Sonic 2005 Annual Report Download - page 24

initiative in the summer of fiscal year 2004, continued through fiscal year 2005. Every day part, including lunch and
dinner, showed positive growth during fiscal year 2005 compared to fiscal year 2004, and we believe we have
continuing opportunity to grow our non-traditional day parts like afternoon and evening throughout fiscal year 2006.
Implementation of the PAYS program, which began in the fall of 2003, was completed in the remainder of our
Partner Drive-Ins during the second quarter of fiscal year 2005. Under the PAYS program, a credit card terminal is
added to each drive-in stall to facilitate credit and debit card transactions. Rollout to Franchise Drive-Ins began in
February 2005 and is expected to be completed system-wide by the end of calendar year 2006. The average
investment to install PAYS in a typical Sonic Drive-In is approximately $25 thousand. In evaluating this initiative, we
have targeted an “increased sales to investment ratio”of 1 to 1, and it has been our experience that the installation of
the PAYS program has generally met and often exceeds this target.
A highlight of fiscal year 2005 was reaching the $1.0 million mark for system-wide average unit volumes. Another
positive trend that has continued for seven consecutive quarters is the performance of developing markets relative to
core markets. System-wide same-store sales in developing markets outpaced same-store sales in core markets,
increasing 7.4% during fiscal year 2005 on top of a 6.8% increase in fiscal year 2004. We believe this increase was
primarily due to additional spending on national cable, which has benefited all of our markets, and particularly our
developing markets. From an average unit volume standpoint, developing markets, which represent roughly 29% of
the store base, increased 8.5% continuing the positive trend of the last year and well ahead of the average unit
volume increase in core markets which increased 5.5%.
Another milestone reached during fiscal year 2005 was the opening of Sonic’s 3,000th drive-in. We opened 175
new drive-ins during fiscal year 2005, consisting of 37 Partner Drive-Ins and 138 Franchise Drive-Ins, down slightly
from 188 drive-in openings during fiscal year 2004 (21 Partner Drive-Ins and 167 Franchise Drive-Ins). Looking
forward, the Company expects to open 180 to 190 new drive-ins during fiscal year 2006, including 150 to 160 by
franchisees.
Results of Operations
Revenues.Total revenues increased 16.1% to $623.1 million in fiscal year 2005 from $536.4 million during fiscal
year 2004. The increase in revenues primarily relates to strong sales growth for Partner Drive-Ins and, to a lesser
extent, a rise in franchising income.
Revenues
Percent
Year Ended August 31, Increase/ Increase/
2005 2004 (Decrease) (Decrease)
(In thousands)
Revenues:
Partner Drive-In sales $525,988 $449,585 $76,403 17.0%
Franchise revenues:
Franchise royalties 88,027 77,518 10,509 13.6
Franchise fees 4,311 4,958 (647) (13.0)
Other 4,740 4,385 355 8.1
Total revenues $ 623,066 $ 536,446 $ 86,620 16.1
Percent
Year Ended August 31, Increase/ Increase/
2004 2003 (Decrease) (Decrease)
(In thousands)
Revenues:
Partner Drive-In sales $ 449,585 $ 371,518 $ 78,067 21.0%
Franchise revenues:
Franchise royalties 77,518 66,431 11,087 16.7
Franchise fees 4,958 4,674 284 6.1
Other 4,385 4,017 368 9.2
Total revenues $ 536,446 $ 446,640 $ 89,806 20.1
The following table reflects the growth in Partner Drive-In sales and changes in comparable drive-in sales for
Partner Drive-Ins. It also presents information about average unit volumes and the number of Partner Drive-Ins, which
is useful in analyzing the growth of Partner Drive-In sales.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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