April 9, 2014 1:10 am JST

Takashimaya sees fiscal 2014 profit up despite tax hike

TOKYO -- Takashimaya Co. said Tuesday that it expects group net profit to rise 10% to 20.5 billion yen ($197 million) in the current fiscal year, as the Japanese department store operator aims to counteract the effects of a recent consumption tax hike with aggressive cost cuts.

     Retailers watched Japanese shoppers rush to stock up on all sorts of consumer goods ahead of the April 1 sales tax rise, and are now bracing for a corresponding dip in demand. But Takashimaya says it carefully assessed the tax hike's likely impact and is moving to slash costs by around 10 billion yen to ensure profit growth for the year through February 2015.

     Fiscal 2013 earnings, also released Tuesday, show net profit climbed 13% to 18.7 billion yen, driven by demand for expensive items.

     And in March, the first month of fiscal 2014, such pricey offerings as jewelry and luxury watches sold briskly, helping to boost department store sales by more than 30% on the year.

     But the company is tempering its outlook for the near future. "Insofar as big-ticket products were in high demand before the tax rise, it's possible their sales will fall more than presumed," President Shigeru Kimoto said at a news conference Tuesday.

     Indeed, demand has recoiled since the start of this month, with department store sales tumbling 25% on the year during the first week of April.

     Takashimaya estimates that the combined impact of the drop-off in demand and the tax increase itself will lower fiscal 2014 operating revenue -- equivalent to sales -- by about 20 billion yen and operating profit by about 5 billion yen. As the steady performance of such segments as the Singapore unit and a subsidiary that operates shopping centers will be insufficient to offset this, operating revenue is expected to decline slightly to 900 billion yen.

     Takashimaya aims to weather these headwinds with sizeable cost cuts, targeting rents as one area for savings. Since the start of the year, the company has spent nearly 120 billion yen to acquire properties that house a number of its department stores. The move is expected to save just over 3 billion yen in rent annually.

     The corporation will cut back on other costs, including personnel expenditures and advertising fees as well, aiming to save about 7.3 billion yen at its department stores and around 2 billion yen for its group companies.