Launching Coverage of Lawson With No-Moat and Stable Trend Ratings and FVE of JPY 8,100

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Equity Bottom-Up

Lawson’s first-quarter results appear to fall short of the company’s target although the company claimed that earnings were in line with its expectation. We have not seen compelling evidence to alter our view Lawson is in a less favorable position to compete with its peers 7-Eleven and <a href="https://www.smartkarma.com/entities/320" target="_blank" data-smartkarma-citation="entities:320:1">FamilyMart UNY Holdings Co Ltd (8028 JP)</a>. Given the intensifying competition with consumers shifting to supermarkets and drug stores for lower prices, acquiring new customers to lift per-store sales remains a tough task.Gross margins did not improve as we had expected in the first quarter. We intend to revisit our forecasts after we see how the new product strategies play through from the second quarter. We maintain our forecasts and fair value estimate of JPY 7,500 as well as a no-moat rating. There is no change in the company’s full-year guidance and dividends.Our outlook for the remainder of the year is somewhat negative given that impacts of adverse factors expected to depress full-year profits were marginal in first quarter, resulting from a delay in the timing of expenses incurred which will be skewed toward second-half. That said, earnings were behind the company’s target if we take the delay in expense into consideration. The results appear to echo the market’s concern that its investment in store renovations, fixtures (for product lineup expansion), franchise support might fail to yield positive returns.Analyst: Jeanie Chen

Lawson’s first-quarter results appear to fall short of the company’s target although the company claimed that earnings were in line with its expectation. We have not seen compelling evidence to alter our view Lawson is in a less favorable position to compete with its peers 7-Eleven and FamilyMart UNY Holdings Co Ltd (8028 JP). Given the intensifying competition with consumers shifting to supermarkets and drug stores for lower prices, acquiring new customers to lift per-store sales remains a tough task.Gross margins did not improve as we had expected in the first quarter. We intend to revisit our forecasts after we see how the new product strategies play through from the second quarter. We maintain our forecasts and fair value estimate of JPY 7,500 as well as a no-moat rating. There is no change in the company’s full-year guidance and dividends.Our outlook for the remainder of the year is somewhat negative given that impacts of adverse factors expected to depress full-year profits were marginal in first quarter, resulting from a delay in the timing of expenses incurred which will be skewed toward second-half. That said, earnings were behind the company’s target if we take the delay in expense into consideration. The results appear to echo the market’s concern that its investment in store renovations, fixtures (for product lineup expansion), franchise support might fail to yield positive returns.Analyst: Jeanie Chen

Lawson's 1Q Results Fell Short of Expectation; Investment Efforts Not Yet Yielding Results

Lawson Inc

Lawson's 1Q Results Fell Short of Expectation; Investment Efforts Not Yet Yielding Results