Pandemic Forces Fast Retailing to Cut Profit Outlook by 41%

(Bloomberg) -- Uniqlo clothing owner Fast Retailing Co. lowered its full-year operating profit outlook by 41%, joining a string of global retailers caught up in shutdowns aimed at slowing the spread of the coronavirus pandemic.

Asia’s largest apparel company said on Thursday it now sees profit of 145 billion yen ($1.3 billion) for its fiscal year, which ends in August. That compares with the prior forecast for 245 billion yen and analysts’ average projection for 198 billion yen, according to estimates compiled by Bloomberg. It also marks the second guidance cut; the retailer reduced its forecast in January, citing geopolitical turmoil in South Korea and Hong Kong that hurt sales.

Fast Retailing had already been feeling the impact of the outbreak in February, the peak of coronavirus infections in China, where it has more than 700 stores. The world’s No. 2 economy was the source of the clothing company’s growth in recent years, and made up the bulk of its overseas operations. The pandemic has left few retailers unscathed, as shutdowns force many non-essential sellers of discretionary goods to close their stores.

While the company is anticipating business activities to gradually return to normal after June, “that’s still going to take a pretty huge toll on their operating margin,” said Bloomberg Intelligence analyst Catherine Lim. Fast Retailing will have to do a lot of discounting to clear inventory even if stores reopen, she added.

For the quarter that ended in February, operating profit was 45 billion yen. Net sales fell 6.1% to 585 billion yen, compared with analysts’ average prediction for 573 billion yen.

During the period, more than half of Uniqlo stores in China were temporarily shuttered, although many have now begun to reopen. Even so, that probably won’t make up for lost sales due to stay-at-home measures coming into effect in Japan, Fast Retailing’s most profitable market.

“Up until now, China has been our main production hub, and we have worked to plan globally and establish production in other countries,” Fast Retailing Chief Executive Officer Tadashi Yanai told reporters. “From now on, we want to work to improve efficiency and safety when it comes to offering products.”

With the lowest infection rate among the Group of Seven rich countries, Japan has so far escaped the total economic shutdown seen elsewhere. But a state of emergency declaration this week will probably induce Fast Retailing and other retailers to close almost half of their stores in the country, Citi analyst Yingqiu Zhang wrote in a recent report.

Fast Retailing said on Thursday that it anticipates further revisions to its full-year forecasts due to uncertainty. There are about 412 Uniqlo stores closed worldwide. Shares of the company are down 28% this year.

Other global retailers have already reported similar blows to business. H&M operator Hennes & Mauritz AB said last week it may need to cut thousands of jobs, review its investments and was having trouble paying rent. In the U.S., Gap Inc. was said to ask suppliers to stop shipping summer products. Zara operator Inditex SA has temporarily postponed dividends.

Uniqlo’s overseas revenue may decline by more than 20% from March to August, the fiscal second half, according Lim.

Before the virus upended the global economy, Uniqlo had been in the middle of a push into Europe and India, opening its first country stores in Italy and New Dehli. Those areas still remain under lockdown measures due to the virus.

©2020 Bloomberg L.P.