Oklahoma-based Sonic posts 16% decline in net income for 3rd quarter

Journal Record, The (Oklahoma City),  Jun 25, 2008  by Kelley Chambers

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Cold and wet weather in March was cited for a 16-percent decline in net income for Sonic Corp. for the quarter that ended May 31.

The Oklahoma City-based company on Tuesday reported net income of $17.2 million, or 28 cents per diluted share, for the third quarter of fiscal year 2008. That was down from net income of $20.6 million, or 31 cents per diluted share, in the same period last year.

The decline in earnings was attributed to a decline in same- store sales and lower restaurant-level margins.

Revenues for the third quarter were $213 million, a slight increase from $209.9 in the year-earlier period.

For the first nine months of fiscal 2008, Sonic reported net income of $40.1 million, or 64 cents per diluted share. That is compared to earnings of $42.1 million, or 58 cents per cents per diluted share, in the same period last year.

Revenue for the first nine months of the fiscal year increased 6 percent to $577.8 million, up from $546.2 million in the same period in 2007.

In the second quarter of fiscal year 2008 Sonic earned $9.3 million, or 15 cents per share, compared to $6.2 million, or 9 cents per share, for the same quarter in fiscal 2007.

Cliff Hudson, chairman and chief executive officer at Sonic, said the company confronted a number of challenges in the third quarter.

"As we previously noted, systemwide same-store sales were significantly negative in March, due primarily to the much colder and wetter weather we experienced versus March 2007," Hudson said in a prepared statement. "However, systemwide same-store sales turned slightly positive in April and returned to our targeted range of 2- percent to 4-percent growth in May."

Hudson's statement said traffic counts were positive for the system in the third quarter, spurred by the success of several promotions like a Happy Hour, and a new coffee program.

Nevertheless, Hudson said mounting commodity pressures had a negative effect on restaurant-level margins.

Same-store sales declined systemwide 0.4 percent for the third quarter, which reflected a 0.5-percent increase at franchise drive- ins offset by a 3.9-percent decline at partner drive-ins.

For the first nine months of the fiscal year same-store sales increased 1.5 percent, which translated to a 1.7 percent increase at franchise drive-ins and a 0.3-percent increase at partner drive- ins.

Sonic reported during the third quarter it opened 41 new drive- ins, compared to 48 a year earlier in the same period. That number included 35 franchise openings compared to 43 the year earlier.

For the first three quarters of the current fiscal year Sonic opened 111 drive-ins, down slightly from 114 in the same period last year. It expects to open 175 to 185 drive-ins systemwide by the end of fiscal year 2008.

"Although the company is experiencing some near-term challenges in certain markets, we are confident that our multi-layered growth strategy - focused on sales-driving initiatives, development and efficient use of capital - will have a positive impact on Sonic's longer-term performance," Hudson's statement said.

Last week, Sonic announced plans to enter the Chicago market with the first franchise set to open this summer.

On the same day earnings were reported, PETA called on Sonic, in a shareholder resolution, to report progress on several animal welfare issues.

The group reports it owns 150 Sonic Corp. shares.

PETA claims the drive-in chain lags behind Burger King and Carl's Jr. in updating its practices for the humane treatment of animals used for meat and eggs at the restaurants.

The group said the report should be prepared by July 2009 and should exclude proprietary information.

"Sonic is way behind its competitors in addressing the suffering of chickens and pigs," PETA President Ingrid E. Newkirk said in a written statement.

Sonic shares closed up 40 cents at $16.51 on the Nasdaq Tuesday, but fell in after-hours trading.

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