Sonic striking a balance

by Monica Watrous
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Sonic recently rolled out a spate of premium shakes.

OKLAHOMA CITY — While many of its fast-food competitors recently have pushed aggressive value offerings, Sonic Corp. is staying true to its long-term promotional strategy. As an example, the drive-in chain recently rolled out a spate of premium shakes with such flavors as wild berry and lavender, bourbon brown sugar, and buttered toffee. At the same time, Sonic began marketing half-priced shakes after 8 p.m.

Cliff Hudson, Sonic
Cliff Hudson, c.e.o. of Sonic

“I think from our viewpoint we’ve really stuck to our message of differentiation while at the same time, stepping up some sporadic value offerings,” said Cliff Hudson, chief executive officer of Sonic, during a March 29 earnings call with financial analysts. “But even when we do the value offerings, we work to make sure it’s consistent with the strategy we’ve taken over the years and relying on the strength of our product pipeline. So with the strength of our product pipeline and our sporadic value messaging of differentiated products, in our view, this has enabled us to post very healthy comps without entering into the … pure promotional play that a lot of our competitors are utilizing.”

For the second quarter ended Feb. 29, Sonic net income was $10,819,000, equal to 22c per share on the common stock, up 41% from $7,662,000, or 14c per share, for the prior-year period. Revenues totaled $133,160,000, up 5.5% from $126,219,000 for the comparable period.

System same-store sales rose 6.5%, which included increases of 6.5% and 6.3% at franchise drive-ins and company drive-ins, respectively. Key to Sonic’s continued momentum is the company’s approach to value, Mr. Hudson said.

“The customer’s perception of value, that’s often translated as just meaning discount, and yet our view of that, because it is a consumer’s view, it is what you pay for what you get,” Mr. Hudson said. “…though very early in the recession we did put in place a so-called value menu, we have found other ways to approach that over time to all the while measuring our customers’ — our actual customers’ and potential customers’ — perception of our value… And even as we have done things that have really increased the cost or expense of products, like going from ice milk to ice cream, even as we’ve taken steps like that, we have seen consumers’ perception of value that we offer, in fact, improve over time.”

For the full year, the company raised its outlook for adjusted earnings per share to 20% to 25%, from the previous range of 16% to 20%. Sonic expects to deliver 4% to 6% same-store sales growth and to open 50 to 60 new franchise drive-ins.

Net income for the six-month period was $23,277,000, or 47c per share, up 31% from $17,747,000, or 33c. Revenues totaled $278,963,000, up 4.8% from $266,075,000.
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