Seven & i Holdings Co Ltd

TSE:3382

Earnings Call Transcript 2022-Q2

[Ryuichi Isaka, executive]

Good morning, everyone. My name is Isaka, President and Representative Director of Seven & i Holdings. I would like to thank you for taking the time off your busy schedules to participate in today's financial results presentation covering the first half of fiscal year 2022.

In the first half of today's presentation, Director and Executive Officer Maruyama will be discussing first half results and the full year forecast. Following this, I will be giving you an update on the progress of our group strategy. Over to Mr. Maruyama.

[Yoshimichi Maruyama, executive]

Good morning, everyone. Allow me to go over the Seven & i Group's results for the first half of the fiscal year and the full year forecasts.

First, please turn to Page 4, which contains a business overview of the Seven & i Group. The 4 charts show year-on-year change in existing store sales for each business category. The broken lines start in February of 2021 and indicate a comparison with 2 years earlier. In Japan, April 7, 2020, marked the declaration of the first state of emergency. This ran through May 25. And during this period, nonessential businesses refrained from carrying out sales activities in the interest of avoiding close contact between people in crowded spaces. The Seven & i Group too was significantly impacted by this.

Except for products that fall under this category of essential businesses like food products and some daily necessities, we registered a decrease in sales across the board during this period at our physical stores. On the other hand, we saw a significant year-on-year reactionary increase in sales in April and May of this year.

Conversely, electronic commerce registered the opposite effect, showing a reactionary decrease in sales over the same period. Since then, the Tokyo metropolitan area in particular has been on and off a state of emergency. COVID-19 cases surged in August of this year and translated into a decrease in customer footfall. This was coupled with unseasonable weather, creating a challenging business environment.

Against this backdrop, at Seven-Eleven Japan, we carried out product development, expanded our product lineups and updated store layouts with the goal of addressing changes in consumption behavior, such as the trend towards small commercial areas and greater diversity in consumer demand. These efforts allowed us to deliver existing store sales in line with last fiscal year through to the month of July. We did indeed face a challenging business environment in August, but preliminary figures indicate a recovery in September to levels mostly in line with 2020 performance.

Regarding 7-Eleven, Inc., changes in the way consumers use convenience stores were more pronounced overseas, even more so than in Japan. Our efforts to offer a varied product lineup addressing these changes and our expansion efforts in the field of food delivery bore fruit. This translated into a sales increase both on a year-on-year basis and also compared to 2 years earlier. We interpret this as being indicative of a significant change trend in consumer awareness of convenience stores in the United States, similar to that which took place in Japan in the past.

The superstore business registered continued strong demand for food products, thanks to stay-at-home demand amidst the prolonged impact of the COVID-19 pandemic on society. With that being said, we are seeing a trend toward the normalization of supply and demand. The category affected the most is the department store and specialty store business. Department stores and our restaurant operations in particular continue facing a challenging business environment.

While the state of emergency has been lifted nationwide, we have adopted an even stricter outlook for the second half of the fiscal year from the numbers we announced back in July during the announcement of the new medium-term management plan. Against this backdrop, we are carrying out efforts toward improving the cost structure and reviewing the business model.

Furthermore, one of the most significant changes that have been taking place against the backdrop of the COVID-19 pandemic has been in the category of electronic commerce. Capacity restrictions were lifted for dark store Nishi-Nippori, Ito-Yokado's online supermarket, and this had a positive effect as this business continues delivering significant growth.

Next, please turn to Page 5, which contains the consolidated financial results highlights for the first half of the fiscal year. Shown here are the results for each quarter and the corresponding year-on-year variance and the cumulative results for the first half of the fiscal year, alongside the corresponding variance on a year-on-year basis and versus the forecast.

As I mentioned in the previous page, we registered an increase in sales and profits in the first quarter, primarily on account of our reactionary year-on-year increase. In the second quarter, while the domestic business was faced with a more challenging business environment, we still registered an increase in sales and a slight increase in profits.

