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April 12, 2012 4:41 pm
It looks like it is all in the name. Fast Retailing has enjoyed a very speedy rally indeed. And Uniqlo, the Japanese group’s main brand, produces some unique clothes through its high-tech collaborations on new textiles. But that does not necessarily add up to Fast Retailing actually being a uniquely fast-growing retailer.
The company’s top-line premise is what investors like: affordable clothing meets Asia’s young fashion-conscious middle classes. It expects Uniqlo International, with just over a 10th of sales, to overtake domestic operations (more than two-thirds) by 2015. It should make it if global sales keep rising at their current rate of 70 per cent a year – 10 times the growth of its domestic business.
But profitability on the same scale will be harder. Operating margins in Fast Retailing’s international stores are 13 per cent, compared with 20 per cent back home. Uniqlo also squeezes 15 per cent more sales per store in Japan than it does internationally. And not all success is instant. The New York flagship, opened last October, has been a “roaring success” according to its last annual report. Yet its US operations were lossmaking in the first half of this financial year due to that store’s start-up costs as well as poor sales downtown at its equally new 34th Street megastore.
Since the beginning of December, shares of Fast Retailing have gained 42 per cent, outpacing international peers Hennes & Mauritz and Inditex, and its domestic rivals, by about 30 percentage points each.
Thus Fast Retailing trades at 23 times 2013 earnings, estimates Barclays, compared with 18 and 20 for H&M and Inditex. This company has created fads and suffered their aftermath before (fleeces, late 90s). High p/e retailers can be attractive if current earnings are depressed due to growth capex. But a lot must go right for Fast Retailing now.
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