Sonic 2014 Annual Report Download - page 19

Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Same-store sales for Company Drive-Ins increased 3.5% for fiscal year 2014 and 2.5% for fiscal year 2013, showing continued
momentum from the Company’s successful implementation of initiatives to improve product quality, service and value perception.
Furthermore, we continued to focus on our innovative product pipeline and increased media effectiveness while implementing
new technology initiatives. Company Drive-In sales increased $3.1 million, or 0.8%, during fiscal year 2014 as compared to fiscal
year 2013. This improvement was primarily attributable to an increase of $14.4 million in same-store sales and $2.0 million in
incremental sales from new drive-in openings. These increases were partially offset by an $8.9 million sales decrease primarily
related to the closure of 12 lower-performing drive-ins on August 31, 2013 and a $4.4 million decrease related to the refranchising
of seven drive-ins during the first quarter of fiscal year 2014.
For fiscal year 2013, Company Drive-In sales decreased $2.1 million, or 0.5%, as compared to 2012. This decrease was
primarily attributable to an $11.3 million reduction in sales from the refranchising of 34 lower-performing drive-ins during the
second quarter of fiscal year 2012 and a $2.5 million decrease related to drive-ins that were closed during or subsequent to fiscal
year 2012, partially offset by a $10.0 million improvement in same-store sales and $1.7 million of incremental sales from new
drive-in openings.
The following table reflects the change in franchise sales, the number of Franchise Drive-Ins, average unit volumes and
franchising revenues. While we do not record Franchise Drive-In sales as revenues, we believe this information is important in
understanding our financial performance since these sales are the basis on which we calculate and record franchise royalties. This
information is also indicative of the financial health of our franchisees.
Franchise Information
Year Ended August 31,
($ in thousands) 2014 2013 2012
Franchise Drive-In sales $ 3,627,395 $ 3,479,880 $ 3,386,218
Percentage increase 4.2 % 2.8 % 3.3 %
Franchise Drive-Ins in operation(1):
Total at beginning of year 3,126 3,147 3,115
Opened 37 25 36
Acquired from (sold to) the Company, net 7 (1) 35
Closed (net of re-openings) (43) (45) (39)
Total at end of year 3,127 3,126 3,147
Average sales per Franchise Drive-In $ 1,170 $ 1,125 $ 1,081
Change in same-store sales(2) 3.5 % 2.3 % 2.2 %
Franchising revenues(3) $ 142,707 $ 135,522 $ 134,588
Percentage increase (decrease) 5.3 % 0.7 % 2.0 %
Effective royalty rate(4) 3.78 % 3.74 % 3.72 %
(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.
(3) 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.”
(4) Represents franchise royalties as a percentage of Franchise Drive-In sales.
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