The incorporation of Speedway, the acquisition of which was concluded on May 14, primarily accounted for this. In light of this, cumulative revenues from operations through to the end of the first half of the fiscal year stood at JPY 3,646.4 billion. This represents a year-on-year increase of 30.8% and an overperformance of 3.7% versus the forecast. Operating income stood at JPY 186.1 billion, a year-on-year increase of 3.6% and an overperformance of 1.2% versus the forecast.

In addition to a significant decrease in special losses associated with the COVID-19 pandemic, a decrease in expenses related to structural reform and impairment losses, et cetera, translated into a net income attributable to owners of parent performance of JPY 106.5 billion. This represents a year-on-year increase of 46.9% and an overperformance of 18.3% versus the forecast. These represent a significant recovery. Additionally, EBITDA too stood at JPY 341.2 billion, a year-on-year increase of 10.6% and an overperformance of 1.2% versus the forecast.

Next, please turn to Page 6, which discusses year-on-year changes by business segment in terms of both revenues from operations and operating income. Additionally, starting with today's results for the first half of the fiscal year, we will be reporting results according to the new segment classification. As such, department and specialty stores have been grouped into one segment.

Regarding revenues from operations associated with the Overseas Convenience Store business, we registered an increase in merchandise sales at existing SEI stores and an increase in fuel sales volume. Additionally, an increase in revenues associated with Speedway, which entered the scope of consolidation in May, also made a significant contribution.

Next is operating income. While the domestic convenience store business struggled in August, a strong performance through to July allowed this business segment to deliver an increase in sales and profits for the cumulative period corresponding to the first half of the fiscal year. The Overseas Convenience Store business delivered a significant profit increase. This was thanks to an increase in merchandise sales, an improvement in gross profit margin and a significant increase in fuel sales volume and continued high cents-per-gallon margin, which indicates the gross profit amount for fuel.

In the superstore business, as I mentioned at the beginning, a continued trend toward the normalization of supply and demand has led to a year-on-year decrease in gross profit margin. We also resumed sales promotion activities. These factors translated into a decrease in operating income. In light of these, on a consolidated basis, operating income increased by JPY 6.4 billion to JPY 186.1 billion.

I would now like to discuss the results for each business segment. Allow me to discuss the results for our domestic convenience store operations, starting on Page 7. Revenues from operations increased by JPY 17 billion year-on-year and stood at JPY 445.8 billion. Operating income increased by JPY 5 billion year-on-year and stood at JPY 123.3 billion. EBITDA increased by JPY 5.8 billion year-on-year and stood at JPY 162.8 billion.

Please turn to Page 8, which deals with Seven-Eleven Japan, the main operating company in the domestic convenience store business. Allow me to direct your attention to the graph on the right which represents the quarterly trend in existing store sales growth and GPM. While existing store sales grew significantly by 3.3% in the first quarter, the business struggled in the second quarter, showing negative growth of 0.3%. However, as shown by the broken lines, while the results for the first half of the year are yet to return to levels seen 2 years ago, preliminary results for September indicate a recovery to existing store sales growth of negative 0.2% year-on-year and of 2.2% compared to the same period in 2019. This is indicative of a recovery trend.

We carried out a campaign in collaboration with PayPay in the months of April, July and August. This led to an increase in the sales composition share of cigarettes which, in turn, weighed down on gross profit margin. However, gross profit margin excluding cigarettes saw an improvement centered primarily around the category of daily products and fast food. In light of this, as shown in the waterfall chart, operating income for the first half of the fiscal year grew by JPY 4.8 billion year-on-year to JPY 123.1 billion. Additionally, EBITDA stood at JPY 161.8 billion, a year-on-year increase of 3.7% or JPY 5.8 billion.

Please turn to Page 9. The graph on the left shows the trend in the year-on-year change in SG&A expenses in the first half of the fiscal year. Sales promotion efficiency improved following the migration to sales promotions via the 7-Eleven app. This allowed us to greatly reduce advertising expenses. Additionally, we adopted stricter requirements for the opening of new stores and carried out the closure of unprofitable stores. These measures allowed us to curb fixed expenses like land and building rent.

