FAST RETAILING CO NPV (OTCMKTS:FRCOF) has slashed its profit forecast for the FY2016, by a factor of two. As a result, shareholders have started dumping the stock. The company cited a slowdown in operating income, during the first half, from Uniqlo outlets in Japan, as the main reason for the decision. It should be noted here that the Japanese stock market has only recently made gains, despite FRCOF contributing a negative 145-points to Nikkei. However, the Yen continues to lose strength against the dollar.
One of the main factors that have brought FAST RETAILING to this point is the fact that the company had been opening outlets at an increasing rate. Consequently, the company had been spending more on expansion, rather than focusing on its current stores and addressing customer needs.
Although the actual reason remains to be determined, but it seems that FRCOF has realized its mistake, as its latest statement of cash flows revealed a cut in lease money for new stores. Another possible explanation for the cut is that landlords are asking less for their property. China is probably the next market for Uniqlo stores to expand to, but the market conditions there might be unfavorable for FRCOF’s business model. This is evident by the fact that online sales in China had increased by 49.4%, during 2014. This would mean that people are mostly viewing retail stores as places to view what they want to buy online.
The 1H2016, revealed an increase in revenue for the company, by 28.4%. However, with the large number of outlets, same store sales dropped by 1.9%. FRCFO had been motivated by strong gains in the Japanese economy, to claim that it plans to open 100 outlets every year, in all major cities across the globe. However, with the recent changes in scenario, the company should focus its resources on major outlets, rather than building more of them.
FAST RETAILING CO NPV (OTCMKTS:FRCOF) close at a share price of $246.69, after gaining 0.79% during the April 11 trading session.
