Sonic (NASDAQ: SONC) is the nation's largest chain of drive-in hamburger restaurants. Sonic's drive-ins recreate the diner feel of the 1950s featuring American classics and rollerskating carhops. The company operates more than 3,544 drive-ins coast to coast, of which approximately 86.6% are franchised.^[1] Sonic is primarily concentrated in the Deep South with its top 5 markets (including Texas, Oklahoma, Tennessee, Arkansas and Missouri) representing over half of its store locations.^[2] In addition to its sizable presence in the South, Sonic operates in 35 states across the continental United States.

Sonic's drive-in concept, carhop delivery service and signature menu are hallmarks of a classic American diner experience that differentiates the company from its competitors. Despite this important advantage, Sonic faces a few key challenges moving forward. First, the company has negligible international exposure making it wholly dependent on the U.S. where soaring food and energy prices, the housing slump and a weakening job market are taking a toll on restaurant spending. Sonic's concentration in the South has so far shielded it from the the worst of the U.S. slowdown. Economic activity in regions dominated by the energy industry has remained robust with relatively tight labor markets in states like Texas, Oklahoma and Mississippi.^[3] Still, the company's exclusive reliance on the U.S. make it susceptible to a general pullback on the part of U.S. consumer. Furthermore, rising costs for food inputs like wheat, dairy and beef are taking a bite out of gross margins.

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