Fast Retailing May Drop in Tokyo Trading on Profit-Forecast Cut

Fast Retailing Co., Asia’s biggest clothing retailer, may decline in Tokyo trading today after cutting its full-year profit forecast on the weakest quarterly sales growth in four years.

Fast Retailing yesterday cut its net income estimate 4.9 percent to 67.5 billion yen ($766 million) for the year ending August. Sales in the three months ended May increased 4.7 percent to 188.1 billion yen, the slowest quarterly growth since at least 2006.

Sales at stores open more than a year have fallen in four of the first six months of the year on the lack of hit products such as the 50 million items of HeatTech thermal wear sold last winter, and the 9 million Bra Top camisoles sold in 2009. The Uniqlo chain operator has lost 27 percent of its market value this year, making it the biggest loser among retailers in the MSCI Asia Pacific Index.

The retailer’s shares, which closed at 12,720 yen yesterday, “could dip below 12,000” today, said Mikihiko Yamato, an analyst at Japaninvest KK. “Although it was expected because Uniqlo’s recent same-store sales weren’t impressive, investors may not take the cut in the forecast well.”

Fast Retailing, whose president and biggest shareholder Tadashi Yanai, 61, is Japan’s richest man, declined 0.1 percent yesterday. It was one of three decliners yesterday on the Nikkei 225 Stock Average, which advanced 2.8 percent.

Sales Estimate

Fast Retailing also lowered its full-year sales estimate 2.3 percent to 815 billion yen. Cold weather, confusing customers with too many designs and insufficient stock of popular products also hurt Uniqlo’s same-store sales, Chief Financial Officer Hidetsugu Onishi said yesterday.

Net income fell 16 percent to 11.8 billion yen last quarter. The quarterly figures were derived by subtracting first-half results from nine-month earnings the company announced yesterday.

The reduction in forecast is “a move that’s unlike Fast Retailing,” Einosuke Yoshino, who holds the company’s shares among the investments he overseas as chief investment officer of Commons Asset Management Inc. in Tokyo.

Still, “gross margin is still high and the shareholders’ equity isn’t damaged, so I think the effect is marginal,” he said.

Sales at Uniqlo stores open at least a year fell 16 percent in March, the most in seven years, and 12 percent in April. They rose 3.1 percent in May when the company cut the prices of jeans and polo shirts to 990 yen from 1,990 yen for three days. The slump returned in June when sales fell 5.8 percent amid weak demand for Uniqlo’s summer lines.

Comparable or same-store sales strip out the effect of newly opened outlets. Uniqlo had 809 stores in Japan, accounting for 86 percent of the total 944 outlets, as of May 31.

“Last September, the company had a hit product, Bra Top camisole, and the hurdle will be quite difficult to overcome in terms of the same-store sales,” Japaninvest’s Yamato said. “I had the impression at the analyst meeting the company is piling its inventories and seriously preparing for this fall.”

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