Fast Retailing marks record profit, Uniqlo discounts hit margins

TOKYO Thu Oct 10, 2013 2:26am EDT

TOKYO Oct 10 (Reuters) - Fast Retailing Co Ltd, Asia's biggest retailer, posted record revenue and operating profit in its last financial year but fell slightly short of its profit target as heavy discounting depressed margins at its flagship Uniqlo casual clothing stores.

Fast Retailing, which competes with Zara-owner Inditex S.A. and Hennes & Mauritz AB (H&M), posted a 5.1 percent increase in operating profit to 132.92 billion yen ($1.37 billion) for the year ended on Aug. 31, below its guidance of 143.50 billion yen.

It was also below expectations of 144.4 billion yen, the average of 21 analysts' estimates according to Thomson Reuters Starmine.

The company posted strong sales at Uniqlo, which accounts for the bulk of its business, as seasonal lines such as its breathable innerwear, Airism, and mid-length pants sold well through the hottest summer ever recorded in Japan.

Profit margins at Uniqlo, known for its casual clothing ranges, were depressed by discounting as it moved to boost customer traffic, but in the current financial year the company plans to lure consumers upmarket into higher-margin items such as cashmere sweaters.

Fast Retailing, which also owns brands Theory, Helmut Lang and cut-price clothing chain gu, forecast a 17.4 percent increase in operating profit in the current financial year while sales were seen increasing 16.4 percent to 1.33 trillion yen, slowing from last year's 23.1 percent rate of revenue growth.

Fast Retailing's shares, the most heavily weighted in Japan's benchmark Nikkei average, fell 0.6 percent on Thursday to end at 34,550 yen, compared with the Nikkei's 1.1 percent rise. The stock has gained 58 percent this year, helping the benchmark rise 37 percent since January. ($1 = 97.1950 Japanese yen) (Reporting by Sophie Knight)