SEVEN & I FALLS

Seven & I Holdings Co., Japan’s largest retailer, fell the most in almost three months in Tokyo trading after slumping supermarket and department-store sales cut profit by 28 percent.

Seven & I, which also owns the 7-Eleven brand, declined 5 percent to close at 2,190 yen, making it the worst performer on the Nikkei 225 Stock Average today.

The retailer’s quarterly net income dropped the most since the company was formed in 2005 as customers spent less on clothes and luxury goods at its Ito-Yokado supermarkets and Seibu department stores. Japan may be slow to recover from its deepest postwar recession after a survey this week showed sentiment among manufacturers rose less than estimated.

“Consumers aren’t eager to spend money at all in this environment,” said Ichiro Takamatsu, chief investment officer at Alphex Investments Co., a Tokyo-based hedge fund. “That’s hurting Seven & I’s department stores.”

Operating profit from Seven & I’s supermarket business, which includes Ito-Yokado and York Benimaru stores, plunged 59 percent in the company’s fiscal first quarter, which ended in May. Earnings from department stores, including the Seibu and Sogo chains, plunged 82 percent, the company said in a statement.

“We cannot turn positive” without improvement in the retailer’s general merchandise store and department store divisions, Goldman Sachs Group Inc. analysts Sho Kawano and Keiti Wei said in a report to clients yesterday. They have a “neutral” rating on the stock.

Cutting Costs

Seven & I aims to double planned cost cuts at Ito-Yokado to 16 billion yen ($167 million) this fiscal year, spokesman Nobuyuki Miyaji said in a phone interview today. The company will spend less on promotions and reduce overtime work, he said.

The analysts forecast Seven & I to earn 265 billion yen in operating profit for the year ending February, 7 percent lower than the company’s estimate of 285 billion yen.

Net income for the Tokyo-based store operator fell to 23.7 billion yen from 33.1 billion yen in the three months ended May, it said in its earnings statement yesterday. Sales declined 11 percent to 1.24 trillion yen.

Falling gasoline prices in North America, where 7-Eleven outlets sell fuel, and a stronger yen cut Seven & I’s sales in the quarter by 110 billion yen, the company said. The average U.S. gasoline price dropped 42 percent to $2.1 a gallon in the three months ended May from $3.49 a year earlier. The company based its earnings on an average exchange rate of 93.76 yen against the dollar in the quarter, compared with 105.25 last year, it said.

Tankan Survey

Seven & I’s decline today extended its slide this year to 28 percent, compared with an 11 percent gain in the Nikkei 225.

An index of confidence among large makers of electronics, cars and other products climbed to minus 48 from a record minus 58 in March, the Bank of Japan’s Tankan survey showed on July 1. Economists surveyed by Bloomberg News had predicted minus 43. A negative number means pessimists still outnumber optimists.

Japan’s unemployment rate rose to a five-year high of 5.2 percent in May from 5 percent in April, the government said on June 30. The country’s total department-store sales fell 12 percent in May, the 15th monthly decline.

Total sales at Japanese convenience stores open for more than a year gained 1 percent in May from a year ago, slowing from 4.3 percent in April. So-called same-store or comparable sales strip out the effect of outlets that have recently opened or closed.

Operating profit at Seven-Eleven Japan Co., a convenience- store unit of Seven & I, fell 3.2 percent to 45 billion yen in the three months ended May 31, because of a change in accounting rules on amortization costs and a stronger yen, it said. Excluding the two factors, the division had a 2 percent increase in profit, the company said.

7-Eleven Inc., which started as a company selling ice in Dallas more than eight decades ago, has 39,500 stores in 14 countries, according to its Web site. The convenience store chain was taken private in 2005 by Seven & I, its largest shareholder.