Bloomberg News

Fast Retailing May Buy Bigger Rival in U.S., Europe on Yen

November 08, 2011

(Updates with closing share prices in ninth paragraph.)

Nov. 7 (Bloomberg) -- Fast Retailing Co., Asia’s largest clothing chain, may buy a bigger rival in the U.S. or Europe after the yen’s advance to a postwar high against the dollar boosted the Japanese company’s purchasing power.

“The yen strength and anemic stock markets make this a very good opportunity for M&A,” Chief Executive Officer Tadashi Yanai, 62, said in a Nov. 4 interview in Tokyo. “It won’t be something small, but a company of equal size or bigger.”

The billionaire aims to take advantage of the yen’s climb to expand outside Japan, where an unexpectedly long summer damped demand for fall and winter clothing, contributing to a 12 percent decline in profit in the year through August. Fast Retailing opened two New York stores last month and aims to be the world’s top clothing retailer, targeting a sixfold jump in sales from last year to 5 trillion yen ($64 billion) by 2020.

“If there is a chance to do M&A in the future, we’re thinking of doing it,” said Yanai, who turned his father’s tailoring business into a company with a market value of 1.4 trillion yen, making him Japan’s second-richest person.

Fast Retailing, the second-biggest gainer on the Nikkei 225 Stock Average in the past five years, “does not need any brands” and isn’t considering companies such as Esprit Holdings Ltd., Yanai said. Polo Ralph Lauren Corp. probably won’t agree to an acquisition, according to Yanai.

Overseas Sales

“The fact that they are starting to talk about M&A means that they see their U.S. expansion as a success and have a clearer picture on future development,” said Mikihiko Yamato, a research partner at JI Asia. “It is a positive sign.”

Fast Retailing has said it intends to boost overseas sales to be greater than domestic revenue by 2015 as it expands in China, Southeast Asia and the U.S., competing with Inditex SA’s Zara, Hennes & Mauritz AB, and Gap Inc. Sales at Uniqlo stores in Japan that have been open more than a year dropped for a third straight month in October.

Making purchases was one of the ways the company was “investing for the future,” Yanai said in September. He remains Fast Retailing’s biggest shareholder with a 22 percent stake, according to data compiled by Bloomberg.

Fast Retailing has gained about 26 percent in the past five years. In dollar terms, its market value has soared 90 percent. The stock fell 0.2 percent to 13,390 yen as of the 3 p.m. close of trading in Tokyo, paring its advance this year to 2.8 percent, compared with a 14 percent drop for the Nikkei 225 and a 17 percent slide for the broader Topix index.

May List Overseas

Yanai said the company may also list overseas “since the Japanese equity market lacks growth.” He didn’t give a timeframe for any share sales.

“Listing in the U.S. may be good for doing a certain amount of business there,” he said. “It may also be good to list in Hong Kong or Singapore.”

The yen on Oct. 31 hit a post-World War II high of 75.35 against the dollar before the government intervened in the currency markets. The Japanese currency traded at 78.24 to the dollar on Nov. 4.

Fast Retailing had 202 billion yen in cash and short- term investments in August, the highest level since at least 2002, according to data compiled by Bloomberg.

The company bought out apparel maker Link Theory in two transactions in 2009 for $371 million after purchasing a minority stake in 2004, according to data compiled by Bloomberg. That’s Fast Retailing’s biggest acquisition to date, the data show.

Profit Outlook

Sales will probably jump 18 percent to 965 billion yen in the fiscal year ending Aug. 31, the clothing retailer said Oct. 12 in a statement. Profit is likely to rise 31 percent to 71 billion yen in the fiscal year.

Fast Retailing’s overseas sales comprised 18 percent of last year’s 820 billion yen total, compared with a share of about 16 percent in the previous year, according to its annual reports.

Fast Retailing has spent more than $875 million on 22 deals since 2003, according to data compiled by Bloomberg. It acquired a stake in Nelson Finance, owner of the French brand Comptoir des Cotonniers, in 2005, according to its 2010 annual report. Fast Retailing bought a further 64 percent in the company for $192.5 million in 2006, according to data compiled by Bloomberg.

Princesse tam.tam

The clothing retailer also took control of French fashion brand Princesse tam.tam by buying 95 percent of Petit Vehicule for $83 million in 2005, the data show.

The company paid a median of 20.6 times earnings before interest and taxes on seven of its deals, according to data compiled by Bloomberg. That compares with a median of 11.6 times EBIT for 78 transactions in the clothing retail sector in the same period, the data show.

Fast Retailing in August 2007 dropped out of the bidding for New York luxury chain Barneys as Dubai’s Istithmar PJSC offered $942 million, raising its offer twice to counter the Japanese retailer.

Yanai at the time said Fast Retailing would spend as much as 400 billion yen, or about $3.5 billion, on acquisitions to double annual sales to 1 trillion yen by 2010. The company announced deals worth more than $400 million in the period from August 2007 through the end of 2010 and reported sales of 815 trillion yen in its 2010 fiscal year, according to data compiled by Bloomberg.

Focusing on Uniqlo

“We no longer think there is a reason to buy Barneys,” Yanai said. “Currently, we are mainly driving our Uniqlo business, so in that sense, there is no meaning to buy Barneys.”

Fast Retailing aims to build a global production system capable of manufacturing 5 billion articles of clothes yearly by 2020, it said in September.

Yanai, with an estimated wealth of $7.6 billion according to Forbes, quit his job selling kitchen items and men’s clothing at a Jusco supermarket in Japan to join his father’s tailoring business, Ogori Shoji, in 1972. He became president in 1984, when he opened the first Uniqlo store, known at the time as Unique Clothing Warehouse.

Fifth Avenue Store

In Japan, Yanai is second in wealth only to Softbank Corp. Chief Executive Officer Masayoshi Son, according to Forbes.

Fast Retailing aims to make 1 trillion yen of pretax profit, excluding ordinary items by 2020, more than 10 times this fiscal year’s. It plans to open as many as 300 stores annually within a year or two, Yanai said last month.

Yanai opened two of Uniqlo’s biggest stores to date in New York last month, with one on Fifth Avenue and another on 34th street. The Fifth Avenue store has a floor space of 89,000 square feet. The company plans to open stores in Los Angeles, Chicago and San Francisco in the next three years, he said.

“The U.S. is the biggest established market now,” Yanai said. “China is the market for the future.”

--With assistance from Dave McCombs in Tokyo and Frank Longid in Hong Kong. Editors: Frank Longid, Suresh Seshadri

To contact the reporters on this story: Shunichi Ozasa in Tokyo at sozasa@bloomberg.net; Cheng Herng Shinn in Tokyo at hcheng52@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net


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