soncSonic Corporation (NASDAQ:SONC) announced results for its fourth fiscal quarter and year ended August 31, 2016.

Key highlights of the company’s fourth quarter of fiscal year 2016 included:

  • Net income per diluted share increased 6% to $0.53 compared with $0.50 in the same period prior year; adjusted net income per diluted share increased 5% to $0.45 compared with adjusted net income per diluted share of $0.43 in the prior-year period;
  • System same-store sales decreased 2.0%, consisting of a 1.8% same-store sales decrease at franchise drive-ins and a decrease of 3.0% at company drive-ins;
  • Company drive-in margins contracted by 210 basis points;
  • Eighteen new franchise drive-ins opened;
  • The company commenced its refranchising initiative to move toward an approximately 95%-franchised system by the end of fiscal year 2017; and
  • The company purchased 1.3 million shares of its common stock.

Key highlights of the company’s fiscal year 2016 included:

  • Net income per diluted share was $1.29 compared with $1.20 in the prior year; adjusted net income per diluted share increased 17% to $1.29compared with adjusted net income per diluted share of $1.10 in the prior year;
  • System same-store sales increased 2.6%, consisting of a 2.7% same-store sales increase at franchise drive-ins and an increase of 1.7% at company drive-ins;
  • Company drive-in margins contracted by 30 basis points;
  • Thirty-one net new drive-ins opened;
  • The company purchased more than 5.2 million shares of its common stock, representing approximately 10% of outstanding shares for the fiscal year.

“We delivered good overall performance in fiscal 2016, including 2.6% system-wide same-store sales growth. Slowing consumer trends that began in April, however, persisted through the fourth quarter, resulting in lower-than-expected sales and profits in the fourth fiscal quarter,” said Cliff Hudson, Sonic Corp. CEO. “At the same time, we are pleased to see approximately 1% net unit growth for fiscal 2016 with 31 net new units, sound progress towards our net unit growth goal of 2% to 3% by the end of the decade.

“While our unit growth, capital structure and refranchising initiatives are performing well, low commodity costs, resulting in an aggressive promotional and pricing environment, are expected to continue to pressure sales and earnings in fiscal year 2017, particularly in the first half of the year. We believe our current initiatives to deliver one of the most differentiated customer experiences will improve sales late in the fiscal year. This, combined with a more-highly franchised system, better company drive-in margins, penetration of digital POPS units in 80% of our system, a strong development pipeline, and a significantly lower number of shares outstanding, provides a solid foundation for good sales and earnings growth over the next few years.”

Same-Store Sales

For the fourth quarter ended August 31, 2016, system same-store sales decreased 2.0%, which was comprised of a 1.8% same-store sales decline at franchise drive-ins and a decline of 3.0% at company drive-ins.

Financial Overview

For the fourth fiscal quarter of 2016, the company’s net income totaled $25.4 million or $0.53 per diluted share compared to net income of$26.3 million or $0.50 per diluted share in the same period of the prior year. Excluding the items outlined below, net income declined 6% and net income per diluted share increased 5%.

The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company’s financial results in accordance with GAAP. The company believes that the presentation of this analysis provides useful information to investors and management regarding the underlying business trends and the performance of the company’s ongoing operations and is helpful for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the financial results of the company and predicting future performance.

Fiscal Year 2017 Outlook

While the macroeconomic environment may impact results, the company expects adjusted earnings per share for fiscal year 2017 to be in the range of down 7% to flat year over year. The outlook for fiscal 2017 anticipates the following elements:

  • (2)% to 0% same-store sales for the system;
  • Royalty revenue growth from new unit development;
  • 65 to 75 new franchise drive-in openings;
  • Drive-in-level margins of 16-17%, depending upon the timing of drive-in divestitures and the degree of same-store sales growth at company drive-ins;
  • Selling, general and administrative expenses of approximately $85.0 million to $86.0 million reflecting increased investment in human resources and technology to support brand initiatives;
  • Depreciation and amortization expense of $42.0 million to $44.0 million reflecting the divestiture of company drive-ins as previously announced;
  • Capital expenditures of $40 million to $45 million reflecting ongoing investment into the company’s technology initiatives;
  • Free cash flow(1) of approximately $60 million to $65 million;
  • An income tax rate between 35.0% to 36.0%;
  • The planned repurchase of at least $173 million of stock across the fiscal year, inclusive of refranchising proceeds; and
  • An expected quarterly cash dividend of $0.14 per share. (Original Source)

Shares of Sonic are falling nearly 11% to $23.46 in after-hours trading. SONC has a 1-year high of $36.34 and a 1-year low of $24.91. The stock’s 50-day moving average is $26.20 and its 200-day moving average is $29.12.

On the ratings front, Sonic has been the subject of a number of recent research reports. In a report issued on September 28, Jefferies analyst Alexander Slagle reiterated a Hold rating on SONC, with a price target of $28, which implies an upside of 6% from current levels. Separately, on the same day, Oppenheimer’s Brian Bittner maintained a Buy rating on the stock and has a price target of $33.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Alexander Slagle and Brian Bittner have a total average return of 10.3% and 12.5% respectively. Slagle has a success rate of 55% and is ranked #585 out of 4190 analysts, while Bittner has a success rate of 67% and is ranked #31.

Overall, 2 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $32.00 which is 22% above where the stock opened today.

Sonic Corp. operates and franchises a chain of quick-service restaurants. It also leases real estate and receives equity earnings in non-controlling ownership in a number of franchise drive ins.