SONC Sonic Corp. (delisted)

Company Outlines Refranchising Initiative

Sonic Corp. (NASDAQ:SONC), the nation’s largest chain of drive-in restaurants, today announced results for its third fiscal quarter ended May 31, 2016.

Key highlights of the company’s third quarter of fiscal year 2016 included:

• Net income per diluted share decreased 18% to $0.31 compared with $0.38 in the same period prior year; adjusted net income per diluted share increased 19% to $0.43 compared with adjusted net income per diluted share of $0.36 in the prior-year period;
• System same-store sales increased 2.0%, consisting of a 2.1% same-store sales increase at franchise drive-ins and an increase of 0.9% at company drive-ins;
• Company drive-in margins contracted by 40 basis points;
• Sixteen new franchise drive-ins opened;
• The company announced its refranchising initiative to move toward an approximately 95%-franchised system by the end of fiscal year 2017; and
• The company purchased 1.2 million outstanding shares.

“Although consumer trends slowed somewhat in April and May, our business performed well during the quarter overall, generating 2.0% same-store sales growth for the system and adjusted earnings per share growth of 19%,” said Cliff Hudson, Sonic Corp. CEO. “Our system opened fifteen net new drive-ins during the quarter, a strong increase compared to the same period a year ago. The product pipeline remains robust with recent introductions of premium products like Frozen Lemonades and Limeades and Bacon Lovers Chili Cheese Coneys. While the consumer environment has weakened, Sonic remains focused on delivering one of the most differentiated customer experiences in the quick service industry.

“We are also pleased to have completed our debt transaction during the third quarter, allowing us to maintain a solid capital structure while returning excess cash to shareholders,” continued Hudson. “As well, we are excited to announce our intention to move toward an approximately 95%-franchised system by the end of fiscal year 2017. We believe the divestiture will improve the capital efficiency of Sonic Corp. and allow our franchisees to optimize performance of the refranchised stores and expand our brand in the same markets.”

Same-Store Sales

For the third quarter ended May 31, 2016, system same-store sales increased 2.0%, which was comprised of a 2.1% same-store sales increase at franchise drive-ins and an increase of 0.9% at company drive-ins.

Financial Overview

For the third fiscal quarter of 2016, the company’s net income decreased to $15.4 million or $0.31 per diluted share compared with net income of $20.4 million or $0.38 per diluted share in the same period in the prior year. Excluding the items outlined below, net income and net income per diluted share increased 9% and 19%, respectively.

The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company’s financial results in accordance with GAAP. The company believes that the presentation of this analysis provides useful information to investors and management regarding the underlying business trends and the performance of the company’s ongoing operations and is helpful for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the financial results of the company and predicting future performance.

              Three months ended Three months ended May 31, 2016 May 31, 2015 Net Diluted Net Diluted Net Income Diluted EPS Income EPS Income EPS

$ Change

  % Change $ Change   % Change Reported – GAAP $ 15,353 $ 0.31 $ 20,442 $ 0.38 $ (5,089 ) (25 ) % $ (0.07 ) (18 ) % Loss from early extinguishment of debt 8,750 0.18 - - Tax impact on debt extinguishment (1) (3,027 ) (0.06 ) Federal tax benefit of prior-year statutory tax deduction - - (1,722 ) (0.03 ) Retroactive effect of federal tax law change   -     -     612     0.01                       Adjusted - Non-GAAP $ 21,076   $ 0.43   $ 19,332   $ 0.36   $ 1,744     9   % $ 0.07     19   %

__________

 

(1) Tax impact during the period at an effective tax rate of 34.60%

 

For the first nine months of fiscal year 2016, net income totaled $38.6 million or $0.77 per diluted share compared with net income of $38.2 million or $0.70 per diluted share for the same period in fiscal year 2015. Excluding the items outlined below, net income and net income per diluted share increased 17% and 27%, respectively.

