SONC | NOT INSPIRING BUT COVERING

We are taking Sonic (SONC) off the Hedgeye Restaurants Best Ideas list as a SHORT and moving it to the SHORT bench. 

 

Current trends are tracking better than expected.  Depending on how the trends play out, we will look to re-short it.  We still expect MCD to make life difficult for a number of players in the space.

 

Yesterday after the close SONC reported 4Q15 earnings. Same-store sales (SSS) results were no surprise given they already released this information back on September 14th (see our note HERE). These results show an initial decent from SONC’s recent strong performance, and comps are not getting easier. As they head into the 1H of 2016 they will face an 8.5% comp in 1Q16 and an 11.5% comp in 2Q16, not an easy mountain to climb in an increasingly competitive environment.

SONC | NOT INSPIRING BUT COVERING   - CHART 1 SSS

 

4Q15 RESULTS

This quarter represents the calm before the storm in our opinion. SONC reported revenue of $175.3mm which was in line with consensus street expectations. They reported SSS of 4.9% marginally beating consensus estimates of 4.8%. The comp consisted of a 4.9% SSS increase at franchise drive-ins and an increase of 4.5% at company drive-ins. SONC beat bottom line expectations as well, reporting EPS ex-items of $0.43 versus consensus estimates of $0.42.

 

FISCAL YEAR 2016 OUTLOOK

The biggest news today arguably was the acceleration of share repurchases due to favorable market conditions. Due in large part to this acceleration the company now expects EPS to grow 16% to 20% in FY2016 as compared to the previous outlook of 14% to 18%. The remainder of the guidance is as follows:

  • 2% to 4% same-store sales growth for the system
  • 50 to 60 new franchise drive-in openings
  • Drive-in-level margin improvement between 75 to 125 basis points
  • Capital expenditures of $35M to $40M
  • Free cash flow of $70M to $75M
  • The planned repurchase of $126M of stock across the fiscal year, with a higher concentration of share repurchases in 1H of the fiscal year

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 

 


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