ABC-Mart's first-half profit rises 7.4% -- but the sector it sells into shrank all along

ABC-Mart said its consolidated operating profit rose 7.4% to ¥36.1bn in the six months to August 31, on revenue up 6.4% to ¥202.3bn, according to its interim results filing. Ordinary profit rose 5.7% to ¥38.0bn and net profit attributable to shareholders rose 6.6% to ¥25.9bn, and the company raised its full-year guidance to match.

The company, which runs ABC-MART, GRAND STAGE, ABC-MART SPORTS and OSHMAN'S shoe shops, said its group store count reached 1,522 at the end of the half, 1,114 of them in Japan after opening 16 and closing 9 domestic stores during the period. The chain's newest domestic format, OSHMAN'S RUN & FITNESS -- combining running and fitness retail with what the company calls a community space for people who like to move -- opened its first store in Kyoto in June and a second at DiverCity Tokyo Plaza in July, part of a broader push into larger, multi-banner stores anchored by shopping centres.

Overseas profit outgrew overseas sales

Overseas, the acquisition in June of 16 FOLDER shoe stores in South Korea from local retailer E-Land World -- since expanded to 24 stores following a further handover in July -- helped lift ABC-Mart's overseas store count to 408 as of the end of June, including 332 in Korea. Overseas revenue rose 10.8% to ¥58.7bn in yen terms and overseas segment profit rose 31.5% to ¥4.3bn, nearly three times the rate of sales growth, with Korea alone up 11.3% to ¥37.5bn. ABC-Mart said the yen weakened against every currency its overseas units trade in during the half, which inflates local results once converted back into yen without the stores needing to sell any more shoes. Domestically, growth was more modest in segment terms -- revenue up 4.8% to ¥146.3bn and segment profit up 5.0% to ¥31.9bn -- a closer match between the two figures.

Official figures back up both halves of that story. The yen traded roughly 6%-11% weaker against the dollar across the six months to August, according to U.S. Federal Reserve data, and was weaker than a year earlier against the Korean won in five of the six months, by as much as 7% -- a swing that explains much of the gap between ABC-Mart's overseas revenue and profit growth. The domestic gain looks more like genuine demand: consumer prices rose only 1.4%-1.9% over the same months, well under the 4.5% rise in Japan same-store sales, and that growth came against a shrinking market rather than a rising one -- Japan's broader index of apparel and accessories retail activity, compiled by the trade ministry, fell between roughly 2% and 17% year on year in every month of the half. In floortok's read, ABC-Mart's domestic business grew by taking share in a contracting category, not by riding a recovering one.

ABC-Mart raised its full-year revenue guidance to ¥403.0bn, up 6.4% on the year before, with operating profit guidance raised to ¥67.2bn (+6.2%) and net profit guidance to ¥47.7bn (+2.9%). For the second half, the company flagged one specific risk to watch: Japan's duty-free system for overseas visitors is due to switch from an upfront purchase exemption to a refund-based method from November, a change ABC-Mart itself named, alongside general price rises, as a factor that could affect consumer spending.

Inbound visitor arrivals themselves were down in four of the last six months, including a 9.6% fall in August, according to Japan National Tourism Organization figures, even as the weaker yen persisted -- so the shift to a refund-style tax exemption is one more reason the company's bet on OSHMAN'S RUN & FITNESS and its domestic store mix, not just a weak yen, will matter for how the second half actually lands.