Sonic Corp. said its systemwide same-store sales trended positive in March and April, leading analysts to speculate on possible menu drivers, like the chain’s new hot dogs, and investors to drive the stock up 12.8 percent Friday.
Oklahoma City-based Sonic operates or franchises more than 3,500 drive-in quick-service restaurants that use carhops. It has struggled quarter after quarter with weak sales for about two years, as devastated economies in the chain’s core markets of Texas and nearby states hurt the restaurant chain, and miscues on pricing put a dent in sales.
Sonic started to reverse those trends in this year’s first and second quarters, after the chain debuted initiatives around new menu items, food quality and advertising focused on the Sonic brand, roller skates and all, rather than just price. On Friday, Sonic said its systemwide same-store sales increased between 4 percent and 6 percent for the first two months of the company’s third quarter, which ends May 31.
Its stock rose 12.8 percent on the news to close at $11.22 per share Friday. The stock had traded between $7.28 and $12.20 during the past 52 weeks.
The company gave no official explanation in its short statement on sales, but numerous analysts said they believed the improvements were based on a few keys moves Sonic had undertaken recently.
“While difficult to pinpoint the cause of the reinvigoration in Sonic’s trends, we believe a better macro environment, improved product innovation — including a new line of specialty hot dogs — and a revamped marketing program are all contributing to resurgent sales trends,” Sharon Zackfia, a securities analyst at William Blair and Co., said in a report.
Sonic debuted a new line of $1.99 hot dogs in March that extended the chain’s popular chili cheese dog offering. The menu items were billed as high quality items including all-beef dogs and fresh toppings. The new line included a Chicago Dog, a New York Dog and an All-American Dog.
“Investors may be concerned that Sonic’s recent hot dog promotion drove a short term spike in sales,” Larry Miller, a securities analyst at RBC Capital Markets, said in a report. “That’s fair. But we think the trend may be more sustainable than investors think as management has been talking about seeing a broad-based improvement in the business stemming from its other food quality initiatives.”
Analyst Steve West at Stifel Nicolaus said Sonic’s third-quarter trend, if it holds, could lead it to its first positive two-year same-store sales result since 2008.
“The recent television advertising is driving traffic, which is offsetting the likely decline in average check due to the $1.99 price point for the promoted hot dogs,” he said. “Additionally, employment trends have improved slightly in Sonic’s core markets of Texas and the lower Midwest.”
All analysts noted that Sonic, like other restaurant chains, would not be immune to rising commodity costs, particularly for beef.
Sonic’s sales update came on the heels of the company’s announcement Wednesday that it was set to refinance its debt facility, using the same securitization strategy it used in 2006. As of Feb. 28, Sonic held about $502 million of notes outstanding under the former facility. The net proceeds of the new facility will be used to repay those 2006 notes in full and for general corporate purposes, the company said.
Contact Sarah Lockyer at sarah.lockyer@penton.com.
Buoyed by improving same-store sales and customer traffic, foodservice operators expressed optimism about sales growth over the next several months, fueling an increase in the National Restaurant Association’s Restaurant Performance Index for March.
The RPI, a monthly composite that tracks the health of and outlook for the foodservice industry, rose to 101.0 in March, an increase of 0.3 percent over its February level and the third gain in the past four months.
March also was notable in that it marked the first time in more than three and a half years that the Current Situation component of the index stood above the 100 mark, according to the NRA.
“The March increase in the Restaurant Performance Index was fueled by continued improvements in the same-store sales and customer traffic indicators,” said Hudson Riehle, senior vice president of the NRA’s Research and Knowledge Group. “Most notably, the overall Current Situation component of the RPI stood above 100 for the first time in 43 months, which signifies expansion in the indicators of current industry performance.
However, while restaurant operators were optimistic about their own businesses, they were less upbeat about the general economy in the coming months, Riehle said.
“Just 32 percent of restaurant operators expect economic conditions to improve in the next six months, the lowest level since September 2010,” he said.
Watch a video of Riehle providing an industry update:
The Restaurant Performance Index consists of two components: the Current Situation Index, which measures current trends in same-store sales, traffic, labor and capital expenditures; and the Expectations Index, which measures restaurant operators’ six-month outlook for same-store sales, employees, capital expenditures and business conditions.
