7-Eleven PH operator nets P356.5M in 1st half

THE COUNTRY’S leading convenience store operator Philippine Seven Corp. (PSC) grew its first-semester net profit by 10.1 percent year-on-year to P356.5 million, buoyed by a double-digit rise in retail sales alongside the expansion of nationwide store network.

For the second quarter alone, net profit was up by 8.8 percent year-on-year to P243.6 million, the local licensee of 7-Eleven convenience stores reported to the Philippine Stock Exchange on Monday.

Retail sales of all stores during the six-month period went up by 24.3 percent to P12.2 billion.

PSC ended the period with 1,405 stores, expanding by 25.3 percent year-on-year. Franchised stores accounted for 61 percent of the total.

In its report, PSC acknowledged that the rate of earnings growth had been slower due to the company’s capacity building expenditures. The retailer has been expanding its logistics infrastructure to support its unprecedented expansion in Visayas and Mindanao. This is seen gnawing on profitability in the medium term but is seen necessary to attain its goal of dominating even in new markets.

“The rest of the country is relatively uncontested in comparison. We are virtually the only competitor with the critical mass to build out proper supply chains in areas logistically unreachable from GMA (Greater Metro Manila area. Such supply chains come at a medium term cost in terms of underutilized warehouses, and 2015 will be our nadir: we will be operating 10 warehouses by yearend (throughout Luzon, Mindanao, and 3 islands in the Visayas), versus four in mid 2014,” PSC president Victor Paterno said in his annual report to shareholders.

To put such costs in perspective, Paterno said operators in contiguous territories typically served 1,000 stores per district but noted that PSC, for its part, had downscaled and adapted its model to be cost-effective for smaller areas.

“We wager that first movers, especially on islands that cannot sustain more than one or two warehouses, will be rewarded with unusually dominant share, and that BPO (business process outsourcing) trends will continue to drive growth in the remote urban areas of Luzon and the islands,” he said.

In Cebu, for instance, he noted that PSC had over 80 percent market share with its 90 stores.

During the second quarter, PSC entered new markets by opening four 7-Eleven stores in Davao City and Cagayan de Oro and two stores in Boracay.

For this year, PSC expects to increase its capital expenditures budget by more than 50 percent to P3 billion to support its accelerated store expansion strategy. Bulk of the amount is allocated to new store opening, store renovation and warehouse expansion.