Sonic booms, but quietly

This fast-food chain is up 70% and nobody even noticed.

By Benzinga Mar 27, 2013 1:34PM
Hamburger copyright BananaStock, JupiterimagesBy Tim Parker

Fast food can be hit-or-miss. Right now, Sonic Corp. (SONC) is a hit.


The Oklahoma City drive-in chain's shares have climbed 70% since last spring, according to CNBC. And, the company reported second-quarter adjusted earnings of five cents per share on revenue of $111.1 million Monday.


Sonic's good news comes at a time when McDonald's (MCD) reported zero U.S. sales growth, Wendy's (WEN) seems stuck in neutral, and Yum Brands (YUM), mostly due to the food scare in China, has garnered short attention by some investors.


William Blair analyst Sharon Zackfia said earnings were slightly ahead of her forecast, causing her to reaffirm a "market perform" rating.


Sterne Agee, on the other hand, downgraded Sonic from "buy" to "neutral" in a report released Friday.


Sonic Corp. executives are not sitting still. The company is producing a new series of their popular "Two Guys" television ads and working on a loyalty program according to Nation's Restaurant News. The chain is looking to boost traffic and maintain profit margins in a "strike while the iron is hot" strategy that may be one of the reasons the company continues to do well.


Sonic's Chairman and Chief Executive Clifford Hudson, told Nation's Restaurant News that beginning this past January, approximately 70% of the company's media dollars have been invested in national cable. The rest, according to Hudson, has gone into local television and other advertising mediums.


Focusing on the "Two Guys" as brand-builders has been part of Sonic's strategy since February 2012, when the company re-introduced the well-known duo to the public. The challenge now, Hudson says, is to keep the two comical spokesmen fresh and relevant.


In addition to focused advertising, executives who spoke with analysts Monday indicated they are working on a customer loyalty program to help drive traffic for the brand. Customer loyalty programs are rare in fast food, but Sonic believes they have a high number of regular customers who deserve to be rewarded for their allegiance.


And, of course, the additional traffic generated by the proposed program will not hurt the company's bottom line.


The company is also working on increasing individual store profitability. A new, smaller building prototype is part of that strategy and one that reduces non-land costs by 15% to 20%, according to Stephen C. Vaughn, the company's chief financial officer.


As of Feb. 28, Sonic had 3,526 drive-in units in 43 states. Sonic shares closed Tuesday at $12.87, up $1.14 or almost 10% on the day. They are up slightly Wednesday in afternoon trading. 


More from Benzinga
83Comments
Mar 27, 2013 4:20PM
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Gee, what's with the Sonic haters? Sonic has decent food and I love the strawberry slushes, with pieces of real fruit.
Mar 27, 2013 4:25PM
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Sonic has the most amazing onion rings!  As a former manager (like in my teens) I remember they would soak their freshly sliced onions in the ice cream milk. Then they would bread then the next day.  I hope they still do it that way, 'cause they are still yummy!

 

Mar 27, 2013 4:23PM
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I miss going to Sonic.  The car shows there, the food, the people that brought the food to our car, the picnics people had on their lawn, all the local kids meeting there.  Was a regular car hop in the 1980s in Oklahoma.
Mar 27, 2013 4:50PM
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When you order a soda tell them to go easy on the ice and they will. Can't beat a route 44 slush for a buck-ten during happy hour! Chicago dogs are G_R_E_A_T!!!!!
Mar 27, 2013 4:32PM
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Yeah, when I lived in Plano TX, Sonic's food is off the chain.

The varity of their menu is very appealing.

Mar 27, 2013 4:34PM
Mar 27, 2013 4:47PM
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I eat at Sonic on a fairly regular basis. My only complaint with them is that they have these cheesecake bites with strawberry dipping sauce that are absolutely amazing. I don't understand why but they come and go as short term promotional items. Drives me absolutely nuts. Everytime I get a receipt with a survey code, I fill out the survey and demand they bring them back permanently. As an added side, I get a free route 44 for my time.
Mar 27, 2013 5:15PM
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Sonic has great food, wish we had one in Olney, IL. The last time I ate at one was in the Evansville area. They're so cool and retro in their own way, plus you get the best burgers/chill dogs.
Mar 27, 2013 5:18PM
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Worked the #2 Sonic ever in Woodward OK. Dick McDonald was the franchise owner. People have to remember that it is a franchise, A bad owner makes for a bad Sonic. Love the food at a good one # 2 burger with mustard and a 6" chili cheese dog with mustard and onions a side of tater tots! can't go wrong! Made so many of those damn onion rings I just can't eat them any more LOL.
Mar 27, 2013 5:51PM
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I miss the salads (discontinued a few years ago). But their milkshakes and plain soft serve ice cream are really good.
Mar 27, 2013 6:29PM
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Sonic is not afraid to invest in small towns and use labor in those towns.  Many of their locations are the only eating establishment in town.  I think this is a big reason for their success.  I applaud them for investing in the small towns and supporting those local communities.  And by the way they have very good food.
Mar 27, 2013 5:47PM
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Yep, Sonic is great!  I can meet my total caloric needs for three days in just one meal!  One fatty, salty, sweet...delicious meal!
Mar 27, 2013 5:02PM
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They THE BEST slushies ever and if you for Happy Hour they're half price or less.....the food, meh. Chili cheese dog with fresh onions are ok. They do have some new things. Guess I'll have to try some other things.
Mar 27, 2013 5:24PM
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Wow. Sonic has some good chili dogs ft. Long, Onion rings that are really good.
Mar 27, 2013 5:57PM
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The Sonic in SE Temple, TX is Great.  Love the foot long chili cheese dogs and Banana Shakes with chunks of real banana in them!  All their shakes are made with real ice cream not ice milk!!!!
Mar 27, 2013 5:37PM
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Loyalty program is badly needed. Our office goes to Sonic during Happy Hour at least 3 times a week!!
Mar 27, 2013 5:26PM
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Sonic is a fun place to go...too bad the one near our house has a terrible manager...
Mar 27, 2013 6:02PM
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I like A&W better...how come there's not more of those?
Mar 27, 2013 5:36PM
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In south Jersey one guy opened 3 Sonics. Within 2 years all three folded. I couldn't believe they didn't make it. We also lost 3 Wendy's, 3 Burger Kings and 3 KFCs. The only thing to make it is McDonalds. I also thought the Sonics had great locations.
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