Sonic Corporation Q2 Performance Goes Beyond the Bar

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Mar 26, 2015

The U.S.-based fast food chain, Sonic Corporation (SONC, Financial), announced its second-quarter earnings for the fiscal year 2015 which were a splendid set of numbers that made several analysts raise their target on the stock. For example, soon after the earnings release, Jefferies analyst Alexander Slagle maintained a “hold” rating on the stock and raised the price target from $29 to $36. This means that analysts are spell-bound with the upbeat earnings in the latest quarter. So, let’s check into the financial playbook of Sonic Corporation to unravel the major highlights shared about the second quarter report card.

The report card looks to be in green pastures

The net income of the fast food chain jumped almost 86.5% percent to $7.66 million, or $0.14 a share, from $4.11 million, or $0.07 per share, reported a year ago. However, adjusted earnings stood at $0.13 a share, compared to $0.07 per share a year earlier. Interestingly the earnings surpassed the Street expectations of $0.12 a share for the second quarter.

Same store sales improved over 11.5% during the quarter and the company attributed this increase to the menu expansion along with other product innovations. This lead to 15.02% growth in revenue that reached $126.22 million, from $109.74 million reported in the previous year’s similar quarter. Revenue for the quarter topped the consensus estimate that stood at $123.58 million.

Total expenses were 86.54% of the revenue, down from 88.75% for the same period last year. Operating income for the quarter stood at $16.99 million, compared to $12.35 million in the previous year period.

As the well-known drive-in restaurant chain is taking technological initiatives and introducing the new digital menu, it is being widely expected by analysts that the drive-in same store revenue would outperform the franchise drive-ins in the upcoming quarters. For the latest quarter, franchise drive-ins same-store sales improved 11.5%, while that at company drive-ins rose 11.2%.

CEO Cliff Hudson shared, “Successful company initiatives combined with an improving macro environment resulted in an exceptionally strong second fiscal quarter with 11.5% same-store sales growth. We are particularly pleased that traffic drove two-thirds of our same-store sales increase. … This increase is primarily a result of growth in our core menu items and product innovation, complemented by our national media strategy. …”

Shares repurchase program –Â a cherry for the investor

The company went ahead and accelerated the shares repurchase agreement to purchase $75 million worth of stock from the stockholders. Until now, the fast food chain has repurchased shares worth $95 million from the beginning of the fiscal year which represents approximately 5% of the shares outstanding at the beginning of the fiscal year 2015. Such repurchases speak volumes on the stability of the franchise business model that has been generating solid cash flow and has strengthened the balance sheet, while keeping investors happily invested in the stock.

Since the company has repurchased nearly $242 million worth of shares to date, from fiscal 2012, it can be concluded that Sonic Corporation’s management remains interested in adding to the investors’ kitty while improving the profits as well.

Last word

Sonic Corporation seems to be on a great growth trajectory and as mentioned earlier analysts are assessing the positives in the financial statement and opining on holding the stock in the long run. Let’s stay tuned and keep an eye on the upcoming measures being incorporated by Sonic Corporation to keep its numbers moving up in the next quarters.