Sonic Corp. Forecast Gloomy Times Ahead

American drive-in fast-food restaurant chain Sonic Corp. on June 23, 2016 posted a fall in earnings for the three months through May but still topped analyst estimates by a...

American drive-in fast-food restaurant chain Sonic Corp. on June 23, 2016 posted a fall in earnings for the three months through May but still topped analyst estimates by a penny. The profit decline is attributed to lower margins and weaker-than-projected sales.

Moreover, looking forward, the Oklahoma City-based company anticipates ongoing macroeconomic condition might put a dent on its results for the full year. There has been an industry-wide weakness in customer traffic and bad weather conditions.

For the third fiscal quarter ended May 31, 2016, Sonic earned 15.4M USD or 0.31 USD/share. That is significantly lower than the 20.4M USD or 0.38 USD/share it earned in the same period last year.

Taking out the impact of certain items, adjusted profit for the period came in at 0.43 USD/share, higher as compared to 0.36 USD/share in the year-ago quarter. Analysts, on average, had been modeling net income of 0.42 USD/share for the quarter.

Sales for the three-month period jumped to 165.2M USD compared with 164.7M USD last year. Analysts were looking for revenue of 166.2M USD for the quarter.

System same-store sales saw an increase of two per cent for the quarter. Sonic’s drive-in-level margins experienced a fall of forty basis points. It also disclosed that 16 new franchise drive-ins were launched in the third quarter. It also have completed debt transaction which would help them maintain a solid capital structure while increasing wealth of the company’s shareholders.

“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 CEO Cliff Hudson.

Moving ahead to the current fiscal year, the company more commonly known as Sonic Drive-In maintained its forecast for an adjusted earnings growth in the range of 20%-25%.

“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,” continued Hudson.

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