Fast Retailing sales fall; UNIQLO Japan to expand in H2

08 Apr '11

5 min read

Fast Retailing Co., Ltd. experienced a dip in both sales and operating income in the six months to February 2011, the first half of fiscal 2011, caused primarily by sluggish performance at its mainstay UNIQLO Japan operation.

Same-store sales at UNIQLO Japan contracted 9.9% year on year and operating income declined in the six months through February 2011 with results overshadowed by comparisons with the extremely strong sales of the previous year and impacted by unseasonably warm weather in December 2010 that dampened sales of fall and winter products.

UNIQLO International produced an impressive 33.9% increase in operating income with new stores opening and same-store sales expanding rapidly in Asia, in particular in the markets of China, Hong Kong and South Korea. Our Global Brands segment also generated a 10.3% rise in operating income thanks to a strong performance by Theory operations in both Japan and the United States.

Sales and Operating Income Expected to Rebound in the Second Half of Fiscal 2011

We estimate that both sales and operating income at UNIQLO Japan will expand in the second half of the fiscal year, from March through August 2011. However, due to the negative impact on sales from stores unable to operate following the devastating March 11 earthquake and tsunami that hit northeastern Japan as well as the impact of the reduction in the number of new store openings in the first half, we have revised down our latest UNIQLO Japan sales estimate in the second half by ¥ 8.0bln.

However, our most recent estimate for same-store sales at UNIQLO Japan remains unchanged at a 3.0% increase year on year. Following the March 11 earthquake, same-store sales fell further below the previous year's level in March, contracting 10.5% year on year.

However, subsequently sales have been gradually recovering and we expect same-store sales to increase from April. We estimate our gross profit margin will dip 1.8 points year on year in the six months through August 2011 on the back of rising cost of sales, but also expect increased revenue and cost-cutting measures to nudge operating income higher in the second half. In addition, UNIQLO International and Global Brands are expected to generate continued increases in income through the second half of fiscal 2011.

Interim Dividend for Fiscal 2011 increased 10 Yen

Given the larger-than-forecast rise in net income in the six months through February 2011, we have decided to increase our interim dividend by 10 yen from 85 yen to 95 yen per share. Combined with our estimated 85-yen year-end dividend, this would generate a higher full-year dividend of 180 yen per share.

UNIQLO Japan

UNIQLO Japan, which currently constitutes 74.8% of consolidated sales, experienced a drop in both sales and operating income in the first half of fiscal 2011 in the six months through February 2011. Net sales contracted 6.8% to ¥ 342.1bln and operating income fell 23.9% year on year to ¥ 70.3bln. However, the operating income did exceed our most recent estimate by more than ¥ 4.0bln.

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