Sonic 2011 Annual Report Download - page 22

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Management's Discussion and Analysis of Financial Condition and Results of Operations
Same-store sales for Company Drive-Ins increased 1.8% for fiscal year 2011, as compared to a decline of 8.8% for fiscal
year 2010, which represents an improving trend that we attribute to the initiatives we have implemented and a slightly
improving economy. In addition to the implementation of system-wide initiatives in fiscal year 2010, we have implemented
a number of initiatives at Company Drive-Ins which have contributed to their improved performance. These initiatives
included restructuring management of our Company Drive-In operations to reduce excess management layers, revising the
compensation program at the drive-in level, and implementing a customer service initiative to improve sales and profits.
These efforts were focused on narrowing the average unit volume gap with Franchise Drive-Ins and improving restaurant-
level margins. Company Drive-In sales decreased $3.5 million, or 0.9%, during fiscal year 2011 as compared 2010. An
improvement in same-store sales and, to a lesser extent, new drive-in openings during fiscal year 2011 resulted in an $8.1
million increase in sales which was more than offset by a $7.2 million decrease in sales caused by the refranchising of 16
Company Drive-Ins in the second quarter of fiscal year 2010 and six drive-ins in fiscal year 2011 as well as a $4.4 million
decrease related to drive-ins that were closed during or subsequent to fiscal year 2010.
For fiscal year 2010, Company Drive-In sales decreased $153.1 million, which was largely driven by 245 drive-ins that
were refranchised or closed since the beginning of fiscal year 2009 and the decline in same-store sales for existing drive-
ins. Of the $153.1 million decrease, $121.3 million related to drive-ins that were refranchised or closed and $36.7 million
related to same-store sales decreases for existing drive-ins driven by the impact of severe winter weather as well as a
reduction of consumer spending at restaurants. These decreases were partially offset by a $4.9 million increase in sales
from drive-ins opened during the period.
The following table reflects the change in franchising revenues (franchise royalties, franchise fees and lease revenues)
as well as franchise sales, average unit volumes and the number of Franchise Drive-Ins. While we do not record Franchise
Drive-In sales as revenues, we believe this information is important in understanding our financial performance since these
sales are the basis on which we calculate and record franchise royalties. This information is also indicative of the financial
health of our franchisees.
Franchise Information
Year ended August 31,
($ in thousands) 2011 2010 2009
Franchising revenues(1) $ 131,894 $ 132,016 $ 135,697
Percentage increase (decrease) (0.1)% (2.7)% 5.5%
Franchise Drive-Ins in operation(2):
Total at beginning of period 3,117 3,069 2,791
Opened 40 80 130
Acquired from (sold to) Company, net 5 16 205
Closed (net of re-openings) (47) (48) (57)
Total at end of period 3,115 3,117 3,069
Franchise Drive-In sales $3,278,208 $3,205,507 $3,269,930
Percentage change 2.3 % (2.0)% 4.1%
Effective royalty rate 3.79 % 3.82 % 3.87%
Average sales per Franchise Drive-In $ 1,054 $ 1,043 $ 1,122
Change in same-store sales(3) 0.4 % (7.6)% (3.9)%
(1) Consists of revenues derived from franchising activities, including royalties, franchise fees and lease revenues. See
Revenue Recognition Related to Franchise Fees and Royalties in the Critical Accounting Policies and Estimates section
of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
(3) 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.
(3) Represents percentage change for drive-ins open for a minimum of 15 months.
Same-store sales for Franchise Drive-Ins increased 0.4% for fiscal year 2011 as compared to a decline of 7.6% for the
same period last year, which represents an improving trend that we attribute to the initiatives we have implemented and
a slightly improving economy.
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