March 25 - Aeon Co Ltd, Japan's second-largest retailer, said it comfortably beat its profit forecast for the financial year ended last month thanks to cost cuts and improved sales at its general merchandise stores.

Aeon Co Ltd

The company, which competes with industry leader Seven & I Holdings , said it expects to post an operating profit of 171.6 billion yen ($2.12 billion) for the just ended year, against its prior estimate of 150-160 billion yen.

The new forecast is above the market consensus of 164.8 billion yen in a poll of 14 analysts by Thomson Reuters I/B/E/S.

Shares of Aeon reversed earlier losses and were up 0.5 percent in early afternoon trade. The Nikkei average was up 1 percent.

Aeon cited improvements in its procurement of goods and its distribution operations, as well as improved sales at its general merchandise stores, which sell a wide variety of goods such as food, clothing and electronics.

Aeon said it would hold a briefing at 0700 GMT with President Motoya Okada scheduled to attend. Okada will brief on the earnings revision and the company's response to the earthquake and tsunami that struck Japan on March 11.

($1 = 80.985 Japanese Yen)

(Reporting by James Topham; Editing by Nathan Layne)