Seven & i Targets Growth Following Transitional Period
TOKYO — Seven & i Holdings Co. Ltd. expects its planned organizational restructuring to yield better results following the "turnaround year" of 2024, executives of 7-Eleven Inc.'s parent company shared during its recent earnings call.
The international retailer expects to complete initiatives to streamline low-profit businesses and assets during the current fiscal year, setting it up for profit growth in 2025 and beyond as well as expansion in the North American c-store channel, according to Chief Financial Officer and Managing Executive Officer Yoshimichi Maruyama.
[Read more: Future of 7-Eleven Could Include an IPO]
In October, Seven & i announced it would split into two businesses: one focused on 7-Eleven, other convenience stores and gas stations, and one consisting of a collection of 31 less profitable retail operations. It also stated its intention to close 444 underperforming convenience stores in the United States, Canada and Mexico.
"The optimization of the group structure aimed at maximizing corporate and shareholder value is steadily progressing," Maruyama said.
These changes come as Seven & i experiences mixed financial results. For the nine months ending Nov. 30, 2024, the company saw total sales increase 4.6% even as operating income and net income declined significantly. However, executives see a brighter future with significant growth to come.
Tactics for Growth in North America
7-Eleven Inc. saw third quarter results fall below both previous-year benchmarks and expectations, which company President Stan Reynolds attributed to factors such as the persisting inflation environment, consumers under economic pressure and a major disruption to point-of-sale systems at most Speedway stores due to the Crowdstrike outage last July.
"However, we are now seeing directional improvement in sales and traffic," Reynolds said.
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He also shared four key areas in which 7-Eleven is concentrating its short- and intermediate-term tactics. First among them is driving value and traffic. "We know that delivering quality products at a compelling price is key to increasing traffic," Reynolds said, pointing to the company's food offerings as a method of providing outsize value that resonates with customers. Strategic investments in 7-Eleven's backbar has also prompted increases in sales and trips among customers seeking modern, noncombustible nicotine products.
Growing 7-Eleven's proprietary products also remains a top priority.
"To accelerate our growth, we have strategically invested in store enhancements. This includes our food and beverage modernization program that offers our customers a wider assortment of baked-in store and hot food items, and specialty coffee," Reynolds said. "We are expanding this program, which is currently in almost 5,000 stores, to an additional 2,500 locations by Q1 2025."
The third key area is the continued progress of the 7NOW delivery program, which is growing at a 24% rate on a same-store basis. The program also contributes to proprietary product sales, as 25% of 7NOW's top-selling items are the company's fresh food and proprietary beverage items. 7-Eleven's goal is to hit $1 billion in sales through this channel.
Finally, as part of its cost leadership efforts, 7-Eleven is continuing a "disciplined and rigorous" approach to removing costs from the business. It is currently targeting a $500 million cost reduction and has identified new initiatives to reduce costs and improve efficiencies.
Looking ahead to 2025, 7-Eleven is targeting same-store sales of 1.5%, merchandise gross margin 34.1% and a ratio of operating, selling, general and administrative (OSG&A) to sales of 16.4%.
"To achieve these goals and drive long-term value creation, we are launching a company-wide program aimed at improving profitability and focus on three primary areas: growth, margin and OSG&A," Reynolds said. "We will build a detailed execution plan to achieve significant savings in 2025, and we'll jump-start the program by implementing quick in Q1 and Q2. We expect this focus on profitability to deliver a lasting positive impact to [7-Eleven's] operating income."
The program will be led by CEO Joe DePinto and Reynolds, with members from the company's executive team leading each of the work streams.
"This profitability review program will be a comprehensive plan and supports our plans to significantly improve profitability in fiscal year 2025 and beyond," Reynolds said.
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