Isetan Mitsukoshi cedes market cap crown in earnings stumble
J. Front new leader among Japan's department store operators
TOKYO -- Isetan Mitsukoshi Holdings' projected profit decline this fiscal year has cost the company its spot as Japan's biggest department store chain by market capitalization -- a sign that investors are fed up with falling earnings and sluggish reform efforts.
The retailer on Wednesday afternoon said group net profit will tumble 33% to 10 billion yen ($87.7 million) in the year ending March 2018 due to continued high costs at department store operations. Many in the market had expected a recovery in foreign tourist spending to pull Isetan Mitsukoshi's profit out of a recent slide, with analysts surveyed by QUICK predicting a net profit of 18.3 billion yen on average.
Isetan Mitsukoshi shares shed more than 8% Thursday following a similar drop the day before, closing at 1,060 yen after touching a year-to-date low of 1,058 yen. The market cap was 418.9 billion yen at the close, marking a whopping 78.6 billion yen decline over two days. This puts Isetan Mitsukoshi behind J. Front Retailing, with a market cap of 436.2 billion yen, for the first time ever, and marks the retailer's first fall below No. 1 among department store operators since April 2008.
Isetan Mitsukoshi now looks to make "cost cutting the top priority," President Toshihiko Sugie told a news conference Wednesday, noting plans for structural reform covering both unprofitable stores and higher-performing locations. But the retailer "will not pursue downsizing," he said, prompting many in the market to call the reform measures "underwhelming," according to Nobuyuki Fujimoto of SBI Securities.
J. Front, meanwhile, has worked for years to diversify its business model, making earnings less dependent on department store operations, which include Daimaru Matsuzakaya Department Stores and Parco. The company's real estate business in April opened the Ginza Six development in Tokyo's posh Ginza district in cooperation with partners such as Mori Building. The massive facility is expected to lift J. Front's profit starting this fiscal year, thanks to fresh revenue from tenants. Matsuzakaya's Ginza flagship formerly occupied the site.
Both J. Front and Takashimaya -- No. 3 by market cap, at 378.9 billion yen -- expect to log more than twice the profit Isetan Mitsukoshi does this fiscal year, forecasting 26.5 billion yen and 21.5 billion yen, respectively. Yet the erstwhile market cap leader has shown few specific plans to turn earnings around, and its shares "will have a tough time mounting a significant recovery in the short term," said Dairo Murata of JPMorgan Securities Japan.