What: Shares of Sonic Corp. (NASDAQ:SONC) dove today after the company posted a disappointing growth outlook in its third-quarter earnings report last night. The fast-food chain's stock fell as much as 12.8%, and closed down 9.2%.
So what: Sonic actually beat earnings estimates in the past quarter by $0.01, as adjusted EPS increased 19%, to $0.43. However, same-store sales growth was significantly slower than expectations at 2%, below its full-year forecast at 4%-6%.
CEO Cliff Hudson said consumer trends through April and May were weak, but still said the business performed well overall. He also noted the company made progress on its capital structure by completing its debt transaction, and set a goal of having 95% of its locations franchised by next year.
Now what: The market sent the stock down as Sonic cut its full-year same-store sales forecast to 2%-4% from 4%-6%, although it maintained its EPS-growth forecast of 20%-25%. That lower guidance seems to indicate that management expects same-store sales to trend down further.
The fast-food burger market has gotten heated in recent months, with McDonald's' all-day breakfast launch, and deep discounting by Burger King and Wendy's. This may be taking sales away from Sonic, which had been posting comparable sales in the high-single digits this time last year. Still, the EPS growth forecast remains strong, and refranchising more restaurants should help drive profit growth next year.