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 ($2.3 billion) for the year through August 2021, the company said in a statement Thursday. That compares with an average analyst estimate of ¥242.4 billion.
Sales are seen at ¥2.2 trillion, roughly in line with average analyst expectations of ¥2.28 trillion.
While operating profit for the year ended August 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.
"The pandemic is a global crisis, but for us, it has become a turning point," said Fast Retailing Chairman and CEO Tadashi Yanai at a press briefing.
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 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 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, the company shuttered Uniqlo stores in China, followed by Japan and then Western nations, as part of efforts to contain the spread of the COVID-19 virus.
Fast Retailing is seeing shoppers return in China, where the economy is reopened and still expanding and where COVID-19 outbreaks have largely been kept under control.
Fast Retailing had 767 stores in mainland China as of August, roughly the same number of stores as Japan. But given its growth potential, "it's possible to aim for 3,000 stores" in China, Yanai said.
Sales in other overseas markets like the United States and Europe, hit harder by the pandemic, continued to struggle. Fast Retailing expects more time will be needed for these markets to recover.
Merchandising focuses on casual and functional basic wear continues to draw customers. The brand also scored a win by adapting 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. Same-store sales in Uniqlo’s domestic market have risen 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 in 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.