              Nine months ended Nine months ended May 31, 2016 May 31, 2015 Net Diluted Net Diluted Net Income Diluted EPS Income EPS Income EPS

$ Change

% Change

$ Change

% Change Reported – GAAP $ 38,630 $ 0.77 $ 38,189 $ 0.70 $ 441 1 % $ 0.07 10 % Loss from early extinguishment of debt 8,750 0.18 Tax impact on debt extinguishment (1) (3,027 ) (0.06 ) Gain on sale of real estate (1,875 ) (0.04 ) - - Tax impact on real estate sale (2) 664 0.01 Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters (585 ) (0.01 ) (666 ) (0.01 ) Federal tax benefit of prior-year statutory tax deduction - - (1,722 ) (0.03 ) Retroactive effect of federal tax law change   -     -     612     0.01                   Adjusted - Non-GAAP $ 42,557   $ 0.85   $ 36,413   $ 0.67   $ 6,144 17 % $ 0.18 27 %

__________

(1) Tax impact during the period at an effective tax rate of 34.60% (2) Tax impact during the period at an adjusted effective tax rate of 35.43%  

Fiscal Year 2016 Outlook

While the macroeconomic environment may impact results, the company is reaffirming its outlook for adjusted earnings per share growth for fiscal year 2016 of 20% to 25%. The outlook for fiscal 2016 anticipates the following elements:

• 2% to 4% same-store sales growth for the system;
• Royalty revenue growth from same-store sales improvements and new unit development;
• 50 to 60 new franchise drive-in openings;
• Drive-in-level margins flat-to-up 40 basis points, depending upon the degree of same-store sales growth at company drive-ins;
• Selling, general and administrative expenses of approximately $83.0 million to $84.0 million reflecting increased investment in human resources and technology to support brand initiatives;
• Depreciation and amortization expense of $45.0 million to $46.0 million as a result of capital investment in fiscal 2016;
• Capital expenditures of $35 million to $40 million;
• Free cash flow(1) of approximately $75 million to $80 million;
• An income tax rate between 35.5% to 36.5%;
• The planned repurchase of at least $126 million of stock across the fiscal year; and
• An expected quarterly cash dividend of $0.11 per share.

1 Free cash flow is defined as net income plus depreciation, amortization and stock compensation expenses, less capital expenditures.

Earnings Conference Call

The company will host a conference call to review financial results at 5:00 PM ET this evening. The conference call can be accessed live over the phone by dialing (888) 438-5525 or (719) 325-2428 for international callers. A replay will be available one hour after the call and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 746719. The replay will be available until Thursday, June 30, 2016. An online replay of the conference call will be available approximately two hours after the conclusion of the live broadcast. A link to this event may be found on the company's investor relations website at http://ir.sonicdrivein.com/.

About Sonic

SONIC, America's Drive-In is the nation's largest drive-in restaurant chain serving more than 3 million customers every day. Nearly 90 percent of SONIC's 3,500 drive-in locations are owned and operated by local business men and women. Over more than 60 years, SONIC has delighted guests with signature menu items, more than 1.3 million drink combinations and friendly service by iconic Carhops. Since the 2009 launch of SONIC's Limeades for Learning philanthropic campaign in partnership with DonorsChoose.org, SONIC has donated more than $5 million to public school teachers nationwide to fund essential learning materials and innovative teaching resources to inspire creativity and learning in today's youth. To learn more about Sonic Corp. (NASDAQ/NM: SONC), please visit sonicdrivein.com and please visit or follow us on Facebook and Twitter. To learn more about SONIC's Limeades for Learning initiative, please visit Limeadesforlearning.com.

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect management’s expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those expressed in, or underlying, these forward-looking statements are detailed in the company’s annual and quarterly report filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

The tables that follow provide information regarding the number of company drive-ins, franchise drive-ins and system drive-ins in operation as of the end of the periods indicated. In addition, these tables provide information regarding franchise sales, system growth in sales, and both franchise and system average drive-in sales and change in same-store sales. System information includes both company and franchise drive-in information, which we believe is useful in analyzing the growth of our brand. While we do not record franchise drive-in sales as revenues, we believe this information is important in understanding our financial performance since we calculate and record franchise royalties based on a percentage of franchise sales. This information also is indicative of the financial health of our franchisees.

