7-Eleven Philippines

Philippine Seven Corporation Records Fastest Growth in 2019

7-Eleven hits fastest same-store sales growth at 10.3% 

Philippine Seven Corporation (PSC), the exclusive licensor of 7-Eleven in the Philippines, hits fastest same-store sales growth at 10.3%, from 8.8% in 2018. It also reports its highest level of net income in its history before taking into account the impact of the new IFRS on leases.

These figures were announced during the company’s first-ever virtual Annual Stockholders’ Meeting on July 16, 2020.

“The solid growth can be attributed to several factors, chief of which is the robust local economy complemented by the low inflation environment. We are still seeing favorable results from the Tax Reform for Acceleration and Inclusion Law (TRAIN) introduced by the current administration in 2018, which continues to strengthen consumer spending,” said Jose Victor Paterno, President and CEO, Philippine Seven Corporation. 

PSC’s (PSE: SEVN) share price traded at a high of PHP155.00 per share in March 2020, just before the World Health Organization (WHO) declared COVID-19 a pandemic. Stock price has almost recovered to pre-pandemic levels and stabilized at around PHP130.00 per share by June, which translates to a market capitalization of more than PHP100 billion.

In 2019, PSC continued to deliver shareholder value by returning PHP0.50 per share in cash dividends, totaling to PHP378.2 million. The cash dividends correspond to 25% of the previous year’s earnings, consistent with the company’s dividend payout policy.

While the company registered an impressive 29.8% growth in net income pre-IFRS, the new accounting standard on leases resulted in a net profit of PHP1.44 billion, a decrease of 5.7% versus the previous year. 

“The decrease is due to the new accounting standard, which requires lessees to recognize a right of use asset on the actual use of the property and a lease liability for the obligation to make lease payments,” said Jose T. Pardo, Chairman of the Board and Independent Director, Philippine Seven Corporation.

“The asset is depreciated on a straight-line basis over the life of the lease, while an accretion of corresponding interest arises. This new standard tends to front-load expenses during the initial stages and shall normalize during the latter part of the lease term. The effect, however, to cash flow remains neutral,” he said. 

Navigating a post-COVID-19 world

To mitigate the pandemic’s impact on its business while also ensuring the health and safety of its employees, franchisees, and customers, PSC launched timely measures.

Part of these mitigation efforts is the Pandemic Support Program (PSP) for franchisees. PSC allotted a PHP711 million credit line for franchisees, who can withdraw from the fund as needed. 

If and when a franchisee’s situation improves, he or she is expected to pay down the credit line monthly without accruing interest. Should the franchisee decide not to continue the franchise, all outstanding balances from the PSP will be forgiven. 

The program was announced during the company’s first online Franchise Town Hall Meeting in early June. PSC began disbursing funds on June 20.

PSC also implemented other measures to meet health requirements and the shifting customer demand. Dine-in areas in 7-Eleven stores will be reduced and replaced with additional racks or gondolas. These extra spaces will be used to include more grocery and essential items. Furthermore, plans for an online grocery store are already in the pipeline. 

Expansion efforts on hold

PSC closed 2019 with 2,864 stores in the Philippines, 349 of which were opened within the year. The company also expanded to four new areas: Cagayan and Kalinga in North Luzon and Misamis Occidental and Surigao del Sur in Mindanao. However, due to the pandemic, expansion efforts will be on hold for the foreseeable future.  

Modern convenience

PSC also reports that customer preference towards the use of e-money and virtual wallets became more evident in 2019. Service revenues nearly doubled due to the increase in e-wallets and bills payments. This shift drove the frequency of customer visits as 7-Eleven stores became the preferred channels for e-money loading.

This shift in customer behavior is widely welcomed, especially as the pandemic requires physical contact limitations. To better cater to its customers, PSC is continually developing its CLiQQ digital ecosystem.

Aside from e-payments, PSC emphasizes its value proposition of providing modern convenience by rolling out its innovative private brands — City Blends freshly brewed coffee and Crunch Time fried program — to more stores. The company closed the financial year with 2,568 City Blends stores and 1,213 Crunch Time stores.

“Despite the challenging times, I am grateful to our management and employees for their loyalty, commitment, and hard work. I would also like to express my sincerest gratitude to our franchisees for serving our customers and to our suppliers for their unwavering support,” Paterno said.

“We foresee that the pandemic and the resulting low consumer demand will last for the next two years. Although we expect extremely challenging times ahead for PSC, we remain confident that we can emerge stronger,” he said.