Uniqlo operator Fast Retailing Co. rose the most in more than three weeks after reporting a 27% jump in quarterly operating profit and kept its outlook for the fiscal year despite the shutdown of its Russian operations and the resurgence of Covid in China that are fueling uncertainty in clothing sales across the world.

Fast Retailing rose as much as 6.9% in Tokyo trading, the biggest intraday gain since March 17. The stock, which hit a record in February 2021, had lost more than 40% of its value since then through yesterday.

Operating profit rose to 70 billion yen ($558 million) for the three months ended Feb. 28, led by higher sales in North America, Europe and Southeast Asia, compared with the 66 billion yen average of analysts’ estimates compiled by Bloomberg. Revenue rose 1.5% to 592 billion yen. 

“The robust growth in North America and EU markets reflects the strong demand amid the continued easing of COVID-19 restrictions and stronger digital and in-store marketing.” said Eric Lau, an equities analyst at Citigroup Inc. in a note to clients.

For the current fiscal year through August, Fast Retailing is forecasting operating profit of 270 billion yen on revenue of 2.2 trillion. The company raised its outlook for net income to 190 billion yen, from a prior 175 billion yen, citing a weaker yen that boosts income brought back home.

Fast Retailing also set ambitious goals to push further into the North American market, where it expects to post an operating profit for the first time this fiscal year, which ends in August. The company set a goal of achieving annual revenue of 300 billion yen in 2027, with an operating margin of 20%, Takeshi Okazaki, Fast Retailing’s chief financial officer, said during a results briefing Thursday.

The improvement of the U.S. operation was a surprise, Michael Allen, an equities analyst at Jefferies & Co., wrote in a report to clients.

Ever since opening its first store in New Jersey in 2005, Uniqlo has struggled to reach the same scale of success seen in Japan and China. Now, with the war in Ukraine and resurgence of Covid in China fueling uncertainty in clothing sales across the world, Fast Retailing is shifting its focus to a market where the outlook is relatively stable. To do so, the retailer said it will focus on opening stores on coastal cities and upscale shopping malls.

Last month, Fast Retailing’s rival Hennes & Mauritz AB reported a sudden slowdown in revenue growth during March, sending shares to a two-year low. China, the largest market for Fast Retailing outside of Japan, is sticking to its policy of eliminating Covid-19 infections, locking down cities such as Shanghai. Goldman Sachs Group Inc. cut its forecast for China’s growth in 2022 by 0.5 percentage points due to the increased difficulty of containing the omicron variant. China accounted for 22% of Fast Retailing’s sales last year.

The retailer temporarily suspended operations in Russia in March, joining a growing list of global businesses in curtailing their activities in the country after its invasion of neighboring Ukraine. Fast Retailing has 50 Uniqlo shops in Russia, the largest number of outlets outside of Asia. Russia’s war against Ukraine comes at a time when Fast Retailing seeks to expand its presence in Europe and reduce its dependence on Japan where the population is shrinking.

Source:
courtesy of BLOOMBERG

by Kanoko Matsuyama

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