By
Todd Wenning
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January 4, 2008
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The battered stock of drive-in restaurant chain Sonic (Nasdaq: SONC ) fell 8% below its current 52-week low yesterday, following news that Friedman, Billings, Ramsey removed the stock from its "top picks" list.
Maybe yesterday's sellers should have waited a day. Sonic reported generally positive first-quarter results after the market closed yesterday, and the stock was up as much as 5% in after-hours trading.
Here are some key statistics from the report:
- Earnings per share clocked in at $0.22, slightly above the average analyst estimate of $0.21 per share. However, net income was down 11% compared to last year.
- Revenue of $190.2 million was booked, although it was short of consensus estimates of $191.5 million.
- Overall same-store sales grew 2.1% -- within the company's target range of 2% to 4%.
- Sonic opened 36 drive-in restaurants in the quarter, and it remains on track to open 180 to 200 in FY 2008.
- Management reiterated its fiscal 2008 projections of 15% to 17% earnings growth.
It's two o'clock somewhere ...
What separates Sonic from competitors such as Yum! Brands (NYSE: YUM ) , McDonald's (NYSE: MCD ) , and Burger King (NYSE: BKC ) isn't only that its restaurants have drive-in options; its menu lists myriad drink offerings.
Sonic claims it offers 168,894 possible drink combinations. Recognizing its advantage in the drink department, Sonic made smart moves in November, offering a daily half-price "happy hour" on its drink selection from 2 p.m.-4 p.m. and introducing a new line of coffee products.
Early results of the project sound positive. According to the company's press release, the happy hour initiative "has been particularly effective not only at stimulating overall sales growth, but also increasing traffic, which has grown significantly in the afternoon day part since its introduction."
This could be a growth catalyst for Sonic going forward. Investors should also pay attention to the company's increasing interest expense related to its share repurchase program, and to the costs associated with "retrofitting" existing stores with a new design.
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