Nov 30 - Standard & Poor’s Ratings Services today said its ratings on Japan’s Fast Retailing Co. Ltd. (A/Stable/--) would not be affected by the company’s acquisition of U.S.-based J Brand Holdings LLC, which produces and sells premium denim. Fast Retailing will acquire 80.1% of J Brand’s shares by the end of December 2012 for around US$300 million. Considering Fast Retailing’s sound financial standing--with cash at hand exceeding debt and lease obligations--we believe the acquisition has no negative impact on the company’s “modest” financial risk profile, even if it partially finances the acquisition with debt.
J Brand was only recently established, and its niche position has higher volatility in fashion than casual wear. Nevertheless, the company has solid brand recognition in the U.S. market and maintains good margins. Through the acquisition, Fast Retailing will be able to gain ground in women’s apparel, which the company has been focusing on, while at the same time increasing its footprint in the U.S. market, in our view. In the medium to long term, we believe Fast Retailing’s group brands, such as UNIQLO and Theory, will benefit from J Brand’s knowhow in denim.