Did Somebody Turn Up the Heat Around Sonic Corporation?

The reason for Sonic’s sudden strength may not be what you think.

Jul 3, 2014 at 10:00AM

Source:  Sonic Corporation


Source: Sonic Corporation

If anybody has a right to complain about the weather it should be Sonic Corporation (NASDAQ:SONC). Cold temperatures affect this restaurant as rolling down your window to grab an ice cold milkshake is probably not the first thing that comes to your mind when you're in the middle of a blizzart. Yet after looking at last quarter's earnings report you would have thought there was a national heat wave.

Perhaps Red Robin Gourmet Burgers (NASDAQ:RRGB) described the driver behind this in its conference calls. Red Robin calls it a "cabin fever" effect. This occurs when a brand is so strong that bad weather can actually help it. After the weather finally clears up people tend to swarm to what they crave and indulge to the point where Red Robin sees a huge spike in sales. Last quarter Red Robin saw same-store sales jump 5.4% and diluted earnings per share leaped 24%.


Source: Sonic Corporation

Flying like a robin
And I thought Red Robin was one of the only burger joints with huge same-store sales growth during the colder months. While many restaurant chains complained that the bad weather continued into March and remained on the cold side in April, Sonic pulled a Red Robin and didn't even flinch.

Hudson rattled off a bunch of other metrics and attributes such as a new point-of-sale system, new digital point-of-purchase technology, and the like that the company is implementing. He believes they will be "an important contributor to increased sales and profits for [the] entire system." He's calling for double-digit earnings-per-share growth in both the near and long term.

Driving in the results
On June 23, Sonic reported its fiscal third-quarter results. Systemwide same-store sales leaped 5.3% to nearly match Red Robin. Earnings per share popped 15% to $0.30. Clifford Hudson, CEO of Sonic, credited the gains to "innovative product news, layered day-part promotional strategy and increased media efficiency."


Source: Sonic Corporation

What also helps drive sales
One thing that Red Robin credits for its sales bump is simply innovation. Red Robin introduced a new Half Pound Black Angus Burger for $12.99 which is a big step up in price from others on its menu. Many guests have opted to spend more on the bigger burger. For Sonic, innovation and higher price points are likewise drivers.

Sonic raised its prices by another 1% in May for a total of 3% on a year-over-year basis which is also helping. According to the Sonic conference call, particular help in terms of innovation has come from new menu items that cut across all five different day-parts. Hudson gave slush shakes as an example. Some people order them with breakfast and they are still perfect with lunch, dinner, late afternoon snacks, and late night meals. Five chances to increase sales.

Hudson stated, "We would anticipate over time as we continue to build sales and we talk to our operators about how we're going to build sales that we'll do that across all day-parts." Sonic continues to test new product ideas with a focus on


Source: Sonic Corporation

what will sell throughout the day rather than at just one time of the day. That's probably easier for Red Robin though as burgers work for many people at any time from lunch onward.

Foolish final thoughts
One neat thing about Sonic is that it is the largest drive-in restaurant chain in the country, and it would seem unlikely that another one would emerge as a competitor any time soon. As long as the company continues to deliver great innovation and a great experience, it should be able to continue to grow earnings per share by a double-digit percentage for many years to come. Fools may want to take a closer look at this unique quick serve restaurant.

Leaked: This coming consumer product can change everything
Imagine the multi-billion dollar sales potential behind a product that can revolutionize the way the world shops and interacts with its favorite brands every day. Now picture one small, under-the radar company at the epicenter of this revolution that makes this all possible. And its stock price has nearly an unlimited runway ahead for early, in-the-know investors. To be one of them and hop aboard this stock before it takes off, just click here.  

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information