7-Eleven, Inc. Reports Higher Earnings Attributed to Strong Sales Growth; First Quarter 2003 Merchandise Sales Increase 7.1 Percent to $1.7 Billion
First Quarter Highlights: - Achieved total revenue growth of 17.1 percent to $2.6 billion - Increased total merchandise sales by 7.1 percent to $1.7 billion - Increased quarterly U.S. same-store merchandise sales by 4.5 percent - Increased total gasoline revenue by almost 50 percent to $824.6 million - Grew total gasoline gallons sold by 8.5 percent to 506 million - Improved gasoline gross profit by $25.6 million with a 13.5 cent per-gallon margin
DALLAS, April 22 -- 7-Eleven, Inc. , the largest chain in the convenience retailing industry, today reported first quarter earnings. Core earnings, which exclude non-operating items, grew to $4.6 million or $0.04 per diluted share for the quarter ended March 31, 2003. This compares to core earnings of $2.4 million or $0.02 per diluted share in the first quarter of 2002. The increase in core earnings is primarily a result of both higher merchandise and gasoline gross profit. This was partially offset by an anticipated after-tax decline of $5.4 million in the Seven-Eleven Japan licensing royalties and higher operating, selling, general and administrative expenses (OSG&A). The company reported first quarter net earnings for 2003 of $5.0 million, or $0.05 per diluted share compared to a net loss in the first quarter 2002 of ($38.6) million, or ($0.37) per diluted share.
EARNINGS SUMMARY (Unaudited)
(in millions)
Three Months
Ended
March 31,
2002 2003
Net Earnings (Loss) $ (38.6) $ 5.0
Adjustments (Net of Tax):
Non-Operating Charges:
-- Cumulative Accounting Change - SFAS No. 143,
Asset Retirement Obligations 28.1 ---
-- Discontinued Operations of Underperforming Stores -
SFAS No. 144, Impairment/Disposal
of Long-Lived Assets 9.5 1.6
-- Infrastructure Consolidation and Other Items 4.1 (1.7)
-- Gain from Currency Conversion (0.7) (0.3)
Core Earnings $ 2.4 $ 4.6
Review of Core Earnings:
Total merchandise sales for the first quarter rose 7.1 percent to $1.7 billion. The company achieved a 4.5 percent increase in U.S. same-store merchandise sales for the quarter, on top of a 3.7 percent increase for the first quarter of 2002. Contributors to the merchandise sales increase included the categories of fresh food, prepaid cards, beer, non-carbonated beverages and cigarettes.
For the first quarter, merchandise gross profit grew 5.0 percent to $580.6 million. Changes in product mix positively affected merchandise sales for the quarter, but lowered merchandise margin. While the company continues to focus on margin, its primary strategy is to maximize gross profit dollars. One example of a change in product mix is the continued improvement in cigarette carton sales, which contributed to improved gross profit dollars but reduced gross profit margin. Product assortment changes were partially offset by the continued favorable impact from cost of goods management, as well as from reductions in write-offs and shortages. Overall, merchandise gross profit margin declined by 67 basis points to 33.91 percent, compared to the prior-year quarter.
"We are pleased with the ability to sustain strong merchandise sales and margins that exceed most of the convenience retailing industry. The 4.7 percent increase in March's same-store merchandise sales represents our 69th consecutive monthly increase," said Jim Keyes, 7-Eleven's president and chief executive officer. "The consistency of our sales results is an indication that our retailer initiative strategy is working. Our execution of this strategy has been facilitated by our investment in technology and emphasis on training."
7-Eleven grew total gasoline gallons 8.5 percent to 506.4 million for the first quarter of 2003. Total gasoline revenues were $824.6 million in the first quarter of 2003, compared to $559.0 million in the same quarter a year ago. The 47.5 percent increase in gasoline revenues is due to the 43-cent increase in gasoline prices year over year, as well as a 5.0 percent increase in per-store gallon sales. The average retail price of gasoline was $1.63 in the first quarter of 2003.
Gasoline gross profit increased to $68.2 million, a 59.9 percent increase over the first quarter of 2002. Expressed as cents per gallon, the gasoline margin was 13.5 cents in the first quarter of 2003 compared to 9.1 cents in the first quarter of 2002. While wholesale costs were significantly greater in the first quarter of 2003 than in the same quarter a year ago, retail prices were also much higher than in the prior-year quarter.
