Sonic 2012 Annual Report Download - page 21

Management's Discussion and Analysis of Financial Condition and Results of Operations
Same-store sales for Company Drive-Ins increased 2.8% for fiscal year 2012 and 1.8% for fiscal year 2011, an improving
trend that we attribute to the initiatives we have implemented. In addition to the implementation of system-wide initiatives
over the last few years, we have implemented a number of initiatives at Company Drive-Ins which have contributed to improved
performance. These initiatives included restructuring 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. Company Drive-In sales decreased $6.4 million, or 1.6%, during fiscal year 2012 as compared to 2011. This decrease
was primarily attributable to an $18.6 million reduction in sales from the refranchised drive-ins discussed earlier and a $2.3
million decrease related to drive-ins that were closed during or subsequent to fiscal year 2011 partially offset by a $11.0 million
improvement in same-store sales and $3.5 million of incremental sales from new drive-in openings during fiscal year 2011.
For fiscal year 2011, Company Drive-In sales decreased $3.5 million, or 0.9%, as compared to 2010. This decrease was
primarily attributable to a $7.2 million decrease in sales from 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. These decreases were partially offset by an $8.1 million increase from an
improvement in same-store sales and, to a lesser extent, new drive-in openings during fiscal year 2011.
The following table reflects the change in franchising revenues (franchise royalties, franchise fees and lease revenues)
as well as franchise sales, average unit volumes and the number of Franchise Drive-Ins. While we do not record Franchise
Drive-In sales as revenues, we believe this information is important in understanding our financial performance since these
sales are the basis on which we calculate and record franchise royalties. This information is also indicative of the financial
health of our franchisees.
Franchise Information
Year Ended August 31,
($ in thousands) 2012 2011 2010
Franchising revenues(1) $ 134,588 $ 131,894 $ 132,016
Percentage increase (decrease) 2.0 % (0.1)% (2.7)%
Franchise Drive-Ins in operation(2):
Total at beginning of year 3,115 3,117 3,069
Opened 36 40 80
Acquired from company, net 35 5 16
Closed (net of re-openings) (39) (47) (48)
Total at end of year 3,147 3,115 3,117
Franchise Drive-In sales $3,386,218 $3,278,208 $3,205,507
Percentage change 3.3 % 2.3 % (2.0)%
Effective royalty rate 3.72 % 3.79 % 3.82 %
Average sales per Franchise Drive-In $ 1,081 $ 1,054 $ 1,043
Change in same-store sales(3) 2.2 % 0.4 % (7.6)%
(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.”
(2) 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 2.2% for fiscal year 2012 and 0.4% for fiscal year 2011, an improving
trend that we attribute to the initiatives we have implemented. Franchising revenues increased $2.7 million, or 2.0%, for
fiscal year 2012 as compared to 2011. The increase in franchising revenues was primarily driven by a $1.9 million increase
in franchise royalties. Same-store sales increases combined with incremental royalties from newly constructed and
refranchised drive-ins resulted in an increase in royalties of $3.2 million, which was partially offset by a $1.3 million decrease
from a lower effective royalty rate. The lower effective royalty rate is due to a temporary reduction in royalty rates from various
development incentives and certain franchisee restructuring efforts. Franchisees opened 36 new drive-ins during fiscal year
2012 compared to 40 in the prior year. Franchisee investment in existing drive-ins continued during fiscal year 2012 and
included the relocation or rebuilding of 17 drive-ins versus 11 in the prior year.
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