7-Eleven, Inc. Announces Results for 2005 Third Quarter; Merchandise Sales Grow 6.7%; Company Raises 2005 Core Earnings Guidance
Third Quarter 2005 Highlights: * Grew core earnings by 53.3 percent to $66.3 million, or $0.52 per diluted share, compared to $43.2 million, or $0.35 per diluted share, in third quarter 2004 * Increased total revenue $556.3 million, or 17.2 percent, to $3.8 billion * Increased total merchandise sales by $142.4 million, or 6.7 percent, to $2.3 billion * Produced a 4.9 percent increase in U.S. same-store merchandise sales, on top of a 4.2 percent increase in third quarter 2004 * Improved merchandise gross profit 6.5 percent to $817.0 million * Achieved record quarterly gasoline gross profit of $120.8 million with a gasoline margin of 20.8 cents per gallon * Reached global 7-Eleven store count of approximately 29,000 stores * Raising 2005 core earnings guidance to a range of $1.30 to $1.33 per diluted share from previous guidance of $1.12 to $1.16 per diluted share
DALLAS, Oct. 25 -- 7-Eleven, Inc. , today reported that core earnings, which exclude non-operating items, grew 53.3 percent to $66.3 million, or $0.52 per diluted share, for the quarter ended September 30, 2005. This compares to core earnings of $43.2 million, or $0.35 per diluted share, for the third quarter of 2004. Net earnings for the third quarter of 2005 were $68.3 million, or $0.53 per diluted share, compared to $44.2 million, or $0.36 per diluted share a year ago.
EARNINGS SUMMARY (Unaudited)
($ in millions)
Three Months Ended
September 30,
2004
Restated(A) 2005
Net Earnings
Adjustments (Net of Tax): $44.2 $68.3
Non-Operating Items:
* Currency Conversion Gain (1.1) (1.5)
* Gain Amortization on Sale of
Cityplace and Other Items (0.9) (0.4)
* Loss (Gain) from Discontinued
Operations 1.0 (0.1)
Core Earnings $43.2 $66.3
(A) In December 2004, 7-Eleven revised its accounting for depreciation
of leasehold improvements and restated prior years to adjust the
amortization expense of certain of its leasehold improvements to the
shorter of the economic useful life or the lease term as defined by
SFAS No. 13, "Accounting For Leases." Prior years were restated to
be consistent with the revised accounting for depreciation of
leasehold improvements.
Review of Third Quarter 2005 Core Earnings
Total revenue for the third quarter was $3.8 billion, an increase of 17.2 percent. This increase was driven by a 37.5 percent increase in gasoline revenue and a 6.7 percent increase in merchandise sales. Total merchandise sales increased to $2.3 billion, driven by a 4.9 percent increase in U.S. same-store merchandise sales. Categories that contributed to the merchandise sales increase for the quarter included fresh food, hot and cold beverages, cigarettes and services.
"7-Eleven's ability to adapt to changing consumer needs has contributed to 36 consecutive quarters of increased U.S. same-store merchandise sales," said Jim Keyes, 7-Eleven, Inc.'s president and chief executive officer. "This sustained merchandise sales record demonstrates the effectiveness of our Retailer Initiative merchandising strategy," Keyes said.
For the third quarter, merchandise gross profit grew 6.5 percent to $817.0 million. Merchandise gross profit margin decreased by 8 basis points to 36.15 percent compared to the prior-year quarter. This decrease was primarily due to changes in mix.
Total gasoline gallons sold for the third quarter rose to 582.0 million, with average gallons sold per store growing 0.9 percent. Gasoline gross profit was a record $120.8 million, an increase of 46.3 percent over the third quarter of 2004. Expressed as cents-per-gallon, the company earned a gasoline margin of 20.8 cents in the third quarter of 2005, versus 14.4 cents in the same quarter a year ago. "During a period of extreme volatility in wholesale gasoline costs, we produced gallon growth as well as record gasoline gross profit and cent-per-gallon margins by proactively managing our retail prices throughout our system," Keyes said.
