Sonic (SONC 27.50) is the nation's largest drive-in restaurant chain and the objective facts of its fiscal third quarter earnings report indicate customers aren't driving in as much as the company would like. To wit, system same-store sales declined 1.2%, driven by a 1.1% same-store sales decrease at franchise drive-ins and a 3.2% decrease at company drive-ins.
The company's performance was improved from the first half of the fiscal year, Sonic said, as it was able to benefit from a more balanced promotional calendar. Company drive-in margins increased by 40 basis points; nonetheless, its adjusted net income decreased 13%.
Sonic was active with its share buyback program during the period, which helps explain why its adjusted net income per diluted share of $0.43 was flat in the face of a 13% drop in adjusted net income.
There was an acknowledgment in the press release that traffic continues to be sluggish, and while Sonic is striving to improve its same-store sales, it doesn't sound as if the company is anticipating a sea-change in traffic patterns anytime soon. Increased competition from the likes of McDonald's (MCD 154.80) could be playing a part there, yet the sum effects of its operational challenges are reflected in its same-store sales outlook.
For fiscal 2017, Sonic expects an approximate 2.5% same-store sales decline for the system, which is a reduction from the prior guidance provided in March for system same-store sales to be flat to down 2.0%. Sonic reiterated that it expects adjusted earnings per share for fiscal 2017 to decline 2% to 5% year-over-year.
At its current price, SONC trades at roughly 20x estimated fiscal 2018 earnings. The stock has declined 9.4% over the last 52 weeks, although it is up 3.7% year-to-date, compared to MCD, which is up 28% over the last 52 weeks and up 27.2% year-to-date.