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This article first appeared in The Edge Financial Daily on May 31, 2019

KUALA LUMPUR: Japanese retailer AEON Co (M) Bhd, which reported a 17% rise in its first-quarter (1Q) net profit on higher retail revenue and margin, plans to increase its ready-to-eat offerings at its supermarkets to boost sales in the face of a softer consumer market.

The decision was made because the company has observed that the supermarket division, in general, tends to do better in weaker environments compared to other retail segments like home appliances and clothing, according to AEON managing director Shinobu Washizawa.

“The ‘Delica’ or ready-to-eat segment has been doing well. It gives higher margins. These days, there is more preference for quick food so we want to increase sales from this by allocating more floor space,” Washizawa told reporters after AEON’s annual general meeting (AGM) yesterday.

The segment, under its supermarket division, has grown considerably in the past few years and now makes up 50% of all supermarket sales. Among its offerings are packed local meals, fried food and sandwiches.

So AEON Co will focus on increasing footfall in its supermarkets and increasing sales of its ready-to-eat segment, said Washizawa, as the company turns less optimistic about the market’s outlook as consumer sentiments have been subdued, with many being cost-conscious with their purchases.

“The implementation of the sales and services tax last year has had an impact [on AEON] as the company absorbs the costs. At the same time, the government has been telling retailers to control costs. So we are trying to work around this and increase operational efficiencies,” Washizawa said.

Meanwhile, the company will be spending RM500 million capital expenditure (capex) in its financial year ending Dec 31, 2019 mainly to renovate its AEON Taman Maluri shopping centre, and to open one mall in Nilai, Negeri Sembilan. It will also upgrade selected Daiso and Wellness pharmacy stores.

As at Dec 31, 2018, the company was operating 33 departmental stores cum supermarkets and managing 27 shopping malls. In addition, the company has six MaxValu stand-alone supermarkets, 61 Wellness pharmacies, and 37 Daiso outlets.

Separately, in its stock exchange filing yesterday, the group announced that net profit for its 1Q ended March 31, 2019 grew 17% to RM32.64 million from RM27.94 million, as revenue grew 8% to RM1.21 billion from RM1.11 billion.

The top-line improvement was due to improved retail contributions, buoyed by new stores which opened in April 2018 and January 2019, as well as newly renovated stores.

In its filing with the exchange, the group said its operating profit saw a significant growth of 52% year-on-year (y-o-y) to RM92.18 million, mainly due to the impact of Malaysian Financial Reporting Standards 16 accounting changes.

Consequently, its pre-tax profit increased 12% to RM55.7 million. But after adjusting for the accounting changes and the inclusion of a share of operating loss from an associate, its pre-tax profit was still up 10% y-o-y, it said, thanks to the higher retail revenue and margin.

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