Robust U.S. C-Store Growth Lifting Seven & I's Profits Despite Domestic Weakness

Narrow-moat Seven & I revised up its full-year guidance as expected but the operating profit target was 2.5% above our estimates thanks to robust growth posted by the U.S. c-store business (SEI), a key driver in our long-term growth assumption. In contrast, continued weakness spotted in the moaty domestic c-store business (SEJ), in part due to slow recovery of foot traffic across Japan’s retail industry, remains a key concern. We project more than 20% growth in operating profits in 2022, led by the U.S. c-store business, despite cost inflation and prolonged COVID-19 impacts. We do not think the pandemic has eroded the firm's moat underpinned by its capability of private-label development and expect the revamp of product lineup and normalized foot traffic will lead to sales recovery.