In light of these, while SG&A expenses for the first half of the fiscal year grew year-on-year due to special factors, a comparison with 2 years earlier shows a reduction in SG&A expenses. The graph on the right shows the trend in franchise store income. Initiatives such as a 1% reduction in royalties started in September 2017. The rollout of new layouts starting in the fall of 2018 and the introduction of royalties revision in fiscal year 2021 have borne fruit. As such, while these are admittedly average numbers, the aforementioned initiatives have led to continued year-on-year growth in income for franchise stores.

Next, starting on Page 10, I would like to discuss our operations in the Overseas Convenience Store business. Revenues from operations increased by JPY 806 billion year-on-year to JPY 1,887.8 billion. Operating income increased by JPY 15.3 billion year-on-year to JPY 57.1 billion. EBITDA increased by JPY 37.4 billion year-on-year to JPY 131 billion.

Please turn to Page 11, which deals with 7-Eleven, Inc., SEI for short, the main operating company in the Overseas Convenience Store business. Furthermore, the first half of the fiscal year for SEI corresponds to the months between January and June. As such, this includes approximately 1.5 months of results associated with Speedway, the acquisition of which was completed on May 14.

The vertical bar graph on the right shows the trend in year-on-year change in existing store sales growth and merchandise GPM. Existing store sales have been on a year-on-year growth trend, starting in the third quarter of fiscal year 2020. Additionally, while comparatively lower margins associated with Speedway weigh down on merchandise GPM, a recovery in customer footfall and improvement in sales of nonalcoholic beverages and fresh food products at existing SEI stores contributed to a year-on-year increase in GPM of 0.7 points in the second quarter. Cumulative first half of the fiscal year results show a significant improvement in GPM of 0.4 points.

I would like to discuss the topic of fuel sales on the next page. Operating income for the first half of the fiscal year grew by JPY 25.5 billion year-on-year to JPY 78.2 billion. Additionally, EBITDA stood at JPY 129.7 billion. This represents a year-on-year increase of 39.2%. I will be discussing the effects of the incorporation of Speedway later on in this presentation.

Page 12 discusses the topic of fuel. The graph on the left shows the trend in the price of crude oil. WTI has been on an upward trend, starting in fiscal year 2021. The graph on the right shows the trend in fuel sales volume and gross profit expressed in cents per gallon. Fuel sales volume increased significantly in the second quarter although to levels still below 2 years prior. Last year, the declaration of a national state of emergency translated into a sharp drop in fuel sales volume.

In 2021, we registered a reactionary increase, thanks to an increase in customer footfall. The addition of Speedway stores, which have a fuel sales volume approximately 50% greater than existing SEI stores, translated into a significant increase in sales volume per store. While cents per gallon registered a reactionary decrease in the second quarter, following a sharp increase last year, it continues trending at elevated levels. As such, fuel margins for the first half of the fiscal year increased by USD 445 million, a year-on-year increase of 47.7%.

Page 13 deals with changes in the WTI price and with long-term trends in fuel retail price and gross margin. The black line shows the trend in the WTI price while the orange line shows the retail price per gallon. The green vertical bars show the trend in retail fuel margin expressed in cents per gallon as a 6-month moving average starting in June of 2015. As you can see, despite high levels of volatility associated with the price of WTI, fuel margin has been stable and on a slight upward trend. Going forward, we will continue paying close attention to the metric of fuel margin.

Please turn to Page 14, which contains the first half of the year results for existing SEI, including and excluding Speedway. As I mentioned already, these results include Speedway for the period between May 14 and June 30. Merchandise APSD for Speedway stood at USD 5,558, greater than the USD 5,323 at existing SEI stores. However, the results for existing SEI stores included the results for the first quarter, which is characterized by lower merchandise APSD on account of seasonality factors.

As such, for the second quarter in isolation, merchandise APSD is actually higher at existing SEI stores. On a comparative basis, Speedway has lower merchandise gross profit margins. As such, incorporating Speedway weigh down on GPM. However, we saw GPM improvements at existing SEI stores. So as I mentioned earlier, SEI as a whole saw a year-on-year improvement of 0.4 points.

