Sonic Corp. (SONC) Falls on Same Store Sales Below Expectation

Shares of Oklahoma City, Oklahoma, based Sonic Corp. (SONC) fell on Tuesday, despite a strong upward surge in the overall stock market. Sonic's stock was down 8.40%, falling $2.32 per share, to close at $25.31, on volume of 5,015,140 shares. Though the company's same store sales increased from a year earlier, they came in lower than analyst's expectations.


Founded in 1953, Sonic Corp. operates and franchises a chain of 3,517 drive-in restaurants that serve about 3 million customers a day in 44 states.
The restaurants operate as iconic Carhops, offering direct service to customers in their cars. Sonic received top honors as America’s “#1 burger quick service restaurant” in the 2013 Temkin Experience Ratings report. The company's stock trades on the NASDAQ.

On Monday night, Sonic reported that it's same store sales had increased 7.3% for the fiscal year ended August 31. This included a 6.9% increase in sales at company owned drive-ins, and 7.3% in franchise drive-ins. However, Sonic's fourth quarter sales growth came in at 4.9%, while analysts had been expecting a 5.3% increase. Investors took that as a sign to dump the stock, despite the strong surge in stocks overall in Tuesday's market.

The company also provided guidance on it's fiscal 2016 outlook. The company expects earnings per share growth for the year to come in the 14% to 18% range, with same store sales growth at between 2% and 4%. Sonic expects to open between 50 and 60 new franchises for the year. The company plans to repurchase $126 million in Sonic stock during the fiscal year, in line with the $124 million in stock repurchases during fiscal 2015. The company also expects to increase its quarterly dividend from $0.09 per share to $0.11 per share.

"Over the past five years we have driven consistent, positive same-store sales and solid earnings per share growth through our multi-layered growth strategy, which incorporates same-store sales growth, operating leverage, deployment of free cash, increasing royalty revenues and new drive-in development," said Sonic Corp. Chief Executive Officer Cliff Hudson. "We are especially pleased that we have repurchased more than $270 million of outstanding shares since fiscal 2011, representing over 25% of our outstanding shares in that time period." Hudson continued, "Looking forward, we believe our growth strategy with multiple sales and profit initiatives complemented by new unit growth and our robust share repurchase program and dividends will continue to optimize shareholder value and drive double-digit earnings per share in the near term and long term."

Despite the fact that same store sales came in beneath analyst's expectations, Sterne Agee CRT reiterated it's "BUY" rating on Sonic, calling attention to the company's technology initiatives and strong new product lines. Meanwhile, UBS upgraded Sonic from "SELL" to "NEUTRAL", with a $30 price target.

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Published on Sep 16, 2015
By Kevin Mercadante

Copyrighted 2016. Content published with author's permission.

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