Seven & i's North American stores now out-earn its Japanese chain by 47%

A year ago the two store businesses earned about the same ^[22]. If you back the reported growth rates out of this quarter's results, last year's overseas operating profit comes to about 71.3 billion yen and Japan's to about 67.0 billion yen ^[22]. That was a gap of about 4 billion yen. This quarter the overseas stores earned 47% more than the Japanese ones, a gap of 27.2 billion yen ^[21]. Channel NewsAsia put group operating profit at 127.3 billion yen ^[28]. The overseas stores alone made about two-thirds of that, and the two store businesses together made more than the whole ^[20].

The half year points the same way. Converted at the 158.14 yen rate Channel NewsAsia quoted ^[5], 7-Eleven, Inc.'s first-half operating income is about 208.7 billion yen, roughly 90% of the group's like-for-like 232.2 billion yen ^[19]. The rate is a single quote, so the 90% is approximate.

The group totals need care. Channel NewsAsia reports an 11% fall in quarterly operating profit ^[27], but its own figures, 127.3 billion yen against 132.3 billion yen, work out to a 3.8% fall ^[30]. It also puts first-half operating growth at 137%, on a like-for-like basis that strips out the deconsolidated York Holdings and Seven Bank ^[29]. Quartz reports 36.6% ^[26].

Both outlets put the American gain down to fuel. Quartz cites a jump in gasoline prices ^[2], and Channel NewsAsia says high fuel prices pushed profit up ^[3]. In Japan, the Wall Street Journal's account, as cited by Quartz, blames the quarter on shrinking revenue and higher utility and other costs ^[1]. "Inflationary pressures and subdued consumer sentiment continue to weigh on our customers and the overall operating environment," chief executive Steve Dacus said ^[9].

If fuel prices ease, the overseas lead shrinks back toward last year's near-parity ^[22]. If Japan responds to the loyalty program that chief financial officer Tetsuya Takagi said the company is building through partnerships with SoftBank, PayPay, LY Corporation and Sumitomo Mitsui Card, the domestic decline narrows ^[14]. A North American listing would give the market a separate price for the business that earns the money. I think the parent should be valued as an American fuel-and-convenience operator with a shrinking Japanese chain attached, with the American earnings marked down for how much of their growth came from the pump. The case against is simple: if fuel conditions turn, most of the overseas growth goes with them. The group is then back to two businesses of similar size, one of them shrinking.

Management's forecast sets a test. First-half net income rose 17.8% to 124.4 billion yen ^[10], so the unchanged full-year target leaves 153.6 billion yen for the second half ^[23]. If both growth rates sit on the same base, last year's second half earned about 187 billion yen, and the forecast implies a drop of roughly 18% ^[24]. A second half that beats that with overseas profit still rising would support the American valuation. A third-quarter overseas decline alongside a narrower Japanese one would undo it.

The shares are down about 12% this year ^[18]. The American unit stays inside the parent for now ^[15], and the expansion Dacus describes is in a new region. "We have options we are looking at in Europe. We have every intention of establishing our business in Europe and expanding from there," he told the Wall Street Journal ^[17].