Descente profit cut 82% amid South Korean embargo of Japanese products
Sports apparel-maker Descente Ltd. sharply cut its net profit outlook for 2019, hit by a widespread embargo of Japanese goods in its South Korean market.
The seller of brands Umbro, Le Coq Sportif and Munsingwear said he expects group net profit to plummet by 82.3 per cent to 700 million yen (6.4 million dollars) in the year up to March 2020, down from his previous forecast of 5.30 billion yen.
The company based in Osaka said it would report a net loss of 1.51 billion yen in the second half that began in October due to slumping sales in South Korea, which accounted for about half of its annual sales.
“We saw a severe drop in sales. We didn’t think it would be that bad, “said the president of Descente Shuichi Koseki at a news conference in Osaka, referring to a 30% drop in sales in the second quarter a year earlier.
Descente joins many Japanese companies in disclosing lower sales in South Korea after Japan’s tighter controls on high-tech chemicals exports of hydrogen fluoride, and fluorinated polyimide sent bilateral ties to its neighbour in July to its worst level in years, prompting a campaign to boycott Japanese goods.
Chemicals are essential for the manufacture of electronic circuit boards as well as smartphone displays, which are vital businesses for South Korean manufacturers that are competitive in price.
Uniqlo casual clothing chain operator Fast Retailing Co. said last month that South Korea’s sales fell “substantially” in July and August.
Japanese carmakers saw a 60% drop in the country’s vehicle sales a year earlier in September, while Japan’s beer shipments to South Korea fell by 99.9% on the same month’s value.
The sportswear manufacturer revised its full-year operating profit projection to 1.10 billion yen from 8.00 billion yen and cut its group sales outlook from 144.00 billion yen to 130.80 billion yen.
In the first half, net profit for the group dropped 3.5 per cent from a year earlier to 2.21 billion yen, and operating profit for the group fell 8.2 per cent to 2.64 billion yen due in part to weaker Asian sales.
Group sales in the first half decreased by 1.3 per cent to 65.93 billion yen.
The results of the first half do not reflect the impact of the South Korean boycott campaign because the accounting period of the local subsidiary Descente Korea Ltd. starts from January.