Seven & I Slashes Forecast on Department Store Writedowns (2)

(Bloomberg) -- Seven & i Holdings Co. cut its full-year profit outlook by more than half, wrote down the value of its department and superstores, and said it would announce a restructuring next week.

Net income will be 80 billion yen ($793 million) for the fiscal year ending February 28, 2017, about 53 percent less than the 172 billion yen forecast it issued on Aug. 2, Japan’s largest retailer by market value said Friday in a statement. That would be the lowest profit for the Tokyo-based company since 2010.

The actions come after Seven & i President Ryuichi Isaka replaced his former boss and vowed to revamp the retailer, moves backed by activist investor Dan Loeb who had praised the executive as “instrumental to the success” of the 7-Eleven convenience stores unit he ran. Isaka has been under increasing pressure to deliver on his promise of a recovery plan within 100 days of taking over, a deadline that passed at the beginning of September.

The retailer will book an impairment charge of 60.6 billion yen comprising writedowns for Ito-Yokado Co. and Sogo & Seibu Co. chains, as well as its department store operations, according to Friday’s statement. It plans to announce a “mid-term management plan” and structural reforms on Oct. 6 when it announces quarterly results, the company said.

Seven & i may need to take stronger actions, according to Keiji Ebara, an equity analyst at Marusan Securities in Tokyo. “More stores in the supermarket business and department store business may need to be closed,” said Ebara. “I am expecting to see a more drastic approach in dealing with these businesses.”

Still, the writedowns themselves are not negative, Ebara said. “The impairment is a sign that they’re doing what they’re supposed to do.”

Seven & I shares closed down 0.8 percent in Tokyo on Friday, before the forecast cut was announced. The benchmark Topix fell 1.5 percent.

The retailer has already unveiled plans to acquire and delist debt-laden Nissen Holdings Co., its mail-order catalog unit that has lost money since 2013. It also plans to close almost two dozen stores under the Ito-Yokado and Sogo & Seibu names by February, and seeking to expand the number of its 7-Eleven stores in the U.S.

Adding to its challenges, Seven & i also faces intensifying competition in Japan from other convenience store operators including Lawson Inc., while dealing with a continued retail sales slump in the country.

“The economic environment has not improved at all,” said Makoto Kikuchi, chief executive officer of Myojo Asset in Tokyo, adding that the current climate in Japan has hurt Seven & i’s department store and supermarket businesses.

(Updates with chart, analyst comments in fifth paragraph.)

To contact the reporter on this story: Grace Huang in Tokyo at xhuang66@bloomberg.net. To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, K. Oanh Ha at oha3@bloomberg.net, Dave McCombs, Daryl Loo

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