Unique Opportunity With Uniqlo?
Picture of Uniqlo's Soho Store Taken on My iPhone
Uniqlo may be one of the largest clothing retail stores you have never heard of. I knew of the company from my travels to Hong Kong and my first impression was that it was like Gap with its large selection of denim jeans and solid colored shirts. Uniqlo is a subsidiary of Fast Retailing, Japan’s largest clothing retailer. As of May 2010, there are approximately 950 Uniqlo stores worldwide. Most Uniqlo stores are still located in Japan, but if all goes according to Fast Retailing’s plans, that will soon change.
Within the past five years, Uniqlo has been opening new stores outside of Japan at a feverish pace. Seoul, London, Paris, Moscow and New York are among the large cities outside of Japan where Uniqlo stores have been popping up. Shanghai recently opened its first Uniqlo store. In the near future, you should expect to see Uniqlo stores in large U.S. cities like San Francisco, Los Angeles and Chicago. Uniqlo recently made headlines after signing a $300 million fifteen-year lease to open another New York City store on Fifth Avenue near the Apple store. This was the largest retail lease contract ever signed and a emphatic statement from the company about its plans to penetrate the international markets.
I would classify Fast Retailing as a mega clothing retailer like Inditex (Zara, Mossimo, etc.), H&M and Gap, Inc. The following is a chart comparison of some metrics for these four mega clothing retailers that I was able to find. You should note that the Inditex and H&M figures are lower due to the recent decline in the Euro. The figures shown here were based on conversion rates on May 14, 2010.
You can see that overall, the four mega clothing retailers have seen their stock prices rise by double digits over the past 52-weeks. Fast Retailing’s stock price has dropped the most in the past 13 weeks after a somewhat disappointing second quarter report in which the company said its spring line of clothing didn’t fare as well because of the unusually colder temperatures. However, when you take a step back and look at the growth this company is experiencing since it’s last fiscal year (Aug 2009) and when you consider what the continued accelerating international expansion of Uniqlo may mean, you’ll see that Fast Retailing’s earning potential may not be priced into its stock. Consider that from August 2009 – Feb 2010:
- Net sales was $5.1 billion USD for +31.8% y/y growth, +2.5% over estimates
- Net income was $600 million USD for +55.7 y/y growth, +15.3% over estimates
- The Uniqlo International segment net sales was $439 million USD for +117% y/y growth
- The Uniqlo International segment net income was $62.9 million USD for +267.2% y/y growth
- Fast Retailing boosted its revenue projections and dividend for the full year ending August 2010
The mean forecast for 2010 EPS is $7.46/shr, but Fast Retailing recently revised their own forecasts to $7.54/shr. For 2011, the mean forecast is $8.05/shr. So based on today’s share price, the stock is trading at a P/E multiple of 19.6. While this may appear expensive compared to say Gap, Inc. (at 14.6), you have to factor in that analysts are projecting annual sales to grow 10% from $8.96B in 2010 to $9.91B in 2011 (whereas revenues for Gap, Inc. are only expected to grow 3%). I think this $9.91B figure may be conservative given the company’s rapid international growth. They also boosted their annual dividend 15% from $2.16/shr to $2.49/shr!
If you care to dig more into the numbers or view other financial reports, you may go to the company’s investor relations site.
While I think Uniqlo will be very successful in opening up more large stores in big cities like New York, I’m not sure if they will be able to open many smaller stores inside malls and shopping centers. Still, the Uniqlo brand- a sort of “urban smart” look? (sorry, I’m not very hip), has proven to be very successful with American consumers. It is estimated that the Soho flagship store currently does approximately $200,000 in sales a day! Their clothing quality is excellent as they are able to buy materials and manufacture in bulk. Uniqlo also keeps its clothing designs offering to a minimum, but offer a wide swath of colors to compensate for the smaller selection. This sort of keep it simple recipe has helped boosted their profit margins. So while I think Fast Retailing’s stock price could fall further given the recent macroeconomic issues with the Euro, this is one company to keep an eye on because of their growth rate and the ongoing rebound in consumer spending. The stock would be a good buy if it ever got under $120 where it will then be trading at an estimated P/E ratio below 16.
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Mr. Nice Geek » Hot Stocks for this Hot Weather — July 26, 2010 @ 7:03 PM
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