Sonic Corp. executives said Tuesday they were optimistic that positive sales trends would continue the rest of the fiscal year, after the company reported a near doubling of earnings and 11.5-percent same-store sales growth during the second quarter.
The Oklahoma City-based drive-in operator projected profit to grow 25 percent to 27 percent for the year ending Aug. 31, compared with earlier guidance of 14-percent to 20-percent growth.
“It’s not been our view that we should expect double-digit same-store sales ongoing, but the fundamentals of our business are much improved, and the business continues to be strong,” Cliff Hudson, Sonic’s chairman, president and CEO, told analysts.
The 3,508-unit chain has introduced such menu promotions as fruit-based sodas, spicy chicken and mini hot dogs, along with the continued rollout of its technology-based Point of Personal Service, or POPS, program and integrated customer engagement, or ICE.
Analyst Lynne Collier of Sterne Agee said the ICE program leverages mobile, digital and social, as well as mobile app payments.
“Over the next several months, this initiative will add a gifting application, one of the many personalized features in the pipeline,” Collier wrote in a note Wednesday
Hudson said the technology, which should be in more than 1,000 of the company’s restaurants by the end of April, helps the brand customize the experience for patrons. The franchise rollout begins this year and will continue through 2017, he added.
“We believe our POPS implementation is just a foundation of the series of technology initiatives to drive more personalized customer experience over the next several years,” he said. “And as we implement new technologies and features like a mobile app and a loyalty program, we are of the strong view that we’ll be able to interact with the customer in a more personal way and a customized way” than competitors.
Hudson said the mobile app will be available across the Sonic system by end of the calendar year. Within the next few months, the brand also plans to add a loyalty program to integrate with the app and to include social media into the mix.
The layering on of new functions will “permit us to have a 21st century network with our customers that should help in growing traffic and check for the average Sonic drive-in,” Hudson added.
Systemwide average unit volume is $1.2 million, Hudson said, with the top 20 percent of units reporting about $1.8 million.
Hudson said the brand, which now has restaurants in 44 states, has “got a lot of room to grow.” Sonic is most heavily penetrated in the South Central United States, and the company would like to see more growth on the East and West Coasts.
“Our target is to get to a 2-percent to 3-percent gross unit growth number,” he said. “We anticipate opening north of 50 stores — 50 new drive-ins — this fiscal year.”
The company has added 17 new locations in the first half of this year, compared with 13 units in the same period last year.
Hudson said the company plans to maintain its company-franchise unit mix, with the system currently about 89-percent franchised.
For the second quarter ended Feb. 28, Sonic reported a profit of $7.7 million, or 14 cents a share, an increase from $4.1 million, or seven cents a share, a year earlier. Revenue rose 15 percent, to $126.2 million.
Systemwide same-store sales rose 11.5 percent, with an 11.2-percent increase at company units and an 11.5-percent increase at franchised locations.
Stephen Vaughan, Sonic’s chief financial officer, said severe winter weather was not a major factor in the quarter, but the company said lower gasoline prices benefited the brand and its competitors.
Sonic has a deep penetration of company-owned locations in the oil-producing states of Oklahoma and Texas, but Vaughan emphasized, “We have not seen indications of underperformance in the oil patch.”
Analyst Collier noted that Sonic expects “benign” commodity costs in the second half of fiscal 2015.
“Dairy and lime costs are favorable, while beef pressure continues,” she said.
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