(TOKYO) Japanese convenience store operators' shares may keep outperforming the retail sector well into next year as consumers opt for cheap prepared meals instead of eating out as the economy slides deeper into recession.

Convenience store chains, already benefiting from a windfall boost in tobacco sales, are likely to fare better than other retailers that rely more on discretionary spending, such as department stores and general merchandising stores, analysts said.

'Convenience stores and grocery shops have become popular as consumers tighten their purse strings to protect their livelihood. Especially, we are seeing a shift to home meals from restaurants,' said Jun Kawahara, retail analyst at Shinko Securities.

Convenience stores, which had been suffering little growth in same-store sales in recent years, suddenly found themselves in the spotlight this year, brought on by a jump in sales thanks to newly introduced ID-requiring cigarette-vending machines.

Many smokers just don't want the trouble of registering for ID cards made for these machines and instead choose to go to nearby stores to buy cigarettes, driving up sales of convenience stores.

In November, same- store sales at convenience stores rose for a seventh straight month, up 7.4 per cent from a year earlier, Japan Franchise Association data shows.

Such a one-time tobacco sales boost had been widely foreseen, and the convenience stores had been expected to return to weak growth next year once the effect of the windfall disappeared on year-on-year comparisons.

Shinko's Mr Kawahara and other analysts said, however, they are now seeing convenience store sales growth beyond such a special lift, and the trend became more pronounced around autumn when economic conditions took a sharp turn for the south.

'Even without (the tobacco sales increase), the convenience store chains have been logging strong figures since around October,' said Junichi Kanamori, retail analyst at Mitsubishi UFJ Securities.

Japan's three largest chains reported 7.5-8.6 per cent same-store growth in November. While the companies do not provide a breakdown, they are seen to have gained about 2 per cent growth without the tobacco sales boost, industry sources said.

Their robust growth has made them stand out in Japan's bleak retail picture: for the same month, nationwide department stores fell 6.4 per cent, down for the nine consecutive months, the Japan Department Stores Association said.

Analysts said relatively cheap boxed meals and other food items at neighbourhood convenience stores are increasingly finding favour with consumers, who have cut back on dining out and trips to suburban shopping malls.

The chains also said they felt more people were staying home to celebrate the holidays this year.

Japan's second-largest chain Lawson Inc said it saw strong Christmas sales of fried chicken - a holiday staple in Japan - while pre-orders for traditional New Year's cuisine were fully booked at many of its stores.

The market has reacted as well. So far this year, Lawson shares and those of third-ranked FamilyMart Co Ltd gained 30 per cent and 11 per cent respectively, far outperforming a 44 per cent decline in the benchmark Nikkei average.

Seven & I Holdings Co Ltd, which has other retail businesses in addition to top convenience store chain Seven-Eleven, lost 11 per cent so far this year, lagging its rivals but still faring better than a 26 per cent decline in the Tokyo stock exchange's retail sub-index.

'(Convenience store shares) are already relatively expensive in valuation, but I am of the view that their performance is likely to be solid since earnings are unlikely to fall so badly,' said Shinko's Mr Kawahara.

Lawson and FamilyMart shares trade about 20 times their estimated earnings, compared with those of department store chains such as Isetan Mitsukoshi Holdings that trade in the low teens.

Mitsubishi UFJ's Mr Kamamori said on the profit side, convenience store chains are also likely to benefit from the recent decline in commodity prices, which would increase profit margins on boxed meals and other merchandise. -- Reuters