Japan's Seven & I Holdings posted a rise in third-quarter profit on Friday as convenience store sales stayed strong, but rival Aeon Co's earnings undershot strong year-earlier results, as retailers worry that profit growth could stall.

Many Japanese retailers are poised to earn record profits in the current financial year after demand for food and consumer goods, especially higher-margin prepared meals and private-label products, rose following the earthquake and tsunami last March.

But with falling wages, high unemployment and concerns about the health of the Japanese and world economies weighing on domestic consumption, market watchers expect retailers to face challenges to profit growth in the near term.

Top Japanese retailer Seven & I's operating profit jumped 17 percent to 66.0 billion yen ($854.7 million) for the September-November quarter in part as visits by older and female customers stayed high after rising in the aftermath of the March 11 disasters in its main convenience store segment.

But Aeon, Japan's second-biggest retailer, posted a year-on-year drop of 19 percent in operating profit over the same period to 25.4 billion yen, despite market watchers expecting it eke out a quarterly gain.

Aeon faced a high hurdle to meet comparisons, having posted a 52 percent surge in operating profit in the third quarter of the 2010/11 business year, when sales jumped due to an unseasonably hot September and ahead of the end of subsidies for green consumer electronics.

Their earnings seem very steady and strong. Even if Aeon came in a little under analysts' estimates, there is a sense of direction for these companies and investors can be sure of their strength, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Fund.

Right now, there is so much uncertainty that investors are shifting to stable stocks with strong earnings that are not easily swayed by outside factors like Europe ... In this risk-off environment, stocks of companies like Seven & I and Aeon will remain attractive.

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Graphic: Seven & I results http://link.reuters.com/fym85s

Graphic: Aeon results http://link.reuters.com/qym85s

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ANNUAL FORECASTS UNCHANGED

Both retailers maintained their operating-profit forecasts for the business year to February 2012.

Seven & I, the owner of 7-Eleven, the world's largest convenience store chain, kept its annual outlook at 286 billion yen, in line with the average estimate of 290 billion yen in a poll of 19 analysts by Thomson Reuters I/B/E/S.

The forecast is the highest since Seven & I posted a 286.8 billion yen profit in its 2006/07 business year.

Aeon, the owner of Aeon Retail supermarkets as well as convenience stores, boutiques and shopping malls, kept its operating profit outlook at 195-205 billion yen, which is in line with the average estimate of 199 billion yen in a poll of 13 analysts by Thomson Reuters I/B/E/S.

If Aeon meets its projection it would beat the record 189.7 billion yen profit it earned in its 2006/07 business year, as benefits from the merging of several separate general merchandise store chains and improved operating efficiency across its store formats.

Operating profit gains have come as cost restructuring, that began in the third quarter of last year continue to lift gross revenues, Aeon Chief Financial Officer Seiichi Chiba said at a briefing on its results.

Earlier on Friday, Japan's No.3 convenience store chain FamilyMart Co reported a 3.5 percent rise in operating profit for the September-November quarter. Second-ranked Lawson Inc will report results next Tuesday.

But with Japanese household spending falling 3.2 percent year-on-year in November and retail sales down 2.3 percent, both much weaker than forecast, retailers may struggle to maintain similar levels of profit growth next business year.

Last month, Japan's government warned of worsening business sentiment as exports slumped and the central bank governor said Europe's sovereign debt crisis and economic stagnation were hurting global growth including Japan.

Shares of Seven & I fell about 1 percent in calendar 2011, while Aeon rose 4 percent, versus a 17 percent slide in the benchmark Nikkei average.

Before the results were released, shares of Seven & I settled 0.4 percent lower while Aeon posted a 1.0 percent loss, against a fall in the Nikkei average of 1.2 percent.

($1 = 77.22 yen)

(Additional reporting by Mari Saito; Editing by Matt Driskill and Michael Watson)

Japan