The Wall Street Journal-20080213-Wal-Mart Expects Bigger 2007 Loss in Japan

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Wal-Mart Expects Bigger 2007 Loss in Japan

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TOKYO -- Wal-Mart Stores Inc.'s Japan unit said it expects its net loss for 2007 to be twice its earlier forecast, raising fresh doubts about the U.S. retailing giant's plans to turn around its business in the world's second-largest economy.

In revising its net-loss projection for the year ended Dec. 31 to 20.9 billion yen ($195.5 million) from an earlier 10.4 billion yen, Wal-Mart's subsidiary, Seiyu Ltd., cited weak sales of clothing and seasonal household products, as well as an asset write-down related to its stores. Seiyu also cut its projections for operating profit to 400 million yen from 4.6 billion yen and for sales to 952.3 billion yen from 963 billion yen. Full-year results are to be released tomorrow.

Seiyu said heavy discounting of goods over the past year ate into profit margins without the expected boost in sales.

The downward revision casts doubts on Wal-Mart's turnaround efforts at Seiyu, which hasn't made a net profit since the Bentonville, Ark., company first invested in 2002. Some analysts have speculated that Wal-Mart could eventually cut its losses and pull out of Japan.

Wal-Mart's "Everyday Low Price" approach has backfired in Japan, where consumers tend to equate low prices with low quality. The company tried to address that by offering higher-end goods at Seiyu but has reverted to discounting as fears of an economic slowdown dent consumer spending in Japan.

Wal-Mart has said it is committed to Japan. Last year, having already poured tens of millions of dollars into refurbishing Seiyu's general-merchandise, clothing and food stores, it paid $849 million to raise its stake in the retailer to 96%. Seiyu, Japan's fifth-largest retail chain by sales, operates about 400 stores.

Wal-Mart intends to push ahead with its plans to make the Japanese retailer a wholly owned subsidiary, Seiyu said. It added that the two companies are continuing talks with Mizuho Corporate Bank Ltd. and Citigroup Inc.'s Citibank Japan Ltd. over long-term funds to help Seiyu's growth.

The setback comes as Wal-Mart, the world's largest retailer by sales, faces headwinds at home. Wal-Mart's U.S. same-store sales in January were up 0.5% from a year earlier, short of the 2% gain it expected. For the fiscal year ended Feb. 1, Wal-Mart's U.S. same-store sales rose 1.4% -- the smallest increase since the company began releasing such data nearly 30 years ago.

Wal-Mart has previously had trouble with its international operations, which accounted for 22% of its $345 billion in sales in 2006. The company sold its German operations to rival German retailer Metro AG in 2006 and earlier sold its 16 stores in South Korea.