Uniqlo owner’s profit misses estimates on weak China sales

​Fast Retailing Co. reported third-quarter earnings that missed estimates, as weaker sales in China weighed on the Japanese apparel maker’s performance.

Operating profit was ¥146.7 billion ($1 billion) in the three months ended May, trailing the ¥150 billion average of analyst estimates compiled by Bloomberg. Net income came in at ¥105.5 billion during the period.

Revenue in mainland China declined by approximately 5% for the third quarter from a year earlier, while operating profit decreased by around 3%, the company said. The apparel maker had in April raised its full-year forecast, counting on demand for its Uniqlo brand of clothing in newer markets beyond the traditional strongholds of Japan and China.

Still, the retailer kept its full-year operating profit forecast of ¥545 billion.

The sales drop in China was due to weaker overall consumer sentiment and continuation of low temperatures through early May, Chief Financial Officer Takeshi Okazaki said in a post-earnings briefing Thursday. The company, which is overhauling its China operations, is beginning to see the impact, he said.

“We are implementing a scrap and build strategy to improve operational efficiency of each, individual stores,” Okazaki said. “We are tailoring our product assortment and store layouts to suit each region. Some stores are seeing 1.5 times higher sales.”

Operating profit of overseas Uniqlo business rose 1.5% to ¥72.1 billion for the three months ended May, while operating profit for the brand in Japan rose 4.7% to ¥52.9 billion for the period, it said.

Fast Retailing released its earnings after markets closed in Tokyo. Its stock has dropped around 13% this year, partly weighed down by President Donald Trump’s tariffs. Earlier this week, Trump said he will slightly raise across-the-board tariffs on Japan to 25% starting on Aug. 1.
Still, Fast Retailing revised the impact of US tariffs on the company’s operating profit to 1% for the second half of the year. Previously in April, it said the impact was approximately 2% to 3%, based on the assumption that they remain at the previously announced level. 

The company is closely monitoring the situation and the balance between price and value of products for US consumers to maintain sustainable business, while securing profits, Okazaki said.