Sonic 2015 Annual Report Download - page 19

Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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) 2015 2014 2013
Franchise Drive-In sales $ 3,931,365 $ 3,627,395 $ 3,479,880
Percentage increase 8.4% 4.2% 2.8%
Franchise Drive-Ins in operation(1):
Total at beginning of year 3,127 3,126 3,147
Opened 38 37 25
Acquired from (sold to) the Company, net 6 7 (1)
Closed (net of re-openings) (32) (43) (45)
Total at end of year 3,139 3,127 3,126
Average sales per Franchise Drive-In $ 1,261 $ 1,170 $ 1,125
Change in same-store sales(2) 7.3% 3.5% 2.3%
Franchising revenues(3) $ 166,925 $ 142,707 $ 135,522
Percentage increase (decrease) 17.0% 5.3% 0.7%
Effective royalty rate(4) 4.04% 3.78% 3.74%
(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.
Same-store sales for Franchise Drive-Ins increased 7.3% for fiscal year 2015 and 3.5% for fiscal year 2014, showing
continued momentum from the initiatives we have implemented to improve product quality, service and value perception.
Furthermore, we continued to focus on our innovative product pipeline, multi-day-part promotions and increased media
effectiveness. Franchising revenues increased $24.2 million, or 17.0%, for fiscal year 2015 compared to fiscal year 2014. The
increase in franchising revenues was driven by a license conversion increasing royalty rates for approximately 900 Franchise
Drive-Ins, as well as a 7.3% increase in same-store sales. Lease revenues increased compared to the prior year due to an
increase in same-store sales and the addition of 14 new leases. The effective royalty rate increased compared to fiscal year
2014 as a result of the license conversion discussed above, as well as improved same-store sales.
Franchising revenues increased $7.2 million, or 5.3%, for fiscal year 2014 as compared to fiscal year 2013. The increase
in franchising revenues was driven by an increase in franchise royalties primarily attributable to a 3.5% increase in same-
store sales and an increase in franchise fees from the increase in Franchise Drive-In openings. Lease revenues decreased
compared to the prior year due to a franchisee’s purchase during the second quarter of fiscal year 2013 of land and buildings
leased or subleased from the Company. The effective royalty rate increased slightly compared to fiscal year 2013 primarily
as a result of improved same-store sales.
Other revenues decreased $1.2 million to $3.1 in fiscal year 2015 and decreased $0.5 million to $4.3 million in fiscal year
2014 as compared to the prior year. The decrease in fiscal years 2015 and 2014 was primarily due to changes in minority
investments in franchise operations.
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