Company News

Quadruple Q for 7-Eleven

First-quarter earnings climb on gas, merchandise sales

DALLAS --7-Eleven Inc. has reported that core earnings, which exclude nonoperating items, grew to $15.1 million, or 13 cents per diluted share, for the quarter ended March 31, 2005. This compares to core earnings of $12.9 million, or 11 cents per diluted share, for first-quarter 2004. First-quarter net earnings for 2005 were $20.9 million, or 18 cents per diluted share, compared to net earnings of $4.1 million, or 4 cents per diluted share, in the same quarter a year ago, a fourfold increase.

Total revenues for the first quarter grew 8.7% to $3 billion [image-nocss] driven by strong growth in merchandise and gasoline sales. Total merchandise sales for the quarter increased 5% to $1.9 billion. This growth was driven primarily by a 4.6% increase in U.S. same-store merchandise sales, on top of a 6.1% increase in first-quarter 2004. Categories that contributed to the merchandise sales increase included fresh food, hot and cold beverages, cigarettes and services.

7-Eleven's operations and merchandising strategy is designed around keeping pace with the changing needs of our customers on an item-by-item and store-by-store basis. This winning strategy has produced 34 consecutive quarterly increases in U.S. same-store merchandise sales, said Jim Keyes, 7-Eleven's president and CEO. We have every intention of maintaining this track record of growing revenues, improving inventory turnover and increasing profits.

For the first quarter, merchandise gross profit grew 6.8% to $671.9 million. Merchandise gross profit margin increased by 59 basis points to 35.86% compared to the prior-year quarter. This increase was primarily due to favorable changes in mix.

Gasoline gallons were 544.5 million gallons for first-quarter 2005, or basically flat with first-quarter 2004. Average gallons sold per store for the quarter grew 0.8%, on top of a 6.5% increase in first-quarter 2004. Total gasoline revenues for the quarter were $1.0743 billion compared to $923.2 million in the same quarter a year ago. The 16.4% increase in gasoline revenues is principally due to a 27 cent-per-gallon increase in average retail gasoline prices year over year. The average retail price of gasoline was $1.97 in first-quarter 2005, compared to $1.70 in first-quarter 2004.

Gasoline gross profit was $68.3 million, a 4.3% decrease over first-quarter 2004. Expressed as cents per gallon, the gasoline margin was 12.5 cents in first-quarter 2005 compared to 13.1cents in first-quarter 2004. In the face of a difficult wholesale market with significant cost increases in the second half of the quarter, we were pleased with our cent-per-gallon margins, said Keyes. As we begin the second quarter, we have seen a decline in wholesale costs which has contributed to higher cent-per-gallon gasoline margins in April.

Operating, selling, general and administrative (OSG&A) expenses rose 4.0% to $722.3 million in first-quarter 2005. Expressed as a percent of total revenue, OSG&A was 24.3%, compared to 25.4% in the prior-year first quarter. After normalizing for the higher gasoline revenue due to the 27 cent-per-gallon increase in gasoline retail prices year over year, OSG&A for first-quarter 2005 as a percent of total revenue would have been 25.6%. This compares to 25.4% for the same quarter a year ago.

Total sales of merchandise and gasoline for first-quarter 2004 benefited just over 1% from the extra day due to leap year. Both the same-store merchandise comparison and the average gallons sold per store comparison are calculated on an average-per-store-day basis and are unaffected by the extra day.

The company reported an aftertax, noncash currency conversion gain of $3.4 million for first-quarter 2005. During second-quarter 2004, the company completed the sale of its headquarters, which resulted in a deferred gain to be recognized over three years. First-quarter 2005 results included an aftertax gain of approximately $900,000 related to the amortization.

The company closed three stores during first-quarter 2005. In accordance with SFAS No. 144, the company reclassified the prior periods for the after-tax results of stores closed during the first quarter to discontinued operations.

During the first quarter of 2005, 7-Eleven invested approximately $44 million in capital expenditures. The company anticipates that capital expenditures in 2005 will be in the range of $390 million to $430 million, and expects to open between 100 and 150 stores throughout the United States and Canada.

The company expects core earnings per diluted share for 2005 to be in the range of $1.12 to $1.16, which excludes the cost of expensing stock options for 2005.

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