Japan's largest retailer Seven & I Holdings on Thursday posted a 20 percent drop in first-half operating profit as it considers closing 16 percent of its supermarkets to cope with a sharp sales decline, and it kept a recently revised-down forecast.

It is the first to report earnings among Japan's major retailers, which remain in a slump even as the country's economy crawls out of a recession, with record deflation and rising job losses dampening hopes for a speedy recovery.

Department stores and supermarkets are among the hardest hit, as a growing number of thrifty consumers cut back spending on non-daily items like clothes and seek out bargains, bolstering sales of cheap specialty chains like casual apparel retailer Uniqlo, a unit of Fast Retailing.

Seven & I, operator of Seven-Eleven convenience stores, has stepped up efforts to revamp its department stores and supermarkets, which account for more than half of the group's sales, by expanding cheap store brand items and converting unprofitable locations to discount stores.

But they continued to be a drag on the retail conglomerate's profits in the March-August period, with operating profit at 118.14 billion yen ($1.3 billion), down from 148.01 billion yen a year earlier.

The company has over 12,000 Seven-Eleven convenience stores in Japan and runs or licenses out thousands more overseas.

For the full-year ending in February, the company kept its forecast of 250 billion yen operating profit, down 11 percent from a year earlier and in line with a mean forecast of 249 billion yen in a poll of 17 analysts by Thomson Reuters I/B/E/S.

Last month, the company cut its full-year operating profit forecast by 12 percent. [ID:nT74966]

Seven & I shares have tumbled 30 percent this year, underperforming a 15 percent rise in the Nikkei average .N225.

Shares in Seven & I closed up 1.2 percent prior to the announcement, outperforming the benchmark Nikkei average's .N225 1.5 percent decline, on news that it was considering closing 30 of its supermarkets over four years.

($1=89.86 Yen)

(Reporting by Taiga Uranaka; Editing by Dhara Ranasinghe and Joseph Radford)