U.S. News

Fast Retailing Cuts Forecast Again, Mum on Barneys

Reuters
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Japanese clothing retailer Fast Retailing said its quarterly net profit fell 3% and it cut its full-year forecast for a third time due to losses at subsidiaries and a recent slump in same-store sales.

Fast Retailing last week unveiled a $900 million bid for Jones Apparel Group's upscale clothing chain Barneys New York, underscoring its
determination to become a global player and seek growth outside its mature home market.

An executive at the company, which operates the Uniqlo casual apparel chain, sidestepped questions about whether it would sweeten its offer if rival bidder Istithmar, a Dubai-owned private equity firm, were to raise its $825 million bid.

"Generally speaking, when we do M&A we do so with an appropriate acquisition price in mind. I cannot comment specifically on Barneys at this time," Executive Vice President Masa Matsushita told a news conference.

Fast Retailing said that its consolidated net profit came to 8.9 billion yen ($72.8 million) in the three months to May 31, down from 9.1 billion yen in the same quarter a year earlier. The drop came despite an 18% jump in sales to 127 billion yen.

Same-store sales at Uniqlo shops rose 3.7% in March-May, though the third quarter ended on a sour note with a 2.1% slump in May when cooler weather discouraged some shoppers from going out, while enthusiasm for the country's "cool biz" campaign to promote casual clothing at work fizzled out. Sales slipped a further 1.3% in June.

Rising costs have also weighed on profitability. The ratio of selling, general and administrative expenses to sales rose 1.9 percentage points to 32.7% in the third quarter, reflecting costs to turn staff into full-time employees and outlays for new hires. Advertising costs also ticked up.

For the full year to August, the company cut its forecast for net profit by 4% to 36.86 billion yen, its third downward revision this business year. A consensus projection in a poll of 15 analysts by Reuters Estimates was 37.8 billion yen.

In addition to sluggish sales in the past two months, the forecast cut also reflects losses at G.U. Co. Ltd., a unit that sells cheaper but similar clothing to Uniqlo, and Onezone Corp., a shoe store chain.

Having built up an empire of more than 700 stores in Japan, Fast Retailing has pledged to invest up to 400 billion yen over the next three years on acquisitions in a bid to boost its global presence and double annual sales to 1 trillion yen by 2010.

The company gained a foothold in the U.S. market last year when it opened its first Uniqlo store in New York City. But its business there is still in the red, losing about 2 billion yen on an operating basis in the nine months to the end of May.

In China, Fast Retailing is interested in a stake in fashion retailer Giordano, along with Hong Kong-listed Esprit and Spain's Zara , the South China Morning Post reported earlier this month.

Fast Retailing spokesman Terunobu Aono declined to comment on whether the company was interested in a stake in Giordano.