Restaurateur Sonic (NASDAQ:SONC) will be keeping its doors open late tomorrow, releasing earnings after market close on Wednesday. Before the Wall Street crowd arrives, let's find ourselves a seat and have a look at the menu, shall we?

The first thing that we see on the menu is that prices have increased. Three months ago, in reviewing the company's Q4 and FY2005 earnings release, my fellow Fool Jeremy MacNealy termed Sonic's beaten-down stock price a "buying opportunity." Indeed it was -- but that was a good $2.50 ago. Since Jeremy penned that column, the stock has been on a tear, up 9% in just a little more than nine weeks.

Then there are the operational difficulties. Jeremy noted that Sonic -- like the rest of us -- has been paying substantially higher energy prices in recent months. Although gasoline prices took a plunge this past quarter, oil, natural gas, and electricity costs remain high. That could explain the analysts' belief that, although Sonic grew its revenues strongly this past quarter (they're calling for a 14% increase over last year), profits will be crimped. On a net profit basis, analysts only expect the company to best last year's performance by a penny, generating profits per diluted share of $0.27.

There is, however, one other explanation for the muted expectations on Wall Street. You may have noticed that last quarter, the company predicted better profits than Wall Street now expects. Exclusive of stock options expensing (worth about $0.02 per share), Sonic said that it expected to earn between $0.28 and $0.30 per share and to grow its revenues by 12% to 14%. If analysts endorse the company's revenue estimate, but seem to be discounting its profits prediction, there are two possible explanations:

  • Either the analysts consider options expenses immaterial to the company's operating performance, but still predict a weaker-than-promised quarter; or

  • Wall Street is finally realizing that options do have a value and a cost, and deserve to be subtracted from the firm's pro forma numbers when making profits predictions.

In this Fool's view, it's the latter. I'd interpret the Street's $0.27 "consensus estimate" as meaning "$0.29 per share pro forma (near the top of Sonic's own predicted range) minus $0.02 for options." On an apples-to-apples basis, then, the Street is actually looking for a 12% increase in profits on a 14% increase in sales. If it proves true, it wouldn't be a bad result at all.

For more Foolish thoughts on Sonic, read:

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Fool contributor Rich Smith holds no financial position in Sonic.