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By
Reuters
Published
Apr 10, 2014
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Fast Retailing cuts profit forecast as Uniqlo's sales fell below expectations

By
Reuters
Published
Apr 10, 2014

Tokyo, Japan - Japan's Fast Retailing cut its full-year operating profit forecast as sales at domestic stores of its Uniqlo casual wear brand fell below expectations, outweighing brisk growth in China and elsewhere abroad.


Asia's biggest fashion retailer is pushing abroad to wrest custom from fast-fashion rivals Hennes & Mauritz AB (H&M) and Zara-owner Inditex SA as sales slow at home where the population is ageing and declining.

Fast Retailing's reliance on Uniqlo Japan for sales declined to 53 percent of revenue in the first half, down nearly 10 percentage points on year, but Japan's cost-conscious shoppers are depressing margins.

Their fondness for discounted goods led to a revenue slowdown in the first half of the business year to Aug. 31, prompting Fast Retailing to cut its operating profit forecast to 145.5 billion yen from a 156 billion yen. The new forecast represents a 9.5 percent increase on the year.

Fast Retailing also cut Uniqlo Japan's profit outlook for the full year by 12.7 percent, reflecting a lower than expected result for its recent strategy of offering luxurious items such as cashmere sweaters that still fit a lower-cost bracket.

While spending per customer rose 1.7 percent, that was short of expectations, showing Japanese shoppers' preference for discounts in the face of efforts by Prime Minister Shinzo Abe to encourage higher spending with his brand of economic policy known as Abenomics.

Some retailers fear encouraging higher spending among price-conscious shoppers will be a tougher challenge after the consumption tax rose by 3 percent on April 1, but Chief Executive Tadashi Yanai reported little impact from the hike at Uniqlo stores.

"There was no rush in spending (before the hike) and no drop-off afterwards," Yanai said at a news briefing on Thursday.

THE MARCH ABROAD

Fast Retailing will hold an opening ceremony at its first store in Germany on Thursday as it marches towards its goal of the world's top-selling apparel brand by 2020, climbing from its current fourth place.

That ambition involves opening 20-30 stores every year for the next few years in the United States, where Yanai has said he expects to make one-fifth of sales by 2020.

Fast Retailing aims to break even on its Uniqlo U.S. operations in the next one or two years, Chief Financial Officer Takeshi Okazaki said at the briefing.

Store rollouts for Uniqlo have been most aggressive in Greater China, where the company is targeting a 30 percent-plus jump in revenue and improved profit margins this business year. Jiji Press reported on Thursday that Yanai said he wanted 3,000 stores across China in the future.

During the fiscal year to Aug. 31, Fast Retailing aims to have added 186 overseas stores for a total of 632. That compared with 831 in Japan as at the end of February.

In the quarter to Feb. 28, Fast Retailing's operating profit fell 2.2 percent to 39.2 billion yen, well below the 47.16 billion yen consensus forecast of 4 analysts polled by Thomson Reuters.

Shares of Fast Retailing, the most heavily weighted stock in the Nikkei 225 index, ended down 1.5 percent before the earnings release. The benchmark closed flat.

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