7-Eleven Gains Ground

Going forward, all new stores will sport "the Austin look," Jim Keyes, 7-Eleven's president and CEO, said during yesterday's fourth-quarter earnings call. The concept-makers put the design to the test in Austin and realized "we had pulled out too many shelves," he says, citing a reduction in grocery sales despite a strong uptick in the "dashboard dining" food line. After tweaking the design again, it's now headed to North Texas.

With the hard focus on its food line, 7-Eleven has been testing wraps in Austin and Dallas while drumming up plans to expand a "p.m. bakery line." After successful runs in Florida, the corporation has taken a specialty "brownie" nationwide.

The Dallas-based convenience store chain is using the menu changes--a fresh-food branding line seasoned with a national advertising campaign--and ongoing partnerships for exclusive food and beverage items to boost the bottom line. The chain took in $2 billion in revenue in the fourth quarter to end the year at a record $12.2 billion, but that included the second-quarter sale of its Cityplace headquarters. That sale to locally based Prentiss Properties resulted in a pre-tax gain of $17.5 million, which is being amortized over three years as a non-operating gain.

The Cityplace sale contributed about $900,000 in an after-tax, non-core gain to the Q4 results and $2.4 million for the year, according to 7-Eleven's earnings press release. The corporation also reported taking a one-time, after-tax charge of about $4.6 million due to the prepayment penalty for Cityplace's term loan.

The fourth-quarter numbers showed net earnings of $2.1 million or 2 cents per diluted share versus last year's Q4 net loss of $6.1 million or 5 cents per diluted share. "We promised a strong impact for 2004 and I hope you'll agree that we delivered," Keyes told stockholders and analysts.

Keyes and his team credited the headway to higher merchandise sales, pump prices, increased franchise fees and royalty income and lower interest expense after slashing $449 million from its debt level. Keyes said 3,200 franchisees or 95% of the component renewed agreements last year although only 1,100 were facing expirations. "Almost all franchisees are working on the same agreement toward the same objective," he said.

Worldwide, the chain added 1,700 stores in 2004, including 10 in Beijing after spending most of the year negotiating the contract. It began 2005 with the opening of the 500th store in Mexico. The expectation is the chain, now operating 27,500 stores globally, will hit 30,000 by year's end, according to Keyes. Corporate-owned locations total 5,799.

Like other retailers, the 7-Eleven team has started reviewing its accounting method for leases and leasehold improvements due to revisions that are causing increased depreciation and rent expenses. The team said it will know by March 16, the 10K deadline date, whether accounting procedures must be modified, which could affect financial statements for one or more years. The results aren't expected to impact revenues, same-store sales or cash flows, according to 7-Eleven.