Sonic 2009 Annual Report Download - page 17

Overview
Description of the Business. Sonic operates and franchises the largest chain of drive-in restaurants in the United States. As of
August 31, 2009, the Sonic system was comprised of 3,544 drive-ins, of which 13% were Partner Drive-Ins and 87% were Franchise Drive-
Ins. Sonic Drive-Ins feature signature menu items such as specialty drinks and frozen desserts, made-to-order sandwiches and a unique
breakfast menu. The company derives revenues primarily from Partner Drive-In sales and royalties from franchisees. The company also
receives revenues from initial franchise fees and, to a lesser extent, from the selling and leasing of signs and real estate.
Costs of Partner Drive-In sales, including minority interest in earnings of drive-ins, relate directly to Partner Drive-In sales. Other
expenses, such as depreciation, amortization, and general and administrative expenses, relate to the company’s franchising operations,
as well as Partner Drive-In operations. Our revenues and expenses are directly affected by the number and sales volumes of Partner Drive-
Ins. Our revenues and, to a lesser extent, expenses also are affected by the number and sales volumes of Franchise Drive-Ins. Initial
franchise fees and franchise royalties are directly affected by the number of Franchise Drive-In openings.
Overview of Business Performance. Fiscal year 2009 was a challenging year marked by economic disruptions and constrained
consumer discretionary spending. In response to these and other challenges, we made progress against a number of initiatives during
the year. In January 2009, we introduced the Sonic Everyday Value Menu featuring 11 items for $1. We also made significant progress
against our refranchising initiative evidenced by the sale of 205 Partner Drive-Ins to franchisees during the year. Partner Drive-Ins now
comprise 13% of the entire system, down from 20% at the beginning of the fiscal year.
Investments by franchisees in new and existing development remained solid throughout the year, with the opening of 130 new drive-
ins, the relocation or rebuilding of 46 existing drive-ins, and the completion of 337 retrofits for the fiscal year. We also opened the first
Sonic Drive-Ins in several new markets and new states with very strong opening results.
The growth and success of our business is built around implementation of our multi-layered growth strategy, which features the
following components:
• Same-store sales growth fueled by increased media expenditures, new product news, improved sales performance of Partner
Drive-Ins and product and service differentiation initiatives;
• Expansion of the Sonic brand through new unit growth, particularly by franchisees;
• Increased franchising income stemming from franchisee new unit growth, same-store sales growth and our unique ascending
royalty rate; and
• The use of excess cash for shareholder value-enhancing initiatives.
The following table provides information regarding the number of Partner Drive-Ins and Franchise Drive-Ins in operation as of the
end of the years indicated as well as the system-wide growth in sales and average unit volume. System-wide information includes both
Partner Drive-In and Franchise Drive-In information, which we believe is useful in analyzing the growth of the brand as well as the
company’s revenues since franchisees pay royalties based on a percentage of sales.
System-wide Performance
Year Ended August 31,
($ in thousands) 2009 2008 2007
Percentage increase in sales 0.7% 5.6% 8.6%
System-wide drive-ins in operation
(1)
:
Total at beginning of period 3,475 3,343 3,188
Opened 141 169 175
Closed (net of re-openings) (72) (37) (20)
Total at end of period 3,544 3,475 3,343
Average sales per drive-in: $ 1,093 $ 1,125 $ 1,109
Change in same-store sales
(2)
: (4.3%) 0.9% 3.1%
(1)
Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the
company determines that they are unlikely to reopen within a reasonable time.
(2)
Represents percentage change for drive-ins open for a minimum of 15 months.
Management's Discussion and Analysis of Financial Condition and Results of Operations
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