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Sonic Corporation (SONC) Message Board

  • wallstreet_jim wallstreet_jim Apr 11, 2009 9:48 AM Flag

    Why all the LT debt?

    OK, I owned this stock from 2000 through about 2006. It was wonderful in my portfolio. I haven't looked at it for almost 3 years - until today. I said "wow, why is it trading at $10 a share?" Then I looked at the balance sheet and saw LT debt balooned from $150M to $750M. What the heck was that all about? I was looking for articles about it, but haven't found any - yet. A stock buyback, or what? I would appreciate an INTELLIGENT reply to this.

    God, and this was such a WONDERFUL stock. And the food offerings are great - plus they sell about $1 more per customer compared to MCD and YUM and had a lower overhead per store. This was a cash machine in its day. What happened?

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    • Well. Sonic decided to retrofit most of its stores over the last 3 yrs that were 4 yrs or older. The cost averaged $130,000 per unit.

      Then, minimium wage started going up. Sonic jacked their prices way up to offset potential profit losses. This killed traffic counts immediately.

      In October of 2007 Sonic launched "Happy Hour" (half price drinks from 2-4. This REALLY DROVE TRAFFIC! BUT, the average ticket dropped a dollar. Happy Hour stole from other dayparts, the customers would just wait until 2pm to visit and get their drinks half price. On top of min wage increase, happy hour required heavy staffing which put payroll at an all time high . So the profits declined quickly.

      In December of 2008 Sonic was scared that they where going to blow their 21 or 22 years of same store sales growth streak . They decided to tested a "Everyday value menu" in one marked for 2 weeks. It did horrible. Average ticket dropped another dollar. The big wigs just said "This will work, it will be huge, we just did not advertise it enough". With only 2 weeks of failure they rolled it out company wide. It simply did not drive the traffic needed to justify sacrificing our average check, just as the 2 week test showed. Now a customer just enjoys a chicken strip sandwich($1), a value fry($1) and a rt44 coke($.95) for $2.95(Pretty much 90% food,paper and labor, no profit). The company stores are at only a 6% profit margin. Down from 18% 7 yrs ago.

      So where is Sonic NOW?? High traffic counts, high food cost(Value Menu), high payroll expense(Traffic), low average check(Value Menu and Happy hour) and alot of debt from retrofiting stores.

      Its time for them to go back to the basics. A high quality chili cheese coney, fresh tots and a cherry limeade for $3.99. When you have quality like Sonic there is no reason to "GIVE AWAY THE FARM".

    • Back a few years ago when SONC was trading in the 20's, management borrowed a huge sum of money to buy back shares of stock on the open market.

      I've heard that it was done to stave off a take-over, but I'm not so sure of that.

      They are managing to pay the money back...slowly though.

      Good luck!

 
SONC
20.70+0.05(+0.24%)Aug 1 4:00 PMEDT

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