OSG&A rose 5.0 percent to $467.9 million in the first quarter of 2003. Expressed as a percent of total revenue, OSG&A was 18.3 percent. The primary drivers of the year-over-year increase were higher occupancy expenses from new store openings, labor, repairs and maintenance and credit card processing fees. Adjusting for the 43-cent per gallon increase in gasoline prices year over year and a $3.2 million gain due to currency conversion and infrastructure consolidation and other items, OSG&A for the first quarter of 2003 as a percent of revenue would have been 20.1 percent. This ratio was flat with the prior-year quarter after adjusting for last year's $1.2 million conversion gain and the $6.9 million charge for infrastructure consolidation and other items.
During the first quarter of 2003, 7-Eleven, Inc. invested approximately $56.8 million in capital expenditures. The company opened 16 stores in the U.S. and Canada and operated 5,791 stores as of March 31, 2003.
The company is reconfirming its earlier guidance for 2003 core earnings per fully diluted share to be in the range of $0.70 to $0.75.
Summary of Non-Operating Items:
During the first quarter of 2003, the company closed 48 stores as part of its strategy to improve the performance of its store base. In accordance with SFAS 144, the company reclassified the after-tax results from the closed stores to Discontinued Operations ($1.6 million net loss). Discontinued Operations for the first quarter of 2002 include the results of stores closed this quarter as well as the results for all stores closed during 2002 ($9.5 million net loss).
The company also reported an after-tax non-cash currency conversion gain of $0.3 million in the first quarter of 2003, compared to an after-tax non- cash gain of $0.7 million in the corresponding quarter a year ago.
Included in infrastructure consolidation and other items for the first quarter of 2003 was a $1.7 million after-tax gain, primarily due to the receipt of life insurance proceeds. For the first quarter of 2002, infrastructure consolidation and other items included after-tax charges related to employee severance and other costs totaling $4.1 million.
Internet Broadcast of Earnings Conference Call and Replay
The first quarter 2003 earnings conference call will begin at 9:00 a.m. Eastern Daylight Time on Tuesday, April 22, 2003. The call is available by Webcast at www.7-Eleven.com or by telephone at 1-800-223-9488 for domestic callers or 1-785-832-2041 for international callers. The replay of the call will be available for one week, beginning approximately two hours after the call concludes. The call may be accessed either through the Investor Relations section of www.7-Eleven.com or by calling 1-888-562-3380 (domestic callers) or 1-402-220-1188 (international callers).
About 7-Eleven, Inc.
7-Eleven, Inc. is the premier name and largest chain in the convenience retailing industry. Headquartered in Dallas, Texas, 7-Eleven, Inc. operates or franchises approximately 5,800 7-Eleven(R) stores in the United States and Canada and licenses approximately 19,000 7-Eleven(R) stores in 17 other countries and territories throughout the world. During 2002, 7-Eleven(R) stores worldwide generated total sales of more than $33 billion. Find out more online at www.7-Eleven.com .
This release, and the accompanying discussion on the earnings conference call on April 22, 2003, includes certain statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Any statement that is not a statement of historical fact should be deemed to be a forward-looking statement. Because these forward-looking statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. There can be no assurance that (i) we have correctly measured or identified all of the factors affecting our business or the extent of their likely impact; (ii) the publicly available information with respect to those factors on which our business analysis is based is complete or accurate; (iii) our analysis is correct; or (iv) our strategy, which is based in part on this analysis, will be successful.
