cents per share, which dipped by 2 cents in just the past week as 2 of 15 covering analysts lowered expectations. For the next fiscal, the Zacks Consensus Estimate moved down by 3 cents to 69 cents over the past week as 4 of 17 covering analysts reduced projections, while 1 moved in the opposite direction.
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