Fast Retailing Forecasts 17% Profit Decline on Slowing Uniqlo Store Sales

Fast Retailing Co., Asia’s biggest clothing chain operator, forecast full-year profit will fall for the first time in four years, as it loses sales to a growing number of competitors offering similar products.

Net income will probably fall 17 percent to 51 billion yen ($619 million) for the 12 months ending August, the operator of the Uniqlo chain of stores said in a statement today. Revenue may grow 5 percent to 856 billion yen.

The Yamaguchi, Japan-based retailer faces increased competition from domestic rivals such as Aeon Co., which have introduced products similar to Uniqlo’s Heattech thermal underwear range. Fast Retailing is expanding in overseas markets including China to reduce reliance on Japan, where the yen’s surge to a 15-year high against the dollar threatens the country’s economic recovery.

“A lot depends on their success overseas, which is still in doubt,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, which manages about $3 billion. Major retailers “are being hurt by the sluggish economy, continuing deflation and depressed consumer spending,” Merner said.

Fast Retailing fell 2.3 percent to close at 12,390 yen on the Tokyo Stock Exchange before the earnings announcement. The stock has slumped 29 percent this year, compared with a 7.5 percent drop for the Topix index.

“We will strengthen our basic lines,” Chief Executive Officer Tadashi Yanai told reporters in Tokyo today. “We were driven by ‘surface fashion’ too much,” he said, referring to products that have “a meaningless design such as a shirt with a frill attached in a meaningless part.”

Same-Store Sales

Sales at Uniqlo stores open at least a year in Japan plunged 24.7 percent in September from a year earlier, Fast Retailing said in an Oct. 4 statement. The drop is the biggest since February 2003, when sales slipped 25.8 percent, according to company data.

Fast Retailing’s profit margin will worsen this fiscal year, as “we expect to dispose of our inventory after the sales slump,” Chief Financial Officer Hidetsugu Onishi said at a press conference in Tokyo.

Uniqlo’s same-store sales in Japan may fall 4.7 percent this fiscal year, as it expects a 9.8 percent drop in the first half, the company said. Comparable sales grew 13.1 percent in the corresponding year-ago period on demand for Heattech.

Ryohin Keikaku Co., operator of the Muji retail chain, cut its profit forecast for the year to February by 22 percent to 6.89 billion yen, citing slow sales of apparel and other goods.

Heatfact, Ecoheat

Aeon and other retailers have added more items to compete with Fast Retailing’s Heattech , which has products that start at 990 yen. Aeon aims to double sales of its Heatfact garments to 20 million units this year, adding leggings for men, the company said Sept. 2.

Seiyu G.K. cut prices of its Ecoheat brand by about 25 percent to between 580 yen and 980 yen for a month from Oct. 1.

Fast Retailing forecasts sales of Heattech apparel will rise 40 percent to 70 million units in the current fiscal year.

The retailer, which began expanding abroad in 2001 by entering the U.K. market, opened a Uniqlo outlet in New York’s Soho district in 2006 and across the road from the Galeries Lafayette department store in Paris last year. It also plans to add a store on New York’s Fifth Avenue in the second half of 2011, it said. Yanai, who is also the company’s biggest shareholder, reiterated that he aims to increase Uniqlo stores in China to 1,000 within 10 years, from 54 outlets in August.

Overseas Sales, Acquisitions

Fast Retailing expects overseas sales to overtake domestic revenue as soon as 2014, Yanai said in March. The company aims to boost sales to 5 trillion yen by 2020 through acquisitions and accelerating store openings, he said last year. Yanai was named Japan’s richest man by Forbes Asia magazine in its January issue.

Uniqlo stores in Japan accounted for 74 percent of Fast Retailing’s sales last fiscal year, while revenue from the chain’s overseas outlets increased to 8.9 percent of the total, from 5.5 percent share in the previous 12 months.

Net income rose 24 percent for the 12 months ended August, compared with 49.8 billion yen a year earlier, Fast Retailing said today. Sales increased 19 percent to 814.8 billion yen.

Sales at Uniqlo stores open at least a year in Japan rose 4.7 percent for the year ended August, compared with Fast Retailing’s July estimate of a 4.4 percent increase. Same-store sales strip out the effect of recently opened outlets.

Fast Retailing other brands include Princesse tam.tam, Theory and Comptoir des Cotonniers.

The company will start to sell Comptoir des Cotonniers in the U.S. and expand Theory in Europe and China, Yanai said.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net.

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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