Sonic Corporation CEO Discusses F4Q10 (Qtr End 8/31/10) Earnings Call Transcript

Sonic Corporation CEO Discusses F4Q10 (Qtr End 8/31/10) Earnings Call Transcript
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Sonic Corporation (



F4Q10 (Qtr End 8/31/10) Earnings Call

October 19, 2010 5:00 p.m. ET


Pat Watson – Corporate Communications

Cliff Hudson – Chairman and CEO

Scott McLain

Steve Vaughan – EVP and CFO


Jeffrey Bernstein – Barclays Capital

John Glass – Morgan Stanley

Steve West – Stifel Nicolaus

Matt DiFrisco – Oppenheimer & Co.

Keith Siegner – Credit Suisse

Brad Ludington – KeyBanc Capital Markets

Sharon Zafira – William Blair

Larry Miller - RBC

Chris O’Cull - SunTrust



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Good day, everyone. And welcome to the Sonic Corp. Fourth Quarter Conference Call. Today’s call is being recorded. At this time for opening remarks and introductions, I’d like to turn the call over to Mr. Pat Watson. Please go ahead, Sir.

Pat Watson

Good afternoon, everyone. This is Pat Watson with Corporate Communications. Sonic is pleased to host this conference call regarding results issued this afternoon for the Fourth Quarter in fiscal year 2010, which ended on August 31, 2010. Today’s audio and slide presentation is available on the Internet. If you would like to view the slides during this presentation, please go to the investor section of the company’s website,

, and follow the link to events and presentations under Investor Info.

Before we begin, I would to remind everyone that management’s comments in this conference call that are not based on historical facts are forward-looking statements. The statements are made in reliance on the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and are subject to uncertainties and risks.

It should be noted that the company’s future results may differ materially from those anticipated and discussed in the forward-looking statements. Some of the factors that could cause or contribute to such differences have been described in the news release issued this afternoon, and the company’s annual report on Form 10K, quarterly reports on Form 10Q, and in other filings with the Securities and Exchange Commission. We refer you to these sources for more information.

Lastly, I would like to point out that management’s remarks during this conference call are based on time sensitive information that is accurate only as of today’s date, October 19


, 2010. For this reason and as a matter of policy, Sonic limits the archive replay of this conference call webcast to a period of 30 days. This call is the property of Sonic Corp; any distribution, transmission, broadcast, or rebroadcast of this call in any form without the express written consent of the company is prohibited.

With those announcements, I’ll turn the call over to Cliff Hudson, the company’s Chairman and Chief Executive Officer. Good afternoon, Cliff.

Cliff Hudson

Good afternoon, Pat. Thank you for the introduction and thank you to all of you all for joining us this afternoon.

In the call, we’re going to cover a number of topics this afternoon. An overview, this will include an overview of 2010, our fourth fiscal quarter, as well as the session about the fiscal year.

In addition the discussion about our fiscal 2011 focus and the progress we’ve seen in implementing some of the strategic initiatives that we announced earlier last fiscal year, announced in March, including product quality improvements and some of the early indications of those initiatives are having a positive effect on our sales momentum.

We’ll spend a little time giving you the development update in our business. And then also an update on our financial performance and capital structure for the fourth quarter, and expectations for the remainder of the fiscal year 2011.

As you know at this point, in our fourth quarter, and you’ve known, earlier release, our system-wide sales declined by 6.4%. Our company-owned stores had same-store sales slightly – our same store sales for the system down 6.4%, but our company-owned were slightly less negative than our franchise. This was the first quarter this had occurred in several years, and I think it’s indicative of some of the progress that we’re seeing with our company-owned stores that we’ll talk more about it today.

And one of the points that we do want to make clear as the months progress through the last fiscal quarter and then this year, in each of the months of the fiscal quarter, fourth fiscal quarter, our company-owned stores saw improvement in same-store sales versus prior month. And now as we look into this fiscal year, the improvement has continued into the first six weeks of this current quarter.

That last comment moving into this fiscal year, the first six weeks of current quarter, is true for the system as well, so we’re pleased with the transition of the business coming out of the quarter, moving into the fiscal year.

So let’s take a look at the 2011, Fiscal Year 2011 focus. Our focus as we look into the year, there’s some key drivers. But as a general comment, I’d say we expect to continue to see improved sales trends. And while we’re cognizant that there’s going to be external factors that could affect the pace of that improvement, we continue to be optimistic regarding the sales expectations for the year. We see that because of the continued refinement of initiatives we began implementing in the last year and more. And have a good degree of confidence that the strategy is the right one for the brand to move business forward.

The two main drivers we see looking into fiscal year in terms of driving better performance this year versus our company-owned drive-ins. Obviously, they’re an important contributor to our corporate earnings, and they’ve begun showing some progress both from a sales standpoint and also from a margin performance in our company stores.

I think it’s fair to say looking in the near term this fiscal year in particular, that one of the most meaningful kind of contributors to improvement this year to the corporate top and bottom line will come from company drivr-ins. So that’s a big part of what will be improving performance of our company this fiscal year.

Second point is our system, same-store sales performance. We believe we’ll continue to see improvement the first quarter versus the fourth. And in a more long term way, yes this fiscal year but beyond the system-wide same-store sales will have the most meaningful impact on stockholder value because of the ascending royalty rate. And once our sales and profitability right themselves, the system unit growth will be contributed to that as well.

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