Operating, selling, general and administrative (OSG&A) expenses rose 6.5 percent to $844.3 million in the third quarter of 2005. Expressed as a percent of total revenue, OSG&A was 22.2 percent, compared to 24.5 percent in the prior-year third quarter. After normalizing for the higher gasoline revenue due to the 68 cent-per-gallon increase in gasoline retail prices year over year, OSG&A for the third quarter of 2005 as a percent of total revenue would have been 24.8 percent compared to 24.5 percent for the prior-year quarter.
Summary of Third Quarter 2005 Non-Operating Items
The company reported an after-tax, non-cash currency conversion gain of $1.5 million for the third quarter of 2005.
During the second quarter of 2004, the company completed the sale of its headquarters which resulted in a deferred gain that is being recognized over three years. Third quarter 2005 results include an after-tax gain of approximately $0.9 million related to the amortization of the deferred gain.
The company closed nine stores during the third quarter of 2005, and reclassified the prior periods for the after-tax results of stores closed during the third quarter to Discontinued Operations.
Capital Expenditures
During the third quarter of 2005, 7-Eleven invested approximately $75.2 million in capital expenditures. The company anticipates that capital expenditures for 2005 will be in the range of $390 to $430 million, and expects to open around 90 to 95 stores during 2005.
7-Eleven Stores
As of September 30, 2005, the company and its franchisees operated 5,818 stores in the United States and Canada, with the global 7-ELEVEN(R) store count reaching 28,993 stores.
2005 Outlook
The company is raising its core earnings guidance for 2005 to a range of $1.30 to $1.33 per diluted share. This compares to previous core earnings guidance of $1.12 to $1.16 per diluted share. The increase in core earnings guidance is due to unusually high gasoline cent-per-gallon margins in September and October. Current gasoline margins have significantly increased in a particularly volatile gasoline market. Management expects market conditions to stabilize during the quarter and the company's gasoline margins to return to historical levels of 13 to 15 cents per gallon over the long term.
Core Earnings Guidance
The company believes that core earnings, which exclude non-operating items, are more indicative of the company's operating performance than net earnings. Certain items that impact net earnings, such as a gain or loss on foreign currency conversion, are difficult to forecast. Therefore, the company provides guidance based on core earnings.
U.S. Same-Store Merchandise Sales Calculation
When determining the same-store merchandise sales calculation, the company includes the merchandise sales of both its U.S. company-owned and franchise- operated stores if they were operating for all days of the periods being compared. New stores, relocated stores or rebuilt stores are not included in the same-store sales calculation until they have recorded merchandise sales for all days of the periods being compared.
Tender Offer
7-Eleven is the subject of an unsolicited tender offer commenced by Seven- Eleven Japan Co., Ltd. 7-Eleven has established a special committee of independent directors to review the tender offer. The special committee recommends that 7-Eleven shareholders read the special committee's solicitation/recommendation statement, as amended, regarding the tender offer. Shareholders may obtain a free copy of the solicitation/recommendation statement, which has been filed by 7-Eleven with the Securities and Exchange Commission, at the SEC's Web site at http://www.sec.gov/ .
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 23,200 7-Eleven stores in 17 countries and U.S. territories throughout the world. During 2004, 7-Eleven stores worldwide generated total sales of approximately $41 billion. Find out more online at http://www.7-eleven.com/ .
This release 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. Additional information about these risks and uncertainties and other matters can be found in the company's annual report on Form 10-K for the year ended Dec. 31, 2004, and in its periodic reports on Form 10-Q and current reports on Form 8-K.
