January 11, 2018 / 7:37 AM / a year ago

UPDATE 1-Sales slow at Japan's 7-Eleven; gains abroad drive owner's Q3 profits

* Group Q3 operating profit up 9.5 percent

* Convenience store business has long been profit driver

* Domestic 7-Eleven operating profit down 6 percent (Adds analyst’s comment, details of results)

TOKYO, Jan 11 (Reuters) - Japanese retail group Seven & i Holdings Co’s domestic convenience store business slowed during the third quarter after years of non-stop growth, although its profit grew 9.5 percent thanks to overseas strength.

The results raise worries for the retailer, which has long depended on the ubiquitous, 24-hour 7-Eleven convenience stores throughout Japan to drive profit growth at a time when its superstores and department store businesses have struggled.

It also piles up pressure on company President Ryuichi Isaka, who was promoted to the top job in 2016 in a contentious succession opposed by former CEO Toshifumi Suzuki.

Investors including U.S. activist investor Daniel Loeb had backed Isaka for the top job based on his success of leading the convenience store business and expectations that he would bring about a more drastic overhaul of the weaker superstore business.

But same-store sales at 7-Eleven stores in Japan fell year-on-year in October and November after 62 months of growth, and quarterly operating profit for the domestic convenience store business fell around 6 percent.

The company is now facing signs of a “very, very saturated” convenience store market in Japan, Jefferies analyst Michael Jon Allen said. “They’re running out of ideas,” he added.

“While some have said the convenience store chain was buried in under-performing subsidiaries, we think it is more accurately viewed as a failed conglomerate living off a single stroke of luck,” the analyst said.

Like other convenience store operators, Seven & i is looking to defend its position in the daily lives of Japanese consumers as a wealth of competitors emerge including discount drug stores and rapidly-growing e-commerce.

Seven & i has nearly 20,000 7-Eleven stores in Japan and 8,500 in the United States.

Helped by growth at its overseas convenience stores, Seven & i reported a profit of 101.33 billion yen for the three months ended November, versus 92.5 billion yen a year ago.

For the full-year through February, the company kept its operating profit forecast of 386.5 billion yen, up 6 percent from the previous year. (Reporting by Ritsuko Ando and Taiga Uranaka; Editing by Himani Sarkar)

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