TOKYO — Mazda's sales are rising, but so are its incentives. Unfortunately for the second-tier Japanese automaker, the two trends all but canceled out each other in the latest quarter.
Global sales posted a healthy 7 percent increase in the company's fiscal first quarter ended June 30, generating about ¥14 billion ($126.5 million) in profit. But that wasn't enough.
The higher spiffs combined with exchange rate losses and increased investment in the U.S. retail network to undercut earnings and fuel a 17 percent slide in operating profit.
"That increased incentive spending offset the sales increase," Naoki Kamemura, general manager of financial planning, said Aug. 1 while announcing quarterly earnings results.
Outlays to restructure the U.S. sales network further depressed global operating profit.
Strengthening the U.S. dealership system is a top priority of new CEO Akira Marumoto, who took office in June after five years as head of the company's Americas operations. Mazda has budgeted $90.4 million for retail network improvements in the current fiscal year ending March 31, 2019. It spent $15.4 million in the fiscal first quarter.
Mazda is also in the middle of a global dealership upgrade, but the campaign is especially important in North America, Mazda's biggest and most profitable market.
In the U.S., it is pressing for the renovation or construction of 300 next-generation stores by 2021. From 2018 to 2021, Mazda will invest $362 million to revitalize that U.S. network.
About 40 of Mazda's 582 U.S. dealerships already had been overhauled by the end of March. Mazda hopes fresh looks improve customer satisfaction and stoke sales.
But the investment in the future is also weighing on current earnings. Operating profit declined 17 percent to $298.9 million in the April-June period, and net income fell 44 percent to $186.4 million, the company said.
The backslide came even as revenue increased 8.9 percent to $7.89 billion and worldwide retail sales expanded 7 percent to 403,000 vehicles in the three-month period.
Sales in North America rose 8.9 percent to 116,000 vehicles in the latest quarter, while regional operating profit nearly doubled to $118.4 million.
Mazda is revamping its dealer network now so that it will be ready for what the company hopes will be a surge in U.S. sales once a new factory in Alabama comes online. The $1.6 billion assembly plant, jointly built with Toyota Motor Corp., is slated to open in 2021. It will add 150,000 units of capacity to Mazda — all of which will be devoted to a new crossover for the U.S.
Mazda kept its outlook unchanged for the current fiscal year ending March 31, 2019. It expects operating profit to fall 28 percent and net income to decline 29 percent, mostly on the back of deteriorating foreign exchange rates.
Naoto Okamura contributed to this report.