Sonic Corporation CEO Discusses Q1 2011 Results - Earnings Call Transcript

Sonic Corporation (SONC)

Q1 2011 Earnings Call

January 4, 2011 5:00 p.m. ET

Executives

Pat Watson - Corporate Communications

Cliff Hudson - Chairman and Chief Executive Officer

Scott McLain - President

Steve Vaughan - Chief Financial Officer

Analysts

Joe Buckley - Bank of America

Brad Ludington - KeyBank Capital Markets

John Glass - Morgan Stanley

Matt DiFrisco - Oppenheimer

Matt Van Vliet - Stifel Nicolaus

Larry Miller - RBC Capital

Jake Bartlett - Susquehanna

Sharon Zafira - William Blair

Keith Siegner - Credit Suisse

Peter Saleh - Telsey Advisory Group

Nicole Miller Regan - Piper Jaffray

Chris O’Cull - SunTrust Bank

Robert Derrington - Morgan Keegan

Paul Westra - Cowen & Company

Greg Rudy - Steven Fink

Presentation

Operator

Please stand by. We are about to begin. Good day everyone and welcome to the Sonic first quarter conference call. Today’s call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Pat Watson. Please go ahead sir.

Pat Watson

Thank you and 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 first quarter of fiscal year 2011, which ended on November 30, 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 Web site, www.sonicdrivein.com, 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. 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 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 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, January 4, 2011.

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 everyone on the line this afternoon. We thank you for joining us for this conference call. In this call we’re going to cover a number of topics including an overview of the first fiscal quarter of fiscal year 2011 moving then to a discussion of progress we’re experiencing in implementing a number of strategic initiatives that really flow out of announcements we made last spring, March I think as a matter of fact.

And then a discussion of some of the indications that those initiatives are having on our sales momentum moving to a development update and the perspective surrounding that, how we see that impact our business over time and then also an update on our financial performance and the capital structure, the financial performance of first quarter and some use of capital issues and where we are from a capital structure standpoint as well as expectations for the remainder of fiscal 2011.

For this first fiscal quarter comparing looking at the trend of the business over time, looking at the first fiscal quarter of this fiscal year versus fourth fiscal quarter of last fiscal year, we’re pleased to see the progression in the sales improvement in our company owned stores. In the first fiscal quarter we saw a shift upwards you might say, a sales decline of 1.9% versus in the summer it was a sales decline of 6.1, so trending very much in the right direction.

And as this system sales declined in first quarter of 2.4% versus 6.4% in the fourth quarter so we saw some better trending moving forward into first and for the second fiscal quarter of 2011 beginning in December we have continued to experience some system sales improvements still with company owned drive-ins outperforming franchisees in the early part of this quarter. So we’re pleased with that progression. Now looking at the historical elements that have driven our business over a number of years, we’re going to talk about some of these today from a current standpoint.

We’ll talk about a little later in the presentation how we view these historical drivers and how we’re viewing them not just today but over the next couple of years. And I think this will be helpful to you to give you a framework of the strong historical growth we’ve had and why we believe we’ll return a good part of that on a progressive basis over the next one, two and three years. As to the focus on fiscal year 2011, there really are kind of two main drivers that we’re looking to from an operational standpoint that will improve the performance.

And then the third you see there we’ll talk about today as well and will have over a period of time. But the first one is the same store sales. The system wide same store sales performance in a lot of ways, what we’ve been about in the last year and talked in some detail about today, a number of elements that are really very much about fixing the foundation of our business, focusing on food quality, customer service, some real good transitions of the business there in the last one to two years.

Prospectively near term we’re be talking more about new partnerships for media purchasing, new partnerships for media creative campaigns and then also improvement in store level systems meaning technology focused that we’ll continue to build that. But we’re seeing some benefit of that and we’ll talk more about the benefit of those elements today. As it relates to the company owned stores, seeing improved indication in customer service and in turn sales performance recently.

So these are key elements of driving the business. We’ll go into more detail on them and then also the use of capital. I’ll make that point here. We paid down 105 million in debt in fiscal year 2010. Recently we repurchased another $62-1/2 million in variable debt at a $5 million discount with the use of existing cash. And in the remainder of this fiscal year we’ll also pay off approximately another $50 million. These are scheduled principal payments on our outstanding debt and we’ll still be in a healthy cash position after having done so.

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