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Seiyu’s 2007 losses projected to be twice as bad as expected

February 12, 2008
By Ken Worsley


Last month, we reported that Wal-Mart intended to bring struggling Japanese supermarket chain Seiyu back to profitability in about two year’s time. We were skeptical then, and outlined the reasons why such a project threatens to be nothing but a drain on Wal-Mart’s resources. After all, back in August, we reported that Wal-Mart, which at that time held a 53.6% stake in Seiyu, expected to see the firm post its sixth consecutive year of losses in 2007, to the tune of 5.9 billion yen (about $50 million). Seiyu also happens to hold over 300 billion yen in interest-bearing debt on its balance sheet.

Those loss projections were later revised up to 10.4 billion yen. That sounded bad. Today, however, Wal-Mart announced in a preliminary earnings statement that losses in 2007 have doubled yet again to 20.9 billion yen (about $195 million).

That’s two revisions within a year, each time doubling the losses. Wal-Mart now owns about 96% of Seiyu, which is trading around the 136 yen per share level. Bloomberg reports that Wal-Mart is “in talks with Citibank and Mizuho Corporate Bank Ltd. about injecting funds into the Japanese unit.”

Citibank funds? Where might those be coming from? Mizuho Corporate? Well, that would certainly bring a domestic player back into the game. If Wal-Mart is looking for capital injections, may we assume that it’s no longer willing to pour its own money into Seiyu? Is Seiyu equity actually worth something?

After five years of investing in Seiyu, Wal-Mart only saw it sink further and further into losses. Then it decided last October to sink about 100 billion yen into the firm. Now we see a doubling in losses (for the second time) as assets are written down.

So…Wal-Mart has paid 100 billion yen to acquire a firm with over 300 billion yen of interest bearing debt that has lost money for six straight years and stands to have lost at least 20 billion more yen in 2007, while this firm reduces non-core operations in order to focus on a core industry that has seen falling sales for 11 straight years. We are very interested to see how this turnaround can be pulled off.

And we’re very interested to see if other investors jump on board. We’d be even more interested to hear what they think of Wal-Mart’s plan. How many slides are in that Powerpoint?

Filed Under Business, Retail, Supermarkets 

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Comments

3 Responses to “Seiyu’s 2007 losses projected to be twice as bad as expected”

  1. hendi on February 16th, 2008 12:37 am

    Someone spent money buying Seiyu? It would be better to buy a three-legged greyhound and hope for the best.

  2. Retail Roundup: Seiyu announces more Japan Economy News & Blog - Business, Economy, Marketing and Economic Reports on July 7th, 2008 4:47 pm

    […] Seiyu lost about 20 billion yen in fiscal 2007 and has been in the red for six straight years. The Nikkei tells us that Seiyu intends to sell more Wal-Mart brand casual clothing at its shops, despite the fact that clothing sales at supermarkets continues to fall - it was down 8.6% in May alone. Seiyu also intends to link up further with Wal-Mart in terms of sourcing products from China. Although this might make economic sense, it also bucks the trend of consumer mistrust of goods produced in China. […]

  3. WG on July 10th, 2008 9:14 pm

    Bloomberg reports that Wal-Mart is “in talks with Citibank and Mizuho Corporate Bank Ltd. about injecting funds into the Japanese unit.”

    Now we know Mitsubishi/UFJ, Mizuho and Nikko Citigroup are managing the bond offering. Did things change since Bloomberg wrote the piece or were they fed misinformation?

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