Contact Information:
Carole Davidson, CFA Margaret Chabris
Vice President, Investor Relations Media Relations
(214) 828-7021 (214) 828-7345
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (A)
(Shares and dollars in thousands, except per-share data)
(UNAUDITED)
Three Months Year To Date
Ended Ended
September 30 September 30
2004 2005 2004 2005
Restated Restated
Revenues:
Merchandise sales $2,117,724 $2,260,137 $5,918,807 $6,281,678
Gasoline sales 1,095,125 1,506,197 3,103,896 3,824,479
Net sales 3,212,849 3,766,334 9,022,703 10,106,157
Other income 29,377 32,233 93,315 89,867
Total revenues 3,242,226 3,798,567 9,116,018 10,196,024
Costs and expenses:
Merchandise cost of
goods sold 1,350,465 1,443,139 3,803,090 4,016,214
Gasoline cost of
goods sold 1,012,574 1,385,426 2,858,804 3,544,581
Total cost of
goods sold 2,363,039 2,828,565 6,661,894 7,560,795
Operating, selling,
g&a expenses (B) 792,750 844,265 2,239,034 2,353,897
Interest expense, net 14,781 14,256 50,725 42,776
Total costs and
expenses (B) 3,170,570 3,687,086 8,951,653 9,957,468
Earnings from continuing
operations before income
tax and cumulative effect
of accounting change (B) 71,656 111,481 164,365 238,556
Income tax expense (B) 26,474 43,254 61,702 92,560
Earnings from continuing
operations before
cumulative effect of
accounting change (B) 45,182 68,227 102,663 145,996
Earnings (loss) on
discontinued operations
(net of tax benefit
(expense) of $675, $(66),
$1,485, and $(278)) (1,000) 104 (2,323) 439
Cumulative effect of
accounting change (net of
tax benefit of $3,284) --- --- (5,137) ---
Net earnings (B) $44,182 $68,331 $95,203 $146,435
Net earnings per common
share (B):
Basic
Earnings from continuing
operations before
cumulative effect of
accounting change $.40 $.59 $.92 $1.28
Earnings (loss) on
discontinued operations (.01) .00 (.02) .00
Cumulative effect of
accounting change --- --- (.05) ---
Net earnings $.39 $.59 $.85 $1.28
Diluted
Earnings from continuing
operations before
cumulative effect of
accounting change $.37 $.53 $.84 $1.16
Earnings (loss) on
discontinued operations (.01) .00 (.02) .00
Cumulative effect of
accounting change --- --- (.04) ---
Net earnings $.36 $.53 $.78 $1.16
Weighted average shares:
Basic 112,472 115,501 112,113 114,799
Diluted 130,016 132,177 129,423 131,429
Operating stores at end
of period 5,788 5,818
(A) Prior-year amounts have been reclassified to conform to the current
year presentation.
(B) Prior-year earnings were restated in connection with
December 31, 2004, year-end reporting to recognize a consistent
lease term when calculating depreciation of long-lived assets on
leased properties.
FINANCIAL HIGHLIGHTS (A)
Three Months Ended
% or Unit
($ millions - except per share data) 09/30/04 09/30/05 Change
Restated
Earnings
Core Earnings (B) $43.2 $66.3
Conversion Gain 1.1 1.5
Cityplace Gain Amortization and
Other 0.9 0.4
Discontinued Operations (1.0) 0.1
Accounting Change (C) --- ---
Net Earnings as Reported (B) $44.2 $68.3
Net earnings per diluted share
Core Earnings (B) $.35 $.52
Conversion Gain .01 .01
Cityplace Gain Amortization and
Other .01 .00
Discontinued Operations (.01) .00
Accounting Change (C) --- ---
Net Earnings as Reported (B) $.36 $.53
Weighted Average Shares
Outstanding (basic in 000's) 112,472 115,501
Weighted Average Shares
Outstanding (diluted in 000's) 130,016 132,177
EBITDA (B)(D) $168.7 $210.8 $42.1
Interest Coverage Ratio (E)
Key Data (F)
Total Revenue $3,242.2 $3,798.6 17.2 %
