Drive-in restaurateur Sonic (NASDAQ:SONC) will file Q1 2007 earnings next week on Jan. 3, but they're not expected to drive off.

What analysts say:

  • Buy, sell, or waffle? There are plenty of analysts stuffing their face at Sonic, with eight rating the stock a hold, eight saying it's a buy or strong buy, and only one who sent his order back with a sell.
  • Revenues. For the first quarter, revenues are expected to ring up at $175.2 million, a 10% increase over the year-ago period.
  • Earnings. They seem more generous in their estimates of company profits, with earnings expected to come in at $0.20 per share, in the range the company itself has forecast even though they think it will be lower.

What management says:
Management is targeting 2% to 4% same-store sales growth, but is tempering the enthusiasm it has for achieving those results with the realization that sales at its partner drive-ins -- those stores in which the manager or supervisor owns a minority interest in the store -- will be below those goals.

With partner drive-in sales generating the bulk of revenues for Sonic (they represent more than 84% of total sales), that might cause the company to miss analyst estimates yet again. Last quarter, analysts had expected $200 million in sales; Sonic turned in $198 million, even though that was nearly 10% higher than the year before. While average sales per partner drive-in have been steadily rising -- they were $980,000 per store in 2006, up from $957,000 in 2005 -- they remain below the average sales per franchise drive-in, which stands at $1.1 million per store.

The key for future growth rests with the company's ability to continually open new stores. In 2006, it opened 173 new drive-ins consisting of 35 partners and 138 franchises, and it plans to open somewhere between 180 to 200 new drive-ins in 2007, with most of them being franchise operations.

What management does:
The company has been able to leverage its higher sales volumes with reductions in cost, thus the improvement in operating margins in the last quarter. Indeed, they've improved over the course of the whole year as compared to the year before, particularly as Sonic has been able to push higher margin items like drinks and dairy products. As it continues to expand the number of stores open, those margins should continue to improve further.

Margin %

08/05

11/05

02/06

05/06

08/06

Gross

77.9

77.9

77.9

77.0

78.1

Op.

23.5

23.2

23.1

23.4

23.7

Net

11.3

12.0

11.9

12.0

11.4
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Over the past year, the drive-in fast food purveyor has regained its footing. It split its stock 3:2 and announced that it had repurchased nearly $40 million worth of shares in the first quarter. Just the announcement that it was planning to make the purchase back in August helped boost the stock 20% by itself. Now it trades at it highs for the year, and whether further share buybacks at this level are the best use of shareholder money remains to be seen.

With sales sluggish at its partner restaurants, focusing on franchise opportunities may help provide the boost to Sonic it needs. For the quarter, they're also coming off a year that had strong growth so that comparisons will be made more difficult for it, but with some disappointment may come opportunity as Sonic remains a tempting morsel with much more room to grow.

Competitors:

  • OSI Restaurants (NYSE:OSI)
  • Wendy's (NYSE:WEN)
  • Yum! Brands (NYSE:YUM)
  • CKE Restaurants (NYSE:CKR)
  • McDonald's (NYSE:MCD)
  • Burger King (NYSE:BKC)

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.