Focus On FMCG: The First Three Quarters' Financial Report Shows That China'S Performance Is Low, And The US Market Is Turning From Deficit To Profit

Yuanqi capital has previously mentioned that, similar to Muji, which is struggling in the US market, "UNIQLO has about 50 stores in the market... The company's business in the United States has been in a state of loss for a long time". In contrast, Chinese consumers are more than happy with it. However, according to the results for the first three quarters of 2022 released by UNIQLO's parent company, fast retailing group, on July 14, the situation reversed in that quarter.

In the nine months ending May 31, 2022, fast retailing group's revenue increased by 3.9% to 17651 trillion yen over the same period last year, and operating profit increased by 19% to 271 billion yen - a record high in both Japanese yen and local currency. Net profit attributable to the parent increased by 57.1% to yen 237.8 billion.

It should be noted that foreign exchange earnings of jpy77.8 billion were recorded on foreign currency denominated assets and other items as the yen depreciated by about jpy18 during the reporting period, from y109.9 to y128.2 at the beginning of the period. This means that the recent depreciation of the yen may have boosted Japanese retailers' profits. However, even excluding the impact of foreign exchange, the group's profit still reached a record high.

　　 Fast retailing group's performance in the first three quarters (source: Fast Retailing)

In Japan's local market, due to the shortage of best-selling goods, UNIQLO's revenue and profits declined in the first three quarters. Revenue shrank 5.1% to 640.9 billion yen, while operating profit fell 0.4% to 119 billion yen. However, with the outbreak of the new museum under control, in the third quarter from March to may 2022, UNIQLO's Japanese market performance was strong, with revenue increasing by 8.7%, operating profit increasing by 76.2% and same store sales increasing by 7.8% year-on-year. In addition, due to the restriction of discount rate, the company's gross profit rate increased by 3.9 percentage points year on year.

In the international market, UNIQLO's revenue and profit increased significantly in the first three quarters, including a year-on-year increase of 13.7% to 841.2 billion yen and 35.8% to 132.7 billion yen.

In the Greater China market, due to the liquidity restrictions brought about by the new museum epidemic, UNIQLO's revenue and profits declined sharply in the first three quarters. Among them, the company was forced to temporarily close 169 stores, mainly in Shanghai, from March to may due to the decline in sales due to limited liquidity. However, the company's sales rose rapidly with the relaxation of travel restrictions, and the performance began to recover in June.

In North America and Europe (excluding Russia), UNIQLO's revenue increased significantly, and both were profitable in the third quarter. European and American consumers favor T-shirts, vests, shorts and other core products. Fast sale group CFO Okazaki pointed out that this change, "classic products are sought after in Europe and the United States, and repeat customers have increased.". In addition, the increment may be related to the company's successful promotion of lifewear concept.

Unlike UNIQLO, due to missed sales opportunities due to manufacturing and distribution delays, fast retailing group's Gu business decreased revenue by 5.1% to 190.5 billion yen in the first three quarters, and operating profit shrank by 26.7% to 17.8 billion yen. Compared with the third quarter, the profit of Gu declined slightly, and the income was limited.

　　 Performance of FMCG sub brands in the first three quarters (source: Fast Retailing)

As of the end of the reporting period, Japan, the mass market, other Asia Pacific regions, North America and Europe accounted for 39.4%, 25.4%, 9.7%, and 8.4%, respectively. On the whole, the revenue and profit of fast sale group increased significantly in the third quarter. In addition to greater China, UNIQLO outperformed forecasts in both the international market and the domestic market in Japan.

Strong results in the third quarter, coupled with the continued depreciation of the yen, led to an increase in FMCG's forecast for fy2022. For the financial year, the group's comprehensive income is expected to increase by 5.5% to 2250 billion yen, and operating profit is expected to increase by 16.5% to 290 billion yen. Compared with the forecast data released in April, revenue and operating profit are expected to increase by 50 billion yen and 20 billion yen respectively. The Group expects the full year return to parent profit to rise 47.2% to 250 billion yen.

In addition, in addition to the expectation that Southeast Asia and Oceania, North America and Europe will continue to strengthen in the fourth quarter, the Group expects that UNIQLO's revenue and profit in Greater China will increase significantly in the fourth quarter as the epidemic restrictions are relaxed. UNIQLO is expected to achieve a small increase in revenue and a substantial increase in operating profit in the second half of fiscal year 2022 in the Japanese market.

According to nikkei.com, the rising prices of raw materials and logistics costs have squeezed the cost space of UNIQLO, which may usher in an increase in the price of conventional autumn and winter commodities such as down and down jackets in the Japanese market, "Affected by the rising costs of transportation, labor and materials, UNIQLO has decided to raise the prices of some products by about 1000 yen. The prices of classic products such as fleece will rise from 1990 yen to 2990 yen, and the price of ultra light down jacket will rise from 5990 yen to 6990 yen.". Kawahara run of Daiwa Securities said, "the price of UNIQLO commodities has been solidified in the Japanese brain, and rising prices may lead to a decline in sales.".