KUALA LUMPUR (Aug 20): 7-Eleven Malaysia Holdings Bhd (KL:SEM) expects its profit trajectory to only recover in the second half of the year after rapid expansion of its store network pushed operating costs higher and dragged down its second-quarter earnings.

The convenience store operator's operating expenses increased by RM16 million in the second quarter ended June 30, 2026 (2QFY2026), mainly due to higher store-related costs associated with its enlarged network. The group added a net 125 stores in the first half of the year, bringing its total network to 2,776 stores as at June 30.

"These upfront investments carry near-term margin impact that is expected and time-bound — as new CAFé stores progress through their maturation curve and promotional returns compound, the group is confident that the profit after tax trajectory will recover in the second half," 7-Eleven said in its bourse filing on Thursday.

The group had 1,010 CAFé by 7-Eleven stores at end-June, an increase of 355 stores from a year earlier. It said its CAFé-format outlets have continued to outperform classic stores, supported by a broader offering of fresh food and beverages. The group is continuing to convert selected classic outlets into its higher-performing CAFé format as it seeks to capture growing consumer demand for fresh food and beverages.

"The underlying business fundamentals remain sound, with same-store sales growth continuing to improve and average transaction size trending above prior-year levels."

Net profit in 2QFY2026 plunged 58.5% to RM8.28 million from RM19.96 million a year earlier. Revenue, however, rose 9.7% to RM883.61 million from RM805.59 million, thanks to the larger store network and continued sales growth.

No dividend was declared for the quarter. As at end-June, the group had RM210.57 million in cash and cash equivalents against total borrowings of RM486.39 million.

7-Eleven said it remained cautiously optimistic about the second half, supported by Malaysia's 5.7% economic growth in the first six months of 2026, which it expects to support domestic consumption.

"Nevertheless, management remains mindful of headwinds arising from potential cost pass-through pressures from subsidy rationalisation, higher transport and utility charges that will heighten inflationary pressure and dampen retail consumer spending for the remainder of the year," it said.

The group said store expansion would continue at a moderate pace, broadly in line with recent years, alongside further conversion of classic stores into the CAFé by 7-Eleven format. Its continued investment in staffing, infrastructure and supply-chain capabilities, however, is expected to keep operating expenses elevated in the near term as the network expands.

"Management is firmly focused on managing this phase by improving store-level efficiencies, refining the fresh food mix, strengthening supply chain capabilities, and calibrating pricing and promotional activity to remain competitive while safeguarding margins," it said.

For the first six months of FY2026, net profit fell 57.5% to RM13 million from RM30.59 million a year earlier, despite revenue rising 10.3% to RM1.72 billion from RM1.56 billion.  

Shares of 7-Eleven Malaysia closed two sen or 1% higher at RM1.98 on Thursday, valuing the group at RM2.32 billion. The counter has slipped about 1% year to date.