What's Sonic's secret?

by Monica Watrous
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Sonic's revenues advanced 15% in the second quarter.

OKLAHOMA CITY — While many other quick-service restaurant chains struggled in the past year, same-store sales growth at Sonic Corp. has accelerated, surging nearly 12% in the recent quarter.

“We began to see an acceleration of this back in the third fiscal quarter of 2014 when traffic really became a more significant contributor to our same-store sales growth, and since then the traffic has grown significantly, contributing half of the same-store sales growth over the past few quarters, and more than two-thirds in the most recent quarter,” said Cliff Hudson, chief executive officer of Sonic, during a March 24 earnings call with financial analysts.

Sonic’s net income for the second quarter ended Feb. 28 advanced 87% to $7,662,000, equal to 14c per share on the common stock, which compared with $4,107,000, or 7c per share, in the prior-year period. Revenues totaled $126,219,000, up 15% from $109,741,000 in the comparable quarter.

“Yes, a good, healthy growth, but there’s some underlying things here that we think are pretty important,” Mr. Hudson said. “Because in other words, not only has our sales growth come from our limited-time offers and the related day parts, but it’s also come from increases in our core menu items and across all day parts.

“So, as we are working to promote and sell chicken, drinks, ice cream — these have made up more of our promotions in the recent past — but as we promote those things, chicken, drink, ice creams, we’re also selling more hamburgers and side items.”

Also fueling growth are new technology initiatives implemented at company-owned restaurants and rolling out to franchised units through 2017. The new point-of-sale (POS) and point-of-personalized-service (POPS) systems are expected to improve margins by increasing efficiencies and drive sales through suggestive selling and customer engagement.

“So, POPS is, we think, a bit of a brand-changer once it is put across a marketplace,” Mr. Hudson said. “It enables us to change our promotion by day part and then also provides order confirmation for the customers as they’re placing the order…

“And as we implement new technologies and features, like a mobile app and a loyalty program, we are of the strong view that we’ll be able to interact with a customer in a more personal way and a customized way using our drive-in to differentiate that totality of that experience separate and apart from our competition’s.”

For the first six months of fiscal 2015, net income increased 44% to $17,747,000, or 33c per share, from $12,315,000, or 21c per share, in the first half of fiscal 2014. Year-to-date revenues totaled $266,075,000, up almost 13% from $236,393,000.

Sonic expects to drive 25% to 27% adjusted earnings per share growth for the fiscal year, assuming low- to mid-single digit same-store sales growth for the third and fourth quarters and the opening of 34 to 44 new franchise units, in addition to other factors.

In the past year, Sonic’s shares on Nasdaq have soared more than 75%, closing at $36.66 on March 24.
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