Uniqlo owner expected to post 30% profit rise, as investors eye China results

3:34 am Tuesday, April 11th, 2023

By Rocky Swift

TOKYO (Reuters) – Second-quarter results from Japan’s Fast Retailing Co, owner of clothing brand Uniqlo, will on Thursday offer a window into how rapidly demand in China is recovering after the lifting of pandemic curbs.

The company, Japan’s biggest retailer, reported a 2% dip in operating profit in the first quarter, partly due to lingering effects of COVID-19 restrictions in China, its biggest overseas market. China scrapped most of its COVID curbs at the end of last year and reopened to tourists last month.

Investors will also be looking at how significant wage increases announced in January are impacting the company’s bottom line.

Fast Retailing’s operating profit for the three months ended in February is expected to rise 30% to 91 billion yen ($682 million), according to an average of seven analyst estimates from Refinitiv.

For the full year, analysts are expecting profit to reach 347 billion yen, 17% higher than the record earnings achieved last year.

The company, founded by Japan’s richest man, Tadashi Yanai, has nearly 900 Uniqlo stores in China, making it a bellwether for global retailers in the world’s second-biggest economy.

As COVID curbs dampened Chinese operations over the past few years, Fast Retailing put increased focus on its North American and European businesses.

“We see significant risks to the company’s valuation, especially with the China rebound taking longer than expected,” LightStream Research analyst Oshadhi Kumarasiri wrote in a report on the Smartkarma platform.

“In addition, Uniqlo’s revenue growth seems to have plateaued in North America and Europe and there is also margin pressure from wage hikes and inventory growth.”

Fast Retailing said it would raise wages by as much as 40%, sending shockwaves throughout corporate Japan. The company estimated at the time that overall personnel costs in Japan would rise about 15% from the previous year.

($1 = 133.4100 yen)

(Reporting by Rocky Swift; Editing by Emelia Sithole-Matarise)