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Equity Bottom-Up

Fast Retailing’s major apparel brand, Uniqlo, is well known for its high-quality materials at reasonable prices. The company is replicating its proven success in Japan in the rest of the world. Uniqlo's international (excluding Japan) store count exploded to 798 in 2015, up from 136 in 2010. Total revenue has registered a 61% compound annual growth rate, or CAGR, in the past three years. We believe that rapid Uniqlo International store expansion, especially in mainland China and South Korea, is the key driver of Fast Retailing's business growth.Despite its rapid expansion, we have concerns about decreasing operating margins, as lower-margin Uniqlo International increases its contribution to the group. Another worry is the firm's execution efficiency in developed markets, where low-price, fair-quality, and trendy-design retailers such as H&amp;M, Inditex, and Gap are already entrenched. In fiscal 2015, the 42 Uniqlo International stores in the United States suffered from heavy discounting and an increase in operating loss. The company uses a concentration of partner factories, with 70% of its products made in China, making it harder to control costs in China’s environment of wage inflation. We believe Uniqlo's low-price, high-quality model has broad consumer appeal, giving the firm a long growth runway for unit locations and e-commerce opportunities. However, the firm is a smaller player in a competitive market, which convinces us that it has no economic moat.Analyst: Chelsey Tam

Fast Retailing’s major apparel brand, Uniqlo, is well known for its high-quality materials at reasonable prices. The company is replicating its proven success in Japan in the rest of the world. Uniqlo's international (excluding Japan) store count exploded to 798 in 2015, up from 136 in 2010. Total revenue has registered a 61% compound annual growth rate, or CAGR, in the past three years. We believe that rapid Uniqlo International store expansion, especially in mainland China and South Korea, is the key driver of Fast Retailing's business growth.Despite its rapid expansion, we have concerns about decreasing operating margins, as lower-margin Uniqlo International increases its contribution to the group. Another worry is the firm's execution efficiency in developed markets, where low-price, fair-quality, and trendy-design retailers such as H&amp;M, Inditex, and Gap are already entrenched. In fiscal 2015, the 42 Uniqlo International stores in the United States suffered from heavy discounting and an increase in operating loss. The company uses a concentration of partner factories, with 70% of its products made in China, making it harder to control costs in China’s environment of wage inflation. We believe Uniqlo's low-price, high-quality model has broad consumer appeal, giving the firm a long growth runway for unit locations and e-commerce opportunities. However, the firm is a smaller player in a competitive market, which convinces us that it has no economic moat.Analyst: Chelsey Tam

ファーストリテイリングはグローバルブランドになりつつあるが、世界のライバルとの競争には苦戦するだろう