Fast Retailings Q1 Profits Plunge 35%

Charlize Theron

Actress Charlize Theron was the face of Fast Retailing's Uniqlo stores this winter.

Yamaguchi, Japan—Fast Retailing, the Japanese company whose Uniqlo stores are known for low cost, high quality apparel and accessories, stumbled in its first fiscal quarter as demand in its home country declined.

In its earnings report released today, Fast Retailing reported its net profit for the September to November 2010 quarter slipped 35% to 22.7 billion yen ($274 million), down from the 34.9 billion yen profit in the same period a year earlier.

The company blamed warmer-than-usual temperatures hurting sales of its winter merchandise. Total sales declined 4.7% to 250.99 billion yen from 263.46 billion, while operating profit fell 18.4% to 49.85 billion yen from 61.06 billion.

The company maintained its profit forecasts, predicting a 17.3% on-year drop in net profit to 51 billion yet, its first decline in four years. The company also left unrevised its operating profit forecast for 113.5 billion yen, down 14.3% from a year earlier.

Uniqlo: Emphasis on Asia, even United States

Fast Retailing, which has stores in countries including China and France, is returning its focus to basic wear and offering discounts in Japan, which accounts for more than 80% of the company’s global sales.

Comparable store sales at Japan Uniqlo stores dropped 5.7% in the 12 months ending August, Fast Retailing said, exceeding its October forecast a 4.7% full-year decline.

Fast Retailing is expanding abroad to reduce its reliance on Japan and targets a goal of 5 trillion yen in annual sales by 2020. Revenue from its overseas Uniqlo operations jumped 29.3% to 26.8 billion yen mostly due to growth in Asian nations.  The company opened its first Uniqlo store in Taiwan in October and added one in Malaysia in November. A second U.S. flagship store on New York’s Fifth Avenue will open later this year as well as its first in Thailand.

Back to Basics

“We will speed up opening outlets in Asia as our growth driver,” Chief Financial Officer Hidetsugu Onishi, chief financial officer said today.

Retail analysts said Uniqlo, typically one of the few vibrant performers in the stagnant Japanese retail sector, is bracing for tougher times ahead.

The retailers reportedly is taking a back to basic approach in its merchandise and offering discounts after its move toward competing with trendier rivals, such as Zara and H&M contributed to a 26% drop in the company’s market value last year. Besides competition from Zara and H&M, Uniqlo faces competition from Japanese rivals Aeon Co. and Shimamura Co., which are selling thermal products similar to Uniqlo’s successful Heattech range.

“The sales result is further evidence that Fast Retailing is still in a slump,” Mitsuo Shimizu, an equity analyst at Cosmo Securities Co., said. “The company’s Heattech is losing its edge, and it’s hard to introduce hit products constantly.”

The company also owns brands including Theory, Comptoir Des Cotonniers and Princesse tam.tam.

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