Slurpee sovereign 7-Eleven
The chain's August-over-August results showed a total sales increase of 7.2%, broken down into increases of 2.6% for overall merchandise sales, 2.1% for same-store sales of merchandise, and 17.4% for gasoline sales. The total volume of gasoline sales (this will become important) grew just 3.9%, however.
The year-to-date results were better, but similar. Overall merchandise sales rose 6.3%; same-store sales of merchandise rose a little less (5.6%); and gasoline sales jumped 21.7%. The total volume of gasoline sales year to date rose just 5.6%.
The key fact to focus on here is the disparity between the sales growth for gasoline and the growth in volume of gasoline sales (once more, 17.4% vs. 3.9% for August; 21.7% vs. 5.6% year to date). This disparity arises from the increase in the price of gasoline sold. The average price per gallon in August 2003 was $1.66; for August 2004, $1.89.
From the above, it's clear that the bulk of 7-Eleven's sales increases came from gasoline sales. And most of the gasoline sales came from an increase in the price of gasoline, rather than an increase in actual gallons sold. Hence the problem: In contrast to the super-sized margins on the packs of Gillette
When you consider that 7-Eleven derives about one-third of its total sales from low-margin gasoline, Foolish investors should not be surprised to see a bit of margin compression in the company's next quarterly earnings report.
Margin compression or no, Fools have great admiration for 7-Eleven's ability to execute its business well. Read all about the company in:
Fool contributor Rich Smith owns no shares in any company mentioned in this article.