Tokyo—Fast Retailing Co Ltd, Asia’s biggest retailer, today reported record sales and operating profit but missed its profit target due to heavy discounting and lower margins at its Uniqlo stores.
For the year ended August 31, Fast Retailing posted a 5.1% increase in its operating profit to 132.92 billion yen ($1.37 billion) below its forecast for 143 billion yen. It also was below analysts’ average estimate for 144.4 billion yen. (The Japanese yen is down about 20% against the dollars in the past 12 months).
Total sales grew by 23% to 1.143 trillion yen. However, operating margin fell 15% to about 11.6%, the lowest recorded since 2002.
Operating profit at Uniqlo in Japan, however, slumped 5.4% to 96.8 billion yen, while sales rose 10% to 683 billion yen in the year ended August.
Shift to Higher-Margin Merchandise
The company said that its Uniqlo profit margins were depressed by discounting as it moved to increase customer traffic and lure in shoppers with higher-margin merchandise.
The company’s overseas profit jumped 67% to 18.3 billion yen on sales of 251.1 billion yen.
According to Tadashi Yanai, president, the retailer is shifting its marketing emphasis away from low-prices as traffic has fallen and toward higher pricepoints.
“We will control margins and boost profit at the domestic Uniqlo business,” Yanai said. “We will change our marketing to focus on quality materials and high-function garments, rather than on price.”
Looking ahead, Fast Retailing, which also owns brands Theory, Helmut Lang and cut-price chain Gu, forecast net income for the current financial year to hit 92 billion yen (about $941 million) below analysts’ estimate for 99.3 billion yen. Total sales were forecast to rise 16.4% to 1.33 trillion yen, slowing from last year’ rate.
Fast Retailing also said it plans to open 200 to 300 doors overseas annually and will open its first store in Australia and Germany in spring 2014.
The retailer targets opening between 20 and 30 stores a year in the United States where it hope to have 100 stores in the next few years, Yanai said.
The company is also adding stores in China and Indonesia as it bets on global expansion to more than quadruple sales to 5 trillion yen by 2020.