Fast Retailing Cuts Annual Profit Forecast for Second Time

  • Stronger yen, warm weather, heavy discounting hurt profit
  • Second-quarter earnings plunge 60%, missing analyst estimates

Fast Retailing Co. Magic For All concept store in Shanghai.

Photographer: Qilai Shen/Bloomberg

Fast Retailing Co. cut its full-year operating profit forecast for the second time in as many quarters as a stronger yen eroded earnings and warmer weather hurt sales of winter clothes for the maker of Uniqlo casual wear.

Operating profit will probably be 120 billion yen ($1.1 billion) for the year ending August 2016,  down from the 180 billion yen forecast made in January, the Yamaguchi-based company said Thursday. That lagged behind an average estimate of 168.6 billion yen compiled by Bloomberg from 16 analysts.

“This is a very negative surprise that we see once in several years; its half-year results” didn’t do well in most segments, said Dairo Murata, an analyst at JPMorgan Securities Japan Co. “Its shares will drop as a result.”

Fast Retailing also delivered second-quarter profit that missed analysts forecast as heavy discounting also hurt earnings and margins. The weak performance threatens billionaire Chairman Tadashi Yanai’s goal to turn the Asia’s largest clothing retailer into a world leader with sales of 5 trillion yen by 2020.

"We still have a chance to achieve the 5 trillion yen goal. Even if we can keep it as a goal, it is possible." Yanai said at a media briefing in Tokyo Thursday.

Forex Losses

For the second quarter, operating profit plunged 60 percent to 23.4 billion yen, half of an average estimate of 50.5 billion yen compiled by Bloomberg from four analysts. A stronger yen led to a 22.8 billion yen foreign exchange loss in the first half, compared with a gain of 19.6 billion yen in the same period a year earlier, said the retailer.

There could be more exchange losses if the yen continues to strengthen, said Chief Financial Officer Takeshi Okazaki.

Uniqlo Japan and international business fell below target, leading the company to cut its forecasts, it said. First-half operating profit at Uniqlo Japan fell 28 percent and dropped 31 percent at the brand’s international unit as "unusually warm weather" hit sales for Mainland China, Hong Kong, Taiwan, South Korea and the U.S., according to the company.

Fast Retailing is seeking growth overseas as the domestic business suffers from slowing sales amid a shrinking population. But the company faces hurdles in the U.S., where the Uniqlo brand has incurred sustained losses.

Fast Retailing has taken a 21 billion yen impairment loss relating to the J Brand premium denim label in the U.S. and its domestic and overseas stores, it said Thursday.

The company’s shares fell 3.6 percent to 30,490 yen at the close in Tokyo trading before the results were released. The Topix gained 0.4 percent.

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