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.