OKLAHOMA CITY — Challenged by a slowdown in traffic at its drive-in restaurants, Sonic Corp. hopes its new bundled value offering will lure back more consumers. Its new Sonic Boom Box features a beef hot dog and a junior cheeseburger with a side order and drink for $5.
|Cliff Hudson, c.e.o. of Sonic|
“It is a shift away from what we would ordinarily have, more drinks- and ice cream-heavy calendar,” said Cliff Hudson, chief executive officer of Sonic, during a June 23 earnings call with financial analysts. “As a matter of fact, we had started that into the spring, and the wet and cool weather doesn’t play as well with drinks and ice cream. So the Boom Box here is more clearly value-based, less differentiated than we might ordinarily be promoting, but we felt in that April-to-May timeframe, and we feel today, that it is a strong tactical response to a good deal more sluggish environment, and we’re going to continue to assess that environment as the summer goes along and affect our promotions accordingly, summer into fall.”
Net income in the third quarter ended May 31 was $15,353,000, equal to 32c per share on the common stock, down from $20,442,000, or 39c per share, in the prior-year period. Revenues increased to $165,239,000 from $164,748,000. Same-store sales increased 2% versus 6.1% in the third quarter of the prior year.
“Same-store sales were negatively impacted during the quarter by what I think is pretty fair to describe as an industry-wide slowdown in traffic in late April and May,” Mr. Hudson said. “The cause of the industry slowdown has really been difficult to pinpoint. As you look at more macro elements of the economy, jobs have continued to grow, though a little more slowly than they were earlier in the year. But also consumer discretionary income hadn’t deteriorated in recent months. We’re watching some of the modest increases in gas prices and then the price competition in our grocery competitors and many of them getting into selling more prepared foods. These are potential sources of demand volatility on our industry, but we’re not sure that the last couple of months represent anything more than a short-term phenomenon. It is clear, though, that the consumers become more guarded this spring into summer and price sensitive than was the case just a few months ago.”
Sonic’s fast-food competitors have rolled out aggressive bundled value offerings in recent months, Mr. Hudson said. Since the beginning of the year, McDonald’s introduced its McPick 2 platform, Wendy’s announced a 4 for $4 deal, and Burger King launched a 5 for $4 deal.
“The intent of the Boom Box is to, of course, defend short-term traffic challenges while we continue to assess what’s going on in this broader environment,” Mr. Hudson said. “As we speak, we’re in the process of amplifying the media around this promotion in ways that we believe will be very positive and likely to continue that through a good part of the summer, certainly July and even August. And while June results have stabilized versus May, we’re not where we want to be and this is reflected in lower projection for full year same-store sales of a 2% to 4% versus what we might have indicated in March.“We do expect our fourth-quarter comps this summer quarter into August to be positive… As we look ahead to the fall, we anticipate executing against a promotional calendar focused on food innovation and strong targeted value, but we are going to continue to watch this broader environment and we will adjust our course as permitted or as needed.”