The Current Situation Index rose to 100.2 in March, up 0.8 percent from February and its third strong gain in the past four months. The NRA said 52 percent of restaurant operators reported a same-store sales gain between March 2010 and March 2011, an increase over the 49 percent who reported similarly in February. That marks the strongest level since August 2007, the NRA said.
Meanwhile, 45 percent of foodservice operators reported customer traffic increases between March 2010 and March 2011, up from 41 percent who tallied higher traffic levels in February.
The Expectations Index was 101.7 in March, down slightly from 101.9 percent in February. Despite its decline, the index was above the 100 mark for the eighth consecutive month, which signifies expansion in the forward-looking indicators, the NRA said.
The association said restaurateurs believe their sales will grow in the future months. Fifty percent of foodservice operators expect to generate higher sales in six months — compared with the same period a year ago — up slightly from the 48 percent who reported similarly in February.
The RPI is based on responses to the NRA’s monthly tracking survey. The full report is available online at http://www.restaurant.org/pdfs/research/index/201103.pdf.
Contact Paul Frumkin at paul.frumkin@penton.com.
As gasoline prices continue to rise, Pizza Hut’s largest franchisee said its delivery-oriented restaurants expect to see more consumers picking up their orders.
That shift from delivery to carryout could help NPC International Inc., which operates 1,135 stores Pizza Huts, save on the reimbursements for delivery drivers, which are adjusted monthly as gas prices rise, the Overland Park, Kan.-based company said Friday.
“Our history tells us that traditionally when gas prices get high, our consumers want to slide into carryout mode,” Troy D. Cook, NPC’s executive vice president and chief financial officer, said during a conference call to discuss first quarter results.
“There’s a natural kind of hedge in our business against higher gas prices,” he said, “because the consumer says, ‘I don’t want to pay the tip to the driver, because I’m feeling squeezed on disposable income due to the higher gas prices, and I don’t want to play a delivery charge. So I’ll drive into that carryout access mode.”
Amid the heightened economic uncertainty in last year’s first quarter, for example, Cook said NPC’s carryout sales increased 39 percent.
“You expect to see the carryout access mode grow at a greater rate per se than our delivery access mode if fuel continues to be an issue,” he added.
Cook and Jim Schwartz, NPC’s president and chief executive, spoke with analysts Friday after the company reported essentially flat profit of $9.5 million for the first quarter ended March 29. Sales in the quarter slipped 5.1 percent, to $239.6 million from $252.6 million last year.
Same-store sales decreased 4.7 percent, compared with an increase of 10.2 percent in last year’s quarter, when same-store sales were boosted by the $10 Any Pizza promotion, Schwartz said. Severe winter weather also affected same-store sales in this year’s first quarter by about 1 percent, Cook said.
Pizza Hut promotions during the quarter like the Big Dipper pizza and the $10 Any Pan Pizza helped, Schwartz said, but “they were not successful in lapping the prior year’s strong sales growth in the face of aggressive competition tactics, extreme weather conditions and economic consumer headwinds.”
NPC executives addressed other issues affecting the company’s business, including:
Rising commodity costs: NPC executives described rising food costs as “manageable,” saying they expected increases of 3 percent to 4 percent for the rest of the year. “When you look at our commodity basket, though, we are not anticipating that cheese will be the major driver of our commodity pressure this year,” Cook said. “Most of that pressure for us, for our basket, is coming for dough and meat, dough probably being the greatest inflationary item we’re facing.”
Margins for the rest of year: NPC executives said they expect margins to improve throughout the rest of the year, compared with last year, which featured several value-heavy promotions. “Last year was about building the top line, re-engaging the consumer. We went heavy on value,” Schwartz said. “We’re still dedicated to value, you clearly have to be in this space at this point in time, but I think we are finding a better equilibrium point with the consumer where we can improve our margins and do it in a much profitable way than we did in 2010.”
Stuffed-crust promotion ‘right on target’: Pizza Hut’s Ultimate Stuffed Crust pizza, a limited time pie starting at $12.99 with three toppings, was introduced five weeks ago. “It’s right on target from an expectation standpoint in terms of mix, traffic and consumer reaction to it,” Schwartz said.
NPC International operates Pizza Hut locations in 28 states.
Contact Ron Ruggless at ronald.ruggless@penton.com.
