Seven & i Holdings Co Ltd

TSE:3382

Earnings Call Transcript 2021-Q1

[Ryuichi Isaka, executive]

Greetings, everyone. My name is Isaka, President and Representative Director of Seven & i Holdings. Thank you for taking the time off your busy schedules to view today's financial results presentation for the first quarter of fiscal year 2021. As with the financial results presentation covering the full fiscal year 2020, which was held back in April, today's presentation will be conducted in teleconference form.

Page 2 contains today's agenda. As you can see, first, we will be discussing the impacts of COVID-19 and counter measures, followed by a discussion of first quarter results and, finally, with the full year forecasts for fiscal year 2021, which we had refrained from announcing back in April.

I would like to start by discussing the impacts of COVID-19. Please turn to Page 4. This page discusses the trend in year-on-year changes in existing store sales for each business category that comprises the Seven & i Group between November 2019 and the preliminary estimates for June 2020. The graph on the upper left corner represents the convenience store business in Japan and in the United States. The orange line represents existing store sales for Seven-Eleven Japan, and the green line represents existing store sales for 7-Eleven, Inc. For Seven-Eleven Japan, existing store sales decreased year-on-year between the months of March and May. However, this figure recovered and grew 1% year-on-year in June.

Sales associated with 7-Eleven, Inc. were affected by lockdown orders stricter than what was seen in Japan. This led to a significant sales decrease in March and April. However, we started seeing a recovery trend in mid-April following the payment of a coronavirus stimulus check by the U.S. government and the gradual region-by-region restart of economic activity. We, therefore, registered year-on-year increases for the months of May and June.

Average spending per customer is up both in Japan and in the U.S. and so is the number of items purchased. Instead of same-day purchases, customers now do bulk shopping, purchasing items for today, for the following day and the day after that, all at once. The fact that our stores are always close to our customers and offer convenience is increasing the value of our stores.

The graph on the upper right corner deals with the superstore business. We registered significant growth regarding food supermarkets by addressing demand from consumers who want to make purchases without leaving the house, therefore, earning support from customers. Ito-Yokado delivered a strong performance in terms of food sales. However, it struggled in terms of tenants and in terms of the sale of apparel and household goods since we voluntarily refrained from continuing business operations and carried out temporary closures at a number of stores. Following the resumption of normal business operations, the convenience of one-stop shopping offered by Ito-Yokado was felt by our customers, and this translated into a year-on-year existing store sales increase for Ito-Yokado, including tenants for the month of June.

On the other hand, the department store and specialty store businesses, shown on the bottom left corner, continue to struggle. The Japanese government requested businesses refrain from operating during the pandemic, and sales at existing Sogo & Seibu department stores fell by approximately 80% year-on-year in April. Sales have since then recovered back to a level corresponding to a year-on-year drop of approximately 20%. In particular, this recovery has been fast for SEIBU Tokorozawa, for SEIBU Higashi-Totsuka and for suburban stores. Out of the various specialty stores, we show the restaurant chain Denny's on the graph. We have reduced the number of seats in order to secure adequate social distancing, among other measures, so the recovery has been somewhat slow. We intend on compensating for this by strengthening our efforts associated with takeout and delivery orders which now account for over 10% of sales.

Sales in the e-commerce and delivery service business have slowed down somewhat following the cancellation of the emergency declaration. However, these remain significantly above last fiscal year's numbers.

Please turn to the next page. We have enacted the following 3 countermeasure policies for the Seven & i Group as a whole during the COVID-19 pandemic. First, we guaranteed the safety and security of customers and employees. While accomplishing this, we carried out policy #2, maintaining business continuity as necessary social infrastructure. Third, we further developed our discernment in considering with-corona and after-corona scenarios going forward. As such, we at the Seven & i Group worked together in unison in order to achieve these goals.

Page 6 deals with countermeasures we enacted in order to offer support for franchise store owners and employees. At Seven-Eleven Japan and 7-Eleven, Inc., in addition to offering monetary rewards for their sales efforts, we also offer financing support for franchise store owners. We also paid a hardship allowance to employees and part-time workers, primarily at our food supermarkets who work on the front lines exposing themselves to the risk of infection. We carried out these initiatives to boost morale on the front lines and as a token of appreciation.