Thanks to store size and superior locations, fuel gallons sold per day per store for Speedway were approximately 50% greater than for existing SEI stores. Existing SEI stores saw an increase in merchandise sales and improvements in GPM, and this translated into a significant year-on-year increase of 22.8% in operating income on a U.S. dollar basis. Contribution to first half of the fiscal year consolidated results, excluding amounts associated with the amortization of goodwill, stood at JPY 3.1 billion for Speedway and at JPY 53.5 billion for existing SEI stores. Lastly, SEI total contribution was JPY 56.6 billion.

Please turn to Page 15, which deals with the Superstore business. Revenues from operations increased by JPY 12.3 billion year-on-year to JPY 901.1 billion. Operating income decreased by JPY 6.7 billion year-on-year to JPY 11 billion. Lastly, EBITDA decreased by JPY 6 billion year-on-year to JPY 26.5 billion.

Please turn to Page 16, which shows year-on-year change of operating income for the main operating companies in the Superstore business segment. Last year, we curbed sales promotion activities against the backdrop of the COVID-19 pandemic. However, in the current fiscal year, we have since resumed these activities. Additionally, last fiscal year, we were able to classify fixed expenses as special losses from temporary store closures, so we registered a reactionary move in the opposite direction. These factors translated into a year-on-year decrease in operating income and our domestic operating companies. With that being said, compared to 2 years ago, we registered sales growth at our food supermarkets.

Operating income at York and York-Benimaru is also higher compared to 2 years ago. Furthermore, we are also in line with the target for the current fiscal year. In the second half of the fiscal year, we will improve our product lineups and services to meet the needs of the commercial areas we serve. At the same time, we will be working to improve management efficiency, thereby achieving better business results.

Please turn to Page 17, which deals with the department and specialty store business segment. Revenues from operations increased by JPY 22.2 billion year-on-year to JPY 332.4 billion. While we registered an improvement of JPY 2.7 billion year-on-year, we still registered an operating loss of JPY 7.7 billion. Lastly, while we registered an improvement of JPY 2.6 billion year-on-year, we still registered negative EBITDA of JPY 390 million.

Please turn to Page 18, which shows year-on-year change of operating income for the main operating companies in the department and specialty store business segment. While we registered a year-on-year improvement of JPY 2.7 billion in this business segment, we still registered an operating loss. This follows an operating loss in fiscal year 2021 as amidst the COVID-19 pandemic consumer psychology toward avoiding crowds remains firmly in place, leading to a challenging business environment.

In the current fiscal year, Sogo & Seibu continued being affected by restrictions on operations resulting from the state of emergency. Additionally, last year, we were able to classify fixed expenses as special losses from temporary store closures, leading to a reactionary move in the opposite direction this year. Operating income at Sogo & Seibu therefore decreased by JPY 1.3 billion year-on-year. With that being said, we are seeing steady improvements in management efficiency derived from structural reform to costs.

Furthermore, in light of a challenging business environment for THE LOFT and Seven & i Food Systems, we are in the process of reducing and normalizing SG&A expenses with the objective of lowering the breakeven point.

Starting on Page 19, I will be discussing the revised consolidated financial results forecasts for fiscal year 2022. We have partially revised the full year forecast from the baseline of the full year forecast the company announced back in July in light of first half of the fiscal year results and the most recent forecast for second half results. The group's total sales forecast has been raised by JPY 263 billion and so has the revenues from operations forecast by JPY 271 billion. On the other hand, the operating and ordinary income forecasts remain unchanged.

Similarly, a proposal in the United States to raise corporate federal tax could go into effect in 2021. We consider this a risk factor to net income attributable to owners of parent and for this reason have left the forecast unchanged. Changes to the forecasts for revenues from operations and operating income for each business segment can be found on Pages 20 and 21, but allow me to briefly discuss the domestic convenience store business.

