Sonic CorporationSONC

Morningstar Rating

Stock Research and Analysis

by R. J. Hottovy, CFA

In the past several years, Sonic has bolstered its brand through menu innovations, engaging national television campaigns, and restaurant enhancements. Although near-term results could be weighed down by consumer-spending head winds, we remain optimistic Read more

Bulls Say

The domestic quick-service hamburger category generates more than $61 billion in annual sales and is expected to increase at a 3.5% compound annual rate during the next five years, according to the NPD Group.

Sonic differentiates itself with its carhop delivery service and unique menu, including made-to-order burgers, extra-long cheese coneys, tater tots, cherry limeades, and root beer floats. The full menu is available all day.

The firm boasts strong customer loyalty in the fickle quick-service restaurant sector. Sonic also attracts a higher percentage of women and teens than its quick-service peers.

Sonic has increased sales beyond lunch and dinner, with the morning daypart now making up about 13% of systemwide sales. The firm also has a higher beverage incidence rate than other quick-service chains, according to the NPD Group.

Managers and their supervisors typically own a minority stake in partner drive-ins, providing them with ample incentive to boost sales and profits. Read more

Bears Say

The quick-service restaurant industry is intensely competitive, marked by a history of price wars. Switching costs are virtually nonexistent.

Sonic and its franchisees must contend with a difficult consumer environment, heavy promotional activity, minimum-wage increases, and volatile commodity costs. Tighter credit markets could make it more difficult for franchisees to remodel existing locations and build new restaurants.

The firm has struggled to optimize its combo-meal-pricing strategy. Management hopes to drive customers back to combo meals by pricing a la carte items higher.

We believe industry participants will increasingly compete for market share. Many rivals, including Burger King, Jack in the Box JACK, and CKE Restaurants CKR, also target frequent fast-food eaters with indulgent menu items.

Negative publicity over foodborne illness, food tampering, or controversial marketing campaigns could adversely affect store traffic. Read more

Strategy

Sonic's primary near-term objective is increasing drive-in traffic through its everyday value menu, new premium products, and a heightened emphasis on underpenetrated dayparts. As a part of this goal, Read more

Management

J. Clifford Hudson has been CEO since 1995 and was named chairman in 2000. We believe corporate governance could be improved by the separation of the two roles, but we have not witnessed any abuses of power. In fiscal 2008, Hudson earned $600,000 in Read more

Profile

Sonic operates the largest chain of drive-in restaurants in the U.S., with $3.8 billion in systemwide sales during fiscal 2008. The firm generates revenue through franchise Read more

First Name

Last Name

Email Address

Zip Code

Create Password

Verify Password

(6-15 characters; case sensitive)

What is your occupation or job title?

Select...

Your registration indicates agreement to the terms of use.

Dollar General Stock May Lose a Few Cents
Watch more