Please turn to Page 7. In addition to monetary support, we also continued providing personal protective equipment in order to prevent the spread of COVID-19 and guarantee a safe environment and the health of our employees working on the front lines. We fully deployed the group's strengths to acquire and deliver the necessary items in a speedy manner. Ito-Yokado procured masks from China, while Sogo & Seibu allowed us to acquire face shields. We fully deployed the group's strengths to provide environments where employees can work with peace of mind.

Please turn to Page 8. As a result of the current COVID-19 pandemic, our customers' way of thinking, priorities and consumption behaviors have changed significantly. This change has manifested itself prominently and can already be observed to the extent that some of these changes are now permanent, while for some other aspects, it will take a significant amount of time for things to go back to the way they were before COVID-19.

As shown on the table to the left on Page 8, we have seen an acceleration in terms of changes in consumer behavior and ways of thinking. Against this backdrop of changes, what type of countermeasures should we at the Seven & i Group be adopting? For example, COVID-19 has accelerated the importance of e-commerce. In terms of last-mile delivery, we want to offer convenience to our customers through a buy online, pick up in store service and through a buy online, pick up any place service through the use of lockers.

Additionally, we have seen an increase in demand for products customers buy and consume at home as opposed to products bought and consumed outside. Increasingly, more and more customers want to carry out purchases in stores as close to home as possible and in the shortest amount of time possible. Furthermore, we have also registered an increase in the number of items purchased per visit, and we believe customers now take a more strategic approach to shopping. There is, therefore, a need to consider what type of location strategies, sales promotion strategies and product strategies we will be carrying out going forward.

Additionally, we are seeing a surge in interest on the part of customers regarding ESG and sustainability issues. Against this backdrop, we would like to strengthen the offering of products and services with an environment-conservation component such as attempts to reduce food loss, et cetera.

Page 9 discusses the Seven & i Group's management policy for the with- and after-corona period. Amidst this unprecedented threat, we would first like to go back to the basics. What steps must we take in order to uphold our corporate creed of being a sincere company trusted by all of its stakeholders? Additionally, our code of conduct and slogan is to respond to change while strengthening fundamentals. It is important we adopt a resolution to face these great changes head on. Furthermore, by polishing the basic principles of business, we want to become a group that is indispensable to customers' lives, a goal we outlined back in April. We, therefore, want to increase our corporate value by becoming businesses essential to our customers' lives. We want to strengthen the food value chain, which is one of the Seven & i Group's strengths. I will be discussing this topic in greater detail later on, but we want to restructure our food supermarkets in the Tokyo metropolitan area and increase supply chain efficiency through York Co., Ltd. Additionally, as a consequence of the COVID-19 epidemic, we would like to rethink the value proposition of our source by considering what products and services would entice customers to go through the effort of visiting our physical stores.

On the other hand, for a number of business categories, this recovery will take some time. As announced yesterday, we believe there is a possibility for the restructuring of certain industries. We want to take a positive approach to the integration of these changes.

Lastly, we have human resources. While the COVID-19 epidemic once again reminded us that our employees are our most priced resource, we're also seeing a shift in customers' perceptions when it comes to customer service. We would like to thoroughly pursue tasks that only humans can perform and take a proactive approach towards digitizing tasks that can be automated.

I would now like to discuss the first quarter results. Please turn to Page 11. We registered a decline in sales and income primarily due to COVID-19. Revenues from operations declined 12.8% year-on-year to JPY 1.3918 trillion. Operating income declined 21% year-on-year to JPY 71.3 billion. I will be discussing this later on, but we registered a significant amount in special losses as a result of COVID-19. As a result, net income attributable to owners of parent declined 73.2% year-on-year to JPY 13.9 billion. On the other hand, EBITDA declined by approximately 10% year-on-year to JPY 136.1 billion, so we believe there is no reason for concern from a cash generation and business continuity point of view.

