March 14, 2014 / 7:56 AM / 4 years ago

Aeon slashes profit estimates on slow cost cuts, tough competition

TOKYO (Reuters) - Japanese retail giant Aeon Co (8267.T) sliced close to a fifth off profit estimates for its latest business year, saying efforts to cut costs at its core general goods stores fell short of target and tough competition bit into its supermarket sales.

The logo of Aeon Co is seen at its supermarket in Tokyo January 10, 2013. REUTERS/Toru Hanai

Aeon warned in a statement on Friday it now estimates it will book an operating profit of 170 billion yen ($1.66 billion) for the fiscal year that ended February 28, down from a previous outlook of as much as 210 billion yen. The new estimate is well below the average 198 billion yen expected in a poll of 14 analysts by Thomson Reuters I/B/E/S.

Plans to improve its cost structure in the general goods trade in the traditionally profitable fourth quarter were undermined by weak sales of winter clothes, Aeon said. Efforts to shore up supermarket sales were also not enough to offset fierce competition, it said.

The profit warning is an extra headache for Aeon: A national sales tax hike being introduced in April is expected to dampen consumer demand. At 170 billion, operating profit would come in 11 percent lower than a year earlier, rather than rising by as much as 10 percent in its previous guidance.

    Aeon, which operates businesses from malls to drugstores and banks in Japan, now estimates a net profit of 40 billion yen for the year ended February instead of 75 billion yen.

    The revision came as chief executive Motoya Okada prepared to unveil a new three-year growth plan through February 2017 later on Friday. Okada is scheduled to hold a news conference from 5 p.m. (0800 GMT) in Tokyo.

    Along with rival retailers like Tesco PLC (TSCO.L), Aeon is looking to push further into China and other Asian markets where a burgeoning middle class is expected to fuel demand. It’s also counting on accelerated expansion in Asia to offset the long-standing problem of lacklustre demand in Japan, where the population is ageing and dwindling.

    Shares in Aeon ended down 3.4 percent on Friday ahead of the forecast revision, in line with the benchmark Nikkei average.

    Reporting by Chang-Ran Kim; Editing by Kenneth Maxwell

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