This article first appeared in The Edge Financial Daily on May 30, 2019

KUALA LUMPUR: Higher revenue, marketing income, and a favourable sales mix boosted the net profit of 7-Eleven Malaysia Holdings Bhd by close to 25% to RM11.15 million in the first quarter (1Q) ended March, as revenue rose 9% year-on-year (y-o-y) to RM584 million. Earnings per share rose to 0.99 sen from 0.8 sen previously, the company announced in a bourse filing yesterday.

Earlier at the company’s annual general meeting, group chief executive officer Colin Harvey told media price competitive products and 7-Eleven’s large network of stores were expected to keep it one step ahead of its rivals amid increasing competition in the convenience store segment.

The group’s network of stores is twice the size of its nearest competitor 99 Speedmart Sdn Bhd. “We want to maintain the convenience to customers with our network, which is double the size of our next competitor, which you could say is 99 Speedmart,” he said of the group’s more than 2,240 stores across Malaysia, serving more than 900,000 customers daily.

Competition in the space has stepped up as other players including MyNews Holdings Bhd and Family Mart (owned by QL Resources Bhd in Malaysia), embark on expansion plans to capture a bigger slice of the convenience store pie.

Announcing its results yesterday, the group attributed its revenue growth to new stores, higher average spend per customer and better consumer promotional activity, while noting its food service segment grew 30% to 3.5% of total revenue.

Harvey said the group needs to have better services, cleaner stores and a higher quality of fresh food than its competitors. It also has the capacity to open 150 to 200 new stores a year, he added, noting it has refurbished 150 new stores thus far this year to improve on layout and design, while pulling the shutters down on eight to 10 non-performing stores or those with leases that were not renewed. Last year the group closed 24 stores.

Harvey pointed out that the Klang Valley remains an area of growth for the group particularly as there is higher demand for its fresh food products.

Shrugging off weak consumer sentiment, he said it is not expected to impact the group as consumers that usually shop at supermarkets would shift to convenience stores on the premise of greater price savings. Even so, the group cautioned 2Q is expected to remain challenging.

Administrative and other operating expenses increased by 13.2% y-o-y in the January-March quarter due to higher labour-related costs. But group chief financial officer Wong Kai Weong said revenue-raising measures would partially mitigate the increase in labour costs, which have risen following an increase in the minimum wage to RM1,100 from Jan 1.

“We continue to grow in terms of our stores; hence our utilities, depreciation and rental would go up relative to sales. At the end of the day, it (costs) is quite consistent with our historical numbers” said Wong.

The counter closed unchanged at RM1.49 yesterday — 75,000 shares were traded — valuing the company at RM1.84 billion.