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Sonic’s (SONC) Q1 Earnings Beat, Revenues Miss Estimates


On Jan 4, Sonic Corp. SONC announced the first-quarter fiscal 2018 results. The quarter, ending on Nov 30, 2017, witnessed decent results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings of 30 cents surpassed the consensus estimate of 25 cents by 20%. The figure also improved 25% year over year on lower cost of the company’s drive-in sales.

Post the earnings release, the company’s share price inched up 1.7% to $28. We also note that shares of Sonic have rallied 16.7% in the past three months, outperforming the industry’s gain of 7.7%.

The earnings growth was attributable to the company’s recent refranchising efforts that offset the negative effects of inflationary food cost and increased discounting. However, the quarter witnessed negative traffic, which affected same-store sales, and thereby hurt the top-line results.

Let’s delve deeper in to the numbers.

Sonic Corp. Price, Consensus and EPS Surprise

Revenues and Comps

Total revenues of $105 million marginally missed the Zacks Consensus Estimate of $106 million by 1%. The figure also declined 18.6% year over year, affected by unfavorable weather and intense competitive pressure.

System comps edged down 1.7% in the reported quarter, consisting of a 1.6% comp decrease at franchise drive-ins and a 3.2% decrease at company drive-ins.

Operating Highlights & Net Income

Total cost and expenses dropped 19% year over year in the fiscal first quarter to nearly $83 million. This was mostly led by an overall decrease in total cost of company drive-in sales which declined 19% year over year to $54.1 million. Company drive-in margins declined 0.1% in the quarter, even though five new drive-ins were opened.

Net income for the quarter came in at $11.4 million, reflecting a 12.9% year-over-year decline.

Balance Sheet

Cash and cash equivalents at the end of the fiscal first quarter was $23.5 million, up from $22.3 million in the previous quarter. Long-term debt increased in the fiscal first quarter to $666.6 million from $628.1 million reported in the prior quarter.

Stockholder’s deficit increased to $237 million from $201 million recorded in the previous quarter.

During the quarter, the company repurchased 1.7 million shares, or 4% of shares outstanding, for $40.8 million.

Fiscal 2018 Outlook

Sonic expects adjusted earnings per share for fiscal 2018 to be up 5-10% year over year, excluding the impact of the U.S. tax reform.

Comps are expected to be in the range of flat to up 2%. Drive-in-level margins are anticipated in the range of 15.1-15.7%, depending upon the degree of comps growth at company drive-ins.

The company expects to repurchase approximately $160 million in shares across the fiscal year and deliver a quarterly cash dividend of 16 cents per share. Free cash flow is anticipated in the range of $60-$65 million for 2018.

Zacks Rank & Stocks to Consider

Sonic carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are Famous Dave's of America, Inc. DAVE, Restaurant Brands International Inc. QSR and Domino's Pizza, Inc. DPZ. While Famous Dave's sports a Zacks Rank #1 (Strong Buy), Restaurant Brands and Domino's carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Restaurant Brands and Domino’s earnings in 2018 are expected to improve 35% and 23.5%, respectively. Current-quarter earnings for Famous Dave's are estimated to surge 70%.

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