Sonic 2007 Annual Report Download - page 19

System-wide same-store sales increased 3.1% during fiscal year 2007 as a result of growth
in average check, offset somewhat by a slight decrease in traffic (number of transactions per
drive-in). The increase in average check was the result of price increases, as well as the success of
the Pay-At-Your-Stall (PAYS) program, which has increased credit and debit card transactions
that, on average, exceed the average cash transaction. We believe our strong sales performance
is a direct result of our specific sales-driving initiatives including, but not limited to:
• Continued growth of our business in non-traditional day parts including the morning,
afternoon, and evening day parts;
• Use of technology to reach customers and improve the customer experience;
• Monthly promotions and new product news focused on quality and expanded choice for
our customers;
• Growth in brand awareness through increased media spending and greater use of
network cable advertising; and
• The ongoing physical retrofit of drive-ins with a new look.
Looking forward, these strategies are expected to continue to positively impact our
business. We expect revenue growth of between 10% and 12% for fiscal year 2008, based
upon targeted same-store sales growth in the range of 2% to 4%, with Partner Drive-In sales
growth expected to be slightly ahead of this range.
We continue to use our monthly promotions to highlight our distinctive food offerings
and to feature new products. We also use our promotions and new product news to create a
strong emotional link with consumers and to align closely with consumer trends for fresh
ingredients, customization, menu variety and choice. During the past year, our new product
offerings showcased the breadth of our menu and emphasized the opportunity for choice at
Sonic. We will continue to have new product news in the coming months, all designed to
meet customers’ evolving taste preferences including the growing desire for fresh, quality
product offerings and healthier alternatives.
During fiscal year 2007, our system-wide media expenditures were approximately $175
million as compared to $145 million in fiscal year 2006, which we believe continues to increase
overall brand awareness. We also continued to spend approximately one-half of our
marketing dollars on system-wide marketing fund efforts, which are largely used for network
cable television advertising, growing this area of our advertising from approximately $72
million in fiscal year 2006 to approximately $90 million in fiscal year 2007. We believe
increased network cable advertising provides several benefits including the ability to more
effectively target and better reach the cable audience, which has now surpassed broadcast
networks in terms of viewership. In addition, national cable advertising also allows us to bring
additional depth to our media and expand our message beyond our traditional emphasis on
a single monthly promotion. Looking forward, we expect system-wide media expenditures to
be approximately $190 million in fiscal 2008, with the system-wide marketing fund
representing approximately one-half of total media expenditures.
We continue to make investments to upgrade the exterior look of our drive-ins including
a retrofit and the use of new electronic signage. The new retrofit features several new
elements including an upgraded building exterior, new more energy-efficient lighting, a
significantly enhanced patio area and improved menu housings. We completed the retrofit
of more than 100 Partner Drive-Ins before fiscal year 2007. During fiscal year 2007, the retrofit
was completed at 326 Franchise Drive-Ins and 173 Partner Drive-Ins. The retrofit of the entire
Sonic system is expected to occur over the next three to four years, with an additional 600 to
700 Franchise Drive-Ins and 150 Partner Drive-Ins expected to be retrofitted during fiscal
year 2008.
Sonic opened 175 new drive-ins during fiscal year 2007, consisting of 29 Partner Drive-
Ins and 146 Franchise Drive-Ins, a slight increase overall from 173 drive-in openings during
fiscal year 2006 (35 Partner Drive-Ins and 138 Franchise Drive-Ins). Looking forward, the
company expects to open 180 to 200 new drive-ins during fiscal year 2008, including 155 to
165 by franchisees.
Results of Operations
Revenues. Total revenues increased 11.1% to $770.5 million in fiscal year 2007 from
$693.3 million during fiscal year 2006. The increase in revenues primarily relates to solid sales
growth for Partner Drive-Ins and a rise in franchise royalties.
Revenues
Percent
Year Ended August 31, Increase/ Increase/
2007 2006 (Decrease) (Decrease)
($ in thousands)
Revenues:
Partner Drive-In sales $646,915 $585,832 $61,083 10.4%
Franchise revenues:
Franchise royalties 111,052 98,163 12,889 13.1
Franchise fees 4,574 4,747 (173) (3.6)
Other 7,928 4,520 3,408 75.4
Total revenues $ 770,469 $ 693,262 $ 77,207 11.1
Percent
Year Ended August 31, Increase/ Increase/
2006 2005 (Decrease) (Decrease)
($ in thousands)
Revenues:
Partner Drive-In sales $ 585,832 $ 525,988 $ 59,844 11.4%
Franchise revenues:
Franchise royalties 98,163 88,027 10,136 11.5
Franchise fees 4,747 4,311 436 10.1
Other 4,520 4,740 (220) (4.6)
Total revenues $ 693,262 $ 623,066 $ 70,196 11.3
Pg. 17
Sonic Corp. 2007 Annual Report
Management’s Discussion and Analysis of Financial Condition and Results of Operations