SEI Parent Company Seeks To Boost Shareholder Value
By Eric H. Karp, Esq., General Counsel To NCASEF
In an article published in C-Store Five on December 16, 2024, the reporter opined that 7-Eleven has experienced significant financial setbacks in 2024 as it faced mounting economic challenges brought on by inflation, not to mention a potential management buyout and initial public offering. According to this article, 7-Eleven CEO Joe DePinto stated in April of 2024 his expectation that inflation would continue to tighten consumer pockets. In October of last year, as SEI revealed plans to close 444 convenience stores in North America due to underperformance, it also announced that it would sell $750 million worth of property via sale and leasebacks.
These statements are wholly consistent with publicly filed documents by SEI’s parent indicating that in 2024 they would have a non-recurring gain of some $520 million from the sale and leaseback transactions, and a one-time loss of $365 million due to the closure of unprofitable stores. The parent company also predicted that SEI operating income for 2024 would be down 33.7 percent from the prior year and that EBITDA would be down 15.4 percent. More importantly for franchisees, they also predicted that same store sales would be down 3 percent on the year.
That news is not surprising given that YOY same store sales have been negative from September 2023 through October 2024. In November 2024, same store sales were essentially flat, reported as up 0.1 percent. But these numbers also show that same store sales have been outpaced by inflation for 22 months in a row.
The company also announced plans to open 600 large food-focused locations in North America by the end of 2027, with approximately 115 of those locations operating by the end of 2024. This may be good news for shareholders, but it’s not clear that it will have any impact on store level sales or profitability for franchisees.
SEI Senior Vice President Randy Quinn was quoted as saying that everything in the article was accurate, except that the 440 closures were not because of inflation weary customers, but because they were negative EBITDA and should have been closed years ago. Some have seen this and characterized it as daylight between Mr. DePinto and Mr. Quinn, but the facts suggest otherwise.
The parent company’s public reports for the first half of 2024 indicated that the reasons for lackluster same store sales included the high cost of living, depleted savings, higher debt, more living from paycheck to paycheck, and evolving consumer expectations for such things as the quality of food, faster and easier fueling, digital innovation, and larger and newer stores. The parent company also indicated that their oft-repeated 4-point strategy involved growing proprietary products, accelerating digital and delivery, improved efficiency and cost reductions, and growing and enhancing the store retail network. In the end they are both right. As the parent company has stated, one of the reasons the stores in question have been underperforming is because the cost of living, measured by inflation, has created downward pressure on sales.
In fact, the closure of 440 stores is not really news. According to our SEI franchise disclosure documents, nearly 1,600 company stores were closed in the U.S. from 2015 through 2023. And during the period 2016 through 2023 the turnover in franchise stores averaged 6.75 percent per year.
From my perspective, the issue of store closures and the reasons for them are grounded in the need of the parent company to unlock what it perceives to be unrealized shareholder value as a way of fending off the unsolicited bid from the parent company of Circle K and to protect management from displacement. But franchisees need not be distracted by these concerns, because the much more important issues of franchised store level financial performance, economics and value need to be urgently addressed by whoever controls and manages these companies.
Contact info
Eric Karp can be reached at 617-512-9004 or ekarp@wfrllp.com
“According to this article, 7-Eleven CEO Joe DePinto stated in April of 2024 his expectation that inflation would continue to tighten consumer pockets.”
“That news is not surprising given that YOY same store sales have been negative from September 2023 through October 2024.”
“As the parent company has stated, one of the reasons the stores in question have been underperforming is because the cost of living, measured by inflation, has created downward pressure on sales.”