Please turn to Page 20. In the domestic convenience store business regarding Seven-Eleven Japan, we will be promoting product development and product lineup measures to address the needs of the commercial areas served by each store. Through this, we intend to carry out a sales recovery. With that being said, we believe this will be insufficient to cover the August underperformance. In light of this, we have lowered the revenues from operations forecast by JPY 7 billion to JPY 891 billion.

Page 21 shows the operating income forecast. In the domestic convenience store business regarding Seven-Eleven Japan, while we lowered guidance in terms of revenues from operations, the operating income forecast remains unchanged as we will be further enhancing cost controls among other measures.

Next, please turn to Page 22, which discusses the achievement progress status for the consolidated financial KPIs we announced in July. It is difficult to accurately measure progress in terms of the KPI figures themselves without looking at the full fiscal year due to the fact that there is variance within our business between the first and second halves of the fiscal year. With that being said, we have evaluated initiatives carried out during the first half in light of the progress of the composition forecast.

First is EBITDA, which was able to slightly exceed the forecast. On the other hand, reevaluation under stricter investment criteria in light of internal and external factors meant the target for CapEx excluding M&A was not met. As such, we met the targets for EBITDA and operating cash flow, while the free cash flow level exceeded the target. We were also able to exceed the net income target while the interest-bearing debt balance stood mostly in line with the target.

In light of this, ROE, ROIC and EPS exceeded the target, while the debt-to-EBITDA ratio is at a level in line with the target. Going forward, we would like to continue keeping stakeholders updated in a timely manner of the company's progress. Through this, we would like to contribute to a better understanding of advances in value creation on the part of the Seven & i Group.

I would now like to yield the floor back to President Isaka.

[Ryuichi Isaka, executive]

I would now like to discuss progress regarding initiatives in line with the strategies within the scope of the medium-term management plan, which we announced back in July, Additionally, I will also be discussing the progress of PMI for Speedway.

Please turn to Page 24, which deals with the domestic convenience store business, namely the medium-term strategy I discussed in our MTMP presentation. Within this, I will be discussing initiatives to address the acceleration and diversification of small commercial areas brought about by changes in the social structure and COVID-19. Among these initiatives, today, I would like to discuss initiatives for the sustainable growth of existing stores and initiatives to expand online convenience stores.

Regarding our store opening strategy, we continue closely and carefully monitoring changes in the management environment brought about by COVID-19 and continuing government subsidies to reach decisions, which we would like to share with stakeholders.

Please turn to Page 25. I would like to direct your attention to the line graph on the left. The red line shows average spending per customer, while the green and orange lines show the number of customers and sales, respectively. All numbers shown here are on a year-on-year basis. We have seen a recovery in the number of customers in 2021 on a year-on-year basis. However, we are yet to see a recovery to 2019 levels, shown here by the broken green line.

On the other hand, average spending per customer continues trending at levels significantly higher than 2 years earlier. We therefore believe this is indicative of the fact that changes to the way consumers shop brought about by COVID-19 are here to stay.

I would now like to direct your attention to the table on the right, which shows the top 15 products in the first half of the fiscal year for the category of food compared to fiscal year 2020. Stay-at-home demand and consumer psychology to avoid crowded spaces, both changes brought about by COVID-19, have become entrenched in society. As such, in addition to frozen food and delicatessen, the top categories are occupied by foods for side dishes like vegetables and fruits and family-sized ice cream. In light of this, we believe it is necessary to have both product lines and store layouts adapted to these changes in consumer behavior.

Please turn to Page 26 in which I would like to discuss initiatives to enhance product lines adapted to changes in the way consumers use convenience stores. The left side of the page shows an example of a regional response tailored to local characteristics in Hokkaido. These characteristics are a larger number of household housewives and families and also high price consciousness, among other things. We tailored our response to local characteristics like these by offering sausage steaks and bacon products in multi-item packaging. For salads too, we offered product lines with larger portion sizes. Thanks to these, we were able to achieve sales exceeding the national average for these 2 categories of processed meat and delicatessen.

