Business / Corporate

Descente slashes net profit outlook by 82% amid South Korea boycott of Japanese goods

Kyodo

Sportswear-maker Descente Ltd. on Wednesday sharply slashed its net profit outlook for fiscal 2019, hit by a widespread boycott of Japanese products in its mainstay South Korean market.

The seller of Umbro, Le Coq Sportif and Munsingwear brands said it expects group net profit to plummet 82.3 percent to ¥700 million ($6.4 million) in the year to March 2020, down from its previous forecast of ¥5.30 billion.

The Osaka-based company said it will report a net loss of ¥1.51 billion in the second half that started in October due to slumping sales in South Korea, which had accounted for about half its annual sales.

“We saw an extremely severe fall in sales. We did not think it would be this bad,” Descente President Shuichi Koseki told a news conference in Osaka, referring to a 30 percent sales drop from a year earlier in the second quarter.

Descente joins other Japanese companies in reporting lower sales in South Korea after Japan’s tighter controls on exports of high-tech chemicals — resists, hydrogen fluoride and fluorinated polyimide — to its neighbor in July sent bilateral ties to their worst level in years, prompting a campaign to boycott Japanese goods.

The chemicals are indispensable in manufacturing electronic circuit boards as well as smartphone displays, which are mainstay businesses for price-competitive South Korean manufacturers.

Fast Retailing Co., operator of the Uniqlo casual clothing chain, said last month that sales in South Korea fell “substantially” in July and August.

Japanese carmakers saw a 60 percent drop in vehicle sales in the country in September from a year earlier, while Japan’s beer shipments to South Korea plummeted 99.9 percent by value in the same month.

The sportswear-maker revised down its full-year group operating profit projection to ¥1.10 billion from ¥8.00 billion and cut its group sales outlook to ¥130.80 billion from ¥144.00 billion.

In the first half, group net profit fell 3.5 percent from a year earlier to ¥2.21 billion and group operating profit dropped 8.2 percent to ¥2.64 billion partly due to weaker sales in Asia.

Group sales declined 1.3 percent to ¥65.93 billion in the first half.

The first-half results do not reflect the impact of the boycott campaign in South Korea because local subsidiary Descente Korea Ltd.’s accounting period starts from January.

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