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Sonic's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Another positive aspect of this second quarter was restaurant-level margins, the performance, restaurant-level margins. Despite ongoing food and packaging cost pressures, the leverage from improved sales resulted in 70-basis-point improvement in restaurant margins. This improvement should give you a sense of the potential of increased operating leverage as sales continue to improve in our business. With food and packaging cost pressures subsiding in the latter half of the fiscal year, we're optimistic we'll continue to see improvement in this area of our business. Steve will provide more detail on that later in the presentation in a few minutes.

Now looking at some other aspects of our business, in the latter part of -- so fiscal third and fourth quarters, fiscal 2012. As we move to this portion of the year, we're optimistic that our revised marketing strategies should position us to maintain positive same-store sales growth through the remainder of the year. First, and as a complement to the creative changes that you may have seen on national television this month, our switch last year from a regional to a national media buyer continued to result in improved quality of our media purchases, the quality of those purchases, as well as the increased cost effectiveness. So even with relatively constant media dollars this year, this improved efficiency has resulted in a step-up in terms of reach and impressions, and we expect this improved efficiency to continue through the remainder of the fiscal year. So nice positive impact from a media buying standpoint. As it relates to group media creative, so recent changes you would've seen, if you're watching television, was on the recent changes on television creative. So let me spend a little bit of time talking about the challenge of our previous creative campaign and why we've gone through this transition. To move our business forward from our viewpoint, we need a campaign that can promote all 5 day-parts in a relatively short period of time. The food-focused campaign that we've had in recent months really didn't present this because the length of time needed to have a commercial, single commercial, in the marketplace and allow for that one new commercial to be even recognized as a Sonic promotion, while at the same time getting the word out about that new product, it really did not have the flexibility of kind of moving across a variety of day-parts and messages. So that campaign was requiring longer promotional windows to get comparable brand recognition by customers and in turn, those longer promotional windows were unable, in a short period of time, to promote the same number of day-parts that we've been able to promote historically. So obviously, we wanted to get this in terms of the number of day-parts in a relatively period short period of time in order to keep positive same-store sales moving across a variety of day-parts. The fact is that this "Two Guys" format ends up being ideally suited to meet the needs of a greater number of short fuse promotions. Our research told us that they still have a very strong customer recognition and customer appeal. So when we had tested this format in limited market application, we were pleased with the customer reaction and with the sales results. Our view is that this "Two Guys" format will promote -- will permit us to promote different products for different day-parts in a shorter period of time with a single campaign format. We expect this strategy to achieve a higher level of awareness of promotions and ultimately then result in increased traffic in a shorter period of time than the other creative format permitted. We moved to this creative format utilizing social media in February and then at the end of February, 1st of March, began using it for television creative as well.

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