SONIC CORP - FORM 8-K - EX-99

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8-K - 8-K - SONIC CORP	sonc-20160623x8k.htm


Contact:	Corey Horsch
	Vice President of Investor Relations
	and Treasurer
	(405) 225-4800

SONIC SAME-STORE SALES GROW 2.0% FOR THIRD FISCAL QUARTER

Company Outlines Refranchising Initiative

OKLAHOMA CITY (June 23, 2016) – Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of drive-in restaurants, today announced results for its third fiscal quarter ended May 31, 2016.

Key highlights of the company’s third quarter of fiscal year 2016 included:

Net income per diluted share decreased 18% to $0.31 compared with $0.38 in the same period prior year; adjusted net income per diluted share increased 19% to $0.43 compared with adjusted net income per diluted share of $0.36 in the prior-year period;

System same-store sales increased 2.0%, consisting of a 2.1% same-store sales increase at franchise drive-ins and an increase of 0.9% at company drive-ins;

Company drive-in margins contracted by 40 basis points;

Sixteen new franchise drive-ins opened;

The company announced its refranchising initiative to move toward an approximately 95%-franchised system by the end of fiscal year 2017; and

The company purchased 1.2 million outstanding shares.

"Although consumer trends slowed somewhat in April and May, our business performed well during the quarter overall, generating 2.0% same-store sales growth for the system and adjusted earnings per share growth of 19%,” said Cliff Hudson, Sonic Corp. CEO. “Our system opened fifteen net new drive-ins during the quarter, a strong increase compared to the same period a year ago. The product pipeline remains robust with recent introductions of premium products like Frozen Lemonades and Limeades and Bacon Lovers Chili Cheese Coneys. While the consumer environment has weakened, Sonic remains focused on delivering one of the most differentiated customer experiences in the quick service industry.

“We are also pleased to have completed our debt transaction during the third quarter, allowing us to maintain a solid capital structure while returning excess cash to shareholders," continued Hudson. "As well, we are excited to announce our intention to move toward an approximately 95%-franchised system by the end of fiscal year 2017. We believe the divestiture will improve the capital efficiency of Sonic Corp. and allow our franchisees to optimize performance of the refranchised stores and expand our brand in the same markets.”

Same-Store Sales

For the third quarter ended May 31, 2016, system same-store sales increased 2.0%, which was comprised of a 2.1% same-store sales increase at franchise drive-ins and an increase of 0.9% at company drive-ins.

Financial Overview

For the third fiscal quarter of 2016, the company’s net income decreased to $15.4 million or $0.31 per diluted share compared with net income of $20.4 million or $0.38 per diluted share in the same period in the prior year. Excluding the items outlined below, net income and net income per diluted share increased 9% and 19%, respectively.

The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company’s financial results in accordance with GAAP. The company believes that the presentation of this analysis provides useful information to investors and management regarding the underlying business trends and the performance of the company’s ongoing operations and is helpful for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the financial results of the company and predicting future performance.


	Three months ended				Three months ended
	May 31, 2016				May 31, 2015
	Net		Diluted		Net		Diluted		Net Income				Diluted EPS
	Income		EPS		Income		EPS		$ Change		% Change		$ Change		% Change
Reported – GAAP	$	15,353	$	0.31	$	20,442	$	0.38	$	(5,089)	(25)	%	$	(0.07)	(18)	%
Loss from early extinguishment of debt		8,750		0.18		-		-
Tax impact on debt extinguishment (1)		(3,027)		(0.06)
Federal tax benefit of prior-year statutory tax deduction		-		-		(1,722)		(0.03)
Retroactive effect of federal tax law change		-		-		612		0.01
Adjusted - Non-GAAP	$	21,076	$	0.43	$	19,332	$	0.36	$	1,744	9	%	$	0.07	19	%
————

(1) Tax impact during the period at an effective tax rate of 34.60%

For the first nine months of fiscal year 2016, net income totaled $38.6 million or $0.77 per diluted share compared with net income of $38.2 million or $0.70 per diluted share for the same period in fiscal year 2015. Excluding the items outlined below, net income and net income per diluted share increased 17% and 27%, respectively.


