Uniqlo Owner Sees Return to Pre-Pandemic Profit on Asia Rebound

(Bloomberg) -- Asia’s largest retailer Fast Retailing Co. sees profits growing slightly beyond analysts’ expectations this fiscal year, driven by a robust recovery from the Covid-19 pandemic in the Uniqlo owner’s key China and Japan markets.

Operating profit will probably be 245 billion yen ($2.3 billion) for the year through August 2021, the Japanese company said in a statement Thursday. That compares with the average analyst estimate of 242.4 billion yen compiled by Bloomberg. Sales are seen at 2.2 trillion yen, roughly in line with average analyst expectations of 2.28 trillion.

While operating profit for the year just ended fell 42% and revenue declined 12%, Fast Retailing’s projections for 2021 represent a return to pre-pandemic levels. The company said revenue will continue to decline in the first half due to the pandemic, with a recovery kicking in after that.

Retailers have been reeling as Covid-19 upends shopping habits. Fewer people are venturing outside amid lockdowns and fear of crowds, while shoppers are tightening purse strings amid job losses and economic upheaval. Apparel retailers from Brooks Brothers to J. Crew have filed for bankruptcy protection, though some brands are weathering the storm better thanks to heavy e-commerce traffic.

Analysts say Fast Retailing is in a position to recover faster compared with its global peers, with its geographic focus on Asia, where coronavirus cases are more subdued at present, and its emphasis on affordable, basic clothing suitable for working from home.

Investors are already betting on Fast Retailing’s ability to recover. The company’s stock has bounced back from a March low, closing at a record high on Thursday before earnings were announced. Hennes & Mauritz AB and Zara operator Inditex’s shares are both down more than 15% for the year.

During the spring and summer, Fast Retailing shuttered Uniqlo stores in China, followed by Japan and then Western nations, as part of efforts to contain the spread of coronavirus.

Fast Retailing is seeing business improve in China at a faster pace than expected, as the economy reopens and coronavirus outbreaks remain largely under control. The company said Uniqlo’s revenue in China, where it has almost 800 stores, will be strong in 2021, including double-digit growth in e-commerce.

Uniqlo’s merchandising focus on casual and functional basic wear continues to draw customers. The brand also scored a win as it adapted its AIRism breathable fabric to make face masks, creating a buzz and drawing customers back to stores in Japan after a state of emergency was lifted.

Uniqlo Japan’s operating profit rose for the year, while same-store sales have increased every month since June compared to a year ago.

“I think they’re in the right place at the right time now,” said Jefferies analyst Mike Allen in an interview before results were released. “There’s a major shift going on towards casual clothing and spending as little money as possible on it.”

Although Fast Retailing has been investing heavily into its e-commerce operations, its long supply chain -- which has the company placing orders for goods up to a year before they hit shelves -- could be a challenge amid uncertainty over how long the pandemic will go on. H&M said earlier this month it would aim to shutter 5% of its stores next year, as worsening business conditions exacerbated its inventory buildup.

Also, it remains to be seen how Fast Retailing will fare in the winter. The Uniqlo brand is known for its cold weather wear and does its best business in the winter, but if fewer people are venturing outside, that could lower the need for items such as down jackets and HeatTech inner wear.

©2020 Bloomberg L.P.