Tokyo, July 25 - Japanese convenience store chain FamilyMart Co Ltd is confident it can achieve same-store sales growth next year even after a spike in tobacco sales disappears, and may follow a rival into the farming business.
FamilyMart President Junji Ueda also told Reuters he could raise the company's dividend payout in light of the recent upward revision to its full-year profit forecasts, due in large part to a big jump in cigarette sales.
FamilyMart and its two bigger rivals, Seven & I Holdings Co Ltd and Lawson Inc, have enjoyed a revenue boost in the past few months as smokers shun new ID-requiring vending machines and flock to their stores.
FamilyMart's same-store sales are up 14-15 percent so far in July, its biggest monthly sales jump in at least 17 years. But some analysts are warning sales will see a sharp reversal in the next business year after the one-off lift wears off.
Ueda expressed confidence growth was possible again in the next business year starting in March.
"If we can keep rolling out competitive items, customers will keep coming," Ueda said. "We have to offset the (absence of the tobacco boost) by growing sales of our core merchandise. And we can do that," he added.
Strong sales growth has made convenience stores stand out in Japan's retail sector. Most other store formats have been suffering from weak sales as consumers rein in spending to cope with rising fuel and food prices.
FamilyMart shares have rallied 24 percent over the last three months and are now trading around their highest level in more than eight years. The Tokyo stock exchange's retail sub-index has fallen 4 percent over the same period.
But analysts warn that the tobacco sales boom is likely to only help for about a year and note that convenience store operators still face the daunting challenge of creating growth in a highly saturated market with an ageing population.
Against that backdrop, a number of Japanese retailers have shown an interest in farming, aiming to address growing consumer concerns over food safety and also help differentiate their food offerings from their rivals.
Ueda said FamilyMart may enter the farming business, mirroring a similar move by Seven & I.
"We will positively consider being directly involved in production in the agricultural sector," he said, adding that growing its own rice would make sense as it is a staple of most boxed lunches in Japan.
"The amount of rice used by our chain is very large."
FamilyMart, which is 31.5 percent owned by Itochu Corp and has about 7,200 stores at home and 6,800 overseas, including South Korea, Taiwan and Thailand, could also lift its dividend to keep its payout ratio at 35 percent, Ueda said.
"We have set a goal of a dividend payout ratio of 35 percent (of group net profit). But after an upward revision of the outlook, it's below that," he said.
"We have to give it a consideration while watching the situation in the second half," he said.