Jul 15, 2022
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Fast Retailing improves in Q3, despite China issues, Theory is stronger

Jul 15, 2022

Fast Retailing shares surged on Friday after the owner of mega-brand Uniqlo posted a record quarterly profit and increased forecasts.


Strength in North America and Europe countered falling sales and profit in China. The latter is Fast Retailing's biggest international market and has been affected by Covid-19 restrictions.

The company also benefited from currency exchange effects as it was boosted by the yen being at a 24-year low against the US dollar.

Analysts said the performance excluding China was "impressive" with the US and European regions both becoming profitable. 

Overall operating profit for the three months to the end of May leapt 37% from a year earlier to ¥81.8 billion, an all-time high. This led the company to increase its dividend and up its full-year operating profit guidance by 17% to ¥290 billion.

And what of its various divisions? While Uniqlo Japan had its challenges in the financial year to date, in the third quarter, it proved strong, with revenue increasing by 8.7% year-on-year and operating profit expanding by 76.2%.

Meanwhile Uniqlo International saw continued strength in S/SE Asia & Oceania, and North America and Europe (excluding Russia). But as mentioned, Greater China struggled. 

Fast Retailing’s GU operation had a tough time in the nine months, but in Q3, revenue declined only slightly, while operating profit held steady year-on-year. Sales of popular items such as “colour slacks and sweat wear-style T-shirts proved strong”, but delays on product delivery meant it couldn’t expand sales. Yet the gross profit margin improved by 1.5 points year-on-year as it reined-in discounts.

Under its Global Brands banner, revenue increased sharply and the segment moved into the black in the first nine months, with revenue rising 11.8% to ¥90 billion. It had made an operating loss of ¥8.9 billion in fiscal 2021.

In Q3 alone, the Global Brands Theory label reported higher revenue but lower profit. This was due primarily to a decline in revenue and profit from Theory Asia centred on Mainland China in the wake of the Shanghai lockdown. 

As for its PLST operation, while sales of blouses, pants, and dresses proved strong, it was unable to sufficiently expand sales as delays in production and distribution resulted in product shortages. As a result, PLST sales were flat and operating profit increased only marginally. 

At its France-based Comptoir des Cotonniers operation, revenue increased and the operating loss shrank significantly as it managed to greatly improve cost efficiencies “by determinedly closing unprofitable stores and pursuing other structural reforms”.

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