Sonic Corporation F3Q10 (Qtr End 05/31/10) Earnings Call Transcript - TheStreet

Sonic Corporation F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

Sonic Corporation F3Q10 (Qtr End 05/31/10) Earnings Call Transcript
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Sonic Corporation (SONC)

F3Q10 (Qtr End 05/31/10) Earnings Call Transcript

June 21, 2010 5:00 pm ET

Executives

Pat Watson – Corporate Communications

Cliff Hudson – Chairman and CEO

Scott McLain – President

Steve Vaughan – EVP and CFO

Analysts

Brad Ludington – KeyBanc Capital Markets

Jeffrey Bernstein – Barclays Capital

Matt Van Vliet – Stifel Nicolaus

Greg Ruedy – Stephens, Inc.

Matthew DiFrisco – Oppenheimer & Co

John Glass – Morgan Stanley

Nicole Miller – Piper Jaffray

Tom Forte – Telsey Advisory Group

Robert Derrington – Morgan Keegan

Keith Siegner – Credit Suisse

Chris O'Cull – SunTrust

Presentation

Operator

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Good day. Welcome to the Sonic third 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 third quarter and first nine months of its fiscal year 2010 which ended on May 31st, 2010. Today's audio and slide presentation is available on the Internet. If you would like to view the slides during the presentation, please go to the investor section of the company's website, www.sonicdrivein.com and follow the link to events and presentations under Investor Info.

Before we begin, I would like to remind everyone that management's comments in this conference call that are not based on historical facts are forward-looking statements. These 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 risk. 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 10-K, quarterly reports on Form 10-Q, 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, June 21st, 2010. For this reason, and as a matter of policy, Sonic limits the archived 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 and good afternoon to all of you. We you appreciate you participating with us today. In this call we're going to cover a number of topics and I will give you a quick overview of that, obviously as you would expect, we're going to talk about the sales results for the third fiscal quarter, quarter ending May. Also, I am going to spend some time talking about the initiatives that we have in place that we announced a couple of months ago, series of initiatives that will be rolled out over the coming months. So we'll spend some time talking about that.

Scott McLain is going to talk about the development review, development activities within our system. And then Steve Vaughn, our Chief Financial Officer, is going to pick up from there, talk about financial review on the quarter.

So the quarter we just finished after gaining some traction in March and April, sales deteriorated somewhat in May and April was the strongest month of the quarter. System-wide same store sales declined by 6% for the third fiscal quarter. In our partner drive-ins, we'll talk more about this little later, but in our partner drive-ins sales declined 6.3%, but they pretty much closed the gap, that is our partner drive-ins closed the gap.

In our third quarter the average check for the system was essentially level with the year earlier as we started focusing on the value of the Sonic way and we'll talk more about that in a few minutes. As it relates to the focus for our system, we continue to focus on a number of initiatives, geared towards driving our business and I'll talk more about those as we walk through it. But focus on product; focus on service, media strategies and so on. This – in our fiscal year very much focused on those initiatives as well as partnered drive-in performance and we'll talk some more about that in terms of how we have begun to closing the gap and I think you'll see in terms of comp store sales and otherwise that we're moving positively in that direction.

Continued expansion of our system as part of building, continue to build the brand and then also this year strategic use of cash which we'll report more on a little bit later, but this very much a part of our fiscal year this year and going forward. The strategy for the fiscal year, as we talked without this before, and this is not new to you, and it's not a new concept to you anyway but it's also in terms of how we're approaching this and in the past having focused before this year, focusing somewhat more on the denominator of this equation, value, the value for customer, equaling the experience divided by price and instead in the recent past, have begun focusing more on the numerator here.

Prior years between the 'Everyday Value Menu' and other elements of the pricing strategy, this was the key part – the way we tried to address this as the recession began, but by focusing on service initiatives and product quality, we believe we are here on a pretty good path to working to rebuild the numerator while sustaining the denominator. It is our view that over the long run if we elevate the customer experience with high quality, distinctive food and good Customer Service and our unique physical format of the drive-in, that this will do more to contribute to sales and earnings growth than simply offering food at a lower price.

So if we spend a few minutes talking about these sales driving initiatives. Some of these we have touched on in the past, but we continue to focus on this in an attempt to move our business forward. You can see indicated here the first item, consistent and high quality service execution. This has been an area of focus for us for a good period of time but we have stepped it up in the last 12 to 18 months with our Fan Track initiatives geared towards giving us feedback on customer perception of individual transactions and on a collective basis, help us work to drive the business forward.

In addition, as it relates to new messaging and how that is intended to affect our business at the unit level, we have focused on a variety of things in the recent past and we will continue it going forward. More recently, the value proposition, the value of the Sonic way, which focuses – moves the focus away from a value menu to focusing on premium products, and with – as an example, a full priced sandwich ordered and a free order of tots or free order of onion rings, this really helped us in the late winter and into the spring to hold our average check flat which is what occurred as the quarter progressed, so this has been a good element of our sales driving initiatives.

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