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Uniqlo operator upbeat on Europe, N.America after Q2 profit miss

Fast Retailing's Uniqlo sign boards are displayed at a casual clothing store in Tokyo

By Rocky Swift

TOKYO (Reuters) -Japan's Fast Retailing Co reiterated on Thursday its forecast for a third year of record profits, as the Uniqlo owner ramps up an expansion into North America and Europe to take on entrenched rivals H&M and Zara owner Inditex.

Its ambitious growth moves in Western markets comes as sales in its home market weaken, with seven flagship stores in the two overseas regions now among its top 10 best-selling Uniqlo stores.

"The apparel market in Europe is worth 70 trillion yen ($457 billion), but Uniqlo's share is still only about 0.5% of that," Uniqlo Europe CEO Taku Morikawa told a results press conference.

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"In the central areas of London and Paris, Uniqlo has not caught fire in comparison to competitors."

Fast Retailing said both North America and Europe reported large revenue and profit gains that were higher than expected, and anticipated record performances from the regions in its fiscal second-half to end-August.

For the second quarter ended in February, Fast Retailing reported a 7% operating profit growth to 110.4 billion yen ($721.80 million) that fell slightly short of market estimates.

It compared with 103 billion yen the prior year and the 114.3 billion yen average estimate of five analysts in an LSEG survey.

Fast Retailing also left its full-year operating profit forecast unchanged at 450 billion yen, as results in China were dragged down in the most recent quarter due to a warmer than usual winter and a dip in consumer confidence. Greater China is the company's biggest market by stores.

It revised down full-year revenue guidance by 20 billion yen to 3.03 trillion yen to reflect weaker growth in the first six months.

CHINA MARKET

Known for its fleece jackets and inexpensive basic clothing items, Fast Retailing is benefiting from a recovery in China and a slide in the yen to a 34-year low that boosts the value of its overseas sales.

And as the company charts an aggressive growth trajectory in Greater China, North America and Europe, it is taking advantage of a post-COVID shift among many consumers for value over luxury.

The results follow a 25% jump in earnings in the first quarter on the back of strong sales in China following years of pain during the coronavirus pandemic. With its 922 stores in mainland China, Fast Retailing is a bellwether for global retailers operating in the world's second-biggest economy.

The company, founded and run by Tadashi Yanai, Japan's richest man, has posted record results in the past two years and is projecting profits to climb again this year.

As in previous press conferences, Yanai dismissed on Thursday the positive impact of the yen's depreciation on Fast Retailing, calling it a negative overall for Japan.

"I think it's a bit strange for people to be happy about a weakening yen," he said. Fast Retailing is assuming an average level of 137 yen per U.S. dollar for the current fiscal year.

Prior to the earnings, shares in Fast Retailing closed down 0.6%, versus a 0.4% drop in the broader market. On the year, the company's shares are up 26% compared to an 18% advance in the Nikkei.

($1 = 152.9500 yen) ($1 = 153.1800 yen)

(Reporting by Rocky Swift; Editing by Miyoung Kim and Muralikumar Anantharaman)