Uniqlo's Q2 profit surges on overseas expansion

Pedestrians walking and gathering at the entrance of a Uniqlo store, in the Ginza district of Tokyo, Japan, on April 11, 2017.
Pedestrians walking and gathering at the entrance of a Uniqlo store, in the Ginza district of Tokyo, Japan, on April 11, 2017. PHOTO: BLOOMBERG

TOKYO • Uniqlo operator Fast Retailing's second-quarter profit surged as Asia's largest clothing chain accelerated its overseas expansion.

Operating income gained about 80 per cent to 42.1 billion yen (S$540 million) in the three months to February, based on first-half earnings the clothing retailer released yesterday.

The company left full-year forecasts unchanged.

The results show cost cuts by chairman Tadashi Yanai are allowing the retailer to push margins up amid sluggish demand that caused sales to drop in two of three months last quarter.

Fast Retailing sales slipped in December and January as warmer- than-expected weather sapped demand for winter clothes.

Domestic sales rose 5.2 per cent in February. Stagnant demand in Japan and underperformance at some overseas stores led Mr Yanai to scale back his annual revenue goal last year to 3 trillion yen by fiscal 2020 from an earlier target of 5 trillion yen.

Meanwhile, rival Hennes & Mauritz, facing falling profits amid competition from the likes of Zara and online players like Amazon.com, is beefing up its portfolio with niche brands. It is betting outlets such as COS can help expand its appeal beyond budget-conscious young shoppers. The plan is to add 80 stores from the company's half-dozen smaller brands this year, versus 350 more H&M outlets.

That includes a new concept called Arket, a higher-end shop with clothing, home goods and a cafe serving Scandinavianinspired dishes.

The push beyond the flagship brand comes as H&M's margins have been narrowing. Net profit was down to 9.5 per cent of sales thus far versus almost 26 per cent in 2007. The company's shares last month fell to their lowest level in four years after H&M reported inventory levels were up 30 per cent year-on-year.

"When you've got a very mature brand, you reach a point where it becomes challenging to keep up growth," says Ms Maureen Hinton, an analyst at GlobalData in London. "You've got to find new markets and new customers."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 14, 2017, with the headline 'Uniqlo's Q2 profit surges on overseas expansion'. Print Edition | Subscribe