UNIQLO owner hit by geopolitical turmoil, but SEA still expanding favourably

UNIQLO's parent company, Fast Retailing Group, has witnessed a decline in revenue and profit for the first quarter of its 2020 financial year which ended on 30 November 2019 (Q1 2020). Consolidated revenue dropped 3.3% year-on-year (yoy) to about US$5.691 billion and operating profit slid 12.4% yoy to about US$836 million.

In its financial statement Fast Retailing attributed the weaker performance primarily to reductions in profit from both UNIQLO South Korea and UNIQLO Hong Kong, and a lower-than-expected improvement in profits from UNIQLO Japan. According to multiple media reports including Bloomberg and Reuters, this has led to Fast Retailing reducing its full-year operating profit outlook by 11%.

UNIQLO International, which is a key pillar of its business and growth, posted a 3.6% yoy dip in revenue for Q1 2020 to approximately US$2.562 billion. UNIQLO International consists of markets such as Greater China, South Korea, Japan, Asia and Oceania.

However, the financial statement said that if the significant declines in revenue and profit from South Korea and Hong Kong were stripped out, the remaining UNIQLO International markets generated rising first-quarter revenue and profit. Its Asia and Oceania operation, which includes Southeast Asia, Australia and India, continues to expand favourably, generating significant increases in both revenue and profit in the first quarter as expected, the financial statement said.

Indonesia and the Philippines reported an especially strong performance led by double-digit growth in same-store sales.

Meanwhile, a month after opening its first store in India in October 2019, UNIQLO opened its second store in November and the company said both stores are performing strongly.

According to the financial statement, both revenue and profit from UNIQLO Greater China increased if the exchange rate effect was stripped out. However, if the yuan depreciation effect and the decline in Hong Kong profit are included, UNIQLO Greater China's operating profit saw a decline during Q1 2020. Revenue and profit from Mainland China increased on strong sales of Fall-Winter ranges such as sweat shirts and pants, fleece, and flannel items. Mainland China eCommerce sales also continued to be strong, expanding by approximately 30% yoy.

Meanwhile, UNIQLO South Korea same-store sales declined sharply on the back of a move to boycott Japanese products that began in July 2019, resulting in an operating loss in the first quarter. In Japan, UNIQLO posted a 5.3% yoy decline in revenue to US$2.127 billion but a 1.6% yoy increase in operating profit to about US$351 million. First quarter same-store sales, including online sales, declined by 4.1% yoy.

Despite multiple strong-selling items, including new curved pants, souffle yarn sweaters, trendy sweat shirts and pants, and leggings, the decline in same-store sales was caused by weaker demand for thermal clothing during the warm weather and UNIQLO's inability to sufficiently convey the attractiveness of in-focus, newsworthy products to our customers. ECommerce sales growth in Japan also slowed for the same reasons as for its physical stores, with online sales totaling US$225 million, a 4.1% yoy increase in the first quarter.

Across continents, UNIQLO North America reported rising revenue and profit on the back of revenue and profit increases from Canada. While UNIQLO Europe reported double-digit growth in first-quarter revenue, operating profit contracted slightly due to local currency depreciation. New operations launched over the past couple of years in Spain, the Netherlands, and Italy performed strongly, with Italy in particular reporting higher-than-expected sales, the company said in the financial statement.

The group said its medium-term vision is to become the world's top apparel retailer and in pursuit of this aim, it is focusing its efforts on expanding UNIQLO International, as well as its discount casual wear designer brand GU and its global eCommerce operation.

"We continue to increase UNIQLO store numbers in each markets and areas in which we operate, and open global flagship stores and large-format stores in major cities around the world to instill deeper and more widespread empathy for UNIQLO’s LifeWear concept," the company said. It also works to establish GU's position as the brand that offers fun fashion at "amazingly low prices".