What: Shares of fast-food chain Sonic rose 24.4% during October, according toS&P Capital IQdata. This gain helped erase losses that the stock suffered over the previous few months, driven by a solid quarterly earnings report.
So what: Sonic reported fiscal-fourth-quarter revenue of $175.3 million, up 7% year-over-year and in-line with analyst expectations. System same-store sales rose by 4.9% during the quarter, and by 7.3% for the full year.
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Sonic reported adjusted earnings of $0.43 per share, up 26% year-over-year and a penny better than analysts expected. Restaurant-level margins at the company-owned stores improved by one percentage point, and total operating expenses rose slower than revenue, increasing by just 5.7% year-over-year. Helping the cause were share buybacks. Sonic spend a total of $124 million on buybacks in fiscal 2015, representing 7.4% of the company's outstanding shares.
CEO Clifford Hudson had this to say about Sonic's fiscal year: "By every measure fiscal 2015 was a great year for our customers and franchisees. We completed our fifth consecutive fiscal year of positive same-store sales growth with a 7.3% system same-store sales increase for the year. Incremental profits for our franchisees were the highest since the onset of the Great Recession. These results drove a 31% increase in fiscal 2015 earnings per share, on an adjusted basis."
Now what: Sonic's guidance for fiscal 2016 calls for 2% to 4% same-store sales growth, along with 50-60 new franchise restaurant openings. Restaurant-level margins are expected to continue to improve, and the company expects to generate between $70 million and $75 million of free cash flow.
Shares of Sonic declined from April through September as same-store sales began to decelerate. During Sonic's fiscal second quarter, same-store sales rose at a blistering 11.5% pace, but 6.1% growth during the third quarter sent the stock lower. In August, shares of Sonic fell alongside other burger stocks after fast-growing Habit Restaurants tumbled followings its own earnings report. While Habit beat analyst estimates across the board, the drop in both Habit and Sonic stocks may have had more to do with lofty valuations.
October erased those losses for Sonic, with investors regaining confidence in the company's growth story. While same-store sales growth is slowing down, earnings are growing at a healthy pace, and investors are expecting continued growth in 2016.
The article Why Shares of Sonic Corp. Surged 24% in October originally appeared on Fool.com.
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