Fast Retailing's Uniqlo China recovery begins, Theory struggled in latest quarter

By

Sandra Halliday

Published
Apr 13, 2023

Uniqlo, GU and Theory owner Fast Retailing has reported H1 profit 16% higher as China — where it has around 900 stores — has begun to recover and sales proved strong in Europe and North America.

It’s good news not just for the company but for other China-focused brands that have suffered as that country’s Covid restrictions went on longer than elsewhere in the world.

Fast Retailing said operating profit was ¥220 billion (€1.5bn/£1.3bn/$1.6bn) in the six months to February, up from ¥189 billion a year earlier.

And it increased its full-year profit forecast to ¥360 billion from the ¥350 billion it had been predicting three months ago. That’s higher than analysts had expected.

Looking at its brands, Uniqlo Japan saw H1 revenue rising 11.9% to ¥495.1 billion, although operating profit fell 1.6% to ¥67.3 billion. 

Like-for-like sales rose 10% on the back of strong sales for AW22 items and thermal products. Strong sales of SS23 items, such as its wide-fit pleated pants, and products “that satisfied new everyday needs” like the AirSense jacket, AirSense pants and shirts, also boosted the first-half results. 

But the gross profit margin declined by 2.2 points as procurement costs rose “considerably” on the back of the sharp depreciation in the Japanese yen during the period. 

Uniqlo International reported a significant increase in both revenue and profit with revenue rising 27.3% to ¥755.2 billion and operating profit expanding 22.2% to ¥122.6 billion.

Southeast Asia, India & Australia, North America, and Europe (excluding Russia) all started “to enter a genuine growth phase” with strong sales in most regions. 

While Greater China “reported a dip in revenue and a sharp fall in profits” due to Covid issues in Q1, "sales did start to recover in January, resulting in a slight decline in second-quarter revenue and a sharp increase in second-quarter profit, so overall performance is now on a recovery track”.

It also said “the strong overall performance can be attributed to the fact that rapid changes in clothing demand over the past few years in the face of the Covid-19 pandemic and rising inflation have fuelled consumer appetite for LifeWear”. 

Meanwhile, the GU brand reported large increases in both revenue and profit, with revenue up 18.5% to ¥145.5 billion and operating profit up nearly 40% at ¥13 billion.

Like-for-like sales “rose significantly as we pursued some bold strategies that involved successfully narrowing down the number of product numbers on offer and ensuring a sufficient supply of mass-trend products”. Sales of “heat padded outerwear, super wide cargo pants, and baggy slacks proved especially strong”. 

That said, the GU gross profit margin declined 1.8 points due mainly to the rapid depreciation of the Japanese yen over the first half.

Finally, the Global Brands segment reported a large rise in revenue but a decline in profit, with revenue up 19.1% to ¥70.2 billion and operating profit down 85.3% to ¥0.1 billion. 

While the Theory brand generated much higher revenue, it also reported a profit decline. This was due to a drop in the gross profit margin at Theory’s US operation after it “prioritised selling inventory at a reduced price”, as well as a Covid-linked fall in profits from its China-focused Asian operation. Theory Japan, however, reported a large rise in both revenue and profit as department-store customer visits recovered and its decision to strategically build up stocks of strong-selling items proved successful. 

Finally, the PLST brand generated slightly higher revenue and a marginally smaller loss, and its France-based Comptoir des Cotonniers brand reported a decline in revenue and a slightly wider operating loss over the six-month period.