Uniqlo finds success abroad, downplays trade war risk

by Lisa Du and Maiko Takahashi

Bloomberg

Fast Retailing Co. shares climbed the most since January on signs that the retailer’s steady expansion in overseas markets, now headlined by the face of Roger Federer, is bearing fruit even in the face of risks from an escalating trade dispute.

The Uniqlo operator drew on robust overseas sales and a successful early summer line to help boost third-quarter results. Operating profit climbed to ¥68 billion ($609 million) in the three months ended May 31, according to a company statement Thursday. That compares with estimates of ¥59 billion from analysts.

The company’s stock is up 15 percent so far this year, compared with a 5.3 percent drop for the benchmark Topix index.

Billionaire Chairman Tadashi Yanai, who has roped in tennis star Federer as the brand ambassador for Uniqlo, has been investing heavily on expanding overseas — especially in China and more recently in Europe. While the company stands to benefit from the global push, the clothing brand could face risks from an uncertain global economy as the trade war between the U.S. and China heats up.

While the back-and-forth trade spat between Beijing and Washington has created uncertainty in the global economy, Chief Financial Officer Takeshi Okazaki said the dispute has a limited impact on the company’s supply chain.

“We think it’s more likely that they won’t put a tariff on clothing from China, because it won’t be a good thing for American consumers,” Okazaki said in Tokyo on Thursday. “We’re sure the American government understands that. If they do put a tariff, we are making preparations for it.”

Fast Retailing has a network of over 100 factories in China, where it produces clothing to be shipped and sold around the world. Analysts say one risk is if the trade war escalates and causes shoppers to pull back in one of the company’s most important markets.

“If we do see deterioration of Chinese consumer confidence because of trade wars, you could see a bit of a drag on sales, ” Thomas Jastrzab, a Bloomberg Intelligence consumer analyst, said before the earnings announcement.

Okazaki said the company is watching the situation in China closely, but noted that Fast Retailing’s business is more affected by the weather than by economic conditions.

Overseas same-store sales showed double-digit growth during the third quarter, while Uniqlo’s domestic operations also were solid, with a 5.4 percent expansion in comparable-store revenue. Fast Retailing credited the popularity of its spring and summer items such as AIRism, a breathable base clothing layer for hot weather.

Despite the healthy results in Uniqlo’s home market in the latest quarter, the domestic business typically has been a drag on growth, as an aging population provides limited opportunity for expansion. The company said it expects fourth-quarter profits at its domestic segment to be lower than a year earlier because of strong discounting in response to underperforming sales in June and July.