Page 12 discusses first quarter year-on-year change by business segment. On the left, we have revenues from operations. As you can see, we registered a year-on-year decrease in revenues from operations for all segments, particularly for large-scale facilities and specialty stores.

The graph on the right shows operating income. Operating income in the superstore segment grew by JPY 6 billion year-on-year, primarily on account of our food supermarkets, which benefited from consumption from home and from bulk-buying demand, et cetera. However, we registered an operating income decrease for all remaining segments. I will be discussing each of the major operating companies later on.

Next, I would like to discuss the topic of special losses. Please turn to Page 13. We registered a year-on-year total increase in special losses of JPY 33 billion, which stood at JPY 40.6 billion. As shown at the bottom, losses related to the novel coronavirus totaling JPY 29.5 billion accounted for the majority of the losses. We were forced to enact temporary store closures and shorter business hours at our large-scale facilities and specialty stores at the request of the national and local governments, et cetera. As a result, we have transferred fixed expenses associated with the period we were unable to operate as special losses. Additionally, regarding our convenience store and supermarket operations, we have offered monetary support and allowances to franchise stores and employees who, aware of our status as an essential business, work on the front lines facing the risk of infection. The amounts can be found to the right of each operating company.

Next, I would like to discuss each operating company, starting with Seven-Eleven Japan. Please turn to Page 14.

The left side shows the factors affecting year-on-year change in operating income. We reduced SG&A expenses by JPY 5.7 billion as SG&A expenses fell for the first time on a year-on-year basis for the first quarter. However, we were unable to make up for a sales decrease due to COVID-19, a worsening of gross profit margin and for the impact of royalties revision, et cetera. This translated into a decrease of JPY 7.9 billion. We estimate the impact of royalties revision at negative JPY 2.5 billion and the impact of COVID-19 at approximately negative JPY 9.5 billion. However, recently, we are registering a recovery trend in terms of sales.

To the left, the line graph shows existing store sales growth, and the vertical bar graph shows changes in gross profit margin year-on-year. Existing store sales growth held on during the first quarter compared to other chains but still showed a negative growth of 4.6%. However, preliminary estimates for June show a year-on-year growth of 1%. In terms of gross profit margin, customers showed apprehension about counter-fried food products, which are served directly by store staff. Additionally, restrictions in the movement of people meant sale of soft drink products struggled. As a result of these difficulties in the sale of high-gross-profit product categories, we registered a year-on-year decrease in gross profit margin.

Please turn to Page 15. The graph on the left shows year-on-year sales trends by area. The red line shows the West Tokyo zone, which is primarily a residential area and has shown significant growth. On the other hand, the green line shows the East Tokyo zone, which is primarily an office area and which struggled somewhat. The orange line shows the railway and corporation zone for which sales decreased due to a significant decrease in people going to work, to school and going out recreationally. However, recently, all 3 zones have been showing signs of recovery. The graph on the right shows sales by product category. As I mentioned earlier, sales of counter-fried foods, shown in blue, struggled, while product categories catering to the demand of people preparing and eating meals at home and drinking alcohol at home showed significant growth.

Please turn to Page 16. As a result of this, we registered a 2-digit growth in average spending per customer, shown by the red line. We believe this showcases the needs of customers who want to visit stores near home, do their shopping quickly and purchase not just products for same-day consumption, but also for the following 2 days. The existence of products and services addressing this type of customer demand is one of Seven-Eleven Japan's original strengths, and we will further differentiate ourselves in these product categories going forward. In order to accomplish this, we will be accelerating the transition to the new store layout, which is characterized by an enlarged liquor sales space.

Additionally, in order to strengthen last-mile capability, we will be carrying out a test run in the Tokyo metropolitan area starting in summer 2020 of our online convenience store service for which we already carried out test runs in Hokkaido and Hiroshima. In order to address demand for contactless transactions, we will be introducing semi self-checkout at all stores starting in September 2020. We expect this transition to be fully completed by the first half of fiscal year 2022.

