Shares of casual dining company Sonic (SONC 25.41, +1.49 +6.23%) lead restaurant/QSR peers today following the release of the company’s mixed Q2 earnings and revenues.
Specifically, SONC’s revenues fell short of Street expectations, declining about 24.8% compared to last year to about $100.2 million. Despite this, the bottom line beat market expectations on Q2 earnings per share (EPS) of $0.15.
On top of that, SONC’s system same-store sales were down 7.4%, consisting of a 7.3% decline at franchise drive-ins and an 8.9% decrease at company owned drive-ins. Further, SONC noted that the sales decline consisted of about 1.1% of menu pricing and slightly a positive mix offsetting the negative traffic in the quarter.
Even though the company’s SSS performance in Q2 trailed their estimates, management reiterated their confidence in SSS projection of down 2% to flat for the year. They gave a few reasons – food deflation has been a driver of promotional activity in the space, a factor the company sees diminishing as the year progresses; modest commodity inflation should return to the industry by the end of the calendar year, aiding the company’s position in the competitive environment; severe December weather acted as a modest headwind to sales.
Given that, on the call SONC management noted that sales trends showed improvement in mid-February through March, indicating a possible shift in spending.
Looking ahead, as mentioned SONC still expects FY SSS to be in the range of flat to down 2%. The company also sees adjusted EPS of flat to down 7% with the slightly lower tax rate and lower incentive compensation offsetting the lower than expected company drive-in margins. In that regard, SONC now sees drive-in margins of 15.5-16%, down from 16-17%. Additionally, management continues to expect the first half of the year to be challenging and for sales to improve in the second half.
In light of the positive trends which management highlighted on the conference call, shares flew to highs this morning peaking just shy of $27. The gains are welcomed by investors as shares have had a tough go at it thus far in 2017, down about 10.8% YTD before today’s action.
As mentioned, shares outperform restaurant peers today -- CMG +2.10%, ZOES +1.90%, RT +1.82%, SAUC +1.73%, TACO +1.53%, BLMN +0.86%, SHAK +0.64%, WEN +0.45%, CBRL +0.25%, RRGB -0.17%.