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S&P upgrades Seven & i's outlook to stable on improving performance

S&P Global Ratings on Jan. 17 changed its outlook for Seven & i Holdings Co. Ltd. to stable from negative, citing the convenience store operator's gradually improving operating performance in its home market of Japan and overseas.

The stable outlook covers the long-term issuer credit ratings of Seven & i, its Japanese subsidiary Seven-Eleven Japan Co. Ltd. and its U.S. subsidiary 7-Eleven Inc.

S&P affirmed its AA- long-term issuer credit ratings on each of the three companies and S&P's A-1+ short-term issuer credit rating on Seven-Eleven Japan. The rating agency said it also affirmed its issue ratings on Seven & i and 7-Eleven.

The change reflects that S&P's forecast for improvement in Seven & i's operating performance, as well as its conservative financial management, will contribute to the improvement of the group's key financial ratios to levels that are equal to its current ratings.

S&P said the ratios worsened after the company acquired a U.S. convenience store business in January 2018. The agency said the use of debt and group funds to acquire the U.S. convenience store business will weaken Seven & i's key financial ratios.

7-Eleven Inc. acquired a network of about 1,000 stores from U.S.-based Sunoco LP in early 2018. S&P said the deal strengthened the group's position in North America despite the impact of the acquisition financing, noting that it expects profitability to "gradually improve" as the company renovates and franchises stores.

In addition, the rating agency said it expects Seven & i's main convenience store business in Japan to continue to fuel a gradual recovery in the group's overall operating performance. S&P highlighted the group's steady performance in the March-November 2018 period, particularly in the convenience store operations in Japan and overseas.

In the nine months to Nov. 30, 2018, Seven & i posted a 4.7% increase in attributable net income to ¥156.27 billion, following strong sales at its overseas convenience stores.

Meanwhile, S&P said it may downgrade the group and its subsidiaries' ratings if profitability drops substantially as a result of a market share loss in Japan.

The agency said an upgrade is likely if the group consistently improves profitability and cash flows.

As of Jan. 17, US$1 was equivalent to ¥109.04.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.