Merchandise Sales $2,117.7 $2,260.1 6.7 %
U.S. Same-Store Sales
Increase 4.2 % 4.9 %
Merchandise Gross Profit $767.3 $817.0 $49.7
Merchandise GP Margin 36.23 % 36.15 % (8)bp
Gasoline Sales $1,095.1 $1,506.2 37.5 %
Gasoline Gallons 573.8 582.0 1.4 %
Gasoline Gross Profit $82.6 $120.8 46.3 %
Gasoline CPG 14.4 20.8 6.4
Gasoline GP Margin 7.54 % 8.02 % 48 bp
Average Per Store Day Data Percent
Incr/(Decr) (F)
Merchandise GP Growth per store 6.3 % 5.3 % (1.0)
Gasoline Gallons Sold 3.9 % 0.9 % (3.0)
Gasoline GP Dollars (9.3)% 45.6 % 54.9
Total GP Dollars 2.7 % 13.5 % 10.8
FINANCIAL HIGHLIGHTS (A)
Nine Months Ended
% or Unit
($ millions - except per share data) 09/30/04 09/30/05 Change
Restated
Earnings
Core Earnings (B) $104.1 $136.7
Conversion Gain 1.6 7.2
Cityplace Gain Amortization and
Other (3.1) 2.1
Discontinued Operations (2.3) 0.4
Accounting Change (C) (5.1) ---
Net Earnings as Reported (B) $95.2 $146.4
Net earnings per diluted share
Core Earnings (B) $.85 $1.09
Conversion Gain .01 .05
Cityplace Gain Amortization and
Other (.02) .02
Discontinued Operations (.02) .00
Accounting Change (C) (.04) ---
Net Earnings as Reported (B) $.78 $1.16
Weighted Average Shares
Outstanding (basic in 000's) 112,113 114,799
Weighted Average Shares
Outstanding (diluted in 000's) 129,423 131,429
EBITDA (B)(D) $460.3 $535.7 $75.4
Interest Coverage Ratio (E) 7.65 10.85
Key Data (F)
Total Revenue $9,116.0 $10,196.0 11.8 %
Merchandise Sales $5,918.8 $6,281.7 6.1 %
U.S. Same-Store Sales
Increase 5.7 % 4.9 %
Merchandise Gross Profit $2,115.7 $2,265.5 $149.8
Merchandise GP Margin 35.75 % 36.06 % 31 bp
Gasoline Sales $3,103.9 $3,824.5 23.2 %
Gasoline Gallons 1,674.2 1,685.7 0.7 %
Gasoline Gross Profit $245.1 $279.9 14.2 %
Gasoline CPG 14.6 16.6 2.0
Gasoline GP Margin 7.90 % 7.32 % (58)bp
Average Per Store Day Data Percent
Incr/(Decr) (F)
Merchandise GP Growth per store 7.0 % 6.3 % (0.7)
Gasoline Gallons Sold 5.0 % 0.6 % (4.4)
Gasoline GP Dollars (3.1)% 14.1 % 17.2
Total GP Dollars 4.7 % 8.0 % 3.3
Total Stores (end of period)
U.S. and Canada 5,788 5,818 30
Gasoline Stores 2,436 2,433 (3)
Worldwide 26,980 28,993 2,013
Balance Sheet Items (end of period)
Debt $1,027.2 $821.0
Convertible Quarterly Income
Debt Securities $300.0 $300.0
Stockholders' Equity (B) $444.8 $668.3
(A) Prior-period amounts have been reclassified to conform to the
current year presentation.
(B) Prior-period earnings were restated in connection with
December 31, 2004, year-end reporting to recognize a consistent
lease term when calculating depreciation of long-lived assets on
leased properties.
(C) Year-to-date 2004 reported net earnings includes the one-time
cumulative effect charge of $(5.1) million, or $(0.04) per diluted
share in connection with the adoption of FIN 46R in 2004 which
relates to variable interest entities.
(D) EBITDA defined as earnings before net interest expense, income taxes
(benefit), depreciation and amortization and cumulative effect of
accounting changes.
(E) Interest coverage ratio is based on EBITDA divided by Interest
Expense for the trailing 12 months ended September 2004 and 2005,
respectively.
(F) Total sales of merchandise and gasoline for the nine months ending
September 2004 benefited approximately 0.4 percent from the extra
day due to leap year. The U.S. same-store sales increase and the
average-per-store-day percent changes are calculated on an average-
per-store-day basis and are unaffected by the extra day.