13 Apr 2017
Consolidated operating profit for the first half of fiscal 2017 expanded 31.5 percent to 130.6 billion yen (1.19 billion dollars) at the Fast Retailing Group. Revenue increased 0.6 percent year on year to 1.0175 trillion yen. Revenue at Uniqlo Japan increased by 0.3 percent to 455.1 billion yen (4.1 billion dollars), while operating profit rose to 68.7 billion yen (0.63 billion dollars) or 7.3 percent.
The company said profit rose considerably following the reporting of a 15.4 billion yen (0.14 billion dollars) foreign exchange gain under finance income and costs. As a result, profit attributable to owners of the parent jumped 106.7 percent year on year to 97.2 billion yen (0.89 billion dollars).
Same-store sales, including online sales, increased 0.1 percent year-on-year. The total number of Uniqlo Japan stores declined by a net 14 stores year-on-year to 791 excluding 41 franchise stores at the end of February 2017. Of this total, two stores shifted from directly operated stores to employee franchise stores.
The company attributed rise in same-store sales to a number of factors such as the Uniqlo anniversary sale in November 2016 generating strong sales and strong performance of core winter ranges such as Heattech innerwear, cashmere sweaters and Blocktech outerwear and 2017 spring summer ranges getting off to a strong start in February.
On the profit front, the gross profit margin improved 2.1 points year-on-year. E-commerce sales increased by 11.7 percent to 28.2 billion yen (0.25 billion dollars), constituting 6.2 percent of total sales.
Uuniqlo International too reported rises in both revenue and operating profit in the first six months of fiscal 2017, with revenue expanding by 0.9 percent to 392.8 billion yen (3.6 billion dollars) and operating profit expanding by 65.9 percent to 48.7 billion yen (0.4 billion dollars). While revenue increased in local-currency terms, the effect of the stronger yen compared to the previous year pushed yen-based revenue down by an average 11 percent, resulting in the segment's more subdued 0.9 percent rise in overall revenue.
On the profit side, profit contributions from Mainland China and Southeast Asia were strong. The operation in Mainland China reported strong sales and a large rise in profit on the back of an improved gross profit margin and the selling, general and administrative expense ratio, while Uniqlo Southeast Asia achieved strong growth in same-store sales. The first Uniqlo global flagship store was opened on the Orchard Central Store, in Singapore in September 2016.
Elsewhere, Uniqlo USA recorded a considerable reduction in operating losses following the successful implementation of operational changes. The company said, first two Uniqlo Canada stores, opened in Toronto in September 2016, continue to enjoy great success. Store numbers for the segment as a whole had expanded by 139 year-on-year to 1,029 stores at the end of February 2017.
Global Brands revenue expanded 0.5 percent to 168.1 billion yen (1.54 billion dollars), but operating profit declined 29.7 percent to 10 billion yen (0.09 billion dollars), largely due to a contraction in profit at the company’s low-priced GU casual fashion brand.
The company said, GU profit declined after 2016 fall winter ranges proved less popular than initially expected, leading to aggressive discounting of excess inventory and contraction in the gross profit margin. In addition, the performance was being compared to an extremely buoyant first-half period in fiscal 2016 when operating profit expanded by 60 percent year-on-year. However, strong sales of individual product items such as big sweatshirts, baggy pants, loungewear, and sports sneakers helped stem the overall decline in first-half same-store sales at 1.1 percent.
In March 2017, the group extended GU's international store network, which currently spans Shanghai and Taiwan, by opening the first GU store in Hong Kong and it aims to continue expanding the GU operation by accelerating store openings in Japan and actively promoting new store development in international markets.
Looking at other labels in the Global Brands segment, France-based Comptoir des Cotonniers fashion brand reported a decline in revenue on sluggish sales, but generated a steady operating profit on active cost-cutting. Also France-based Princesse tam.tam label and US-based J Brand premium denim label continued to generate a loss, while fashion brand Theory performed well to generate a rise in profit in the six months to February 2017.
The company’s estimates for Fast Retailing performance in fiscal 2017 remain unchanged from initial forecasts announced in October 2016, which include a large expansion in full-year profits. Detailing those forecasts, Fast Retailing is expecting to achieve consolidated revenue of 1.8500 trillion yen (3.6 percent rise), operating profit of 175 billion yen (1.6 billion dollars) or up 37.5 percent and profit attributable to owners of the parent of 100 billion yen (0.91 billion dollars), up 108.1 percent. That would translate into expected net earnings per share of 980.74 yen (9.0004 dollars).
Uniqlo Japan is expected to report rising revenue and profit in fiscal 2017, and an approximate 1.8 percent year-on-year gain in same-stores sales including e-commerce. Uniqlo International is expected to report strong profit gains in fiscal 2017. Uniqlo Greater China, Southeast Asia & Oceania, and South Korea are forecast to generate higher profits, while profit is expected to hold steady in Europe, and operating losses are expected to contract sharply in North America (US and Canada).
Global Brands is expected to generate gains in revenue and profit in fiscal 2017. Following the sharp fall in first-half profit at GU, the company now expects GU will report a decline in profit for the full year through August 2017. However, it expects GU to report rising revenue and profit in the second half on the back of fresh efforts to advertise the newsworthy elements of GU spring fashion items more effectively, and order additional production of strong-selling items more efficiently.
In terms of store numbers, the overall Fast Retailing Group network is expected to expand to a total of 3,316 stores by the end of August 2017. This total breaks down into 837 Uniqlo Japan stores (including franchise stores), 1,104 Uniqlo International stores and 1,375 Global Brands stores.
The company has scheduled an annual dividend for fiscal 2017 of 350 yen (3.21 dollars), split evenly into an interim dividend of 175 yen (1.60 dollars) and a year-end dividend of 175 yen per share.In short