7-Eleven Posts Revenue Increase

Extends wholesale agreement with McLane

DALLAS -- 7-Eleven Inc. has reported that core earnings, which exclude non-operating items, grew to $55.3 million, or 44 cents per diluted share, for the quarter ended June 30, 2005. This compares to core earnings of $48.1 million, or 39 cents per diluted share, for the second quarter of 2004. Second-quarter net earnings for 2005 were $57.2 million, or 45 cents per diluted share, compared to net earnings of $47 million, or 38 cents per diluted share, in the same quarter a year ago.

Total revenues for the second quarter grew 9.1% to $3.4 billion, driven [image-nocss] by strong growth in merchandise and gasoline sales. Total merchandise sales for the quarter increased 6.5% to $2.2 billion. This growth was driven primarily by a 5% increase in U.S. same-store merchandise sales, on top of a 7.1% increase in second-quarter 2004. Categories that contributed to the merchandise sales increase included fresh food, hot and cold beverages, cigarettes and services.

At 7-Eleven, we are committed to keeping pace with the changing needs and demands of convenience customers, said Jim Keyes, 7-Eleven's president and CEO. By executing our merchandising strategy, we have delivered 35 consecutive quarters of increased U.S. same-store merchandise sales.

For the second quarter, merchandise gross profit grew 8% to $778.4 million. Merchandise gross profit margin increased by 50 basis points to 36.15% compared to the prior-year quarter. This increase was primarily due to favorable changes in mix.

Total gasoline gallons sold for second-quarter 2005 rose to 560 million gallons, compared to 556.8 million gasoline gallons sold in second-quarter 2004. Average gallons sold per store grew 0.1%, on top of a 4.8% increase in second-quarter 2004. Gasoline revenue for the quarter was $1.2455 billion, compared to $1.0866 billion for the same quarter a year ago. The 14.6% increase in gasoline revenue is primarily due to a 27-cent-per-gallon increase in the average retail gasoline price year over year. 7-Eleven's average retail price per gallon of gasoline was $2.22 in second-quarter 2005, compared to $1.95 in second-quarter 2004.

Gasoline gross profit was $90.9 million, or basically flat with the prior-year quarter. Expressed as cents-per-gallon, the gasoline margin was 16.2 cents in second-quarter 2005 compared to 16.4cents in second-quarter 2004.

By actively managing our gasoline business at each location, 7-Eleven has delivered leading margins in the convenience industry for over a decade. In spite of record wholesale prices in the second quarter, we produced steady gasoline gross profit of 16.2 cents per gallon, said Keyes.

Operating, selling, general and administrative (OSG&A) expenses rose 4.8% to $789.2 million in second-quarter 2005. Expressed as a percent of total revenue, OSG&A was 23%, compared to 24% in the prior-year second 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 second-quarter 2005 as a percent of total revenue would have been 24.1%.

During the second quarter, 7-Eleven negotiated a two-year extension on its service agreement with McLane Co., the company's primary wholesale supplier in the United States. The companies agreed to terms that provide enhanced benefits and improved service to 7-Eleven's stores, including requirements designed to improve on-time deliveries and in-stock levels. The amendment extended the agreement through Jan. 31, 2008.

The company closed six stores during second-quarter 2005, and reclassified the prior periods for the aftertax results of stores closed during the second quarter to Discontinued Operations. During the quarter, 7-Eleven invested about $88.9 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 around 100 stores throughout the United States and Canada.

As of June 30, 2005, the company and its franchisees operated 5,814 stores in the United States and Canada, with the global store count reaching 28,469 stores.