As shown on the right, I would now like to discuss a test we ran to address increased demand for vegetables as cooking ingredients resulting from the COVID-19 pandemic. The line graph on the right shows the year-on-year trend in vegetable sales. The orange line corresponds to the Shonan area, where we carried out a rollout test, while the gray line corresponds to the nationwide trend. Starting last year, there has been a steady increase in demand for vegetables in the Shonan area.

In light of this, we started a test in October of 2020 using specialized equipment. As of the end of August 2021, we sell vegetables at approximately 70 stores, which are showing higher levels of growth compared to the national average. Additionally, Ito-Yokado's rollout of vegetables with traceability has been well received. Starting the week of August 30, we have expanded these product lines to approximately 1,700 stores in select areas in Kanagawa and Saitama.

Please turn to Page 27. Previously, consumers would visit convenience stores primarily for the purpose of purchasing food products. However, amidst the COVID-19 pandemic, there is a need to expand lineups of high purchase frequency household items and similar products. Against this backdrop, in December of 2020, we started a test sales verification of Daiso products. Additionally, in June of 2021, we also started a sales verification of THE LOFT products. The miscellaneous goods sales composition at these pilot stores has trended at levels exceeding the area average. Additionally, year-on-year sales growth for these pilot stores has also exceeded the area average by double digits.

For pilot stores carrying Daiso products, year-on-year sales growth for the applicable category was 17.4%, 16.1 points higher than the area average for West Kanagawa, which is the area where these stores are located. For pilot stores carrying THE LOFT products, year-on-year sales growth for the applicable category was 23.9%, 32 points higher than the average for the Minato area.

We believe these results reflect changes in consumer behavior, such as the purchase of household items at convenience stores. As of the end of August, 76 stores in the West Kanagawa zone carried Daiso products, while 20 stores in the East Tokyo zone carried THE LOFT products. We are therefore executing new initiatives to address one-stop shopping needs from consumers in the commercial areas we serve and capture new demand.

Please turn to Page 28. In order to realize in-store sales spaces the actual strategies in the domestic convenience store business I have discussed here so far, we will continue promoting the rollout of new store layouts. The new 2020 layout, characterized by a larger sales area for alcoholic beverages, is suited primarily for stores in residential and suburban areas.

We were originally aiming for rollout at 8,000 stores by the end of August 2021, but the rollout of this layout has been partially impacted by the COVID-19 pandemic. There was a shortage of manpower, so we were only able to roll out the new layout at approximately 6,900 stores. We will be picking up the pace and aim for a rollout at all eligible stores by the end of fiscal year 2022 for a total of approximately 12,000 locations.

Additionally, by the end of August, we had rolled out the layout for small urban stores in business districts at approximately 1,200 stores. We are aiming to roll out this layout at approximately 1,500 stores by the end of fiscal year 2022.

The positive impact of the rollout of the new store layouts is as follows. Compared with 2 years earlier in stores with the new layout for 2020 versus stores without, the difference in daily sales per store is JPY 18,700. For the layout for small urban stores, the difference is an increase in daily sales per store of JPY 14,700. Going forward, we will continue carrying out initiatives to offer product lineups and store layouts matching the needs of consumers in the commercial areas we serve.

Please turn to Page 29, which discusses online convenience stores, a vital element of our domestic convenience store operations strategy. The vertical bar graph on the upper-left corner shows the trend in online convenience store sales. There has been an increase in demand for delivery services against the backdrop of the COVID-19 pandemic. We also have visual access to real-time inventories starting in October 2020. And starting in December 2020, we have improved consumer convenience for on-demand purchases by offering delivery in as little as 30 minutes. Thanks to support from our customers, we have seen a robust increase in online convenience store sales.

As shown in the vertical bar graph at the bottom of the page, one of the features of our online convenience store service is the fact that the number of purchased units per order is 2.8x that of in-store purchases. Purchase basket is also 3.1x that of in-store purchases, underscoring a trend of higher numbers compared to in-store purchases.

