Fast Retailing Co., Ltd. on July 11 revised its operating profit forecast for the current fiscal year (ending August 2024) upward to 475 billion yen. The previous figure was 450 billion yen. This exceeded the average forecast of 452.8 billion yen from 15 analysts compiled by Bloomberg. Strong performance in North America and Europe offset the company’s struggles in China.
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The forecast has been revised upward to reflect the progress of business performance and the current exchange rate. Foreign exchange gains of 35.5 billion yen are expected. The annual dividend for this fiscal year will be increased by 50 yen from the previous forecast to 400 yen, reflecting the upward revision of the business performance forecast.
Uniqlo store in Shanghai
Photographer: Raul Ariano/Bloomberg
While Uniqlo’s operations in North America and Europe are performing well, it is struggling in mainland China and Hong Kong. In the third quarter, the company saw a decline in sales and a large drop in profits on a local currency basis. In mainland China, it was affected by a decline in consumer confidence and bad weather, as well as an insufficient product lineup to meet the needs of local customers. Monthly sales are low, and there are regarding 150 stores in locations that are not attracting customers.
China’s National Bureau of Statistics announced on July 10 that the consumer price index (CPI) for June rose 0.2% from the same month last year, below the median forecast of economists compiled by Bloomberg. Domestic demand continues to slow, and Fast Retailing will also be affected. However, Greater China accounts for regarding 60% of Uniqlo’s stores overseas. The region is vital for Fast Retailing, which is aiming for further growth through overseas expansion, and it is essential that the company recover even in this difficult environment.
Uniqlo’s Greater China business is expected to secure an increase in sales for the full year, but a slight decrease in profits is expected. Pan Ning, CEO of Uniqlo Greater China, said at a press conference on the same day that there is still room for growth in China and other regions, and that the company will work to restructure its store network to prioritize quality over quantity and to integrate stores with e-commerce.
While stating that it will not reduce the number of stores in Greater China, it will scrap stores with low monthly sales and open larger stores in better locations. It will carefully select new stores in mainland China, expecting to open 50-80 stores per year.
Pan said he is “definitely committed to achieving” the goal of achieving 1 trillion yen in sales revenue from the Greater China business in the fiscal year ending August 2028.
(The headline was corrected in the previous article.)
(Update with details regarding the meeting)
Fast Retailing Raises Profit Forecast Despite China Challenges
Uniqlo’s Global Performance Drives Upward Revision
Fast Retailing Co., Ltd., the parent company of Uniqlo, has revised its operating profit forecast for the current fiscal year (ending August 2024) upward to 475 billion yen, exceeding the previous forecast of 450 billion yen. This positive outlook reflects strong performance in key markets such as North America and Europe, despite challenges in the Chinese market.
Key Highlights of Revised Earnings Outlook
- Sales: Projected to increase by 11% from the previous fiscal year to 3.7 trillion yen (market forecast: 3.265 trillion yen).
- Operating Profit: Expected to increase by 25% to 475 billion yen (market forecast: 452.8 billion yen).
- Net Profit: Projected to increase by 23% to 365 billion yen (market forecast: 329.3 billion yen).
The upward revision incorporates the positive progress of business performance and the favorable current exchange rate, with an expected foreign exchange gain of 35.5 billion yen.
Dividend Increase Reflects Strong Performance
The annual dividend for this fiscal year will be raised by 50 yen from the previous forecast to 400 yen, reflecting the upward revision of the business performance forecast.
Strong North America and Europe Performance
Uniqlo’s operations in North America and Europe have demonstrated strong performance, contributing significantly to the overall positive outlook. This growth is attributed to effective marketing strategies, a strong product lineup, and a growing consumer base.
Challenges in Mainland China and Hong Kong
Despite the overall positive financial outlook, Uniqlo is facing challenges in mainland China and Hong Kong, where sales and profits have declined in the third quarter on a local currency basis. These struggles are attributed to a decline in consumer confidence, unfavorable weather conditions, and an insufficient product lineup to cater to local customer needs.
The company also faces the challenge of underperforming stores in China, with approximately 150 stores that do not attract sufficient customers.
Impact of Slowing Domestic Demand
China’s National Bureau of Statistics reported a June consumer price index (CPI) rise of 0.2% from the same month last year, below the median forecast of economists. This indicates a continued slowdown in domestic demand, which will further impact Fast Retailing’s performance in China.
Greater China Remains Crucial for Growth
Despite the challenges, Greater China remains a vital market for Fast Retailing, accounting for approximately 60% of Uniqlo’s stores overseas. The company is aiming for further growth through overseas expansion, making it critical for Uniqlo to recover its business in this region.
Uniqlo’s Strategies for China Market Recovery
To address the challenges in China, Uniqlo is implementing a restructuring strategy for its store network, prioritizing quality over quantity and integrating stores with e-commerce.
The company plans to scrap stores with low monthly sales and open larger stores in better locations. It will carefully select new stores in mainland China, expecting to open 50-80 stores per year.
Despite these adjustments, Uniqlo is committed to maintaining its store presence in Greater China, aiming for a sales revenue of 1 trillion yen from the region by the fiscal year ending August 2028.
Conclusion
Fast Retailing’s revised upward profit forecast highlights the company’s strong global performance. While challenges remain in China, Uniqlo’s aggressive strategies and unwavering commitment to the region offer optimism for future growth.