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Fast Retailing H1 profit declines, cuts earnings forecast

By Prachi Singh

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Management |REPORT

The Fast Retailing Group reported a rise in revenue but a fall in profit in the first half of fiscal 2016, or the six months from September 1, 2015 to February 29, 2016. Consolidated revenue increased 6.5 percent year-on-year, while consolidated operating profit totalled 99.3 billion yen (914.4 million dollars) representing 33.8 percent decline year-on-year. Following the results, the Group has slashed its full-year earnings outlook for the second time.

Consolidated profit before income taxes decreased 49.9 percent year-on-year and profit attributable to owners of the parent declined 55.1percent year-on-year. Breaking these first-half results down into the three business segments, Global Brands reported rises in both revenue and profit, while Uuniqlo Japan reported declines in both revenue and profit, and Uniqlo International reported a rise in revenue but a decline in profit.

Detailed summary of the H1 results

Uniqlo Japan fell short of expectations in the first half of fiscal 2016, reporting revenue decline of 0.2 percent year-on-year and decrease in operating profit of 28.3percent year-on-year. The company has attributed the decline in sales and profit to lack of marketing efforts and absence of strategy in place to deal with warm winter weather. As a result, same-store sales declined 1.9 percent year-on-year in the first half of fiscal 2016.

E-commerce sales expanded 28.4 percent, accounting for 5.6 percent of total revenue. On the profit side, heavy discounting in January and February contributed to the 3.5 point contraction in the first-half gross profit margin. Operating profit came in considerably below forecast, declining 28.3percent on the back of higher selling, general and administrative expenses. The total number of directly-run Uniqlo Japan stores declined by 9 to 805 stores at the end of February 2016, while the number of franchise outlets rose by 11 to 39 stores after 10 stores were converted from directly-run stores to new employee-franchise outlets.

Uniqlo International reported a rise in revenue that was largely in line with forecasts, but the operation fell short of target on the profit side by reporting a sharp decline in operating profit. In the first half, Uniqlo International generated revenue rise of 12.7 percent but operating profit fell 31.4 percent. Profit declined at Uniqlo Greater China encompassing operations in mainland China, Hong Kong and Taiwan and Uniqlo South Korea, while operating losses at Uniqlo USA expanded. All these operations, the Group said were adversely affected by warm winter weather but sales were hit especially hard in Hong Kong, Taiwan and South Korea due to sluggish economic conditions.

Meanwhile, Uniqlo Southeast Asia and Oceania (Singapore, Malaysia, Thailand, the Philippines, Indonesia and Australia) and Uniqlo Europe (U.K., France, Russia, Germany and Belgium) reported gains in both revenue and profit. The total number of Uniqlo International stores had expanded by 174 year-on-year to 890 stores as of February 29, 2016.

Global Brands reports growth in revenue and profit

Global Brands reported gains in both revenue and profit in the first half, with revenue rising 12.9 percent year-on-year and operating profit expanding 21.9 percent. Within the Global Brands segment, low-priced GU fashion casualwear label reported significant rises in both revenue and profit that exceeded expectations. GU reported double-digit growth in same-store sales on the back of strong sales of heavily advertised knitwear, and trendy bottoms such as wide pants and jogging pants.

Theory and Comptoir des Cotonniers fell short of target by reporting a decline in profits in the first half. The J Brand premium denim label also fell short of target by reporting an expanded operating loss, while the flat year-on-year performance from Princesse tam.tam, the company said, was broadly in line with plan.

Forecasts further drop in annual profits

The company also announced a cut its full-year profit expectations for the second time after it had announced one in January. The company now anticipates net profit for the year ending August 31, 2016 to decline by 45.5 percent to 60 billion yen (552.2 million dollars). In January, it expected full-year net profit remain flat at 110 billion yen (1.01 billion dollars). Operating profit is now expected to drop 27 percent to 120 billion yen (1.10 billion dollars), down from an earlier outlook of 180 billion yen (1.65 billion dollars). However sales are forecasted to grow 7 percent to 1.8 trillion yen (16.56 billion dollars).

Fast Retailing