July 5, 2017 / 10:45 AM / 2 years ago

Japan's Aeon posts higher first quarter profit on restructuring boost

TOKYO (Reuters) - Aeon Co Ltd (8267.T), Japan’s largest retailer by sales, on Wednesday reported a better-than-expected quarterly profit, as its restructuring efforts helped to improve performance at its struggling general merchandising stores.

People ride bicycles past Aeon Co Ltd's shopping mall in Chiba, Japan November 3, 2016. REUTERS/Kim Kyung-Hoon

Retailers have been rolling out measures such as price cuts to attract buyers as domestic consumption remains weak, with Japan mired in deflation for much of the past two decades and households sitting on cash amid uncertainty over the outlook.

For the three months ended May, the supermarket operator posted an operating profit of 36.6 billion yen ($323 million), up 11.4 percent from a year ago and above an average estimate of 35.2 billion yen from three analysts polled by Thomson Reuters.

Results “would have been worse if we hadn’t cut prices”, said Soichi Okazaki, president of Aeon Retail, pledging to make further reductions in August.

The earnings of major Japanese retailers such as Aeon are closely watched for signs of changes in consumer behavior.

Over the last few months Aeon has cut prices on hundreds of items at its stores to offset rising fuel and electricity costs and to attract thrifty shoppers, who risk being lured away by cheap offers from Japan’s ubiquitous convenience stores.

Core consumer prices in Tokyo, a leading indicator of nationwide price trends, remained unchanged in June from a year earlier..

Finding inventive ways to boost demand has become a major preoccupation for Japanese retailers. For example, Aeon saw a jump in sales at its renovated Aeon Style stores, where purchased items can be consumed at eat-in areas.

An increasingly common sight in convenience stores are eat-in areas that offer a place to enjoy pre-prepared food at cheaper prices than at restaurants.

Aeon is trying to boost sales of its higher-margin own-brand food, clothing and furniture lines, as well as restructuring its Daiei and Aeon Retail units as it works towards its 290 billion yen operating profit target for the year ending February 2020.

For the current financial year, the company reiterated its operating profit forecast at 195 billion yen, versus an average estimate of 198.9 billion yen from nine analysts.

Aeon shares ended Wednesday down 0.5 percent, versus a 0.3 percent rise in the benchmark Nikkei share price index .N225.

Reporting by Sam Nussey; Editing by Christopher Cushing and Himani Sarkar

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