Contractions in profit at Fast Retailing Co. Ltd.’s Greater China and Japan operations hurt first quarter results.
In a Nutshell: Although the first quarter missed internal estimates, the owner of brands including Uniqlo, GU, Theory and Helmut Lang said sales rebounded in December. The company expects to “achieve both our first-half and full-year business forecasts” after that strong start to Q2, it said.
Uniqlo reported strong revenue and profit in Southeast Asia, North America and Europe, while Greater China and Japan lagged. GU generated “considerably higher revenue and profit, and is moving back onto a steady growth track.”
The company didn’t change its initial forecasts for fiscal 2023 calling for an increase of 17.7 percent to 350 billion yen ($2.38 billion). But net income is expected to fall 15.9 percent to 230.0 billion yen ($1.56 billion) on a revenue increase of 15.2 percent to 2.650 trillion yen $18 billion) for the year ending August 2023.
Uniqlo International is expected to achieve higher revenue and profit in the first half of fiscal 2023, while the Greater China region will miss expectations, with a decline in both revenue and profit due to continued “sluggish performance” in the Mainland China market. And Uniqlo Japan could post “slightly lower-than-expected” first-half results, with revenue up and operating profit flat year-on-year.
On Wednesday, Fast Retailing said it will raise employee wages by up to 40 percent starting in March. “This will include employees from headquarters and corporate departments responsible for the functions of the company’s global headquarters, as well as employees working in stores,” it said. “Fast Retailing aims to establish a management that can better remunerate employees so that the resulting growth of individuals and the company will lead to even greater global competitiveness.”
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The Japanese retailer giant plans to speed up the pace of store openings and better integrate physical and digital experiences.
“We are working especially hard at UNIQLO International, as the pillar operation of the Fast Retailing Group, to accelerate new store openings in all markets and to strengthen our e-commerce operations,” Fast said. Last April, Fast said it plans to open 400 to 500 new Uniqlo stores over the next five years, including 200 North American locations.
The company’s looking to grow its presence in the Mainland China, Hong Kong and Taiwan markets, and the South Asia, Southeast Asia & Oceania region including Australia and India. In North America and Europe, Fast Retailing will focus on “strengthening our marketing, promoting deeper understanding and loyalty towards our LifeWear ultimate everyday clothing, and accelerating new store openings,” it said, referring to the apparel line it describes as sustainable.
Net Sales: Revenue for the quarter ended Nov. 30, 2022, rose 14.2 percent to 716.3 billion yen ($5.52 billion) from 627.3 billion yen ($4.84 billion).
The company said Uniqlo Japan revenue rose 6.4 percent to 240.9 billion yen ($1.86 billion). Warm temperatures stifled sales in November, while the “rapid depreciation in the yen boosted cost of sales.” At Uniqlo International, revenue rose 19.4 percent to 357.8 billion yen ($2.76 billion).
At GU, revenue rose 13.6 percent to 79.3 billion yen ($611.6 million). “Sales proved strong after we tightened the number of product items on offer and conducted business with a sufficient supply of products that captured mass fashion trends,” Fast said.
The company’s Global Brands division posted a 22.4 percent increase in sales to 37.6 billion yen ($290.0 million). Theory reported a large increase in revenue, but a decline in profits. The Comptoir des Cotonniers business post a decline in revenue, and a slight expansion in operating losses.
Earnings: Profit for the quarter was down 9.1 percent to 85 billion yen ($655.6 million) from 93.5 billion yen ($721.1 million) in the year-ago period. Fast also said that operating profit fell 2.0 percent to 117.0 billion yen ($902.4 million), from 119.4 billion yen ($920.9 million) last year.
By business, operating profit at Uniqlo Japan fell 5.6 percent, and was down down 4.4 percent at Uniqlo International due to Covid-19 restrictions in Mainland China and the suspension of operations in Russia following its invasion of Ukraine. Operating profit at Global Brands fell 72.1 percent in the quarter. The bright spot was its GU retail business, where operating profit was up 19.3 percent.
Company’s Take: “While performance in the Mainland China market remains fluid due to Covid-19, we do expect to be able to achieve our business estimates for the second half of fiscal 2023,” Fast said.