It's been a big day for convenience-store operator 7-Eleven (NYSE:SE). First, the company announced the sort of June same-store sales figures you'd normally expect from a certain Seattle-based coffee chain. Now the 78-year-old company is celebrating its return to Manhattan -- on the Slurpee's 40th birthday, no less.
How has 7-Eleven consistently churned out strong comparable-store sales -- including 5.9% on merchandise against 5.5% in June 2004? It's a combination of factors: new fresh foods, new products unique to 7-Eleven, better inventory planning, and more efficient store operations in general. Most of these ideas have been brought over from 7-Eleven's parent company, 7-Eleven Japan.
This hasn't been much of a surprise to me. My first positive 7-Eleven experience came during a trip to Japan a few years ago. What makes Japanese convenience stores such as 7-Eleven unique is that they're, well, actually convenient. They're not simply open at all hours for your Pepsi (NYSE:PEP), Coca-Cola (NYSE:KO), and salty-snack needs. Fresh food is abundant and reasonably priced, you can pay your bills in the stores 24 hours a day, and the locations are well-maintained.
But some of the most important elements 7-Eleven is importing from its Japanese stores are invisible to the customer: inventory and store management. If you're expecting a cold, rainy week in the summer, having an extra delivery of ice cream is a bad idea. Nor is it helpful to have vendors taking up parking spots and making deliveries during prime business hours. For stores that depend on a high volume of customers to make a buck, little details like these are huge.
The company's renewed vigor is detailed both in the company's 10-K filing and Rex Moore's writeup of 7-Eleven for last year's Motley Fool Stocks 2004. Unfortunately, the stock today has all its turnaround aspects priced in. At 34 times trailing earnings and an enterprise value-to-free cash flow multiple of 27, investors today are buying 7-Eleven's continued growth and expansion, not its recovery. That may not be such a bad bet to make, but at today's prices, I'd recommend building out a position slowly.
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Nathan Parmelee owns shares in 7-Eleven but has no financial interest in any of the other companies mentioned. You can view his profile here. The Motley Fool has an ironclad disclosure policy.
