April 2, 2014 2:00 am JST

Onward Holdings profit now seen down 10% for fiscal 2013

A Joseph shop in Tokyo.

TOKYO -- Onward Holdings Co.'s group pretax profit is expected to decline about 10% on the year to just over 12 billion yen ($115 million) for the year ended Feb. 28, a reversal from the 10% rise forecast by the leading Japanese apparel company.

     While sales of mainstay domestic brands increased, a weaker yen caused procurement costs to balloon, eroding profits. And the rush by Japanese consumers to stock up on goods before Tuesday's consumption tax hike did not provide as much of a boost as expected.

     Sales apparently climbed 8% to just under 280 billion yen for fiscal 2013, beating the anticipated tally of 277 billion yen.

     At core domestic subsidiary Onward Kashiyama Co., sales likely grew roughly 2% as young women bought its clothing at department stores, thanks in part to television advertising for the kumikyoku brand featuring a popular actress. The company also moved more autumn and winter apparel under several brands.

     But heavy snowfall in February kept some shoppers at home, contributing to weaker-than-expected demand ahead of the tax hike.

     The overseas business, meanwhile, enjoyed brisk sales of brands acquired in the past, including Joseph and Jil Sander. Repatriated earnings were pushed up in yen terms because of the Japanese currency's weakness.

     The softer yen made clothing and other items produced in foreign countries like China much costlier to import, taking a toll on Onward Holdings' profitability. As a result, the ratio of gross profit to sales apparently fell nearly 2 percentage points to the mid-46% range on a consolidated basis. The group had aimed for a gross margin of 48%.

     Onward Holdings will likely enjoy both sales and profit growth in fiscal 2014, with profitability seen improving for its overseas business. It also expects growth in menswear, which has been recovering since the second half of fiscal 2013, helping to offset the expected post-tax-hike drop in consumer spending to some extent.