Fast Retailing's profit fall in third quarter

19 Jul '11

5 min read

Fast Retailing Co Ltd presents results summary for the nine months to May 2011. In the three months from March through May 2011, the third quarter of fiscal 2011, consolidated net sales for the Fast Retailing Group expanded 3.5% year on year to ¥ 194.6bln but operating income contracted 4.6% to ¥ 22.5bln.

Operating income at UNIQLO Japan also fell in the third quarter as the March 11 earthquake and then the cool weather in April and May knocked same-store sales down 1.9% year on year.

Operating income at UNIQLO Japan was also affected by a fall in the gross profit margin compared to the relatively firm margin in the previous year. On the other hand, UNIQLO International continued to contribute significant gains in both sales and income in the March to May quarter. Our Global Brands segment performed to plan in the third quarter thanks to a strong performance from our Theory brand operation.

The UNIQLO Japan operation did fall short of target in the March to May quarter. However, sales of summer items have been buoyant since the weather grew hotter in July. Our Super Cool Biz-related clothing has also been selling well. Therefore, we do still expect to be able to achieve our forecast for a rise in both sales and income in the second half, or the six months through August 2011.

For the full business year through August 2011, we forecast consolidated net sales to increase 2.6% year on year to ¥ 836.0bln, and consolidated operating income to fall 8.2% to ¥ 121.5bln, generating an income of 589.38 yen per share.

Breaking down the operating income forecasts per operation: we estimate operating income will fall 14.6% year on year to ¥ 109.0bln at UNIQLO Japan, but we predict operating income will rise 57.1% year on year to ¥ 10.0bln at UNIQLO International, and rise 8.3% year on year to ¥ 8.5bln at our Global Brands segment. We forecast an annual dividend for fiscal 2011 of 180 yen per share, including the interim dividend of 95 yen paid out in May.

As our current mainstay operation, UNIQLO Japan constitutes 74% of consolidated sales. UNIQLO Japan reported a fall in both sales and income for the first nine months of the business year from September 2010 through May 2011.

Over that period, sales from the UNIQLO Japan operation fell 4.7% year on year to ¥ 482.1bln and operating income contracted 21.3% to ¥ 91.0bln. In the latter part of that period, namely the third quarter from March to May 2011, UNIQLO Japan sales actually increased 0.7% year on year to ¥ 140.0bln while operating income shrank 11.2% year on year to ¥ 20.7bln.

The fall in operating income in the third quarter can be attributed to a number of factors including the 1.9%-contraction in same-store sales which were adversely affected by the March 11 earthquake and persistent cool weather through April and May. Operating income was also affected by a 3.0-point fall in the gross profit margin in real terms.

The gross profit margin fell further than initially planned after the March 11 earthquake necessitated more price adjustments on spring inventory, and the cost of cotton and other raw materials rose sharply. As a result of the above factors, overall sales at UNIQLO Japan fell approximately ¥ 3.0bln short of our latest estimate in the March to May quarter, and operating income came in approximately ¥ 1.0bln below target.

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