Sonic tops Q3 earnings estimates; misses on revenue

Oklahoma based drive-in fast-food restaurant chain, Sonic Corp (SONC), surpassed third quarter adjusted earnings estimates, while missed slightly on revenue targets. Revenue dropped 4.5% year-over-year to $118.3 million, while profit jumped 15% to $21.6 million. On a per share basis, earnings soared 32% to $0.58 and on an adjusted basis, it was up 21% to $0.52. Adjusted earnings benefited by $0.06 due to the lower tax rate as a result of the implementation of federal tax reform.

In line with the guidance provided last month, Sonic reported a 0.2% decline in system same-store sales, which comprised of a decline of 0.2% same-store sales at franchise drive-ins and an increase of 0.2% at company drive-ins. Earlier, the company had guided system same-store sales to be about flat with the prior-year quarter.

“Looking ahead, we expect to continue to benefit from fully integrated media strategies and strong product innovation. We expect leverage to remain near the high end of our 3.5-4.5x net-debt-to-EBITDA target and anticipate returning a cumulative $500 to $600 million in capital to investors from fiscal 2018 through fiscal 2021 through a combination of dividends and share repurchases,” said Cliff Hudson, CEO.

Some of the big players in the fast food sector like Burger King and McDonalds (MCD) have been competing fiercely by providing refreshed and low priced menus to attract customers who are conscious of their health and wallets. However, the strategies followed by the bigger players have hit hard on the smaller restaurant chains like Sonic and others who are battling to make up a bigger pie in the fast food burger sector.

Sonic guided adjusted earnings in line with consensus estimates for fiscal 2018 in the range of $1.45 and $1.49 per share, which included the effect of tax reform. However, the earnings per share guidance was narrowed from the earlier guidance provided a month ago of $1.43 and $1.50. System same-store sales is expected to be down 1% to flat year-over-year for fiscal 2018.

Sonic stock, which has had a flat run until the beginning of the year, since its last third quarter report, has had its biggest one day gain, in over six years, last month when the company gave some positive guidance on its system-wide same-store sales for the third quarter. The company has been reporting negative system-wide same-store sales for the last seven quarters. Sonic’s narrowed earnings guidance resulted in bringing the stock down more than 5% post the earnings release.