July 12, 2018 / 6:42 AM / 2 months ago

UPDATE 2-Uniqlo owner shines on overseas strength, but cautions Japan profits to slow

* Overseas Uniqlo sales top domestic sales for third quarter

* Overseas Uniqlo profits up 65 pct over 9 months to May

* Domestic Uniqlo profits forecast to fall on discounting

* CFO says would be able to cope amid U.S.-China trade tension (Adds executive comment, Uniqlo Japan outlook)

By Sam Nussey

TOKYO, July 12 (Reuters) - Japan’s Fast Retailing Co reported record quarterly profits on brisk business at its overseas Uniqlo stores, but cautioned profits of the affordable clothing line were set to drop at home amid discounting of summer items.

Hit hard by a chequered recovery in local consumer spending, retailers in Japan have been focusing on overseas markets - a shift that has paid off for Fast Retailing whose offshore Uniqlo stores have outshone those at home for three straight quarters.

The retailer, which is continuing its push to grow abroad, flagged its global ambitions last week when tennis star Roger Federer strode onto the court at Wimbledon in Uniqlo-branded whites, in a major sponsorship deal that is reportedly worth around $30 million annually.

Uniqlo’s international sales rose 24 percent in the third quarter ended May and 28 percent in the first nine months of the year, driven by Asian sales of the brand that offers everything from t-shirts emblazoned with robot cat Doraemon designs to office wear such as shirts and blazers.

The strong sales drove Fast Retailing’s quarterly operating profit up 37 percent to a record 68.4 billion yen ($609 million) and allowed Asia’s biggest clothing retailer to reiterate an all-time high annual profit forecast of 225 billion yen.

CEO Tadashi Yanai sees the retailer’s Asian appeal as key to achieving his ambition to overtake H&M and Zara parent Inditex to become the world’s top apparel retailer.

Fast Retailing has more than 600 Uniqlo stores in China, its top overseas market and main production centre. It is also expanding its presence in Europe and recently said Denmark would be Uniqlo’s ninth country of operation in the region.

Given mounting U.S.-China trade tensions, Fast Retailing is increasing production in other countries, CFO Takeshi Okazaki told reporters at an earnings briefing on Thursday.

In the event of a trade disruption, “it may take some time but we would be able to cope”, he said.

UNIQLO JAPAN Q4 PROFITS TO DROP

Uniqlo’s sales are growing at home too, but at a smaller pace than offshore, with the number of stores steadying in recent years at just over 800 locations. For the third quarter, the brand’s sales in Japan rose 6 percent.

The retailer cautioned Uniqlo profits in the quarter ending August will drop from a year ago amid discounts on summer items.

But Fast Retailing is determined to grow Uniqlo in the local market and is betting on online sales to help achieve that.

Uniqlo’s online sales in Japan were up 33 percent in the quarter, accounting for 7.8 percent of its total domestic sales.

Unlike another of Japan’s top apparel chains, Shimamura Co Ltd, which has just started selling on the Zozotown online mall, Fast Retailing does not want to use third-party sites to grow sales in the country.

Fast Retailing also has ambitions to turn its low-cost chain GU into a second Uniqlo but has struggled to replicate earlier hits such as 990-yen jeans. Discounting at the chain saw operating profit fall 20 percent in the three months to May. ($1 = 112.2400 yen) (Reporting by Sam Nussey; Editing by Himani Sarkar)

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