7-11 licensee Philseven incurs 12% drop in net income

MANILA, Philippines - The local licensee of the 7-Eleven convenience store chain posted lower income in the first quarter, dragged down by expenses from the store expansion while the sin tax law tempered the growth in sales.

Profits of Philippine Seven Corp. (Philseven) fell 12.2 percent to P100 million in the first three months from P113.9 million last year.

Retail sales generated by all 7-Eleven stores in the Philippines rose 6.6 percent to P4.4 billion from P4.2 billion during first quarter last year.

“The growth in sales was largely driven by the increase in number of stores. Store count went up by 23.8 percent to 1,049 stores,” Philseven said. Franchise stores accounted for 68 percent of total branches, slightly up from 66 percent a year ago.

However, the company reported lower sales from existing stores in the first quarter.

“Same store sales in the first quarter declined due  to lower cigarette sales,” Philseven said, adding that the cigarette category registered significant growth a year ago due to stockpiling prior with the implementation of higher sin taxes.

“Sales in the affected categories have since settled down, although higher prices, steady demand, and a more level playing field will continue to benefit these categories going forward,” Philseven said.

Excluding cigarette sales, Philseven still posted a slight drop in same store sales due to cooler weather and the timing effect of the Lenten season.

Franchise revenues gained 22.3 percent to P347.9 million from P284.4 million due to the improvement in franchise operators. Marketing income jumped by a quarter to P80.6 million from P64.1 million a year ago.

However, expenses picked up 7.5 percent to P3.97 billion from P3.69 billion, weighing down the company’s earnings.

For instance, selling, general and administrative expenses rose 11.4 percent to P1.2 billion from P1.07 billion given expenses from the opening of new stores, Philseven said.

The 7-Eleven convenience store operator set aside around P2 billion this year to grow its branch network by a third nationwide. In January, Philseven opened its 1,000th convenience store located at the IT Building of the Greenfield District in Mandaluyong City.

Philseven, which is banking on the robust retail market and franchising to maintain its position as the country’s largest convenience store chain, aims to hit 2,000 stores in the next three to four years. The company doubled its footprint from 500 stores in 2010 to 1,000 early this year.

There are more than 52,000 7-Eleven branches worldwide in countries like Japan, Taiwan, Thailand, South Korea, China, Malaysia, Mexico, Canada, Singapore, Australia, Indonesia, Norway, Sweden and Denmark.

Philseven secured the right to operate 7-Eleven stores in the Philippines from Texas-based 7-Eleven Inc. in 1982. Philseven is 56.59 percent owned by President Chain Store (Labuan) Holdings Ltd., a Malaysia-based investment holding firm.