Breakfast has been performing well and has helped Sonic Corp. stabilize same-store sales, executives of the Oklahoma City, Okla.-based drive-in operator said Wednesday.
Breakfast, which the 3,555-unit Sonic began promoting in August, helped it log same-store sales increases in three of the past four months, including December, executives said in a conference call with analysts after releasing its first-quarter report.
“Breakfast has been a consistent performer since early summer,” said J. Clifford Hudson, Sonic’s chairman and chief executive, “and we continue to work on refining our promotion on creative strategy to drive multiple dayparts.”
The most challenging daypart for the drive-in operator has been evening, Hudson said, defining it as anything after 8 p.m.
“It is the evening that's been the most challenging, and that's affected in no small part because of the employment picture of the younger population that may be more likely to be out and utilizing that daypart,” he said.
Before the August-September promotion of breakfast, he added, the afternoon daypart had been the most consistent grower of traffic and sales.
Overall, Hudson said, “We continue to believe our business is better positioned today than it was three years ago as a result of service and product initiatives we've implemented. Our same-store sales growth remains the primary engine that drives our business.”
Among other topics discussed during Sonic’s Wednesday earnings call:
Search for new chief marketing officer: Danielle Vona will be leaving Sonic, Hudson said, and a search for her successor is underway with an announcement expected in late winter or early spring.
Franchise business: Sonic executives said the franchise business remains solid.
“In the first quarter, we saw a slight decline in our royalty rate as a result of some of the development incentives we've offered over the past two years as well as our efforts to assist some of our more challenged markets,” said W. Scott McLain, Sonic Corp. president and president of Sonic Industries Services Inc. Those incentives slowed royalty rate revenues.
Margin pressures: Operating margins declined 70 basis points, or 0.7 percent, to 13.1 percent in the first quarter of fiscal 2012, said Stephen C. Vaughan, Sonic’s chief financial officer and executive vice president. He blamed the decline on lower revenues, commodity pressures and technology expenses. Those increases were offset slightly by labor efficiencies at the store level and by a reduction in administrative costs.
Costs increase: In the first quarter, food and packaging costs were up by 80 basis points, or 0.8 percent. “Beef and cheese were the primary cost drivers,” Vaughan said.
Price increases: In the first quarter, Sonic took a cumulative price increase of about 2 percent, lapping a modest increase last fall. “We are comfortable at the 2 percent level today, but I think we will look for opportunities to take additional price in the spring time period,” Vaughan said.
Contact Ron Ruggless at ronald.ruggless@penton.com.
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