FAST Retailing’s global sales push is keeping investors confident that shares of the Uniqlo owner can extend double-digit gains that have already driven valuations above those of its global peers.
Asia’s biggest apparel maker has climbed 15 per cent this year to become the best-performer among 10 other clothing companies worldwide that have a market value of more than US$10 billion, according to data compiled by Bloomberg. Fast Retailing’s price-to-earnings ratio is about 38, exceeding levels for Lululemon Athletica in the US and Moncler SpA in Italy.
“Even if the short-term valuation is high, considering its long-term growth potential, the investment is attractive,” Masakazu Takeda, a portfolio manager at Sparx Asia Investment Advisors who runs the Hennessy Japan Fund in Hong Kong, wrote in a note. “There is still room for growth, and I would like to expect an expansion of market capitalisation.”
Fast Retailing’s share price of about 40,000 yen (S$361) makes it one of the most expensive stocks on the Nikkei 225 Stock Average.
With the stock’s weight on the benchmark around 10 per cent, the blue-chip gauge’s ability to reach an all-time high may partly depend on the company’s progress toward achieving its goal to triple current sales to 10 trillion yen and shift focus to overseas markets.
Chief executive officer Tadashi Yanai’s strategy is starting to bear fruit.
Operating profit for the first fiscal quarter topped analysts’ average projections on robust sales in North America and Europe. In contrast, disappointing results at Hennes & Mauritz and Adidas AG have driven their shares lower this year.
Fast Retailing announced last year that it expects to open 80 stores in China and roughly 60 new stores each year in South-east Asia, India, and the Australian region. About 56 per cent of its revenue came from overseas in the fiscal year for 2023, according to data compiled by Bloomberg.
Still, the stock may face headwinds should gains push it further above the Nikkei 225’s weight limit for its constituents, according to Brian Freitas of Periscope Analytics. “Barring a sharp drop in the stock from now to end-July, there will be selling in Fast Retailing at the September re-balance as index weights will be capped at 10 per cent,” he wrote in a note on Smartkarma.
In the longer term, expanding revenue and profit in overseas markets for the Uniqlo chain may be key growth drivers for the fiscal year ending August 2026, according to Bloomberg Intelligence analysts Catherine Lim and Trini Tan.
Overseas earnings might lead to a 44 per cent jump in operating profit by 2026 compared with 2023, they wrote, citing the Bloomberg Interactive Calculator.
“While within Japan we cannot expect much growth, the opportunity is Europe, the US, but especially South-east Asia and South Asia,” said Michael Causton, an analyst at JapanConsuming who publishes on Smartkarma. “Uniqlo still has low market share overseas, outside China, and so we are bullish on that.” BLOOMBERG