Page 17 shows the results of our new layout introduction test with an enlarged liquor sales space at 43 stores. The changes in layout are as shown on the diagram on the left. We will be moving liquor products, which we have previously displayed in reach-in doored cases, into open cases we use to display rice products, noodles and delicatessen products to incentivize customers to buy these products together. By selling liquor at a suitable temperature, allowing customers to drink these products straightaway, we would like to incentivize the purchase of liquor together with food products. The table to the right shows the results at 43 test stores in January prior to the impact of COVID-19. We showed the pre-test/post-test variance compared to the district average for each test store. The new layout translates into an increase of JPY 15,500 in average daily sales per store and into an increase of 28 customers. Recently, we have seen an increase in customer needs for local shopping as a result of people refraining from going out, resulting in a variance of approximately JPY 20,000 compared to the district average. We anticipate strong sales to continue after the cancellation of the emergency declaration, so we will be significantly accelerating the introduction of this store layout pattern. We plan on investing approximately JPY 12 billion and on introducing this layout at 8,000 stores starting in September.

Page 18 shows the business environment at franchise stores. On the graph on the left, the orange line shows the year-on-year income trend for franchise stores. While income for franchise stores grew significantly in the third and fourth quarters of last fiscal year, it declined by 5% year-on-year in the first quarter of fiscal year 2021. Had we not carried out a revision of royalties starting in March, income for franchise stores would have dropped more than 10%, as shown by the green dotted line. Additionally, the red dotted line shows a year-on-year comparison including the amount paid as monetary rewards and financial support we carried out in April and May. While these are average values, franchise store income increased year-on-year, also allowing to sustain motivation on the part of franchise store owners.

The graph on the right shows the situation as it pertains to the easing of staff shortages. At Seven-Eleven Japan, we make available job recruitment classifieds free of charge on the website. The vertical bar graph shows the trend in the number of applicants through the website, which has increased very significantly. The number of applicants increased approximately 2.5x from the previous year. On the other hand, since we have secured an adequate number of personnel, an increasing number of stores has stopped posting these job recruitment classifieds on the website despite it being free of charge to do so. As a result, the number of recruiting stores has dropped from a double-digit percentage increase in January, down to approximately 90%.

Lastly, I would like to discuss the topic of ESG for Seven-Eleven Japan. Please turn to Page 19. The graph on the left gives the numerical overview of the Ethical Project, an initiative designed to reduce food loss. Customers who purchase products 5 hours away or closer to expiration using nanaco, receive a special 5% off the purchase price. We started offering this initiative nationwide starting on May 11, 2020. One month into this initiative, 5.92 million customers had taken part in this initiative, leading to a decrease of approximately 20% in food loss. Going forward, we would like to continue working together with each local community in order to reduce food loss and enact measures to protect the environment.

On the right, we discuss our initiative to reduce the use of plastics. As previously announced, we now charge for shopping bags starting in July 2020. We could offer these free of charge if we were to utilize above a certain threshold of biomass plastic. However, our basic stance is that the objective behind this initiative is the reduction of the use of plastics. For this reason, we have decided to charge for these. 100% of the head office revenue derived from the sale of plastic bags will be used toward initiatives to reduce environmental impact.

Additionally, we also encouraged the collection of plastic bottles. As of the end of May, we had 359 plastic bottle collection machines at 7-Eleven stores or a total of 860 machines for the Seven & i Group as a whole. We are aiming to have 1,000 machines at 7-Eleven stores by the end of the current fiscal year.

Next, I would like to discuss 7-Eleven, Inc. Please turn to Page 20. The graph on the left shows the factors behind year-on-year change of operating income. While we registered year-on-year growth at existing stores, a decrease in gross profit margin translated into a decrease in operating income from merchandise of JPY 200 million. An increase in cents per gallon led to an increase in operating income from gasoline of JPY 6.6 billion. We registered a decrease of JPY 5.7 billion in operating income associated with SG&A expenses as a result of higher rents and depreciation, et cetera, due to an increase in the number of stores, et cetera. Financial support for franchise owners in March contributed to a decrease in operating income to the tune of JPY 1.8 billion. Including negative foreign currency exchange impact of JPY 200 million, operating income decreased by JPY 1.2 billion year-on-year. We estimate the impact of COVID-19 at approximately JPY 3.2 billion.

