Report
Jeanie Chen
EUR 850.00 For Business Accounts Only

Morningstar | Seven & i's Profit Guidance Disappoints; C-Store's 24-Hour Business Model Intact

The convenience store operations under the 7-Eleven banner have been a key driver of Seven & i Holdings' growth. After accelerating its domestic store expansion over the past five years and adding more than 5,000 stores, management is shifting its focus from quantity back to quality of store operations and profitability. Management intends to fix the widened variance in store performance resulting from massive new store openings and lift the targeted return on investment from the current 11% to 15%. It lowered its new store opening target to 1,500 stores and raised the number of store closures to 800 for fiscal 2018. An increasing number of single-person households, coupled with Japan’s aging population and rising female workforce, should continue driving demand for prepared foods, an area in which 7-Eleven has an edge over peers, given its product development capability and the proven success of private-label products. It plans to update 5,350 existing stores and open 6,650 new stores (including stores relocated or closed for full renovation) with the new layouts by fiscal 2021 to spare more space for sought-after items, such as frozen foods, to boost per-store sales.Despite management’s efforts to restructure the struggling superstore and department store businesses, improvement in the fundamental sales growth remains limited although cost-cutting has lifted profits. We find the profit recovery unconvincing, given the challenging operating environment, particularly after the 2019 tax hike. We see the fragmented C-store industry in North America as a potentially exciting opportunity for 7-Eleven’s expansion. While Seven & i’s North American arm, 7-Eleven Inc., is already the largest player in the United States, its market share is just 5%. Initiatives to expand the private-label assortment and enhance quality of prepared meals and hot foods are critical to driving growth of per-store sales and fending off rivals including Amazon Go.
Underlying
Seven & I Holdings Co. Ltd.

Seven & i Holdings is a holding company mainly engaged in the retail business. Co.'s business segments are convenience stores, superstores, department stores, food services, finance related, mail order & e-business and others. Co. is engaged in the operation of direct and franchise convenience stores called "7- Eleven." As of Feb 28 2018, Co. maintains total of 20,260 convenience stores throughout Japan. Co. is also engaged in the operation of supermarkets, specialty stores, full-service and fast food restaurants, meal provision service business to company cafeterias, hospitals and schools, banking and credit card services, leasing business, as well as the provision of IT business.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Jeanie Chen

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