Dallas, Texas-based convenience retailing giant 7-Eleven has reported core earnings of US$1.8m, US$0.02/share, for the Q1 ended 31 March 2002. This compares to a loss from core operations of US$1.8m, US$0.02/diluted share, in the Q1 of 2001.
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The company also reported a Q1 net loss for 2002 of US$38.6m, US$0.37/diluted share. This includes a non-cash, after-tax charge of US$28.1m resulting from the adoption of SFAS No. 143, which relates to the removal of underground storage tanks. The Q1 net loss for 2001 aggregated US$7.5m, US$0.07/diluted share.
Review of core earnings
Total merchandise sales for the Q1 rose by 4.8% to US$1.6bn. US same-store merchandise sales increased by 3.7% for the quarter on top of an increase of 3.5% for the Q1 2001. Contributors to the merchandise sales increase include the categories of prepaid cards, beer, non-carbonated beverages, cigarettes and coffee.
Merchandise gross profit for the Q1 grew US$38.3m, or 5.8% per store month. Gross profit margin expanded by 82 basis points from 33.72% to 34.54%. The company attributes this primarily to a continued focus on improved management of cost of goods. Initiatives include enhanced daily cost reporting and competitive bidding practices.
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By GlobalData“This is the first year-over-year quarterly increase in merchandise margin in five quarters. We achieved the higher gross profit margin through improved buying practices which reduced cost of goods,” said Jim Keyes, 7-Eleven’s president and CEO: “This is a reflection of the benefits that we are receiving from our technology investment.”
7-Eleven grew total gasoline gallons by 7.1% for the Q1 2002 compared to the Q1 2001. While gallons sold increased, total gasoline revenues declined due to a 29-cent decrease in the average retail price of gasoline, compared to the 2001 Q1. Gasoline revenues were US$570.7m in the Q1 2002 versus US$660.9m in the same quarter a year ago.
Gasoline gross profit declined by US$7.8m to US$43.6m for the Q1 2002. Expressed as cents per gallon, the gasoline margin was 9.1 cents in the 2002 Q1 compared to 11.5 cents in the Q1 2001. Earlier in the Q1, retail prices fell faster than wholesale costs causing lower retail margins. The trend was reversed in March as increases in retail prices rose at a faster pace than did increases in wholesale costs. The March trend caused retail margins to widen. Based on current market conditions, the company expects more favorable gasoline margins during the remainder of the year.
Operating, selling, general and administrative expenses (OSG&A) rose US$36.7m to US$457.5m in the Q1 2002. Excluding non-operating items, OSG&A increased approximately US$17.2m or 4% to US$447m. The primary drivers of the increase were higher occupancy expenses from new store openings, labor and environmental costs. Adjusting for the deflationary impact of gasoline, as well as for non-operating items, OSG&A for Q1 2002 as a percent of sales, would have been 19.2%. This amounted to a reduction of 0.3% from the same quarter a year ago.
During the Q1 2002, 7-Eleven, invested approximately US$114m in capital expenditures and opened 23 stores in the US and Canada. The company operated 5,764 stores as of 31 March 2002.