The graph on the right shows the trend in existing store sales and gross profit margin. Coinciding with the declaration of a national state of emergency in mid-March, we saw the emergence of enforceable restrictions on people going outside. Growth in January and February allowed us to make up for the decrease in the first quarter, allowing us to deliver year-on-year existing store sales growth of 0.7%. While we registered a significant decrease in April, we are seeing a recovery trend starting in May. While these are preliminary estimates, we saw year-on-year existing store sales growth of 2% in June. On the other hand, we are struggling in terms of gross profit margin.

Sales for the product category of self-service fast food and counter beverages struggled as people became more aware of infection-prevention measures. Up until February, gross profit margin had grown year-on-year. However, with a drop in March, gross profit margin for the first quarter declined by 0.5% year-on-year. After April, recovery in gross profit margin has lagged somewhat compared to existing store sales growth.

Page 21 deals with gasoline. The graph on the left shows the trend in the price of crude oil. The price of crude oil dropped precipitously, even dipping below 0 in April. On the right, the line graph shows gasoline sales volume growth per store, while the vertical bar graph shows year-on-year change in cents per gallon. As a result of lockdowns, et cetera, we registered nearly a double-digit percentage drop in gasoline sales volume. However, cents per gallon increased significantly by $0.049. We were able to make up for lower sales volume with this improvement in cents per gallon, ultimately leading to a significant increase in gasoline gross profit of 17.5% during the first quarter year-on-year.

Page 22 shows that the way customers use 7-Eleven stores in the United States is also changing. The graph on the left shows the trend in sales, the number of customers and average spending per customer. As with Japanese customers, U.S. customers also want to do their shopping as quickly as possible in stores near their home. Customers also want to carry out bulk purchases all in one go. As a result of an increase in these use cases, we have seen a significant increase in the average spending per customer. We are seeing an increase in the number of customers who, instead of going to the supermarket, purchased liquor, frozen foods, processed foods, et cetera, in bulk at 7-Eleven stores.

The graph on the right shows the monthly sales trend for 7NOW, 7-Eleven, Inc.'s delivery service. We have seen a rapid increase in consumer demand for delivery services during the COVID-19 pandemic, so that sales for 7NOW in May were approximately 4x the sales seen in January. The number of transactions per day per store also increased by 24, 4x the number for January. Average spending per customer stood at approximately $15, twice the amount of in-store sales. We currently offer the 7NOW delivery service at approximately 1,000 stores. However, we plan on adding an additional 900 stores until the end of August.

Please turn to Page 23, which deals with our operations at Ito-Yokado. While we registered a significant sales decrease due to COVID-19, we registered an improvement in gross profit margin and a reduction in SG&A expenses. This allowed us to post a year-on-year operating income growth of JPY 700 million. As shown on the graph at the beginning, the preliminary estimates for June show year-on-year growth for existing stores. Amidst changes in the way customers use our stores, we would like to once again reexamine the future potential and profitability of all stores. Additionally, in terms of strengthening food offerings, we will be strengthening cooperation with food supermarkets within the scope of the Tokyo metropolitan area food strategy, creating a shared infrastructure, structure, et cetera, in order to strengthen the supply chain and improve profitability.

Regarding last-mile, in addition to strengthening online supermarkets, we would like to strengthen collaboration with [ Tokoshimado ], Ito-Yokado's mobile supermarket in the form of a small truck visiting the local communities and selling products. This is an initiative which we started at the Minami Osawa store, and we want to expand it into more stores.

We will also continue implementing our planned structural reforms. From June, we transferred Shokuhinkan Enterprise to York Co., Ltd. We expect this transfer to translate into an earnings increase in fiscal year 2021 of JPY 1.2 billion for Ito-Yokado.

Regarding the reduction of head office expenses, we carried out a reorganization on July 8, 2020, and the optimization of over 200 personnel. We forecast a reduction in expenses of JPY 3.5 billion in fiscal year 2021 year-on-year.

