In an attempt to grow business, several U.S.-based restaurateurs are focusing on unit expansion. The biggest chain of drive-in restaurants in the U.S., Sonic Corp. (SONC) is also following the same trend.
With the resurgence of consumer confidence, management accelerated its unit openings. In first-quarter fiscal 2014, the company unveiled six franchisees outlets, thus bringing the total number of restaurants to 3,517.
Sonic has recently signed a franchise development deal to extend its association with a long-standing franchisee partner, Fran DeSimone. Per the agreement, the company will set up 6 drive-ins at Syracuse and Watertown in New York by 2018.
Fran DeSimone boasts superior local market knowledge and a proven track record in the restaurant industry. In 2013, the company inked an agreement with the franchisee to develop 5 drive-in restaurants in Rochester, N.Y., first of which is slated for a late 2014 opening.
The Washington, OK-based company is aggressively expanding in states like New York to step beyond its core Central U.S. market. We believe the latest alliance reflects Sonic’s intent to make New York one of the prime states for expansion considering its solid growth potential. In fact, to tap increasing demand in the Northern markets, Sonic has also unveiled drive-in prototypes that cater to market-specific needs.
The Zacks Rank #3 (Hold) company is gradually improving its business. The highlights of its first-quarter fiscal 2014 earnings, reported in Jan 2014, were positive comps momentum and margin expansion based on cost control measures. On the developmental front, it seeks to open 40 to 50 franchise drive-ins in fiscal 2014. The target is slightly higher than fiscal 2013.
Some better-ranked stocks in the industry include Fiesta Restaurant Group, Inc. (FRGI), Jack in the Box Inc. (JACK) and Buffalo Wild Wings Inc. (BWLD). While Fiesta Restaurant sports a Zacks Rank #1 (Strong Buy), Jack in the Box and Buffalo Wild Wings carry a Zacks Rank #2 (Buy).
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