Fast Retailing Slashes Sales and Profit Forecasts Amid Coronavirus
The Uniqlo parent expects its yearly net profit to plummet by 38.5 percent and warns further revisions may be necessary.
By Kelly Wetherille on April 9, 2020
TOKYO — Fast Retailing slashed its full-year sales and profit forecasts due to the ongoing effects of the coronavirus pandemic. The company, parent of Uniqlo, warned Thursday that further revisions may also be necessary “due to the difficulty in accurately calculating the ongoing impact of the pandemic and pursuant to the April 7 announcement by the Japanese government of a state of emergency for Tokyo, Osaka and five prefectures.”
For the 12 months ended Aug. 31, the Japanese retailer is now predicting that its net profit will slump by 38.5 percent year-on-year to 100 billion yen, or $918.4 million. This is a reduction of 65 billion yen compared with the previous estimate released in January. The company now expects operating profit to plummet by 43.7 percent to 145 billion yen, down by 100 billion yen from the previous forecast. Fast Retailing is forecasting an 8.8 percent yearly contraction in revenue, for a total of 2.09 trillion yen. That’s 250 billion yen less than its previous guidance.
For the six months ended Feb. 29, both sales and profit declined in response to the global pandemic, which forced the retailer to close some stores temporarily. Its first-half net profit fell by 11.9 percent to 100.4 billion yen. Operating profit dropped by 20.9 percent to 136.7 billion yen. Revenue for the period decreased by 4.7 percent to 1.21 trillion yen.
Among Fast Retailing group operations, Uniqlo’s international business suffered the most, experiencing a sharp decline in both sales and operating profit. This was mainly due to poor performance in the Greater China and South Korea, among the first hotbeds of the COVID-19 outbreak. Uniqlo International’s sales slipped by 6.7 percent to 541.2 billion yen, and its operating profit dropped 39.8 percent on the year to 53.2 billion yen. This was despite double-digit gains in both revenue and profit by the South Asia, South East Asia and Oceania, and Europe markets.
“Revenue [from Uniqlo Greater China] has started to recover from March onward as the majority of stores have reopened for business,” Fast Retailing said in a release.
As of April 7, Uniqlo had closed a total of 412 stores worldwide, including all of its locations in the U.S. and Canada. That same day, Japan’s prime minister Shinzo Abe announced a monthlong state of emergency for seven regions of the country. In response to this, Uniqlo has closed its large-format stores and locations in busy city centers across Japan, including Tokyo’s Shibuya and Ginza districts. In addition, all stores that remain open in Japan are operating with reduced opening hours.
The bright spot in the retailer’s first half was low-priced fashion brand GU, which reported double-digit increases in both sales and operating profit. Its six-month revenue was up by 12.9 percent to 132.2 billion yen. Operating profit for grew by 12 percent to 15.8 billion yen.
“Same-store [GU] sales rose as the product mix focusing on mass-trend items proved to be successful, and thanks to lightweight outerwear products that adapted successfully to the unseasonably warm weather,” the Fast Retailing release said.
Despite the state of emergency in Japan and urging by the prime minister for people to stay at home except for urgent, essential needs, Fast Retailing held its quarterly results briefing more or less as usual. However, attendees were asked to wear masks and were told that those showing a fever may be turned away at the entrance. The company also streamed the briefing online, giving journalists the choice between the two options. A spokesman for the company said in-person attendance to the briefing was lower than usual, with only about 20 reporters showing up. Roughly 50 media were invited to watch the webcast.
In response to the coronavirus outbreak, Fast Retailing has pledged to use its production facilities to manufacture 10 million masks, which it will send to areas in need. The company’s chairman, president and chief executive officer Tadashi Yanai said at Thursday’s briefing that he does not intend to sell masks through the retailer’s stores.
Yanai said the outbreak of the virus has already changed the world in noticeable ways, and that Fast Retailing would make changes to its way of thinking in the future. For several years, the company has been working on diversifying its production in order to rely less on China. The executive said this will be even more of a priority now.
“From now on, we aim to produce [our products] in the regions where we sell them. This will mean that we can fulfill orders in a speedy manner, and it will be better for everyone,” Yanai said.
But the executive also noted that the pandemic has, in some ways, brought people and countries closer together.
“The world has become one,” he said.