By Rocky Swift
TOKYO, July 9 (Reuters) – The Japanese owner of clothing brand Uniqlo raised its annual profit forecast on Thursday on strong global sales but warned about the impact of the weak yen at home and heatwaves in Europe.
Fast Retailing lifted its earnings guidance for a third straight quarter, saying it expects operating profit to climb to 730 billion yen ($4.50 billion) in the year through August. That is up from a 700 billion yen target in April and would mark a fifth consecutive year of record results.
The company cited strong results in overseas markets, including North America and Europe, along with a continued recovery in the Mainland China segment, but it expects sales and profits to dip in Japan in the fourth quarter as the yen’s depreciation increases costs.
“A sustained downward trend has recently emerged, and I must frankly admit that the situation is becoming increasingly difficult,” Fast Retailing CFO Takeshi Okazaki said about the yen, which is around a 40-year low.
“If things change too rapidly, it’s quite difficult to keep up, and that could potentially have a significant impact on our performance,” he said, adding that the company expects to raise prices on some autumn and winter items in Japan by about 4% due to the currency effect.
Analysts view Fast Retailing as a bellwether for consumer spending in Japan and China, where it has almost 900 stores.
From a single store in the western Japanese city of Hiroshima in 1984, there are now more than 2,500 Uniqlo locations across the globe, selling inexpensive fleeces and cotton shirts made primarily in Asian manufacturing hubs.
Fast Retailing’s Japanese sales have been supported by a tourism boom driven by a weak yen, while growth in China, its largest overseas market, has been slowed by weak consumer sentiment, prompting store closures and restructuring.
In recent years, the franchise has expanded in Europe and North America. Sales and profit grew in double digits through May, but heatwaves in Europe have caused some stores to close and shoppers to stay at home.
“This temporary dangerous situation naturally had a negative impact on consumer activity, so sales might otherwise have been much higher,” Okazaki said.
Shipping and tourism disruption linked to the Middle East conflict have also affected global fashion retailers.
Fast Retailing said in April that the Iran war had complicated air freight from production bases in Southeast Asia and that sustained increases in oil prices could increase costs for synthetic fibres. But so far, the conflict has not had a significant impact on the company’s business, Okazaki said.
Heatwaves have repeatedly hit Europe and North America this year, prompting Swedish retailer H&M to say it is changing its product line-up and marketing calendar to account for longer, hotter summers.
For the three months through May, Fast Retailing’s operating profit was 213.79 billion yen, up nearly 46% from the previous year and well above the 177.73 billion yen average of seven analyst estimates compiled by LSEG.
($1 = 162.3200 yen)
(Reporting by Rocky Swift in Tokyo; Editing by Sonali Paul, Muralikumar Anantharaman, Kim Coghill and Barbara Lewis)
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