Drive in restaurant operator Sonic (SONC) reported earnings Wednesday afternoon. Earnings during Sonic's third quarter increased 14% versus last year's third quarter period. Earnings per share were $0.24, compared to a loss of $0.08 per share last year. Taking out last year's refinancing charges, last year's third quarter earnings would have been $0.21. Higher revenue from franchise royalties and improvements on operating costs helped contribute to the improvement in earnings. Same store sales increased 2.8% for the company's third quarter.
Sonic announced the completion of their previously announced share repurchasing program. The company bought back more than 4 million shares, at a price of around $30 million. The share buybacks cut the number of outstanding Sonic shares by over 6%.
Sonic has been improving same store sales at its restaurants. One of the reasons believed to be behind this is the company's advertisements featuring "Two Guys". The two characters who play off of each other with comedy while enjoying Sonic food and drinks in their car have become a source of brand awareness for the company. One recent example of how the pair promotes Sonic's promotions has been seen in commercials leading up to Wednesday's holiday. Wednesday was Summer Solstice, the longest day of sunlight of the year. Sonic Drive-Ins offered half price all day and used the "Two Guys" to promote the promotion in commercials as well as reminding customers that shakes are half price after 8pm every day during the summer.
Restaurants around the United States will be rolling out a new POS (point of sale) next year. I wrote about this in a NCR (NCR) article recently. As a frequent visitor to Sonic and their push to talk large menu boards, I am curious to see what the new software will bring for Sonic customers.
Sonic along with other restaurants is using joint venture deals to build out its franchise base. Joint ventures in Sonic's case give them a partial ownership of the real estate. This turns into rental income for Sonic along with royalty revenue. I recently highlighted how Burger King was using joint ventures to expand its franchise base internationally.
Seven new Sonic restaurants opened during the third quarter. Sonic now has 3,550 restaurants in 43 states (as of May 30). Plans call to open a total of 30-40 stores in this current fiscal year. Sonic is also closing underperforming restaurant locations and has closed a total of 30 this fiscal year. Sonic has developed a newer small drive-in restaurant model that is cheaper to open for franchisees and increases Sonic and the franchisees return on invested capital.
Sonic reminded listeners on the conference call that prior to the most recent recession, they experienced two decades of same store sales growth. Increasing same store sales growth, well thought out promotions and marketing, along with the potential for many more stores in the United States have me bullish on shares of Sonic.