Japan's debt-laden Daiei downgrades

In this story: Selling down Weather factors RELATED STORIES, SITES

By Nic Hopkins
CNN.Com Writer

TOKYO, Japan -- Debt-ridden Japanese retail giant Daiei has downgraded its profit outlook for the second time in five months, amid slumping consumer demand.

Having cut its pre-tax profit outlook in November to ¥10 billion ($81.8 million), the diverse retailer now expects to achieve only one tenth of that -- advising investors to expect earnings of no more than ¥1 billion.

It says internal sales estimates are unchanged at ¥2.8 trillion, while net profits remain on track to come in at ¥40 billion because the company's asset sales strategy has progressed better than expected.

Based in Kobe, Daiei is one of Japan's largest retailers, with assets including a majority stake in the national Lawson convenience store chain and more than 100 other subsidiaries that operate across the retail, restaurant, hotel, and real estate sectors.

As part of a broad restructuring aimed at paying debts and cutting costs, Daiei this month announced plans to sell an 8 percent stake in the retailer Maruetsu and a 5 percent stake in Daiei, the parent company held by group companies, to the trading group Marubeni Corp.

Selling down

It has also sold a 27.9 percent stake in Lawson, its crown jewel and the number two-ranked Japanese convenience store chain behind 7-Eleven, to Mitsubishi Corp. Mitsubishi is now the largest stake holder in Lawson, with 0.5 percent more than Daiei.

Daiei has also said it plans to close 10 per cent of its stores and cut its staff by 4,000 employees to 26,000.

The company owes creditors a total of ¥2.4 trillion, and is operating purely on the goodwill of its banks.

This is the second earnings warning Daiei has issued in four months. Last November, it cut its group net profit forecast to ¥40bn from an earlier forecast of ¥90bn.

Since then, its shares have traded in a band between ¥140 and ¥240, having fallen sharply from an 18-month high of ¥580 on January 13, 2000.

Daiei president Kunio Takagi told a press conference in Tokyo this week that sales in the critical December trading period -- when turnover traditionally spikes for Christmas and winter -- fell 10 percent on 1999.

The numbers bounced slightly in January and February, with year on year falls improving to 1.7 percent and 2.5 percent, respectively.

Weather factors

Takagi cited unseasonably warm weather conditions in December as a key reason behind a slump in sales of items such as warm clothes and heaters.

Daiei is not alone in struggling against Japan's prolonged period of deflation and lack of willingness among consumers to spend.

Desperate to revitalize Japan's economy, which is also suffering from a lack of demand from key export markets such as the U.S. and Western Europe, the Bank of Japan has announced radical steps to kick-start domestic spending.

On Monday, the BOJ said it would push overnight lending rates back to zero percent and pump ¥1 trillion back into the economy by lifting its overnight reserves to ¥5 trillion from ¥4 trillion.

Asiaweek.com
BOJ raises reserves, guides rates near zero
March 19, 2001

Daiei - Japanese language

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