TOKYO: Toyota Motor Corp. expects a weaker yen to lift net profit to a record high this year, offsetting sluggishness in the US, the carmaker’s biggest market where it has been grappling with lower sales and steeper discounting.
Japan’s biggest carmaker on Tuesday forecast a 31 percent profit jump for the year through March to 2.4 trillion yen ($22.02 billion), on the back of an expected 10 percent rise in operating profit to 2.2 trillion yen — up from previous forecasts of 1.95 trillion yen and 2.0 trillion yen, respectively.
A year after a strong domestic currency wiped out nearly 1 trillion yen from Toyota’s operating profit, the automaker this year sees a positive currency impact of 240 billion yen, softening the blow of expected lower sales in Japan, North America, and Asia.
Reducing development costs by increasing integration between design and engineering teams, and lower expenses for quality-related issues including product recalls, were helping to cut overall costs, but Executive Vice President Koji Kobayashi said more work needed to be done to buffer against yen moves.
“We need to become more resilient to currency volatility,” Kobayashi told reporters at a briefing.
“Even though we have upgraded our forecast ... excluding the currency impact, our operating profit would be down 55 billion yen on the year. That’s unacceptable.”
For the third quarter, Toyota posted 673.6 billion yen in operating profit, a 54 percent jump from a year earlier and its best quarterly operating profit in two years.
On a consolidated basis, Toyota sold 2.29 million vehicles globally in October-December, largely flat from a year earlier. Sales in Japan rose 3.3 percent but fell 1.3 percent in North America, where the carmaker is struggling with heavy discounting as it tries to produce and sell larger vehicles.
Central and South America and other regions were a bright spot for sales, which rose 6.2 percent, while in Europe they rose 1.7 percent.
Operating profit in North America tumbled 73.3 percent.
Toyota has had a bumpy ride in the US, its biggest market where it trails only General Motors and Ford Motor in terms of sales, as carmakers continue to angle for higher market share as overall sales retreat from a record high hit in 2016.
Profitability in the US market is key for Toyota to help generate funds as it invests heavily in new technologies, including self-driving functions, electric cars and mobility services.
As US drivers continue to gravitate toward larger pick-up trucks and SUVs over sedans and hatchbacks, Toyota, best known for its Camry and Corolla sedans, has been scrambling to shift more production from cars to trucks.
Meanwhile, it sold its sedans at hefty discounts for much of 2017 to bolster demand for models like the Camry, while also raising incentives on its SUVs and trucks including its popular RAV4, to remain competitive in the US market.
This has lifted overall marketing costs per vehicle by 10 percent in 2017 from 2016, according to figures from Autodata, and with marketing costs a key drag on the company’s profits.
Toyota expects record net profit as weaker yen offsets US discounting
Toyota expects record net profit as weaker yen offsets US discounting
Global brands shut Middle East stores as conflict causes chaos
- Luxury brands and retailers close stores in Middle East
- Conflict threatens the region that has been luxury’s fastest growing
- Mass-market retailers monitor situation, adjust operations in region
PARIS: In Dubai and other major Middle Eastern shopping hubs, many stores are closed or operating with a skeleton staff as the escalating conflict in the region causes chaos for businesses and travel.
The US-Israeli air war against Iran expanded on Monday with no end in sight, with Tehran firing missiles and drones at Gulf states as it retaliates for a weekend of bombing that killed Iran’s supreme leader and reportedly killed scores of Iranian civilians, including a strike on a girls’ primary school.
Chalhoub Group, which runs 900 stores for brands from Versace and Jimmy Choo to Sephora across the region, said its stores in Bahrain were closed, while other markets, including the UAE, Saudi Arabia, and Jordan remained open though staff attendance was “voluntary.”
“We operate with a lean team formed of members who volunteered and feel comfortable to come to the store,” Chalhoub’s Vice President of Communications Lynn al Khatib told Reuters, adding that the company’s leadership team personally visited Dubai Mall and Mall of the Emirates on Monday morning to check in with workers.
E-commerce giant Amazon closed its fulfillment center operations in Abu Dhabi, suspended deliveries across the region and instructed its employees in Saudi Arabia and Jordan to remain indoors, Business Insider reported on Monday, citing an internal memo.
Gucci-owner Kering said its stores were temporarily closed in the UAE, Kuwait, Bahrain and Qatar and it has suspended travel to the Middle East.
Luxury growth engine under threat
Shares in luxury groups LVMH, Hermes, and Cartier-owner Richemont were down 4 percent to 5.7 percent on Monday afternoon as investors digested the knock-on impacts of the conflict.
The Middle East still accounts for a small share of global spending on luxury — between 5 percent and 10 percent, according to RBC analyst Piral Dadhania. But the region was “luxury’s brightest performer” last year, according to consultancy Bain, while sales of expensive handbags have stalled in the rest of the world.
Now, shuttered airports have put an abrupt stop to tourism flows into the region and missile strikes — including one that damaged Dubai’s five-star Fairmont Palm hotel — are likely to dissuade travelers, particularly if the conflict drags on.
“If you assume that it’s a $5 billion to $6 billion (travel retail) market and let’s say it’s going to be shut down for a month, we are talking about hundreds of millions of dollars that are definitely at risk,” said Victor Dijon, senior partner at consultancy Kearney.
If Middle Eastern shoppers cannot travel to Paris or Milan, that could also hurt luxury sales in Europe, he added.
Luxury brands have been investing in lavish new stores and exclusive events across the region. Cartier unveiled a “high-jewelry” exhibition in Dubai’s Keturah Park just days before the conflict started.
Cartier and Richemont did not reply to requests for comment.
Luxury conglomerate LVMH has also bet big on the region. Last month, its flagship brand Louis Vuitton staged an exhibition at the Jumeirah Marsa Al Arab hotel, and beauty retailer Sephora launched its first Saudi beauty brand.
LVMH does not report specific figures for the region, but in January Chief Financial Officer Cecile Cabanis said the Middle East has been “displaying significant growth.” LVMH did not reply to a request for comment on how its business may be impacted by the conflict.
The Middle East has also attracted new investment from mass-market players. Budget fashion retailer Primark said in January that it plans to open three stores in Dubai in March, April and May, followed by stores in Bahrain and Qatar by the end of the year.
“Primark is set to open its first store in Dubai at the end of March but clearly this is a fast-moving situation which we are monitoring closely,” a spokesperson for Primark-owner Associated British Foods said.
Apple stores in Dubai will remain closed until Thursday morning, the company’s website showed, while Swedish fast-fashion retailer H&M said its stores in Bahrain and Israel are closed.
Consumer goods group Reckitt has told all employees in the Middle East to work from home, temporarily closed its Bahrain manufacturing site and suspended all business travel to the region until further notice.
