Fast Retailing tumbles most in 2 years on poor earnings

A Fast Retailing showroom in Tokyo. The company shares tumbled 9.8% to close at ¥43,900 in Tokyo on Friday, the steepest decline since May 2013.

BloombergTokyoFast Retailing Co fell the most in more than two years after earnings and forecasts missed analyst estimates due to losses at its Uniqlo and J Brand businesses in the US. The shares tumbled 9.8% to close at ¥43,900 in Tokyo, the steepest decline since May 2013. The Yamaguchi, Japan-based company said on Thursday that net income will probably rise 4.5% to ¥115bn ($957mn) in the year ending August 2016, compared with the ¥141.6bn average of 14 analyst estimates compiled by Bloomberg.Billionaire chairman Tadashi Yanai’s goal to turn Asia’s biggest clothing retailer into a world leader with sales of ¥5tn by 2020 faces a hurdle from its operations in the US, where expansion amid what the company called “relatively low recognition” of the Uniqlo brand has led to sustained losses. The company also risks alienating some customers in Japan, its largest market, with price increases that Yanai said were inevitable because of a weaker yen.In the fiscal year that ended last August, operating profit rose 26% to ¥164.4bn and net income climbed 48% to ¥110bn, both lagging behind analyst projections. Revenue increased 22% to ¥1.682tn, compared with estimates of ¥1.665tn.“Last year’s result missed the market consensus by a large degree,” said Dairo Murata, an analyst at JPMorgan Securities. “That’s a negative surprise and lowered the base for this year’s projection.”A ¥16.1bn impairment loss relating to J Brand and some Uniqlo USA stores and a ¥1.8bn charge on the retirement of fixed assets at flagship stores in London and Shanghai hurt profit last year, Fast Retailing said.“We want to achieve an early profit turnaround in the US,” Yanai said at a briefing in Tokyo, adding that he’ll send managers who know Uniqlo operations well to carry out reforms in the US. “Fast Retailing, across the entire company, will strive to support the business.” Sales may rise 13% to ¥1.9tn in the current 12-month period, the company said. Analysts projected ¥1.92tn. Operating profit will probably rise 22% to ¥200bn, lagging behind estimates of ¥231.8bn.More than 80% of Fast Retailing’s revenue comes from Uniqlo. Japan still accounted for about 46% of the label’s sales last fiscal year, even though the company has steadily increased the contribution from overseas stores in the past three years.The retailer forecast Uniqlo’s same-store sales in Japan will rise about 4% this fiscal year, down from 6.2% a year earlier.“We can’t avoid minimum price increases for our products to maintain quality, and Japanese consumers are in money-saving mode,” Yanai said at the Tokyo briefing. “Consumption is far from strong, but rather stagnant or even shrinking.” The company plans to increase prices by 10% on average for its fall and winter wear in Japan this year, chief financial officer Takeshi Okazaki said in April. Uniqlo’s domestic and overseas sales rose 9% and 46%, respectively, in the 12 months ended August 31.Uniqlo sales in mainland China, Hong Kong and Taiwan expanded 46%. Operating profit in the region, which Fast Retailing described as a “standout,” jumped 66%. Losses at Uniqlo stores in the US widened, the company said.Yanai reiterated a plan to open 100 stores a year in Greater China to reach 1,000 outlets. The medium-term target for that region is 3,000 stores, he said.