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Retail

Uniqlo operator stays bullish for 2021, supported by China's brisk sales

Fast Retailing Q1 profits dip in COVID headwind

Fast Retailing expects record net income for the fiscal year ending August, despite the ongoing pandemic. (Photo by Ken Kobayashi)

TOKYO -- The parent of Japan's Uniqlo apparel chain said brisk demand at home and in China helped it start its financial year strongly, mitigating the hit from store closures elsewhere during the coronavirus pandemic.

Fast Retailing is sticking to its forecast of record net profits of 165 billion yen ($1.58 billion) in the 12 months ending this August, assuming significant sales growth during the second half of the year in China. That would represent a jump of 82% in year-on-year annual profits.

Fast Retailing said on Thursday that consolidated net profit fell 0.7% to 70.3 billion yen ($675 million) during the first quarter of its financial year, from September to November, compared with the same period last year. But Takeshi Okazaki, CFO, said the quarterly performance was better than expected.

Sales fell 0.6% to 619 billion yen in the quarter compared with the same period last year, largely due to the decline in sales of Uniqlo's overseas stores and global brands such as Theory and Comptoir des Cotonniers.

Sales and profits at Uniqlo's business in Japan and the greater China region, including mainland China, Hong Kong and Taiwan, grew significantly.

Okazaki acknowledged there is significant uncertainty over the rest of the year, especially since the COVID-19 variant has emerged in various parts of the world and Japan is facing an explosion of new infections again.

"It is difficult to precisely forecast the impact of the pandemic," Okazaki said. "For now, we think we can reach the target but given the uncertainty, it is possible that the forecast will change," he added.

To lure customers amid the pandemic, Uniqlo has expanded a lineup of more quarantine-friendly clothing such as fleece jackets and also ramped up e-commerce sales through marketing campaigns. In October, Chairman Tadashi Yanai said he would proceed with digital transformation "to immediately reflect changes in customer demands and to create products."

Uniqlo's share price touched a record high on Thursday, propelling the company's value to 10 trillion yen, closing in on Spain's Inditex, the world's biggest apparel maker.

"We have placed our footprint in Asia for a long time and have been betting on Asia's growth in the medium to long term," Okazaki said.

Facing another wave of infections and a second state of emergency, Japanese retailers are bracing for fewer customers. This week, 7-Eleven parent Seven and i Holdings cut its full-year revenue forecast for the fiscal year through next month. Convenience chain Poplar expects a net loss of 1.2 billion yen for its fiscal year through February, due to the expected fall in customer traffic after the state of emergency was declared.

At Aeon, Japan's top retailer by revenue, operating profits fell 33% for the March-November period amid the uncertainties.

Fast Retailing's bullish outlook stands out as many retailers are struggling to increase earnings.

Takahiro Kazahaya, a retail analyst at Credit Suisse Securities, said the headwinds from the pandemic had strengthened the apparel maker's position.

"Even when fewer customers go out shopping and their options have narrowed, Uniqlo has become the first thing that comes to mind when they are about to buy clothes," Kazahaya said.

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