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Wednesday, 9 January, 2002, 08:20 GMT
Japanese clothing firm flags
One of Uniqlo's hallmark cheap, fashionable fleeces
Shares in the Japanese firm behind the Uniqlo casual clothing brand have dropped sharply after the company issued a profit warning.

Fast Retailing saw its shares fell by their daily limit of 2,000 yen to 10,550 yen - a drop of nearly 16% - and traders say they could fall further.

"The market has been hit over the head again by the realisation that this is not a growth stock anymore," said Takehiko Takachio at Kokusai Asset Management.

The slump was triggered after the company said its profits would fall for the first time in 14 years.

"Sales are projected to fall below our earlier estimate because a Uniqlo boom has calmed down with a reduced amount of purchases per person," said Japan-based Fast Retailing.

Consumer spending in Japan has stalled as the world's second biggest economy grapples with recession. Unemployment is at its highest level since World War Two.

"Our customers' inclination for low prices is increasing," Fast Retailing acknowledged.

Fast reversal

Falling sales at Uniqlo are expected to reduce profits by 24% in the 12 months to August 2002, the company said.

In the past, Fast Retailing's growth has lived up to its name: Its shares rocketed upwards by 2,000% over a two year period, peaking last May.

Factories in China keep costs low

Uniqlo has become known for cheap, good-quality, casual clothing - such as fleeces - with a preference for primary colours, and has often been compared to the GAP brand.

Uniqlo insists it wants to sell to all age-groups and its TV adverts promote the brand as active-wear for 50-year olds as well as twenty-somethings.

Global brand plans

During 2001, it opened its first overseas stores, targeting Britain as part of what it wants to become a chain of 50 UK shops by the end of next year.

"I want to make Uniqlo a global casual clothing brand, like Britain's Marks & Spencer and Gap of the United States," said company president Tadashi Yanai when he unveiled the expansion.

But with a handful of stores in London, overseas sales are still a long way from being able to buffer Fast Retailing against the slowdown in its home market.

So impressive has Fast's past growth been, that news it was about to issue a trading update sent its shares higher on the Tokyo Stock Exchange.

uniqlo clothes
The retailer wants Uniqlo to become a global brand

But the news when it came was of an end to 13 years of expansion.

"Having had a dreadful previous few months, they're basically saying the next few months are going to be no better," said Jeremy Tonkin of Commerzbank Securities in Tokyo.

Food store venture

With eight months of its financial year still to go, Fast cut its sales estimates by 18.8% from its October guidance.

Sales are now expected to be 6.8% lower than the previous financial year, at 390bn yen ($2.9bn; 2.04bn).

Annual profits are seen at 45bn yen, down 24% on the previous year and 33.8% from what was hoped for in August.

Fast said it plans to enter the food business in the autumn, selling mostly fruit and vegetables in specialist stores and via the internet.

In a bid to support its share-price, it will buy back up to 12bn yen of its own shares.

Then, in April, it will increase the number of its shares, which is likely to make them more readily available to private investors.

See also:

08 Dec 00 | Business
Japanese chain targets UK
07 Nov 00 | Business
M&S profits slump
12 Aug 00 | UK
The fall of Gap?
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