Fast Retailing Cuts Profit Forecast for Third Time This Year

  • Stronger yen eroded Uniqlo-owner’s earnings from overseas
  • Sales of Uniqlo in Japan has been improving in recent months

Fast Retailing Co. cut its full-year profit forecast for the third time in six months as a strong yen eroded earnings from overseas and overshadowed improving sales at its Uniqlo casual-wear chain.

Net income will probably be 45 billion yen ($427 million) for the year ending August 2016, a 25 percent drop from the forecast it gave in April, the company said Thursday. That compared with the 57 billion-yen average estimate of 15 analysts compiled by Bloomberg. The company left its forecasts for operating income and revenue unchanged.

Fast Retailing’s forecast cut adds pressure on the company as Chairman Tadashi Yanai pledged to reach his goal of 5 trillion yen sales by 2020 and turn Asia’s biggest clothing retailer into a world leader. Amid stagnant consumption in Japan, the billionaire has adjusted his pricing strategy with a promise to offer the “lowest possible price.”

The forecast cut isn’t reflective of improved business operations, said Chief Financial Officer Takeshi Okazaki at a Tokyo briefing. The company’s net income forecast accounts for an estimated 37 billion yen in foreign exchange loss for the fiscal year that ends in August, he said.

Pricing Strategy

“The advance of the yen isn’t having much impact on our business itself,” said Okazaki. “No matter what level it’s at, I hope the yen will be stable.” The company’s shift to a lower price strategy is in the right direction and one Fast Retailing intends to stick to, he said.

Revenue gained 6 percent to 423 billion yen in the quarter. For the nine months ended May, sales at Uniqlo Japan rose 1.1 percent and overseas sales for the brand jumped 10.6 percent, according to the company. Fast Retailing’s quarterly revenue recovered on warm weather in March as the company saw higher average spending.

“We aren’t pessimistic about our business,” Okazaki said. “We believe there’s always demand for good things, so it’s important to offer good products at affordable prices.”

Read Bloomberg Intelligence’s analysis of economy’s impact on sales.

Operating income for the third quarter beat estimates, rising 19 percent from a year ago as Uniqlo e-commerce sales jumped 41 percent in Japan. Still, the company expects full-year operating profit to fall about 27 percent to 120 billion yen from a year ago.

“The company has to come up with something value-added that people want to buy without a discount,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo. “So far it’s not working well.”

The company’s shares fell 1.7 percent to 27,660 yen at the close in Tokyo trading before the results were released. The Topix gained 0.8 percent.

A stronger yen impacts the value of Fast Retailing’s repatriated earnings from overseas and its foreign-currency denominated assets, while lowering import material costs. The previous trend of yen weakening spurred by Japanese Prime Minister Shinzo Abe’s campaign to stimulate the economy had prompted Fast Retailing to raise prices for the brand’s fall and winter clothes due to higher fabric costs last year.

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