Fast Retailing delivered first-half results that were impressive, showing strength globally, a rare find in our retail coverage list. The continued expansion across geographies allows the company to penetrate new audiences, and smart acquisitions like J Brand earlier this year follow suit, helping Fast Retailing reach the high-end consumer and high-end retailers in the United States en masse, previously uncharted waters for this company.
In the first half of fiscal 2013, total group sales rose 17% year over year, to JPY 614.8 billion. UNIQLO Japan’s revenue grew 6.2% to JPY 387.2 billion with same-store sales of 3.6%, while UNIQLO International’s sales rose 65% to JPY 130.6 billion, helped by the strong performance of Asian locations (China, Hong Kong, Taiwan, and South Korea) and a significantly increased store base. The global brands segment offered double-digit sales growth; we’d expect this segment to perform relatively well as it adds J Brand to its offerings this year, which represented roughly 5% of the segment’s previous sales. The gross margin contracted 170 basis points to 49.4%, as UNIQLO Japan experienced more discounting due to more and longer limited-period sales and excess winter inventory.
The outlook remains promising for the company, with 2013 sales expected to surpass JPY 1 trillion for the first time (increasing 19% year over year). Additionally, management anticipates operating income should rise more than 16%, to JPY 147.5 billion and net income should rise 28%, to JPY 91.5 billion. The store base is expected to rise to 2,456 locations by fiscal year end, with more than 230 new global locations opening this year, with two-thirds of these expected to come via UNIQLO International and the remainder largely through the Global Brands segment.
With the first half of the year offering the majority of the company’s earnings, we think the estimates the management team has laid out seem achievable, especially since new locations should help drive unit volume significantly overseas (outside of Japan). The leadership continues to be open to acquisitions, and we think if it continues to purchase well-known brands, like J Brand, there could be upside to our top and bottom line estimates.
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