DALLAS -- 7-Eleven Inc. has reported that core earnings, which exclude nonoperating items, grew 53.3% to $66.3 million, or 52 cents per diluted share, for the quarter ended Sept. 30, 2005. This compares to core earnings of $43.2 million, or 35 cents per diluted share, for third-quarter 2004. Net earnings for third-quarter 2005 were $68.3 million, or 53 cents per diluted share, compared to $44.2 million, or 36 cents per diluted share a year ago.
Total revenue for the third quarter was $3.8 billion, an increase of 17.2%. This increase was driven by a 37.5% [image-nocss] increase in gasoline revenue and a 6.7% increase in merchandise sales. Total merchandise sales increased to $2.3 billion, driven by a 4.9% 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's president and CEO. "This sustained merchandise sales record demonstrates the effectiveness of our Retailer Initiative merchandising strategy."
For the third quarter, merchandise gross profit grew 6.5% to $817 million. Merchandise gross profit margin decreased by 8 basis points to 36.15% 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 million, with average gallons sold per store growing 0.9%. Gasoline gross profit was a record $120.8 million, an increase of 46.3% over third-quarter 2004. Expressed as cents-per-gallon, the company earned a gasoline margin of 20.8 cents in third-quarter 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% to $844.3 million in third-quarter 2005. Expressed as a percent of total revenue, OSG&A was 22.2%, compared to 24.5% 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 third-quarter 2005 as a percent of total revenue would have been 24.8% compared to 24.5% for the prior-year quarter.
The company reported an after-tax, noncash currency conversion gain of $1.5 million for third-quarter 2005.
During second-quarter 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 aftertax gain of approximately $900,000 related to the amortization of the deferred gain.
The company closed nine stores during third-quarter 2005, and reclassified the prior periods for the aftertax results of stores closed during the third quarter to discontinued operations.
During third-quarter 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.
As of Sept. 30, 2005, the company and its franchisees operated 5,818 stores in the United States and Canada, with the global 7-Eleven store count reaching 28,993 stores.
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.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.