COMMENT: 7-Eleven - expanding at a cost
7-Eleven has announced a Q4 net loss of US$11.5m compared to a gain of US$17.1m for Q4 2001. Despite this, the outlook for the company remains strong for 2003. As it continues to improve efficiency and expand, 7-Eleven must take care not to stretch resources too thinly.
7 -Eleven, the world's largest convenience store chain, cited higher operating, selling, general and administrative costs (OSGA) as the culprit for a drop of more than 80% in Q4 2002 core earnings versus a year ago. This is despite continued growth in merchandise and gasoline gross profits. 7-Eleven's OSGA costs have steadily risen due to the company's decision in January 2002 to accelerate some of its key strategic initiatives.
While overall results have been disappointing, the company continues to record growth in core operating profits. Merchandise gross profits grew 5.5% and gasoline sales grew 32.2%, contributing to higher-than-expected core earnings.
7-Eleven has long been known for its innovations. The year 2002 was no different. In April the company opened its first 24-hour in-campus store with a new location at Temple University, Philadelphia. In August, it partnered with South Beach Beverage Company to develop SoBe Gum, a SoBe liquid-infused gum line. Throughout last year, 7-Eleven also steadily increased the presence and service variety of Vcom financial service kiosk and its fresh food delivery program.
With all these new innovative programs, 7-Eleven has clearly become the leader in the convenience store market space. Going forward, the biggest challenge awaiting the company will not be stagnation, as with many retailers, but restraining costs to avoid over-expansion.
Despite short-term losses, investors are still patiently waiting for the fruition of 7-Eleven's investments and the company's stock price increased slightly on Thursday despite the earnings announcement. The company looks strong heading into 2003 but investors will not be patient enough to put up with another year of loss. 7 -Eleven needs to start reaping the rewards from all it has sown. Related research: Datamonitor, "Convenience Consumers" (DMCM0094)
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