Political flare-ups in Asia are putting the brakes on Fast Retailing Co’s overseas momentum, as the Uniqlo operator reported its worst quarterly revenue decline in a decade for its international segment.
Asia’s largest retailer has long counted on overseas expansion to power its growth in the face of a weak Japanese market.
Now that strategy is coming up against the political protests in Hong Kong, as well as a trade spat between Japan and South Korea.
Fast Retailing reported a 3.6 percent drop in first-quarter sales for Uniqlo’s international segment, citing “significant declines” in those two trouble spots.
Except for a minuscule decrease of 0.2 percent in 2017, it was the first quarterly drop for the segment in 10 years, data compiled by Bloomberg showed.
Operating profit for the international business fell 28 percent, for the first quarterly earnings decline since 2016.
Fast Retailing, which also suffered from weak sales in Japan during the quarter, lowered its full-year outlook for operating profit by 11 percent.
For the guidance change, it pointed to the unrest overseas, as well as a depreciation of the yuan.
“The overseas growth comes with higher risk, but risk is always difficult to weigh until it hits you in the face,” Jefferies Group LLC analyst Mike Allen wrote in a note to investors.
The pro-democracy protests in Hong Kong, which started in June last year and have at times turned violent, have left the territory’s economy on the verge of its first annual contraction in a decade and caused retail sales to plunge 24 percent in November last year.
The unrest has rattled international brands from Levi Strauss & Co to Tiffany & Co.
While the situation in Hong Kong has had a broad impact on retailers, the damage Uniqlo is seeing from a trade spat between Tokyo and Seoul has been more unique.
Fast Retailing has become one of the biggest targets of a South Korean consumer boycott of Japanese products that began in July last year.
“The [South] Korean business has continued to decline and there has been a bigger impact on sales,” Fast Retailing chief financial officer Takeshi Okazaki said at a briefing in Tokyo on Thursday. “[South] Korea is a very important segment for us and it’s not clear how long this situation will continue.”
The nation has the second-largest number of Uniqlo stores overseas after China.
Other overseas markets are holding up. China — a key driver of growth in the past — performed well, as did Southeast Asian nations, the company said.
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