UPDATE 2-Uniqlo operator profits from on Asia growth, bargain cashmere

Thu Jan 9, 2014 6:33am EST

* Fast Retailing Q1 (Sep-Nov) operating profit up 13 pct at 64 bln yen

* Full-year op profit target left unchanged at 156 bln yen

* China, S.Korea show stronger than expected sales rise

* Domestic strategy on 'affordable luxury' boosts sales (Adds chief financial officer's comments, context)

By Ritsuko Shimizu

TOKYO, Jan 9 (Reuters) - Asia's biggest clothing retailer Fast Retailing Co Ltd posted a higher-than-expected first-quarter profit, helped by strong Japan sales at its flagship casual Uniqlo brand which lured thrifty customers with affordable luxury items.

The retailer also benefited from a move to boost sales growth outside Japan, especially in China and South Korea, with a weaker yen helping to plump up foreign revenues.

"Along with putting out cashmere and other high-priced goods, we want to boost spending by increasing the number of items people buy," Chief Financial Officer Takeshi Okazaki told an earnings briefing.

He cautioned, however, that the higher spending did not mean Japanese customers had shed their cost-conscious ways.

Fast Retailing managed to boost spending per customer by coaxing shoppers to splurge on items such as cashmere sweaters and ultralight down coats and vests which were priced well below designer items but higher than Uniqlo's usual fashion ranges.

The strategy marks a shift from the company's earlier attempts to boost sales by offering discounted items. It also coincides with aggressive policies by Prime Minister Shinzo Abe's government to break Japan's decade and a half of deflation by encouraging consumer spending.

Seven and I Holdings Co Ltd, operator of Japan's largest convenience store chain, 7-Eleven, has also boosted customer spending by offering premium home-brand goods and freshly brewed coffee, helping to power its nine-month profit to a record.

SELLING MORE ABROAD

Fast Retailing's operating profit in its first fiscal quarter to end-November rose 13 percent to 64.0 billion yen ($610.48 million), surpassing the 59.9 billion yen forecast of four analysts surveyed by Thomson Reuters I/B/E/S.

The company left its operating profit target for the full year to end-August unchanged at 156 billion yen, a gain of 17.4 percent. That is in line with analysts' average estimate of 155.36 billion yen.

Overseas sales at Uniqlo jumped 77 percent to 114 billion yen ($1.09 billion), more than half the domestic total of 208 billion yen. Domestic Uniqlo outlets' share of total operating profit slipped to two-thirds from nearly 80 percent.

Okazaki said the company had exceeded its targets in China and South Korea, key countries in its Asia-focused expansion plan where some analysts had feared business would be hurt by Japan's diplomatic tensions with its neighbours.

"We don't get the sense that there's any impact. Our brand continues to draw support in China and Korea," he said. A visit by Abe to Yasukuni Shrine, seen in many parts of Asia as a symbol of Japan's past militarism, helped fan tensions.

Government data late last month pointed to a rise in Japan's so-called core-core price index, which is similar to the U.S. core inflation index, but wages remain a weak link.

Fast Retailing, the most heavily weighted stock in Tokyo's benchmark Nikkei average, fell 3.8 percent on Thursday to close at 39,800 yen before the figures were announced.

The stock has risen 82 percent since the start of last year compared with the Nikkei's 53 percent gain. ($1 = 104.8350 Japanese yen) (Additional reporting by Dominic Lau; Editing by Edmund Klamann and Miral Fahmy)

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