Next, please turn to Page 24, covering our operations at York-Benimaru. York-Benimaru has benefited as a result of customer needs from people refraining from going outside as a result of COVID-19 and choosing to prepare and consume meals at home. This translated into an improvement of both sales and gross profit margin, allowing us to grow operating income by approximately JPY 3 billion year-on-year. The graph on the right shows sales year-on-year by product category. Perhaps due to negative hygiene risk connotations during the COVID-19 pandemic, sales of delicatessen products have struggled. However, the other 3 fresh product categories grew significantly.

Existing store sales during the first quarter grew by 6.7% year-on-year. Thanks to the reduction of food losses, gross profit margin improved by 0.4% year-on-year. We expect a further worsening of economic conditions in the Tohoku region going forward, especially for SMEs. Against the backdrop of customers more prone to saving money, we will be strengthening our selection of products with a good balance between price and value and strengthen the development of easy, ready-to-eat meal kits, leveraging the strengths of our 3 fresh product categories.

While this isn't directly related to the financial results for the first quarter, a hot topic is the change in trade name from York Mart Co., Ltd. to York Co., Ltd. on June 1, 2020. I would like to discuss the present situation as it pertains to our supermarkets in the Tokyo metropolitan area.

Please turn to Page 26. Preceding the change in trade name on June 1, we opened the Chiharadai store as the first store of the new York Foods store name on May 13. While this store was impacted by COVID-19, it has greatly exceeded our expectations and is off to a strong start.

On June 5, Shokuhinkan Enterprise changed store name to York Foods and to York Price, respectively, and opened to the public after undergoing renovations. Lastly, on June 17, the Shokuhinkan Shinjuku-Tomihisa store reopened as a flagship store of York Co., Ltd. after undergoing extensive renovations. The graph on the right shows year-on-year existing store sales growth for what was formerly Shokuhinkan Enterprise, shown by the green line, and for what was formerly York Mart, shown by the red line.

Page 27 contains an overview of our food strategies in the metropolitan area where we have mentioned here is our strategy of strengthening and maintaining the supply infrastructures, as shown on the right. By leveraging and sharing existing infrastructure, we will be restructuring and optimizing the supply chain while simultaneously avoiding investment duplication.

Please turn to Page 28, which deals with our operations at Sogo & Seibu. A reduction in SG&A expenses was not enough to make up for a decrease in sales and gross profit margin due to COVID-19, et cetera. This resulted in a year-on-year decrease of JPY 800 million and operating loss of JPY 1.2 billion. We estimate the impact of COVID-19 at negative JPY 800 million. This industry has seen very strong headwinds. However, we will continue gradually carrying out structural reforms, which we have recently announced. We will be carrying out 4 store closures in August, 1 store closure in February 2021 and the reduction of 2 bonds as planned.

Regarding personnel optimization as well, we will be maintaining our plan to reduce the number of employees by 1,400, revised from the original announcement of 1,300. We will be implementing at our flagship stores the property management strategies we developed at SEIBU Higashi-Totsuka and SEIBU Tokorozawa, improving profitability and the attractiveness of the facilities as a whole.

Additionally, customer service for the affluent is also one of our strengths. We will be strengthening the use of digital technology to host events, not just B2C but also as B2B corporate sales, and strengthen our operational framework.

Next, I would like to discuss the full year forecasts. First, I would like to discuss the assumptions underlying guidance for the current fiscal year. Recently, the number of new COVID-19 cases has been on an upward trend. So while we believe we shouldn't let our guard down, we assumed the gradual dissipation of the COVID-19 pandemic in our full fiscal year forecast. However, we anticipate the impact of changes in people's lifestyles will remain after the current fiscal year. We expect telecommuting to become more widespread, standing at approximately 30% to 40% for the full fiscal year. In terms of inbound visitors, while immigration restrictions from countries with the pandemic under control will be relaxed, we do not expect the number of inbound visitors to return to pre-pandemic levels anytime soon. These assumptions form the basis of our forecast.

