Sonic Corp. is seeing “more guarded” consumers and is trying to entice them with a $5 Boom Box value meal, executives said Thursday.
The Boom Box promotion, introduced at the end of May, includes a choice of any premium six-inch beef hot dog, a Junior Deluxe Cheeseburger, medium tots or fries, and a medium drink, priced at $5.
The meal deal reflects other value bundles in the quick-service segment, including McDonald’s 2-for-$5 promotion, Wendy’s 4-for-$4 bundle and Burger King’s 5-for-$4 deal.
“The industry remains very value focused and intensely competitive,” said Clifford Hudson, Sonic Corp. CEO, in a call with analysts after third-quarter earnings were released Thursday.
Hudson said Sonic would “stay true to our long-term promotional strategy of introducing higher quality premium-priced products on the one hand, while communicating some targeted value with product and daypart messaging unique to us on the other.
“The intent of the Boom Box is to, of course, defend short-term traffic challenges while we continue to assess what’s going on in this broader environment.”
Among the Boom Box options, Sonic added new flavors to the hot dog platform in May, including Bacon Chili Cheese Coney, Loaded Bacon Ranch Chili Cheese Coney or the Spicy Bacon Chili Cheese Coney. Those can be ordered as part of the Boom Box promotion.
Hudson said the Boom Box promotion had helped traffic and average check after the company saw sales slow in April and May.
“It is not what we want from a blatant reversal standpoint, but it is an improvement,” he said. “So we are refining promotional, creative and media strategies as we speak to work to improve July and August.”
He said promotional activity would evolve to “pull the customer toward more what we would say, for us, is a more traditionally differentiated product, with better margins and so on, as the summer progresses.”
Sonic systemwide same-store sales rose 2 percent in the third quarter ended May 31, with franchised units posting a 2.1-percent increase and company-owned locations rising 0.9 percent.
Alexander Slagle, equity analyst with Jefferies LLC, said in a note that Sonic’s weakened sales trends in April and May “stabilized in June,” but he added that visibility was “very low” for the remainder of the fiscal year.
Sonic also said it would refranchise about 140 company-owned units through fiscal 2017, taking its system to about from about 89 percent franchised to around 95 percent franchised.
“This will allow our company to improve asset efficiency and have some role in reducing some earnings volatility while at the same time enabling our franchises to optimize those same drive-ins performance,” Hudson said.
Hudson said Sonic intended to refranchise and package those units with new-store development commitments.
In April Sonic also began advertising its new smartphone app with television commercials. Hudson said the app has been downloaded about 1.4 million times.
Sonic net income for the third quarter fell 20.4 percent, to $15.4 million, or 31 cents a share, from $20.4 million, or 38 cents a share, in the same quarter last year. The company took special items for the extinguishment of debt. Revenue in the quarter rose 0.3 percent, to $165.2 million, from $164.7 million in the prior-year period.
Sonic has more than 3,500 restaurants nationwide.
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