Tokyo, Feb 16:  Wal-Mart Stores Inc.'s Japanese subsidiary, Seiyu Ltd, on Friday forecast

Tokyo, Feb 16: Wal-Mart Stores Inc.'s Japanese subsidiary, Seiyu Ltd, on Friday forecast a return to profit this year as its core supermarket operations started to show recovery and it progresses its reform efforts.

Seiyu, owned 53 percent by the world's biggest retailer, has been struggling despite total investments of more than $1 billion by Wal-Mart, amid intensified competition from rival supermarkets and other retailers in a mature market.

Its same-store sales showed their first annual rise in 15 years in 2006 but were still below the company's target.

After Wal-Mart quit the South Korean and German markets last year, many market players speculated that it might leave Japan too because of Seiyu's poor performance. But the U.S. retailer has been saying it is committed to the world's second-biggest retail market.

Seiyu said its group net profit will likely be 800 million yen ($6.70 million) for the year to December, against a 55.8 billion yen loss in 2006. It was the fifth straight year of losses.

The 2007 targets compares with a consensus loss projection of 950 million yen by four analysts by Reuters Estimates.

Operating profit is expected be 10.6 billion yen in 2007, against a 3.2 billion yen profit last year, while sales are seen rising 3.3 percent to 992.1 billion yen.

Seiyu's 2006 results were well flagged because the company said in January it would fall deeper into the red than it first estimated.

Seiyu has been trying to improve store operations and its distribution systems using Wal-Mart's expertise, but the company has never posted a net profit since the U.S. retailer took a small stake in it in 2002.

The Japanese company said it would continue with its reform efforts, including store remodelling and an improvement of its private brands.

Seiyu mainly operates superstores through its group network of some 390 outlets but unlike other Japanese retailers such as Aeon Co. it does not have finance or speciality store units to offset sluggish core operations.

Shares in Seiyu plunged nearly 59 percent last year, underperforming a 21 percent fall in the Tokyo Stock Exchange's retailer subindex.

As of 0511 GMT, Seiyu was up 2.5 percent at 164 yen, against a 0.18 percent decline in the subindex.

Reuters