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Fast Retailing Profit Drops 35% as Uniqlo Sales Slip

Fast Retailing Co., Asia’s largest clothing chain, reported a 35 percent decline in first-quarter profit after sales fell at its Uniqlo stores in Japan.

Net income for the three months ended November dropped to 22.7 billion yen ($273 million) as revenue fell 4.7 percent to 251 billion yen, the Yamaguchi, Japan-based company said today in a statement. Its full-year sales forecast was cut 1.2 percent to 846 billion yen.

President Tadashi Yanai predicts net income will fall for the first time in four years after attempts to compete in trendy clothing with Inditex SA’s Zara and Hennes & Mauritz AB’s H&M brands contributed to a 26 percent drop in Fast Retailing’s market value last year. Fast Retailing, which has stores in countries including China and France, is returning its focus to basic wear and offering discounts in Japan, which accounts for more than 80 percent of the company’s global sales.

“Japan growth will be limited,” Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., which manages $3 billion, said before the announcement. “A lot of the growth will have to come from overseas.”

‘Growth Driver’

Uniqlo sales overseas rose 29 percent to 26.8 billion yen in the company’s fiscal first quarter, boosted by the opening of 11 stores, Fast Retailing said. “We will speed up opening outlets in Asia as our growth driver,” Chief Financial Officer Hidetsugu Onishi said at a press conference in Tokyo today.

Fast Retailing is expanding abroad to reduce its reliance on Japan and reach a goal of 5 trillion yen in annual sales by 2020. The company opened its first Uniqlo store in Taiwan in October and added one in Malaysia in November.

Fast Retailing fell 1.2 percent to 12,120 yen at the 3 p.m. close on the Tokyo Stock Exchange before the company released earnings. The stock’s 26 percent drop in 2010 made Fast Retailing the worst-performing retailer in the benchmark Nikkei 225 Stock Average.

Sales at Japan Uniqlo stores open more than a year are forecast to drop 5.7 percent in the 12 months ending August, Fast Retailing said in a statement. It had in October forecast a 4.7 percent full-year decline.

Aeon, Shimamura

The retailer maintained its forecast of a 17 percent decline in full-year profit to 51 billion yen.

Sales at Uniqlo stores open at least a year in Japan fell 12 percent in the three months ended November, the company said Dec. 2. Besides Zara and H&M, Uniqlo faces competition from Japanese rivals Aeon Co. and Shimamura Co., which are selling thermal products similar to its Heattech range.

Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, fell 18 percent to 49.9 billion yen. The clothing chain reduced the price of Heattech turtlenecks by 34 percent to 990 yen and that of Ultra Light Down jackets by 33 percent to 3,990 yen during a four-day promotion campaign in November.

Apparel companies face rising prices for raw materials such as cotton and synthetic fiber. The price of cotton, which surged 92 percent last year on ICE Futures U.S. in New York, rose to the highest price in more than two weeks today, as crop damage from floodwaters widened in Australia, the world’s fourth-largest exporter.

The company will further reduce full-year selling, general and administrative expenses by 7 billion yen than previously planned, it said in the statement. The earnings forecast reflects higher costs of raw materials for this fiscal year, Onishi said.

Fast Retailing plans to open its second U.S. store on New York’s Fifth Avenue and its first in Thailand later this year. The company also owns brands including Theory, Comptoir Des Cotonniers and Princesse tam.tam.

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