Please turn to Page 31, which contains the consolidated financial results forecast for fiscal year 2021. First, our foreign exchange rate assumptions are as follows. Based on foreign exchange rate data up until June, and on recent circumstances, we expect an exchange rate of JPY 108 to USD 1. We expect revenues from operations to drop by 14.3% year-on-year to JPY 5.692 trillion. As discussed in the previous slide, we expect the situation in Japan to approach normalcy as we move toward the end of the current fiscal year. However, we are not so optimistic about gasoline sales, which constitute 1/4 of our revenues from operations. We expect operating income to drop by 24.1% to JPY 322 billion.

I will be discussing the per segment and per operating company breakdown later on. We expect net income attributable to owners of parent to drop by 45% to JPY 120 billion. In addition to a decrease in operating income, we expect our financial results to be affected by special losses due to the COVID-19 pandemic.

Page 32 contains a breakdown by business segment. Given the impact of COVID-19, et cetera, we expect a year-on-year reduction in revenues from operations across all segments. In the overseas convenience store operations segment, in particular, we are forecasting a year-on-year decrease in gasoline sales and a decrease in revenues from operations of over JPY 600 billion. Regarding the department store operations segment, in addition to the impact of COVID-19, we are planning on the closure of 4 stores in August. We, therefore, expect a significant decrease in revenues from operations.

I will be discussing our operating income forecasts for the major operating companies in the next page.

In the Financial services segment, we forecast difficulties in the credit card business, accompanying difficulties on the part of large-scale facilities. In the specialty store segment, we expect a year-on-year decrease in operating income not just for our restaurants, but also for Akachan Honpo and THE LOFT, and other businesses located inside large-scale facilities.

Regarding eliminations in corporate, we expect to see a significant increase due to the strengthening of the security foundation and the deployment of human resources and IT, et cetera.

Page 33 contains our forecast for the major operating companies. For Seven-Eleven Japan, while we expect existing store sales growth and gross profit margin growth, which stood at negative 4.6% and negative 0.1% in the first quarter, to return to levels in line with last fiscal year, we don't believe we will be able to make up for the impact of the royalties revision and an opposite reaction following a leap year. For this reason, we expect a year-on-year decrease of JPY 13.9 billion, down to JPY 240 million in operating income. For 7-Eleven, Inc., while we expect existing store sales growth to improve, a challenging environment when it comes to counter product sales, et cetera, will translate into a continued year-on-year decrease in gross profit margin.

On a U.S. dollar basis, we expect a year-on-year operating income decrease of 20%. This might seem like a conservative forecast, but the risk of transmission of COVID-19 is higher than in Japan. Furthermore, the situation remains uncertain and unpredictable leading to this forecast.

For Ito-Yokado, while we expect results from the transfer of Shokuhinkan Enterprise and from store structure reforms, we forecast a year-on-year decrease of JPY 3.5 billion in operating income due to the impact of COVID-19, et cetera. For York-Benimaru, while we have seen strong results recently, starting in the second half of the fiscal year, worsening of economic conditions in the Tohoku area will lead consumers to try and save more, forcing us to enact price measures. As such, we expect the operating income increase seen in the first quarter will shrink, and this operating company to grow by JPY 1 billion year-on-year.

For Sogo & Seibu, the year-on-year operating income reduction in the first quarter was limited to JPY 800 million by transfer of special losses, et cetera. However, starting in the second quarter, while we will go back to operating normally, sales recovery is taking longer than expected. For this reason, we believe we will see a significant year-on-year operating income decrease of JPY 8.9 billion for the full fiscal year.

Lastly, I would like to discuss the topic of dividends. Please turn to Page 34. As I discussed earlier, we are forecasting a significant profit reduction for the current fiscal year. However, we forecast a dividend amount unchanged from last fiscal year at JPY 98.5 per share. While we are impacted by COVID-19, the supply chain has not suffered significant damage, and we believe this situation to be temporary. We have decided there was no need to carry out large additional investment. Against the backdrop of our robust financial foundation and cash generation power, precisely because these are difficult times, we want to provide support to franchise stores, provide allowances to employees and also disburse dividends to our shareholders.

This concludes my presentation. Thank you for listening.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]