Sonic Soars on Earnings Beat

(Sonic earnings report updated with an analyst's upgrade and stock activity.)

NEW YORK ( TheStreet) -- Sonic ( SONC) shares surged Wednesday amid heavy trading after the fast food chain posted better-than-expected earnings late Tuesday, despite slower sales.

Sonic said late Tuesday its booked quarterly earnings of $7.2 million, or 12 cents per share, up from $6.2 million, or 10 cents per share, in the year-earlier period. That beat analysts' consensus call for profits of $5.8 million, or 10 cents per share.

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Excluding a one-time 2-cent per share tax benefits, EPS would have been flat year-over-year, matching expectations. Analysts typically exclude such extraordinary items when setting expectations.

Sonic said revenue fell 5.4% to $129.1 million, from $136.5 million in the first quarter last year. Analysts had been looking for sales of $128.7 million.

Sonic shares surged 7.7% to $10.88 Wednesday morning. More than 1.5 million shares changed hands, compared with their average daily trading volume of just 817,600.

Stifel Nicolaus analyst Steve West upgraded his rating on Sonic shares to hold from buy following its earnings beat.

The fast-food drive-in restaurant chain attributed slower sales to the refranchising of 16 drive-ins since the year-earlier period as well as lower same-store sales. Comparable same-store sales refer to sales at stores open at least one year and are a closely watched metric in the restaurant industry.

Comps declined 2.4% year-over-year, improving from a decline of 6.4% in the first quarter last year. Same-store sales at franchise drive-ins declined 2.5% while same-store sales at company-owned drive-ins declined 1.9%.

CEO Clifford Hudson said he was pleased with operating improvements, saying it reflects Sonic's increased emphasis on personalized service, including servers that deliver food to customers while wearing roller skates, and the introduction of menu items such as real ice cream and larger burgers.

Looking ahead, Sonic said its expects to open between 40 and 50 new franchise drive-ins this year with sequentially improving same-store sales throughout the fiscal year.

Still, Sonic's fiscal second quarter, currently underway, is typically its slowest and most volatile because poor weather conditions inhibit customers from dining at its drive-in locations.

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Analysts expect Sonic's current quarter earnings to come in at 4 cents per share on revenue of $115.2 million.

In October, analysts from RBC Capital Markets issued an upgrade on Sonic shares to outperform from sector perform, and raised their price target to $12 from $10. That action came as Sonic reported lower-than-expected 2010 fiscal fourth quarter earnings but booked sales in line with expectations.

Stifel's West had a sell rating on Sonic shares at the time, and a $9.67 price target. "Due to the continued deleverage from significantly declining comp sales, higher labor, other operating costs and rising food costs primarily due to higher ground beef prices and no contracts will lead to extreme margin erosion in our view," he noted then.

Elsewhere in the restaurant sector, Ruby Tuesday ( RT) is expected to report its quarterly results after the bell on Wednesday.

Analysts expect the casual dining chain to post earnings of $3.2 million, or 5 cents per share, on revenue of $279.4 million.

Ruby Tuesday shares bid up 0.4% to $13.97 ahead of the report.

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-- Written by Miriam Marcus Reimer in New York.

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