SONC-F

        SONIC CORP. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)   Three months ended Nine months ended May 31, May 31, 2016 2015 2016 2015 Revenues: Company Drive-In sales $ 115,143 $ 118,369 $ 314,339 $ 310,816 Franchise Drive-Ins: Franchise royalties and fees 46,687 43,704 122,656 114,375 Lease revenue 2,141 1,569 5,132 3,613 Other   1,268     1,106     2,075     2,019   Total revenues 165,239 164,748 444,202 430,823   Costs and expenses: Company Drive-Ins: Food and packaging 32,089 32,727 87,248 87,128 Payroll and other employee benefits 39,912 40,898 111,635 110,049 Other operating expenses, exclusive of depreciation and amortization included below   22,442     22,955     65,450     65,484   Total cost of Company Drive-In sales 94,443 96,580 264,333 262,661   Selling, general and administrative 20,617 20,699 62,342 57,625 Depreciation and amortization 11,405 11,435 33,461 34,634 Other operating (income) expense, net   (106 )   (336 )   (3,071 )   4   Total costs and expenses   126,359     128,378     357,065     354,924   Income from operations 38,880 36,370 87,137 75,899   Interest expense 6,776 6,382 19,465 18,981 Interest income (121 ) (91 ) (326 ) (290 ) Debt extinguishment costs   8,750     -     8,750     -   Net interest expense   15,405     6,291     27,889     18,691   Income before income taxes 23,475 30,079 59,248 57,208 Provision for income taxes   8,122     9,637     20,618     19,019   Net income $ 15,353   $ 20,442   $ 38,630   $ 38,189     Basic income per share $ 0.32   $ 0.39   $ 0.79   $ 0.72   Diluted income per share $ 0.31   $ 0.38   $ 0.77   $ 0.70     Weighted average basic shares   48,377     52,022     49,192     52,851   Weighted average diluted shares   49,326     53,391     50,213     54,293                 SONIC CORP. Unaudited Supplemental Information   Three months ended Nine months ended May 31, May 31, 2016 2015 2016 2015 Drive-Ins in Operation Company: Total at beginning of period 375 392 387 391 Opened - 2 - 3 Sold to franchisees - - (9 ) 1 Closed (net of re-openings) -   -   (3 ) (1 ) Total at end of period 375   394   375   394   Franchise: Total at beginning of period 3,153 3,116 3,139 3,127 Opened 16 4 34 20 Acquired from the company - - 9 (1 ) Closed (net of re-openings) (1 ) (2 ) (14 ) (28 ) Total at end of period 3,168   3,118   3,168   3,118   System-wide: Total at beginning of period 3,528 3,508 3,526 3,518 Opened 16 6 34 23 Closed (net of re-openings) (1 ) (2 ) (17 ) (29 ) Total at end of period 3,543   3,512   3,543   3,512             Three months ended Nine months ended May 31, May 31, 2016   2015 2016   2015 ($ in thousands) ($ in thousands) Sales Analysis Company Drive-Ins: Total sales $ 115,144 $ 118,369 $ 314,339 $ 310,816 Average drive-in sales 307 301 829 797 Change in same-store sales 0.9 % 5.5 % 3.6 % 8.0 % Franchised Drive-Ins: Total sales $ 1,107,725 $ 1,065,109 $ 2,963,155 $ 2,803,391 Average drive-in sales 352 346 945 906 Change in same-store sales 2.1 % 6.1 % 4.5 % 8.3 % System-wide: Change in total sales 3.3 % 7.0 % 5.3 % 9.4 % Average drive-in sales $ 347 $ 341 $ 933 $ 894 Change in same-store sales 2.0 % 6.1 % 4.4 % 8.3 %

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.

            SONIC CORP. Unaudited Supplemental Information   Three months ended Nine months ended May 31, May 31, 2016 2015 2016 2015 (In thousands) (In thousands) Revenues Company Drive-In sales $ 115,143 $ 118,369 $ 314,339 $ 310,816 Franchise Drive-Ins: Franchise royalties 46,296 43,541 121,565 112,553 Franchise fees 391 163 1,091 1,822 Lease revenue 2,141 1,569 5,132 3,613 Other   1,268   1,106   2,075   2,019 Total revenues $ 165,239 $ 164,748 $ 444,202 $ 430,823         Three months ended Nine months ended May 31, May 31, 2016 2015 2016 2015 Margin Analysis (percentage of Company Drive-In sales) Company Drive-Ins: Food and packaging 27.9 % 27.6 % 27.8 % 28.0 % Payroll and employee benefits 34.7 34.6 35.5 35.4 Other operating expenses 19.4   19.4   20.8   21.1   Cost of Company Drive-In sales 82.0 % 81.6 % 84.1 % 84.5 %         May 31, August 31, 2016 2015 (In thousands) Selected Balance Sheet Data Cash and cash equivalents $ 99,362 $ 27,191 Current assets 171,565 85,438 Property, equipment and capital leases, net 391,629 421,406 Total assets $ 679,666 $ 620,024   Current liabilities, including capital lease obligations and long-term debt due within one year $ 72,900 $ 87,821 Obligations under capital leases due after one year 18,545 20,763 Long-term debt due after one year 577,521 428,238 Total liabilities 738,126 602,591 Stockholders' equity (deficit) $ (58,460) $ 17,433

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Sonic Corp.Corey Horsch, 405-225-4800Vice President of Investor Relations and Treasurer