	Nine months ended				Nine months ended
	May 31, 2016				May 31, 2015
	Net		Diluted		Net		Diluted		Net Income				Diluted EPS
	Income		EPS		Income		EPS		$ Change		% Change		$ Change		% Change
Reported – GAAP	$	38,630	$	0.77	$	38,189	$	0.70	$	441	1	%	$	0.07	10	%
Loss from early extinguishment of debt		8,750		0.18
Tax impact on debt extinguishment (1)		(3,027)		(0.06)
Gain on sale of real estate		(1,875)		(0.04)		-		-
Tax impact on real estate sale (2)		664		0.01
Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters		(585)		(0.01)		(666)		(0.01)
Federal tax benefit of prior-year statutory tax deduction		-		-		(1,722)		(0.03)
Retroactive effect of federal tax law change		-		-		612		0.01
Adjusted - Non-GAAP	$	42,557	$	0.85	$	36,413	$	0.67	$	6,144	17	%	$	0.18	27	%
————

(1) Tax impact during the period at an effective tax rate of 34.60%

(2) Tax impact during the period at an adjusted effective tax rate of 35.43%

Fiscal Year 2016 Outlook

While the macroeconomic environment may impact results, the company is reaffirming its outlook for adjusted earnings per share growth for fiscal year 2016 of 20% to 25%. The outlook for fiscal 2016 anticipates the following elements:

2% to 4% same-store sales growth for the system;

Royalty revenue growth from same-store sales improvements and new unit development;

50 to 60 new franchise drive-in openings;

Drive-in-level margins flat-to-up 40 basis points, depending upon the degree of same-store sales growth at company drive-ins;

Selling, general and administrative expenses of approximately $83.0 million to $84.0 million reflecting increased investment in human resources and technology to support brand initiatives;

Depreciation and amortization expense of $45.0 million to $46.0 million as a result of capital investment in fiscal 2016;

Capital expenditures of $35 million to $40 million;

Free cash flow(1) of approximately $75 million to $80 million;

An income tax rate between 35.5% to 36.5%;

The planned repurchase of at least $126 million of stock across the fiscal year; and

An expected quarterly cash dividend of $0.11 per share.

1 Free cash flow is defined as net income plus depreciation, amortization and stock compensation expenses, less capital expenditures.

Earnings Conference Call

The company will host a conference call to review financial results at 5:00 PM ET this evening. The conference call can be accessed live over the phone by dialing (888) 438-5525 or (719) 325-2428 for international callers. A replay will be available one hour after the call and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 746719. The replay will be available until Thursday, June 30, 2016. An online replay of the conference call will be available approximately two hours after the conclusion of the live broadcast. A link to this event may be found on the company's investor relations website at http://ir.sonicdrivein.com/.

About Sonic

SONIC, America's Drive-In is the nation's largest drive-in restaurant chain serving more than 3 million customers every day. Nearly 90 percent of SONIC's 3,500 drive-in locations are owned and operated by local business men and women. Over more than 60 years, SONIC has delighted guests with signature menu items, more than 1.3 million drink combinations and friendly service by iconic Carhops. Since the 2009 launch of SONIC's Limeades for Learning philanthropic campaign in partnership with DonorsChoose.org, SONIC has donated more than $5 million to public school teachers nationwide to fund essential learning materials and innovative teaching resources to inspire creativity and learning in today's youth. To learn more about Sonic Corp. (NASDAQ/NM: SONC), please visit sonicdrivein.com and please visit or follow us on Facebook and Twitter. To learn more about SONIC's Limeades for Learning initiative, please visit Limeadesforlearning.com.

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect management’s expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those expressed in, or underlying, these forward-looking statements are detailed in the company’s annual and quarterly report filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

The tables that follow provide information regarding the number of company drive-ins, franchise drive-ins and system drive-ins in operation as of the end of the periods indicated. In addition, these tables provide information regarding franchise sales, system growth in sales, and both franchise and system average drive-in sales and change in same-store sales. System information includes both company and franchise drive-in information, which we believe is useful in analyzing the growth of our brand. While we do not record franchise drive-in sales as revenues, we believe this information is important in understanding our financial performance since we calculate and record franchise royalties based on a percentage of franchise sales. This information also is indicative of the financial health of our franchisees.

SONC-F



SONIC CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

	Three months ended				Nine months ended
	May 31,				May 31,
	2016		2015		2016		2015
Revenues:
Company Drive-In sales	$	115,143	$	118,369	$	314,339	$	310,816
Franchise Drive-Ins:
Franchise royalties and fees		46,687		43,704		122,656		114,375
Lease revenue		2,141		1,569		5,132		3,613
Other		1,268		1,106		2,075		2,019
Total revenues		165,239		164,748		444,202		430,823

Costs and expenses:
Company Drive-Ins:
Food and packaging		32,089		32,727		87,248		87,128
Payroll and other employee benefits		39,912		40,898		111,635		110,049
Other operating expenses, exclusive of
depreciation and amortization included below		22,442		22,955		65,450		65,484
Total cost of Company Drive-In sales		94,443		96,580		264,333		262,661

