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Seven & i Holdings Co Ltd 3382

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Morningstar’s Analysis

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Poor Domestic Retail Performance Depressing Seven & i’s Profits but U.S. C-Store Growth Promising

Jeanie Chen Senior Equity Analyst

Analyst Note

| Jeanie Chen |

Narrow-moat Seven & i beat its interim profit targets as expected but second-quarter profits somewhat, fell short of our expectations due to weakness in the moaty domestic c-stores business (SEJ). In contrast, the U.S. c-store business (SEI), the key profit driver in our long-term growth assumption, continued to record robust growth thanks to double-digit same-store sales growth and a pickup in gasoline demand. While our second-half estimate of operating profits is more than 5% above implied guidance, we think it is highly achievable under the condition that the coronavirus situation does not worsen in winter. We have marginally adjusted net profit forecasts to reflect changes in extraordinary items and tax rates, which leaves an immaterial impact on our fair value estimate of JPY 5,400. We view shares as modestly undervalued, trading at 11% discount to our fair value estimate. The strengths spotted in SEI reinforces our investment thesis that untapped food service growth of the U.S. c-store business will serve as a growth engine for the group’s long-term profit expansion.

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Company Profile

Business Description

Seven & i Holdings operates 7-Eleven, the world’s largest convenience store chain, with nearly 72,000 stores globally. C-store operations, mainly in Japan and North America, represent 75% of group sales (54% of operating revenue) and nearly 85% of operating profits. 7-Eleven Japan (SEJ), the market leader in Japan’s C-store industry, has acquired 45% value share and 38% share in store count. 7-Eleven Inc (SEI), the largest C-store chain in the U.S., made a USD 21 billion acquisition of Speedway in 2020. The deal will lift its total store count to about 13,700 stores. Other retail activities including superstores, department stores, and specialty retailers either earn low margins or are in red. The financial business, mainly ATM operations, is the other key profit contributor.

8-8, Nibancho, Chiyoda-ku
Tokyo, 102-8452, Japan
T +81 362383000
Sector Consumer Defensive
Industry Grocery Stores
Most Recent Earnings Aug 31, 2021
Fiscal Year End Feb 28, 2020
Stock Type
Employees 135,332