We also carried out an analysis using 7iD data. We sampled customers who had made purchases both in store and at our online convenience store between June and August 2021 but who had not used our online convenience store service last year. The sample size comprised approximately 1,200 customers. And shown here is gross monthly sales associated with these customers.

The data shows that the amount spent in store remained unchanged from the previous year and that, on top of this, customers are also using our online convenience store service. Customers therefore make use of our physical and online convenience stores for different occasions and purposes without interchannel cannibalization. We therefore believe this will be a growth factor for 7-Eleven.

We originally sought to expand the store network to 1,000 stores by the end of February 2022 but have since accelerated this initiative to approximately 1,200 stores. The target for the end of February 2023 is approximately 3,000 stores toward nationwide rollout by fiscal year 2026. Additionally, we will also be rolling out our domestic online convenience store service under the 7NOW brand starting in the spring of 2022. Through this, we will aim to raise further brand awareness. In the future, we are considering a view to expansion of our online convenience store into a global brand and will be enhancing value toward this goal.

Please turn to Page 30. Starting on Page 30, we will be discussing our North American convenience store business strategy. First is the revision to the numbers for the assumed synergies to be generated with Speedway. The acquisition of Speedway was finalized in May. And following that, we are now able to access detailed contract data and other types of data between Speedway and its business clients. We therefore continue to carefully go over this data.

In July 2021, we revised upwards the amount we expect to unlock in synergy benefits. However, since then, careful examination of the data has led us to further raise guidance in terms of this number. We estimate the assumed synergies in the third year following the acquisition from May 2023 to April 2024 at between USD 600 million and USD 650 million. Of these, approximately 60% are expected to derive from merchandise, namely the rollout of PBs, the review of product lineups and the expansion of the lineup of fresh food.

Additionally, we would like to leverage Speedway's expertise in terms of store maintenance. Currently, SEI outsources store maintenance to third parties, but we would like to realize economies of scale, such as reverse synergies by taking the store maintenance function in-house. These are assumed synergies in the third year, but we will seek to realize further synergies beyond that by executing a variety of measures.

Page 31 contains a road map toward PMI and the generation of synergies. We seek to unlock integration benefits primarily in the 4 categories shown here of merchandise, economies of scale, fuel logistics and a digital strategy. In terms of fuel logistics, human resources from Speedway assume the role of project team leaders and carry out efforts toward optimizing the supply network.

Regarding the digital strategy, we will make progress in terms of initiatives toward the optimization of loyalty programs. Additionally, we will also be expanding the 7NOW delivery service to Speedway stores. During the current fiscal year, we will be integrating the corporate cultures of both companies and carrying out organizational restructuring, paving the way for an environment conducive to a smooth PMI.

Our agreement with the FTC calls for the divestment of 293 stores. As of the end of September, we had sold 283 stores as the sale of assets is proceeding according to plan toward the November 2021 deadline for divestment. As discussed here, we registered healthy progress toward PMI and the generation of synergies.

Please turn to Page 32. This page deals with 7NOW, which is 7-Eleven, Inc.'s delivery service and with the restaurant business. As shown in the vertical bar graph on the upper-left corner, quarterly sales for 7NOW continue showing robust growth. In the second quarter of the current fiscal year, 7NOW delivered approximately 8x the sales volume of the first quarter of fiscal year 2020. Furthermore, units per purchase are 45% greater for 7NOW compared to in-store purchases. The basket amount too is 73% higher for 7NOW. This underscores significant changes brought about by the COVID-19 pandemic to the way consumers use convenience stores in North America as well.

As of the end of August 2021, 7NOW was available at approximately 4,000 stores. We had initially aimed to make 7NOW available at 6,500 stores by fiscal year 2025. However, we have decided to accelerate this process toward achieving 6,500 stores in fiscal year 2022.

The right-hand side of the page deals with the restaurant business. As of the end of August 2021, we operated 437 Laredo Taco restaurant locations, which is a Mexican fast food restaurant chain. This is a business model we obtained when we took over approximately 1,000 Sunoco locations following our acquisition of the company in fiscal year 2018. And we also offer these restaurants adjacent to 7-Eleven store locations. Additionally, we also operate 23 Raise the Roost store locations, which is a QSR for fried chicken and other products.

