Fast Retailing's Working Hard to Pull the Look Together

(Bloomberg Gadfly) -- For all the doom and gloom around retailing, one of the largest apparel makers globally is proving the naysayers wrong.

Fast Retailing Co. raised its full-year operating profit forecast Thursday as an overseas sales push and strong domestic demand boosted earnings. The Japanese owner of Uniqlo and J Brand is benefiting from a revival in local sentiment. With more than 800 stores around the country, profit margins rose almost 2 percentage points for the first half ended Feb. 28, while operating income jumped 30 percent from the same period a year earlier.

Fast is getting its house in order. After demand during an anniversary sale crashed its website last year, Fast plowed in cash to overhaul its systems. Online sales for Uniqlo increased 32 percent in the second quarter, despite stiff competition from internet-only operators like Asos Plc. While e-commerce isn't as huge in Japan as it is elsewhere and Fast's outage stemmed from outsize demand, a good problem to have, the company's quick response is to be applauded.

Fast has also learned a few lessons from its European rivals. As Zara parent Inditex SA knows all too well, responding quickly to ever-changing tastes is paramount.

Fast has adopted a two-pronged strategy, positioning its GU brand as the go-to label for more fashion-forward consumers. If executed well, GU could be Fast's answer to shoppers who drift from retailer to retailer chasing trends.

Uniqlo, meanwhile, remains Fast's mainstay for up-to-date basics. The brand also has a semi custom-made line, and collaborates with haute-couture names.

Offshore markets are becoming a bigger driver, too. Uniqlo's first-half operating profit outside of Japan rose 66 percent. It seems Fast has found its sweet spot on pricing for international consumers, and has set its sights on further expansion in Southeast Asia, South Korea and China, where it already has more than 600 stores.

There is always the risk of expanding too quickly. Fast has faced issues before, including inadequate inventory and bad distribution channel management, and it's still working on how to cope with excess demand. While it's cut costs, expenses such as rent and labor are trending higher.

For now, at least, Fast's foreign forays are working. The company, like many in Japan, also maintains a comfortable cash buffer -- Chief Financial Officer Takeshi Okazaki has said it feels "obliged to maintain an ample cash balance."

That may not please investors hoping for more of a dividend -- Fast did raise its full-year forecast in that regard -- but the reality is, this cash has allowed it to respond more quickly to the fickle world of fashion. The key now will be making sure it can pull the look together.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

©2018 Bloomberg L.P.

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