Monthly Data, Not Earnings, Will Show Japan Retail Virus Winners

(Bloomberg) -- As investors cheer for positive earnings forecasts from some Japanese retailers, analysts warn March sales are a key indicator of the true earnings trend for months to come.

Convenience store major FamilyMart Co. surged as much as 9.4% in Tokyo trading Tuesday as investors cheered an outlook for an almost 40% increase in profit in the year ending February 2021. But that year is off to a bad start already, with data for March showing sales fell 7.6%, as schools shut and workers were encouraged to stay home.

“The sales projection looks optimistic even excluding potential Covid-19 impact,” SMBC Nikko Securities analyst Kuni Kanamori wrote, describing the March sales drop as “a little worrying” compared with peers. Seven & I Holdings Co.’s Seven Eleven same-store sales fell 3.2% in March, while Lawson Inc.’s dropped 5.2%. FamilyMart cautioned that its forecasts take the coronavirus effect into consideration only through May.

With much of the country about to enter its second week under a state of emergency, trends from March will be amplified in April and beyond. Japan was little impacted by the virus until late February, when Prime Minister Shinzo Abe moved to close schools. March data show that drugstores are the big gainers so far, with many seeing customers line up before opening to secure still-rare face masks and hand sanitizer. Kyushu drugstore operator Cosmos Pharmaceutical Corp. saw same-store sales jump 6.8%, with shares leading peers higher on Tuesday.

General retailers are suffering more than convenience stores. Pan Pacific International Holdings Corp. disappointed investors with a 12% plunge in sales last month at its Don Quijote discount stores, showing how dependent it has been on tourist spending despite more stockpiling by Japanese consumers. With people increasingly staying at home, fashion retailers are suffering too: United Arrows Ltd. and, particularly, jeans retailer Right On Co. reported plunging sales.

Family restaurant operator Skylark Holdings Co. saw sales tumble almost 24% in March, and with Japanese officials calling on people to avoid enclosed spaces, the industry can expect an even worse month in April. The exceptions are those places that can offer takeout -- McDonald’s Holdings Co. Japan comparable sales slipped only 0.1% in March, beef-bowl purveyor Yoshinoya Holdings Co. reported flat customer numbers and KFC Holdings Japan Ltd.’s jumped 8.2% on the back of a successful lunch campaign.

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