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Japan-Update

Shares of Uniqlo operator hit two-year high on strong earnings

Digital-powered retailing and brisk overseas sales draw investors

Workers in Fast Retailing's Ariake hub centrally manage product design, production and distribution.

TOKYO -- Uniqlo operator Fast Retailing's share price hit its highest mark in more than two years Friday as investors reward the company for better-than-expected earnings from logistics reforms and overseas operations.

Fast Retailing shares rose as much as 7% -- a 3,350 yen increase -- Friday to an intraday high of 50,150 yen and closed at 49,610 yen. The stock attracted a wide range of buyers from domestic institutions to overseas investors, with trading volume quadrupling from the previous day to 100.2 billion yen ($899 million).

Supply chain upgrades have helped drive Fast Retailing's share price higher over the last few months. The retailer opened a new office inside a warehouse in Tokyo's Ariake area this February. The so-called Ariake Project manages everything from product planning to production to logistics using information technology and serves as Fast Retailing's command center for its global strategy.

On top of these well-received improvements, group earnings for the September-November period "saw bigger revenue and profit increases than expected," said CFO Takeshi Okazaki. Net profit rose 12.7% to 78.5 billion yen for a second straight record year, and beat the 63.3 billion yen average outlook given by the QUICK Consensus survey of market analysts.

Improvements in profitability were particularly noticeable. The company's operating margin rose 1.7 percentage points to 18.5% as strong sales of fall and winter clothing coincided with reforms led by the Ariake Project.

Uniqlo's overseas sales also surpassed domestic results for the first time, climbing 31% to 258.2 billion yen as previously unprofitable operations in North America turned an operating profit.

"Expectations have risen for Fast Retailing's overseas growth," said Hidehiko Aoki, analyst at Nomura Securities, who raised his target share price for the company from 51,000 yen to 56,500 yen on Thursday.

But problems remain for Fast Retailing. The need for a new round of IT-related investment was exposed when Uniqlo's online store, which it pegs as a growth field, crashed in November after orders outpaced expectations. The company will also try to contain the use of discount sales in its shrinking domestic clothes market, among other challenges.

Fast Retailing's share price tends to fluctuate with such short-term data as monthly sales, but IT-based logistics reforms and overseas operations are starting to attract money from long-term investors. The durability of the Ariake Project and foreign operations will determine whether Fast Retailing shares can exceed their all-time of 61,970 yen set in July 2015.

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