Compared to all other stores, APSD sales and margins tend to be higher for stores with adjacent restaurant locations. As such, going forward, we would like to expand our efforts in this area within the scope of enhancing our fresh food offerings. We are planning to expand the number of restaurants to 1,600 by fiscal year 2025.

Next, Page 33 deals with the progress of our global strategy. As I discussed during the MTMP presentation, within the Seven & i Group's global strategy, we seek to leverage the strengths of 7-Eleven in Japan and in the United States and increase the value of 7-Eleven as a global brand by establishing an advanced value chain in the regions we enter. As part of the preparatory framework for this, we have recently established 7-Eleven International LLC in order to carry out global expansion coordinated across Japan and the United States.

Going forward, the global expansion of 7-Eleven will be carried out primarily through 7-Eleven International LLC. We seek to achieve global growth across 3 different fields. One such field is further strengthening collaboration with existing markets through an enhanced collaborative program with area licensees. The second field is entry into new markets by offering comprehensive support toward building an advanced value chain. The third field is global collaborations as we foresee positive effects of joint procurement and joint product development and of collaborations in areas such as IT and digital transformation.

In terms of recent concrete initiatives toward global expansion, we are proud to announce that 7-Eleven will be entering the market in India. On October 6, 7-Eleven, Inc. entered a master franchise contract with Reliance Retail Ventures, India's largest retailer. The first store in the country will open on October 9 in Mumbai, and there are plans to open several more stores throughout the remainder of 2021. Next fiscal year and beyond, we have plans to further accelerate the pace of store openings. Going forward, including other regions, we seek to achieve 50,000 high-quality 7-Eleven stores worldwide by fiscal year 2025.

Page 34 discusses progress regarding the group food strategy, digital transformation strategy and financial strategy. In terms of the group food strategy, we established the group food strategy and planning division in 2019, which carried out efforts toward development of 7 PREMIUM products as well as in the area of optimizing procurement and logistics as a group.

In 2021, within our group food strategy, we established the Overseas Procurement division with the objective of making advances in terms of joint group procurement and direct imports. Within the scope of our digital transformation strategy, we established the Group IT Strategy Promotion division in 2019 toward the proposal of strategies in the IT digital domain, building joint infrastructure and enhancing security.

In 2020, we established the Group Digital Transformation Strategy division in order to further promote digital transformation across the Seven & i Group. We then divided this into the Group Digital Transformation Promotion division and the Group Digital Transformation Solution division in 2021.

Within the scope of our financial strategy, we established the financial business strategy office in order for us to consider the vision for our financial business as a group and to promote our financial strategy. As such, each operating company and the holdings company worked in lockstep to advance our group strategies. We believe it to be vital to have an organization within the holdings company to function as a hub for the various strategies as this makes it possible to carry out dialogue with all operating companies and achieve collaboration.

In light of this, starting in May of 2020, Mr. Maruyama, General Manager of the Corporate Finance and Accounting Division, was entrusted with the management of progress in terms of financial KPIs, the formulation of MTMP targets and monitoring going forward.

Lastly, on Page 35, we republished a slide from the MTMP presentation materials. We would like to execute according to schedule the group priority strategy shown here and which we announced within the MTMP. Shown in the upper portion of Page 35 are 4 touch points with customers. These are the Overseas Convenience Store business strategy, the domestic convenience store business strategy, the group food strategy and the large-scale commercial base strategy.

At our physical store locations in Japan, we interact with 22.4 million customers on a daily basis and 6.5 million customers a day in North America. We would like to further expand and deepen these touch points by making progress in executing our digital transformation and finance strategies. We would then like to continue increasing customer lifetime value while at the same time aiming to balance the sustainable growth of the company with a sustainable society. To this end, we will aim to achieve the targets set forth in the MTMP.

This concludes my presentation. Thank you for your time.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]