Fast Retailing Drops After Profit Forecast Misses Estimates

Fast Retailing Co. (9983) fell in Tokyo trading after Asia’s largest clothing retailer forecast profit that missed analyst estimates and said discounts hurt domestic earnings.

The maker of Uniqlo casual apparel dropped 3.2 percent to 33,450 yen at the close of trading in Tokyo. Net income will probably be 92 billion yen ($935 million) for the year ending August 2014, the Yamaguchi, Japan-based company said yesterday in a statement. That’s lower than the 99.3 billion yen average of 19 analyst estimates compiled by Bloomberg.

Fast Retailing President Tadashi Yanai, 64, said his marketing emphasis is shifting away from low prices after per-customer spending in Japan fell for 10 months straight. Yanai is also adding higher-priced items to the product mix after working to boost the brand image by opening an outlet in Tokyo’s Ginza luxury shopping district and sponsoring athletes including tennis players Kei Nishikori and Novak Djokovic.

“The focus for the time being is on maintaining gross profit margins,” said Takashi Aoki, a Tokyo-based fund manager at Mizuho Asset Management Co.

Operating margin plunged about 15 percent to 11.6 percent last fiscal year, the lowest since at least 2002, according to data compiled by Bloomberg. Sales jumped 23 percent in the year, surpassing 1 trillion yen for the first time as low-priced thermal underwear, stretch jeans and down jackets lured buyers.

Photographer: Tomohiro Ohsumi/Bloomberg

A customer walks past Ultra Light Down jackets displayed for sale in a Uniqlo store, operated by Fast Retailing Co., in the Ginza district of Tokyo. Close

A customer walks past Ultra Light Down jackets displayed for sale in a Uniqlo store,... Read More

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Photographer: Tomohiro Ohsumi/Bloomberg

A customer walks past Ultra Light Down jackets displayed for sale in a Uniqlo store, operated by Fast Retailing Co., in the Ginza district of Tokyo.

Profit Margin

“We will control margins and boost profit at the domestic Uniqlo business,” Yanai, Japan’s richest person, told reporters in Tokyo yesterday. “We will change our marketing to focus on quality materials and high-function garments, rather than on price.”

The company forecast operating income of 114.5 billion yen for its Japan Uniqlo chain this fiscal year, 18 percent more than a year earlier.

The company’s targets for Japan this fiscal year are “highly challenging,” Taketo Yamate, an analyst at Credit Suisse Group AG in Tokyo wrote in a note to clients. He said a “very negative” share price reaction should be expected. He maintained his underperform rating.

Operating profit at the company’s Uniqlo chain in Japan slumped 5.4 percent to 96.8 billion yen in the year ended in August, while sales rose 10 percent to 683 billion yen.

Overseas profit soared 67 percent to 18.3 billion yen on sales of 251.1 billion yen, the company said.

Overseas Expansion

Net income climbed 26 percent to 90.4 billion yen for the year ended August as sales jumped to 1.143 trillion yen, according to the statement. The Japanese currency has slumped about 20 percent against the dollar in the past 12 months.

Photographer: Junko Kimura/Bloomberg

Fast Retailing President Tadashi Yanai said today his marketing emphasis is shifting away from low prices after per-customer spending fell for 10 months straight. Close

Fast Retailing President Tadashi Yanai said today his marketing emphasis is shifting... Read More

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Photographer: Junko Kimura/Bloomberg

Fast Retailing President Tadashi Yanai said today his marketing emphasis is shifting away from low prices after per-customer spending fell for 10 months straight.

Fast Retailing has said it plans to open 200 to 300 outlets overseas annually and will found its first store in Australia and Germany in spring 2014. The retailer targets opening between 20 and 30 stores a year in the U.S. and hopes to reach 100 stores there in the next few years, Yanai said. The company had previously said it would open about 20 outlets a year in the world’s biggest economy. The company is also adding stores in China and Indonesia as it bets on global expansion to more than quadruple sales to 5 trillion yen by 2020.

Yanai yesterday said he plans to stay on in the role of president beyond his 65th birthday as the company is in the middle of international expansion. He has a net worth of $17.5 billion, according to the Bloomberg Billionaires Index, and had earlier said that he would step down at 65.

To contact the reporter on this story: Yuki Yamaguchi in Tokyo at yyamaguchi10@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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