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Shares and dollars in thousands, except per-share data)
(UNAUDITED)
Three Months
Ended March 31
2002 2003
Revenues:
Merchandise sales $1,598,892 $1,712,256
Gasoline sales 559,019 824,627
Net sales 2,157,911 2,536,883
Other income 26,503 20,767
Total revenues 2,184,414 2,557,650
Costs and expenses:
Merchandise cost of goods sold 1,046,052 1,131,673
Gasoline cost of goods sold 516,324 756,378
Total cost of goods sold 1,562,376 1,888,051
Franchisee gross profit expense 162,303 174,630
Operating, selling, g&a expenses 445,570 467,864
Interest expense, net 15,810 16,371
Total costs and expenses 2,186,059 2,546,916
Earnings (loss) from continuing
operations before income tax
and cumulative effect
of accounting change (1,645) 10,734
Income tax expense (benefit) (658) 4,186
Earnings (loss) from continuing
operations before cumulative
effect of accounting change (987) 6,548
Loss on discontinued operations (net
of tax benefit of $6,311 and $1,018) (9,466) (1,592)
Cumulative effect of accounting
change (net of tax benefit of $18,759) (28,139) ---
Net earnings (loss) $(38,592) $4,956
Net earnings (loss) per common share:
Basic
Earnings (loss) from continuing
operations before cumulative effect
of accounting change $(.01) $.07
Loss on discontinued
operations (.09) (.02)
Cumulative effect of accounting change (.27) ---
Net earnings (loss) $(.37) $.05
Diluted
Earnings (loss) from continuing
operations before cumulative effect
of accounting change $(.01) $.07
Loss on discontinued operations (.09) (.02)
Cumulative effect of accounting change (.27) ---
Net earnings (loss) $(.37) $.05
Weighted average shares:
Basic 104,819 104,853
Diluted 104,819 105,296
Operating stores at end of period 5,764 5,791
FINANCIAL HIGHLIGHTS
Three Months Ended
% or Unit
($ millions - except per share data) 03/31/02 03/31/03 Change
Earnings
Core Earnings $2.4 $4.6
Conversion Gain/(Loss) 0.7 0.3
Infrastructure Consolidation and
Other Items (4.1) 1.7
Discontinued Operations (SFAS
No. 144) (9.5) (1.6)
Cumulative Accounting Change -
SFAS No. 143 (A) (28.1) ---
Net Earnings (Loss) as Reported $(38.6) $5.0
Net earnings per diluted share
Core Earnings $.02 $.04
Conversion Gain/(Loss) .01 ---
Infrastructure Consolidation and
Other Items (.04) .02
Discontinued Operations (SFAS
No. 144) (.09) (.02)
Cumulative Accounting Change -
SFAS No. 143 (A) (.27) ---
Net Earnings (Loss) as Reported (.37) .05
Weighted Average Shares
Outstanding (basic in 000's) 104,819 104,853
Weighted Average Shares
Outstanding (diluted in 000's) 104,819 105,296
EBITDA (B) $64.8 $96.3 $31.5
Interest Coverage Ratio (C) 6.66 6.29
Key Data
Total Revenue $2,184.4 $2,557.7 17.1 %
Merchandise Sales 1,598.9 1,712.3 7.1 %
U.S. Same-Store Sales
Increase 3.7 % 4.5 %
Merchandise Gross Profit $552.8 $580.6 $27.8
Merchandise GP Margin 34.58 % 33.91 % (67)bp
Gasoline Sales 559.0 824.6 47.5 %
Gasoline Gallons 466.8 506.4 8.5 %
Gasoline Gross Profit 42.7 68.2 59.9 %
Gasoline CPG 9.1 13.5 4.4
Gasoline GP Margin 7.64 % 8.28 % 64 bp
Average Per Store Day Data Percent
Incr/(Decr)
Merchandise GP Growth per store 5.8 % 2.9 % (2.9)
Gasoline Gallons Sold 2.7 % 5.0 % 2.3
Gasoline GP Dollars (18.9)% 54.7 % 73.6
Total GP Dollars 1.0 % 11.0 % 10.0
Total Stores (end of period)
U.S. and Canada 5,764 5,791 27
Gasoline Stores 2,425 2,466 41
Worldwide 22,910 24,912 2,002
Balance Sheet Items (end of period)
Debt $1,490.9 $1,538.6
Convertible Quarterly Income
Debt Securities 380.0 380.0
Stockholders' Equity 115.4 176.5
(A) Year-to-date 2002 reported net earnings includes the one-time
cumulative effect charge of $(28.1) million or $(0.27) per diluted
share in connection with the adoption of SFAS No. 143.
(B) EBITDA defined as earnings before net interest expense, income
taxes (benefit), depreciation and amortization and cumulative
accounting changes.
(C) Interest coverage ratio is based on EBITDA divided by Interest
Expense for the trailing 12 months ending March 2002 and 2003,
respectively.