MOODY'S ASSIGNS Baa2 RATING TO LONG-TERM DEBT OF JUSCO CO., LTD. AND (P)Baa2 RATING TO ITS JAPANESE SHELF REGISTRATION
TOKYO, March 13, 1995 -- Moody's Investors Service assigned a Baa2 rating to the senior unsecured long-term debt of JUSCO Co., Ltd. (JUSCO) and a (P)Baa2 rating to its Japanese shelf registration. The rating recognizes JUSCO's solid position as a leading superstore chain operator in Japan, the competitive advantage a portfolio of covering diverse retailing formats affords, its focused management strategies, and its stable financial position. The rating also incorporates the competitive environment of the retail industry and the likelihood that JUSCO's ongoing introduction of new retailing formats will require a high level of capital spending relative to cash flow. Such spending would restrain improvement of the company's operating profitability and its debtholder-protection measurements over the intermediate term, Moody's said.
The Baa2 ratings were assigned to JUSCO's Yen 25 billion domestic issue of 1.2% convertible bonds, due 2001-- and its Yen 20 billion domestic issues of 4.0% straight bonds, due 1998. The (P)Baa2 rating was assigned to the company's Yen 100 billion Japanese shelf registration. This is the first time that Moody's has rated the debt of the company.
According to the rating agency, JUSCO is the third-largest of the Japanese superstore chain operators by sales, and is likely to sustain a solid position in the Japanese retail industry over time. The company will be able to benefit from its diverse coverage of retailing formats such as its current mainstay superstores, supermarkets (Wellmart Co., Ltd.), convenience stores (MINISTOP Co., Ltd.), and speciality stores (Cox Co., Ltd.). This is because Moody's expects synergies among companies of the JUSCO group, to enhance its ability to meet the changing demands of value-conscious consumers as well as to strengthen the group's merchandising and product development capabilities. To maximize these synergies, JUSCO has been prudently executing its well-focused business and financial strategies. The company has
attained sustained revenue growth by scrapping inefficient outlets and building competitive ones. JUSCO has been successful in its partnership with Japanese and overseas retailers, such as regional department stores and home centers in Japan-- Laura Ashley-- The Body Shop-- and The Sports Authority. JUSCO is promoting public offerings of its group companies, such as U.S.-based The Talbots, Inc. This strategy will provide the company with financial resources in the form of capital gains and proceeds from property sales stemming from scrapping outlets. These strategies have been
able to contribute to JUSCO's stable financial positions.
Japanese consumers are becoming more value-conscious because of low income inflation, potential tax increases, and the uncertainty about the future of the lifetime employment system in Japan. Therefore, yen sales growth of Japanese superstore retailers will not be as rapid as in the past. These retailers will need to reduce operating costs and maximize profitability under competitive operating environments of the retail industry, Moody's said. JUSCO is likely to accelerate its introduction of new retailing formats, which are designed to be operated at lower cost than the existing superstores and supermarkets. The new formats are represented by discount stores 'MEGAMART' and food super-supermarkets 'MaxValue,' both of which will be core outlets for JUSCO's shopping center strategy. Nonetheless, to proceed further
with construction of new outlets including those for the new formats, JUSCO's ongoing capital spending levels will continue to
be high -- albeit lower than in the past few years -- relative to the company's future cash flow, putting pressure on operating
profitability. This will restrain JUSCO's mid-term ability to improve its debtholder-protection measurements. When adjusted for rent expense paid for leased outlet properties as well as excess liquidity and latent value of assets, JUSCO's adjusted debtholder-protection measurements -- adjusted debt to capitalization, cash flow to adjusted debt, and fixed charge coverage -- will likely remain only moderate, over the intermediate term, relative to non-Japanese peer retailers rated in the investment-grade category, Moody's added.
JUSCO Co., Ltd., headquartered in Chiba, Japan, is a leading retailer operating a diverse range of retailing businesses in and outside of Japan, and it also engages in various servicing businesses such as restaurants, financing, and developers. JUSCO had non-consolidated sales of Yen 518.1 billion (approximately US$5.2 billion) for the first six-month period ended August 20, 1994.
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