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Virus Bites Uniqlo Parent’s First-Half Revenues, Profits

Japan’s Fast Retailing is working with its factories to right-size its Fall/Winter merchandise assortment and expects excess inventory from closed stores due to the coronavirus to “gradually normalize” through the next fiscal year.

In a Nutshell: For the first-half report, Uniqlo’s parent company said the coronavirus impacted its stores in South Korea and Greater China beginning at the end of January. And while parts of Asia appears to be on the path to recovery, the virus has spread to Europe and North America, impacting those operations in March, the start of Fast’s second half.

“We expect to experience bloated levels of Spring/Summer inventory due to the rapid fall in sales from February onwards,” the company said, adding that it’s “working closely with partner factories to control the manufacture of Fall/Winter ranges.”

Fast said it intends to “gradually normalize excess inventory through Fiscal Year 2021.”

The clothing giant has plans to open 40 new stores in South and Southeast Asia, and in Australia and India in Fiscal Year 2020, ending at the end of August 2020. “Some store openings may be delayed depending [on] when the COVID-19 threat can be resolved,” Fast said.

Net Sales: Revenues slid 4.7 percent to 1.209 trillion yen ($11.12 billion) from 1.268 trillion yen ($11.67 billion) in the year-ago period.

By group operation, Uniqlo Japan revenue fell 5.7 percent to 463.5 billion yen ($4.26 billion), while operating profit gained 5.7 percent to 71.6 billion yen ($658.8 million). First-half revenues were below plan, as a warm winter hurt cold-weather apparel sales. February same-store sales rose with the launch of Spring merchandise that included lightweight jackets, Fast’s new Miracle Air 3D jeans and its Slouch tapered ankle jeans, the company said.

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March same-store sales fell 27.8 percent as COVID-19 impacted operations.

Uniqlo International saw revenues decline 6.7 percent to 541.2 billion yen ($658.8 million), and a 39.8 percent drop in operating profit to 53.2 billion yen ($489.5 million). While Europe, South and Southeast Asia, Australia and India posted double-digit growth in revenue and profit during the period, South Korea and Greater China suffered sharp declines in both revenue and profit primarily from COVID-19.

Fast said its Mainland China stores temporarily closed beginning in late January, when the coronavirus outbreak accelerated out of Wuhan. Hong Kong operations suffered at the hands of social unrest and protests in the area that began last summer, and Taiwan revenue slipped in February due to COVID-19.

North American sales fell short of plan, with gross profit margin down on wider discounting as warm winter weather hurt sales of winter apparel, Fast said. The company’s 62 stores in the U.S. and Canada were temporarily closed starting on March 17 and remained shuttered to date. In addition, Uniqlo stores in all European countries were also closed in mid-March on governmental request, with the exception of Sweden.

At its GU brand, revenues rose 12.9 percent to 132.2 billion yen ($1.22 billion), which also saw a 12.0 percent increase in operating profit to 15.8 billion yen ($145.4 million). Fast said same-store sales were up 3.8 percent as on-the-mark mass-trend knitwear and lightweight outerwear was better suited to the warmer winter weather. Top products were cocoon cardigans, knitted top-and-bottom sets and boa outerwear. Mid-season products that did well included sweatshirt-like knitwear. Among the staple items, sweatwear and marshmallow pumps–impact-reducing, cushion-lined shoes–were top choices.

Fast’s Global Brands business posted a 9.8 percent decline in revenue to 70.1 billion yen ($645.0 million), and a 76.3 percent plummet in operating profit to 7 million yen ($64,411). Sales at its Theory brand also saw winter outerwear and sweaters hurt by warmer winter weather in Japan and in the U.S., while sales in Japan were impacted by the spread of the coronavirus beginning in February. PLST saw flat revenue, and Comptoir des Cotonniers posted a year-over-year operating loss. All Theory stores in the U.S. have been temporarily closed since March 17 and all Comptoir des Cotonniers stores in Europe are also temporarily shuttered.

Earnings: Profits for the half dropped 11.9 percent to 100.4 million yen ($923,839), from 114.0 million yen ($1.0 million).

Fast is presuming that “revenue will continue to fall sharply in April and May and then business will gradually return to normal from June onwards.” The company, whose year-end is the final day of August, is expecting an 8.8 percent decline in revenue for fiscal 2020 to 2.090 trillion yen ($19.23 billion) on a 38.5 percent drop in profit to 100 billion yen ($920.2 million). It cautioned that it may need to revise forecasts depending on how long the pandemic lasts.