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Sonic - Moving at the speed of high debt.

July 16, 2009 – Comments (2) | RELATED TICKERS: SONC

It’s the amount of debt that could bring Sonic to its knees.

When times were good, SONC borrowed money to buy back shares of stock. A lot of money. Debt was 100% of capital; making a very leveraged balance sheet. [Debt brought on, according to some, by buying back share to avoid a hostile takeover.]

And the debt is something we hear nothing about.

We hear that they’re rolling out their value menu. We hear about the quality of their food. We hear about the retrofits and new stores. These are all good things, but it’s not like the debt will just disappear.

I know that we’re in tough economic times—which would help explain the 3% decline in sales last quarter.

Frankly, things have me concerned.

There’s a Sonic around the corner from where I work. They’ve just gone through their retrofit. They were exceptionally busy at lunch, where often all the stall were full. After they retrofit, they’ve ripped out a half-dozen stalls to install a drive-thru.

I’ve always felt a drive-thru at Sonic’s were pointless. The whole restaurant is a drive-thru. I realize that in areas that are unaccustomed to the Sonic experience might prefer a drive-thru, but Sonic’s have been in this area for decades. I’ll be honest, when I drive up to a Sonic and see stalls full (or almost all full), I drive past. I don’t want to wait for a slot to open, and if I want to order through a drive-thru, I can go else where.

Aside from that, SONC must bring people back to the carhops. And quickly. The advertisements are clever, and seem (to a point) to be working. But interest expenses from the debt needs to be over come first.

Can SONC sell the underperforming company stores to franchisees? In today’s market? There’s simply not much fat to cut anymore.

Sadly, SONC may be reasonably priced around the $8 or $9 level.   [more]

Recs

1

Where's George?

July 16, 2009 – Comments (0)

Not Bush...Washington. And I'm talking greenbacks here.  [more]

Recs

2

Take a deep breath

January 06, 2009 – Comments (1) | RELATED TICKERS: JNJ , BAC , FDX

Life is hard. No news there. Today’s economy simply stinks. Again, I’m not telling you anything new.    [more]

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4

Bear markets & recessions are part of life

October 14, 2008 – Comments (1)

I’m not Nostrodamus.  [more]

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3

But enough about me...

September 04, 2007 – Comments (0)

In the coming weeks I will try to comment on each of the companies that I have in my CAPS list. If I cannot find anything substantial to say about a company--good or bad-- then it's time to cut that stock loose.  [more]

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