WRAPUP 2-Battered Japan retailers turn corner, but risks remain

Thu Apr 8, 2010 5:57am EDT

* Seven & I sees FY op profit at 240 bln yen vs 246 bln view

* Fast Retail sees FY op profit Y140.5 bln vs 136.8 bln view

* Aeon lifts FY op profit fcast to Y130.1 bln from Y128.8 bln

* Retail market has yet to see solid recovery-Seven & I pres (Adds details, comments, graphics links)

By Taiga Uranaka

TOKYO, April 8 (Reuters) - Seven & I Holdings (3382.T) forecast modest profit growth this year while rivals Aeon Co (8267.T) and Fast Retailing (9983.T) nudged their outlooks higher, in a sign Japan's battered retail industry is past the worst after a three-year downturn.

But Japan's top retailers also cautioned that profit recovery would remain anaemic with consumers reluctant to spend as long as wages and employment conditions remain weak.

"The tough economic situation will continue this year. Some people say the worst is over, but it has not translated into a solid recovery," Noritoshi Murata, president of Seven & I, Japan's largest retailer, told a news conference.

Seven & I, which runs over 12,000 Seven-Eleven convenience stores in Japan and thousands more overseas, forecast an operating profit of 240 billion yen for the year to Feb. 2011, slightly below the average estimate of 246 billion yen in a poll of 15 analysts by Thomson Reuters I/B/E/S. [ID:nTOE637057]

The retailer's profit fell 12 percent in its fourth quarter that ended on February 28 to 56 billion yen, as thrifty consumers shied away from designer clothes at its department stores and were less inclined to make impulsive purchases at its convenience stores.

Seven & I's Murata said the company will try to secure profit growth for the current financial year mostly through cost cutting as consumers are unlikely to ease their penny-pinching anytime soon.

It forecast same-store sales at its Ito-Yokado supermarket chain would fall 3.1 percent this year, after a decline of 5.7 percent the year before.

The results from major Japanese retailers come at a time investors are looking for confirmation that Japan's economy is making the shift from a slow recovery driven by export-led demand to more sustainable growth from consumer spending. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on Seven & I, Fast shares link.reuters.com/per86j Graphic on industry-wide sales link.reuters.com/qer86j

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FAST RETAILING SHINES

Fast Retailing (9983.T), operator of the fashion budget chain Uniqlo and a rare bright spot in the industry, reported 43 percent growth in first-half operating profit and raised its profit outlook for the year to August by 8 percent to 140.5 billion yen.

The new forecast just topped the analyst forecasts for 136.8 billion yen in operating profit. [ID:nTOE63404D]

"They managed to outdo the consensus forecast, which is not bad at all. I don't see any particular factor that could slow their growth markedly," said Naoki Fujiwara, fund manager at Shinkin Asset Management.

"But their strong performance is already in the share price and is unlikely to drive the stock much further from here."

Fast Retailing CEO Tadashi Yanai said he was confident of a rebound in its same-store sales following a 16.4 percent slide in March, the biggest monthly drop in seven years.

"We have items that can generate large sales, so I think we will be fine in April and May," Yanai told a news conference.

The company also saw strong growth in its overseas business. The operating profit from Uniqlo's overseas operations jumped more than three-fold from a year earlier for the first half.

Yanai said the firm would accelerate its overseas drive, adding the company may consider listing shares on overseas exchanges as part of its attempt to become a major global brand.

Aeon, the country's second-largest retailing group, said it now expected to post an operating profit of 130.1 billion yen for the year through end-February, 1 percent higher than its prior forecast.

Aeon cited cost cuts, rather than revenue growth, as the basis for that slightly better outlook.

FamilyMart Co Ltd (8028.T) also reported earnings on Thursday. The convenience store operator posted an 8 percent fall in operating profit for the year just ended in March. It forecast growth of 2 percent to 34.2 billion yen in the current year.

FamilyMart is accelerating store openings overseas due to the weak prospects for growth in its home market.

"Severe consumer spending environment is likely to continue this year," FamilyMart President Junji Ueda told a news conference.

Before the results, shares of Seven & I closed down 1.7 percent at 2,314 yen. Aeon was unchanged at 1,060 yen and Fast Retailing rose 0.7 percent to 150,000 yen. The benchmark Nikkei average .N225 fell 1.1 percent. ($1=93.27 Yen) (Additional reporting by Kiyoshi Takenaka; Editing by Valerie Lee and Muralikumar Anantharaman)