Aug. 14 (Bloomberg) -- Seiyu Ltd., the Japan unit of Wal- Mart Stores Inc., changed its forecast to a fifth-straight annual loss as sales growth stalls.

The net loss is likely to be 5.9 billion yen ($50 million) in the year ending Dec. 31 from a loss of 55.8 billion yen last year, the company said in a statement to the Tokyo Stock Exchange today. In April, the retailer forecast a profit of 800 million yen.

Wal-Mart's inability to turn around Seiyu's performance reflects a grocery market that has suffered 18 straight monthly declines as higher taxes and falling wages curb spending. Seiyu is increasing the number of 24-hour stores and renovating outlets to attract customers in the shrinking market.

``Seiyu has struggled with old stores at a time when consumer spending is sluggish,'' Koichiro Ogawa, a Tokyo-based analyst at Cosmo Securities, said before the results were released. ``Renovations, combined with their low-price strategy, should eventually start to pay off.''

The Tokyo-based retailer said sales were likely to increase just 0.2 percent this year to 963 billion yen. It had earlier forecast sales of 992 billion yen.

Seiyu, which has about 400 stores selling food, clothing and general merchandise, has posted annual losses since 2003 when it began providing data for the fiscal year ending Dec. 31.

Wal-Mart, the world's largest retailer, holds 51 percent of Seiyu, and has an option to raise its stake to 66.7 percent by the end of this year. The Bentonville, Arkansas-based company, which is scheduled to report earnings to the New York Stock Exchange today, first invested in Seiyu in 2002.

Japan Focus

Seiyu Chief Executive Officer Edward James Kolodzieski has said Wal-Mart is focusing on Japan after withdrawing from South Korea and Germany last year.

Seiyu renovated 41 stores in the six months ended June 30 after refurbishing 73 stores for all of last year. It also expanded its 24-hour stores to 283, up 21 stores from the end of 2006.

The net loss in the half narrowed to 6.9 billion yen from 54 billion yen a year earlier, the retailer said today.

Revenue in the period fell 1.4 percent to 461 billion yen in the half on weaker-than-expected clothing sales.

Shares of Seiyu have slumped 39 percent in the past 12 months and declined 2.3 percent to 127 yen at the 3 p.m. close in Tokyo, before the results were released.

Japan's consumers became the most pessimistic in more than two years in June, when the government rolled back tax rebates, adding about 14,000 yen to the average tax bill for a family of four. Meanwhile, wages in Japan fell 0.7 percent in the second quarter, the second straight drop.

Aeon Co., Japan's largest supermarket operator, last month said first-quarter profit fell 38 percent.

To contact the reporter on this story: Fergus Maguire in Tokyo at fmaguire@bloomberg.net; Tak Kumakura in Tokyo at tkumakura@bloomberg.net.

Last Updated: August 14, 2007 03:32 EDT