IRVING, Texas — 7-Eleven Inc. has reported “the best operating-income performance in the company's history,” said Junro Ito, managing executive officer and director of Seven & I Holdings Co. Ltd., in announcing first-quarter fiscal 2020 results for the Tokyo-based company, the parent of Irving, Texas-based 7-Eleven Inc.
Year-over-year financial comparisons also included the performance of the more than 1,000 convenience stores acquired in late January 2018 from Sunoco LP, Dallas, which divested most of its retail outlets to focus on its wholesale business.
- 7-Eleven is No. 1 in CSP’s 2019 Top 202 ranking of U.S. convenience-store chains by number of retail outlets. It has about 9,200 locations in the United States.
Here are some details of 7-Eleven Inc.’s performance …
Operating income, sales
7-Eleven Inc. registered a year-over-year operating-income increase of $31 million during the period, Ito said.
In terms of merchandise, 7-Eleven registered a year-over-year improvement in U.S. existing-store sales of 3.4%. This, among other factors, had a positive contribution of $39 million in sales. It also saw a “significant improvement” in gross-profit margins of 0.7%, said Ito. This translated into a gross-profit growth contribution of $24 million.
The U.S. division experienced a year-over-year contraction in sales volume per store for gasoline; however, 7-Eleven’s acquisition of the Sunoco retail network had a positive effect on sales volume, which translated into sales volume growth of $10 million. Gross profits were up 1.2 cents per gallon year over year. This translated into gross-profit growth of $19 million. An increase in rents associated with the sale and leaseback of assets the company acquired from Sunoco pushed down operating income by $61 million.
“Overall, 7-Eleven Inc. delivered $161 million in operating income, allowing us to exceed guidance,” Ito said.
Food, private label
Fresh food and 7-Select private-brand products were sales drivers during the first quarter, as was the sale of alcohol and nonalcohol beverages and e-cigarettes, said Ito. This led to a year-over-year existing-store merchandise sales growth of 3.4%.
“We also continued to register strong sales after April,” he said. “A sales increase for nonalcoholic beverages, which have high margins; a positive contribution from 7Rewards, our customer loyalty program; and the introduction of 7-Select products and other 7-Eleven products at Sunoco stores, led to a merchandise gross-profit-margin growth of 0.7% year over year.”
The price of crude oil saw a sudden decline in the months leading up to the end of last year, and started reversing around the beginning of the year and is now on an upward trend, Ito said; however, the price of crude oil was still lower year over year during the first quarter. As a result, the retail price of gasoline was lower year over year.
Gasoline sales volume per store for 7-Eleven was lower year over year due to unseasonable weather, among other factors; however, cents-per-gallon margin was higher year over year. There was also an increase in store days for Sunoco. These factors resulted in a “significant” gasoline gross-profit improvement of 9.7%, said Ito.
For Sunoco, both daily merchandise and gasoline sales were lower year over year, according to Ito. This is due to the timing of 7-Eleven’s acquisition of Sunoco, he said.
“We acquired Sunoco on Jan. 23 of last year. Due to the timing of the acquisition, the figures for the current fiscal year include the first three weeks of the year, which is generally the worst sales period of the year. Figures for this period were absent in the previous fiscal year.”
Operating income for Sunoco saw a marked decline and stood at 12.8% versus the previous fiscal year, mainly due to the effect of an increase in rents derived from sales and leaseback. The first quarter is the hardest quarter in terms of sales, and there was also the influence of higher fixed expenses as a result of an increase in store days.
“Our results for Sunoco have a negative effect on consolidated operating income,” said Ito. “However, I would like to assuage your concerns by saying that these figures are in line with company estimates.”
7-Eleven opened a new “lab” store in March in Dallas, Ito said on the call.
“We are currently in the process of carrying out a variety of tests with an open mind in order to improve our understanding of customer needs and in order to gather information we can use for our future store designs,” he said. “This new test store has an in-store bakery serving cookies and croissants. We also serve craft beers. We also opened a Laredo Taco location at the new test store.”
“We also introduced the Scan & Pay system at the store through which customers can scan and pay for items with their smartphones as part of our personnel saving efforts and in order to increase profitability. We will be studying ways to apply results we see at this new test store to existing stores. The development and improvement of fast-food items is important and something which we will continue doing going forward.
“We also believe changing public perception of 7-Eleven in the United States to be important. In order to change public perception when it comes to buying food products at 7-Eleven, like is common in Japan, we will be strengthening store cleanliness and improving customer-service quality. We also want to continue carrying out efforts toward the renovation of existing stores,” he said.