WWD.com/business-news/financial/fast-retailing-cuts-annual-profit-forecast-7636854/
government-trade
government-trade

Fast Retailing Cuts FY Profit Forecast

Net profit for the first half fell 1.4 percent and the company warned it will face tougher conditions in the second part of the year.

TOKYO — Fast Retailing Co. Ltd. lowered its full-year earnings forecasts, citing foreign exchange factors that bit into first-half profits and an expected rise in operating costs in its home market of Japan.

Uniqlo’s corporate parent warned that full-year net profit will be weaker than expected, dropping 2.6 percent to 88 billion yen, or $958.24 million at current exchange. When releasing first-quarter numbers in January, the company had forecast full-year net profit of 92 billion yen, or $1 billion.

The company did boost its sales forecast for the year. It now sees revenue climbing 19.9 percent to 1.37 trillion yen, or $14.92 billion. Previously, the company said it expected sales to come in at 1.32 trillion yen, or $14.37 billion.

While Fast Retailing said it was encouraged by the performance of its fast-growing Uniqlo operations internationally, particularly in China and Europe, the company expressed a more cautious view of its home market of Japan, where the group still does the bulk of its business. The retailer cut the full-year sales forecast for Uniqlo Japan, citing the weak first six months, and trimmed its operating profit forecast “on the expected increase in personnel, distribution and warehousing expenses.”

Fast Retailing said full-year operating profit on a consolidated level will grow 9.5 percent to 145.5 billion yen, or $1.58 billion. The previous forecast was for 156 billion yen, or $1.70 billion.

RELATED STORY: Uniqlo Bows in Berlin >>

On a more positive note, Fast Retailing’s chairman, president and chief executive officer Tadashi Yanai brushed aside the potential impact of Japan’s sales tax hike, which went into effect at the beginning of the month. The tax rate rose from 5 to 8 percent.

“Our business basically didn’t have any rush buying [before the consumption tax increase], and there is no decline [after the tax increase]. So [our products] are selling in the same way as before; they’re selling as planned,” he said. “Naturally, I want to offer even better clothes, with things like function, added value, material and silhouette, but I don’t plan to hike prices. As much as possible I’d like to continue selling at our current prices, but the area in which we need our customers’ approval is not price, but value.”

The company said net profits for the six months ended Feb. 28 declined 1.4 percent to 64.56 billion yen, or $639.1 million at average exchange rates for the period. It reported a year-on-year fall in foreign exchange profits of 6.4 billion yen, or $63.4 million.

First-half operating profit increased 6.8 percent to 103.2 billion yen, or $1.02 billion. Sales for the six months grew 24.3 percent to 764.35 billion yen, or $7.57 billion.

Fast Retailing saw first-half sales increases in each of its main business channels: the domestic Uniqlo business, Uniqlo’s international operations and the global brands business, which includes such labels as Theory, GU, J Brand and Princesse Tam Tam. Uniqlo Japan’s net sales rose 4.7 percent on the year to 405.59 billion yen, or $4.02 billion. Uniqlo’s international sales shot up 77.6 percent to 232.04 billion yen, or $2.3 billion. Revenue from global brands was up 31 percent to 125.37 billion yen, or $1.24 billion.

At the press briefing, Yanai reiterated his plans to become a leading global retail chain, saying that he aims to have 1,000 Uniqlo stores in Greater China within 10 years. By the end of the current fiscal year, ending Aug. 31, the company expects to have 374 stores in China, Hong Kong and Taiwan, and plans to open 80 to 100 new ones each subsequent year.

Yanai said he also aims to have 100 Uniqlo stores in the U.S. within a few years, by opening 20 to 30 doors each year. He plans to continue targeting areas on the East and West Coasts, including Boston, Philadelphia and Los Angeles. Takeshi Okazaki, Fast Retailing’s chief financial officer, said losses at Uniqlo’s U.S. operation narrowed this year and the company is hopeful it should move into the black next year or the year after.