Sonic's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Sonic (SONC)

Q1 2012 Earnings Call

January 04, 2012 5:00 pm ET

Executives

J. Clifford Hudson - Chairman and Chief Executive Officer

Stephen C. Vaughan - Chief Financial Officer and Executive Vice President

W. Scott McLain - President and President of Sonic Industries Services Inc

Claudia San Pedro - Treasurer and Vice President of Investor Relations

Analysts

Peter Saleh - Telsey Advisory Group LLC

Keith Siegner - Crédit Suisse AG, Research Division

Howard W. Penney - Hedgeye Risk Management LLC

Jake R. Bartlett - Susquehanna Financial Group, LLLP, Research Division

Nicole Miller Regan - Piper Jaffray Companies, Research Division

John S. Glass - Morgan Stanley, Research Division

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

Sharon Zackfia - William Blair & Company L.L.C., Research Division

John Dravenstott - KeyBanc Capital Markets Inc., Research Division

Robert M. Derrington - Morgan Keegan & Company, Inc., Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

Brian J. Bittner - Oppenheimer & Co. Inc., Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Michael W. Gallo - CL King & Associates, Inc.

Larry Miller - RBC Capital Markets, LLC, Research Division

Will Slabaugh - Stephens Inc., Research Division

Christopher T. O'Cull - SunTrust Robinson Humphrey, Inc., Research Division

Presentation

Operator

Hello, and good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Sonic Corporation First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to Ms. Claudia San Pedro, Vice President of Investor Relations. Please go ahead, Ms. San Pedro.

Claudia San Pedro

Good afternoon, everyone. We are pleased to host this conference call regarding results issued this afternoon for the first quarter fiscal year 2012 which ended on November 30, 2011.

Before we begin, I would like to remind everyone that comments made during 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 report 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 remarks made during this conference call are based on time-sensitive information that is accurate only as of today's date, January 4, 2012. The archived replay of this conference call webcast will be available until January 11, 2012. This call is a property of Sonic Corp. Any distribution, transmission, broadcast or a rebroadcast of this call in any form without the expressed written consent of the company is prohibited.

Finally, we have scheduled this call, which includes the Q&A portion, to last one hour. If we have not gotten to your question within that hour time slot, please contact me at area code (405) 225-4846, and we'll make the appropriate arrangements to answer your questions.

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

J. Clifford Hudson

Thank you, Claudia. Good afternoon, everyone. We appreciate your joining us today for this conference call where we'll be talking about our first fiscal quarter results and also some more longer-term business strategy and strategies for use of capital.

As you saw in our earnings release that we did release today, our system-wide same-store sales for the first fiscal quarter were 0.1% positive. This consisted of an increase -- 0.2% increase at our franchise drive-ins and a 0.1% decline in company drive-ins. We did experience some weather-related changes or challenges, rather, in Texas and Oklahoma. And this disproportionately affected our drive-ins toward the -- our company drive-ins toward the end of the fiscal quarter.

We continued to see some patches of sales volatility consistent with prior quarters that weighed in -- weighed down the results. In addition, we also faced restaurant-level margin pressures during the quarter, including increased food and packaging expenses, and Steve is going to talk more about those in a few minutes.

But having said that, we continued to see some positive aspects of experiences within our business as well during the first quarter. System-wide same-store sales were slightly positive, showing improving trends versus the fourth quarter of last fiscal year. But more encouragingly, the system same-store sales have been positive 3 of the last 4 months, so this includes December in 3 of the last 4 months.

It was a more challenging October that created something of a drag on the first quarter comps. And with that, we're confident that the overall trend of our business is improving, albeit at a slower pace than we had expected. I'll discuss a little later in the presentation the steps we will be taking to improve the results.

The breakfast that we promoted -- have been promoting since August, breakfast has been a consistent performer since early summer, and we continue to work on refining our promotion on creative strategy to drive multiple day parts, very much a part of our strategy historically and refining part of our strategy going forward. We also continue to generate a solid free cash flow and utilize that cash flow to pay down $3.8 million of debt, repurchase $10.5 million of stock in the quarter.

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