By  on October 12, 2007

TOKYO — Fast Retailing Co. Ltd., which runs the Uniqlo chain, posted a profit decline Thursday on a sales gain for its fiscal year ended Aug. 31, while indicating its ambition for more expansion, including acquisitions.

The company said net sales rose 17 percent for the year to 525.2 billion yen, or $4.7 billion, while operating income fell 7.7 percent to 64.9 billion yen, or $581 million. Net income shed 21.4 percent to 31.7 billion yen, or $284 million. Dollar figures are at the average exchange rate.

Uniqlo's operation in Japan experienced an increase in revenue on the back of a boost in total store numbers and existing store sales. However, gross margin fell year-over-year because of the need to off-load inventory in the first half after some unseasonable weather.

And a rise in personnel costs and promotional expenses to propel operational growth resulted in a fall in overall profits, the company said. As a result, selling, general and administrative costs as a percent of sales jumped to 34.9 percent during the period from 31.7 percent in the prior year.

Uniqlo's international operation posted a reduced loss during the year because of the growing success of the firm's large-format stores and flagships now open in New York and Shanghai. "In fact, our Chinese, Hong Kong and South Korean operations all posted a profit," said Tadashi Yanai, chairman, president and chief executive officer of the group.

Net sales at the overseas Uniqlo operation almost doubled for the year-end period to 16.9 billion yen, or $151 million. While its U.S. and U.K. operations are "running at a loss due to the cost of opening global flagship stores in those markets, net sales have expanded favorably in Asia (China, Hong Kong, South Korea) taking that operation in the black," the group said in a statement.

At its overseas Uniqlo operation, "we are implementing a 'flagship store strategy' in order to increase the visibility of the Uniqlo brand and strengthen our branding power," Yanai said. "Our global flagship New York store opened in November 2006...is proving successful. And we are now planning to open a global flagship store on London's Oxford Street in November 2007. We are also scheduled to open our first 'antenna shop' in La Défense, Paris, in December this year, while at the same time beginning to prepare for the opening of a global flagship store in Paris."Net sales for our overseas Uniqlo operation for the year to August 2008 are expected to reach 30 billion yen [or $256.4 million]," he said, adding that the operating loss is expected to shrink significantly.

Asked about the possibility of merger and acquisition activity with the company, Yanai said the firm will make investments of 300 billion to 400 billion yen, or $2.6 billion to $3.5 billion, in European or American brands. Entering growing markets where it can expect high sales and profits is another key strategy, according to the firm.

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