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UPDATE 2-Fast Retailing says Japan price hikes 'unthinkable' as wages stagnate
April 13, 2017 / 6:57 AM / 7 months ago

UPDATE 2-Fast Retailing says Japan price hikes 'unthinkable' as wages stagnate

* Q2 operating profit jumps to 42.1 bln yen, beats consensus

* Profit for first half up, but revenue almost flat

* Keeps FY operating profit view unchanged at 175 bln yen (Recasts, adds CEO’s comments on prices)

By Chris Gallagher and Sam Nussey

TOKYO, April 13 (Reuters) - Japan’s Fast Retailing Co Ltd , the owner of cheap-and-cheerful clothing chain Uniqlo, said raising prices at home was “unthinkable” with weak wages continuing to sap demand amid the country’s long struggle to overcome deflation.

Prime Minister Shinzo Abe’s government is keen for Japan Inc to hike salaries in a bid to support the economy and overcome almost two decades of growth-sapping deflation, but real wages have been largely flat. This has dragged on consumer confidence, prompting retailers to offer products for less and cut expenses.

“It is unthinkable for us to raise prices at this stage,” Fast Retailing Chief Executive Tadashi Yanai told reporters at an earnings briefing on Thursday, after earlier reporting a jump in profits but virtually flat revenues.

“Wages in Japan unfortunately have not risen enough.”

Yanai built his apparel empire during the height of Japan’s deflation days, with its low-cost wear making Uniqlo something of a poster child for deflation, but raised prices across the board in 2014 as the value of the yen plummeted.

That backfired as shoppers balked at higher prices, eroding profits, and the firm had to resort to cuts the following year.

The retailer’s operating profit jumped 32 percent to 130.7 billion yen ($1.2 billion) over the six months ended February, but revenue gained a mere 0.6 percent to 1.02 trillion yen.

It reiterated its operating profit forecast for the year to August at a record high of 175 billion yen, although this is below analysts’ expectations of about 179 billion yen.

In Japan, Uniqlo operating profit rose 7.3 percent during the six months, while sales gained just 0.3 percent.

Overseas, Yanai has been leading Fast Retailing on a rapid expansion with the goal of eventually overtaking Zara-owner Inditex SA and Hennes & Mauritz AB (H&M) as the world’s top apparel retailer.

Uniqlo, known for its HeatTech fabric technology and rainbow coloured-basics, opened its 1,000th overseas store this fiscal year. That is more than triple the number of stores the retailer had just five years ago.

In the September-February first half, Uniqlo’s overseas operating profit surged 66 percent, led by Greater China and Southeast Asia, but sales inched up 0.9 percent after accounting for a stronger yen compared with the same period last year.

Fast Retailing said the yen averaged 108.7 per dollar in the September-February period, stronger than 120.7 a year ago.

Fast Retailing shares are down about 17 percent year to date, while the broader Topix index is down more than 3 percent. The stock closed down about a percent ahead of results on Thursday, versus a 0.8 percent drop in the benchmark. ($1 = 109.0200 yen) (Reporting by Chris Gallagher and Sam Nussey; Editing by Himani Sarkar)

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