Selling, general and administrative		20,617		20,699		62,342		57,625
Depreciation and amortization		11,405		11,435		33,461		34,634
Other operating (income) expense, net		(106)		(336)		(3,071)		4
Total costs and expenses		126,359		128,378		357,065		354,924
Income from operations		38,880		36,370		87,137		75,899

Interest expense		6,776		6,382		19,465		18,981
Interest income		(121)		(91)		(326)		(290)
Debt extinguishment costs		8,750		-		8,750		-
Net interest expense		15,405		6,291		27,889		18,691
Income before income taxes		23,475		30,079		59,248		57,208
Provision for income taxes		8,122		9,637		20,618		19,019
Net income	$	15,353	$	20,442	$	38,630	$	38,189

Basic income per share	$	0.32	$	0.39	$	0.79	$	0.72
Diluted income per share	$	0.31	$	0.38	$	0.77	$	0.70

Weighted average basic shares		48,377		52,022		49,192		52,851
Weighted average diluted shares		49,326		53,391		50,213		54,293



SONIC CORP.
Unaudited Supplemental Information

	Three months ended		Nine months ended
	May 31,		May 31,
	2016	2015	2016	2015
Drive-Ins in Operation
Company:
Total at beginning of period	375	392	387	391
Opened	-	2	-	3
Sold to franchisees	-	-	(9)	1
Closed (net of re-openings)	-	-	(3)	(1)
Total at end of period	375	394	375	394
Franchise:
Total at beginning of period	3,153	3,116	3,139	3,127
Opened	16	4	34	20
Acquired from the company	-	-	9	(1)
Closed (net of re-openings)	(1)	(2)	(14)	(28)
Total at end of period	3,168	3,118	3,168	3,118
System-wide:
Total at beginning of period	3,528	3,508	3,526	3,518
Opened	16	6	34	23
Closed (net of re-openings)	(1)	(2)	(17)	(29)
Total at end of period	3,543	3,512	3,543	3,512


	Three months ended						Nine months ended
	May 31,						May 31,
	2016			2015			2016			2015
	($ in thousands)						($ in thousands)
Sales Analysis
Company Drive-Ins:
Total sales	$	115,144		$	118,369		$	314,339		$	310,816
Average drive-in sales		307			301			829			797
Change in same-store sales		0.9	%		5.5	%		3.6	%		8.0	%
Franchised Drive-Ins:
Total sales	$	1,107,725		$	1,065,109		$	2,963,155		$	2,803,391
Average drive-in sales		352			346			945			906
Change in same-store sales		2.1	%		6.1	%		4.5	%		8.3	%
System-wide:
Change in total sales		3.3	%		7.0	%		5.3	%		9.4	%
Average drive-in sales	$	347		$	341		$	933		$	894
Change in same-store sales		2.0	%		6.1	%		4.4	%		8.3	%

Note: Change in same-store sales based on restaurants open for a minimum of 15 months.


SONIC CORP.
Unaudited Supplemental Information

	Three months ended				Nine months ended
	May 31,				May 31,
	2016		2015		2016		2015
	(In thousands)				(In thousands)
Revenues
Company Drive-In sales	$	115,143	$	118,369	$	314,339	$	310,816
Franchise Drive-Ins:
Franchise royalties		46,296		43,541		121,565		112,553
Franchise fees		391		163		1,091		1,822
Lease revenue		2,141		1,569		5,132		3,613
Other		1,268		1,106		2,075		2,019
Total revenues	$	165,239	$	164,748	$	444,202	$	430,823


	Three months ended				Nine months ended
	May 31,				May 31,
	2016		2015		2016		2015
Margin Analysis (percentage of Company Drive-In sales)
Company Drive-Ins:
Food and packaging	27.9	%	27.6	%	27.8	%	28.0	%
Payroll and employee benefits	34.7		34.6		35.5		35.4
Other operating expenses	19.4		19.4		20.8		21.1
Cost of Company Drive-In sales	82.0	%	81.6	%	84.1	%	84.5	%


	May 31,		August 31,
	2016		2015
	(In thousands)
Selected Balance Sheet Data
Cash and cash equivalents	$	99,362	$	27,191
Current assets		171,565		85,438
Property, equipment and capital leases, net		391,629		421,406
Total assets	$	679,666	$	620,024

Current liabilities, including capital lease obligations and
long-term debt due within one year	$	72,900	$	87,821
Obligations under capital leases due after one year		18,545		20,763
Long-term debt due after one year		577,521		428,238
Total liabilities		738,126		602,591
Stockholders' equity (deficit)	$	(58,460)	$	17,433

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