UPDATE 2-Aeon warns may post first annual net loss in 7 yrs
*Cuts outlook, warns may post first annual net loss in 7 yrs
*Posts net loss in Sept-Nov, operating profit falls 44 pct
*Weak clothing sales outweigh relatively solid grocery sales (Recasts, adds company comments)
TOKYO, Jan 7 (Reuters) - Aeon Co Ltd (8267.T), Japan's second-largest retailer, warned it may post its first annual net loss in seven years, hit by flagging sales, a writedown at U.S. unit Talbots (TLB.N) and accounting changes.
Consumer reluctance to spend amid the economic downturn, particularly on clothing and non-food items, has sent Aeon and its rivals scrambling to slash prices, close unprofitable stores and expand their selection of store brands.
"The slowdown in consumer spending, which became more pronounced during the first half (ended in August), has gotten worse. We are now in a very tough business environment," Executive Vice President Masaaki Toyoshima told reporters.
He said the company would scale back capital spending, halve the number of large-store openings and sell off non-core assets to weather the downtrend in retail, which he expects to last through the next business year that begins in March.
For the three months ended in November, Aeon's same-store sales fell 3.9 percent from a year earlier, with apparel sales down 7.2 percent, although food sales were relatively solid as consumers chose to spend more time at home.
The sharp decline in clothing sales has been especially damaging for Aeon and its rivals as clothing accounts for a large percentage of revenue and has bigger profit margins than grocery items.
Toyoshima said the company would halve openings of large-scale stores, which combine supermarkets and general merchandising, to about three stores a year over the next two years, while increasing the number of grocery stores in major cities.
He declined to elaborate on cutbacks in capital spending and sales of non-core assets.
Aeon said it now expects its net earnings to fall within a range of 2.5 billion yen ($26.6 million) in profit to a 2.5 billion yen loss for the year ending in February.
That is down from its previous estimate of a profit of 11 billion yen to 15 billion yen and compares with a mean forecast of a 9 billion yen profit in a poll of 11 analysts by Reuters Estimates.
It posted a net loss of 13.4 billion yen for the September-November quarter after its U.S. apparel chain Talbots took an impairment charge stemming from its decision to sell its J. Jill brand.
The firm's bottom line was also hurt by accounting changes on deferred tax assets.
On an operating basis, which excludes extraordinary items, Aeon's third-quarter profit fell 44 percent from a year earlier to 7.2 billion yen.
Reuters calculated the company's quarterly results by subtracting its first-half figures from the nine-month results it announced on Wednesday.
Shares of Aeon lost 43 percent in the year to Wednesday, underperforming a 36 percent decline in the benchmark Nikkei average .N225.
Talbots shares jumped 24 percent on Tuesday, a day after the women's apparel retailer said it entered into agreements with three banks to secure a total $150 million in committed lines of credit. [ID:nN06423432]
Bigger rival Seven & I Holdings Co Ltd (3382.T) is scheduled to announce its results on Thursday. (Additional reporting by Sachi Izumi; Editing by Chris Gallagher)
