Sonic Comps Rise in 2Q

Zacks

Sonic Corp. (SONC) recently reported comparable store sales (comps) growth of 3.4% for second quarter of fiscal 2012, driven by a 3.5% rise in franchise drive-ins and 3.1% jump at company drive-ins. Reported result was better than the year-ago increase of 1.2%. In the prior-year-period, same-store sales at franchise drive-ins inched up 1.0% and the same at company-owned drive-ins climbed 2.2%.

Sonic's first quarter same-store sales for the system increased approximately 0.1% mainly due to a 0.2% uptick at franchise drive-ins, partially offset by a 0.1% drop at company drive-ins.

Outlook

Oklahoma-based Sonic expects positive same-store sales in 2012, driven by sales-building initiatives and the introduction of new products. Restaurant-level margins are expected to be slightly adverse due to cost inflation, particularly in the first half of the fiscal year and investment in improving the quality of product, partially offset by labor efficiencies. Selling, general and administrative expenses are expected in the range of $68–$69 million and depreciation and amortization between $41 million and $42 million.

For 2012, the company projects interest expenses of roughly $32.0 million and income tax rate of approximately 37% to 38%. Capital spending is estimated in the $25–$30 million range.

Sonic presently has more than 3,500 drive-in restaurants and expects to open 30–40 new franchise drive-ins in 2012. New company-owned drive-ins are, however, not in the agenda as Sonic remains focused on performance rather than expansion.

Our Take

The second of fiscal 2012 is seasonally weak for Sonic owing to unpleasant weather conditions. However, the company reported positive comps for the quarter, which is encouraging. Moreover, management continues to focus on service and product initiatives to drive traffic.

Estimate Trend

Over the last 7 days, the estimates have not budged, implying that the analysts do not see any near-term catalysts.  The Zacks Consensus earnings estimates for the second quarter and fiscal 2012 are pegged at a respective 2 cents and 53 cents, representing a flat year-over-year growth for the quarter and growth of 0.83% for 2012. The company is slated to release its second quarter earnings on March 21, 2012.

Sonic currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Jamba, Inc. (JMBA) currently retains a Zacks #1 Rank, which translates into a short-term Buy rating.

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