Finance
7-Eleven’s parent company cuts full-year earnings forecast
A customer is seen inside a 7-Eleven convenience store along a street in central Tokyo on September 9, 2024.
Richard A. Brooks | Afp | Getty Images
Japanese convenience retailer Seven & i Holdings slashed its earnings forecasts and pressed ahead with restructuring plans that include spinning off non-core businesses into a standalone subsidiary.
The company slashed its profit forecast for the fiscal year ending February 2025 and now expects net income of 163 billion yen ($1.09 billion), a 44.4% reduction from its prior forecast of 293 billion yen. The reduction comes as it reported first-half net profit of 52.24 billion yen on 6.04 trillion yen in revenue. While sales came in higher than forecast, profits significantly below its own guidance for 111 billion yen.
Seven & i said it saw fewer customers at its overseas convenience stores as they took a “more prudent approach to consumption.” The company noted it recorded a charge of 45.88 billion yen related to its spin-off of Ito-Yokado Online Supermarket.
In a separate filing, the owner of 7-Eleven said it will set up an intermediate holding company for its supermarket food business, specialty store and other businesses, amid growing pressure from investors to trim down its portfolio.
The restructuring, which would consolidate 31 units, comes as the Japanese retail group resists a takeover attempt by Canada’s Alimentation Couche-Tard.
In September, Seven & i rejected the initial takeover offer of $14.86 per share, claiming that the bid was “not in the best interest” of its shareholders and stakeholders and also cited U.S. antitrust concerns.
After receiving that proposal, Seven & i sought and obtained a new designation as “core business” in Japan. Under Japan’s Foreign Exchange and Foreign Trade Act, foreign entities need to notify the government and submit to a national security review if they are buying a 1% stake or more in a designated company.
Revised offer
Seven & i confirmed Wednesday that it received a revised bid from ACT, but did not disclose further details. Bloomberg previously reported that the Canadian operator of Circle-K stores had raised its offer by around 20% to $18.19 per share, which would value Seven and i at 7 trillion Japanese yen. If finalized, the deal could become the biggest-ever foreign takeover of a Japanese company.
Seven & i Holdings
It’s “entirely possible” that ACT’s buyout bid to turn into a hostile takeover attempt, Nicholas Smith, a Japan strategist at CLSA told CNBC’s “Squawk Box Asia” on Thursday. A hostile takeover occurs when an acquiring company attempts to gain control of the target company against the wishes of its management and board of directors.
“We’ve had a lot of problems with poison pills in Japan in recent years, and the legal structure is extremely opaque,” he added. Companies trying to shake off an acquirer may opt to deploy a “poison pill” by issuing additional stock options to dilute the attempted acquirer’s stake.
However, “an outright hostile tender offer would be highly unlikely,” in the view of Jamie Halse, founder and managing director of Senjin Capital, as no banks would be willing to provide the financing.
That said, if the offer gets to a “sufficiently attractive level,” he said it may be difficult for the board to continue to reject it.
“Shareholders are likely already frustrated that no further negotiations have taken place despite the increase in the offer price,” he said, adding that an activist investor may seek to “harness those frustrations” and “effect a change in the board’s composition.”
Seven & i shares were traded at 2,325 Japanese yen as of Thursday close. The Tokyo-listed shares have surged over 33% since the Canadian company’s buyout interest became public in August.
ACT has about 16,800 stores globally, far fewer than Seven & i Holdings’ approximately 85,800 stores.
The newly revised offer indicates ACT leaders are “committed,” Jesper Koll, head of Japan at Monex Group, told CNBC via email. He also pointed out that the new offer price suggests a 53% premium to where shares were trading before the initial offer.
“The money they offer is good, but there is more at stake than just numbers,” Koll said.
“I really can’t see ACT revising up its price tag,” Amir Anvarzadeh, a Japan equity market strategist at Asymmetric Advisors, told CNBC, “the pressure is on Seven & i management to prove that they can speed things up and stay independent.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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