Fast Retailing (9983 JP) : A Global Winner in Apparel Retailing

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2 June 2020 Japan
EQUITIES Fast Retailing (9983 JP)

Fast Retailing indexed sales growth vs peers A global winner in apparel retailing
1999=100
240 0
220 0
200 0 Key points
 Fast Retailing is positioned well in the post COVID-19 landscape.
180 0
160 0
140 0
120 0
 Strong ESG commitments and sustainability agenda helps branding.

100 0
800
600
 Valuations appropriate given growth and brand positioning. We initiate

400
200
0
H&M Henn es & Mauritz AB Class B
Ryo hin Keikaku Co., Ltd.

Industr ia d e Diseno Textil, S.A .
Gap , In c.
FAST RETAILING CO., LTD.
coverage with an Outperform rating and ¥68,900 TP.
Source: FactSet, Macquarie Research, June 2020
9983 JP Outperform Ambition and execution

Price (at 14:52, 01 Jun 2020 GMT) ¥61,880
Fast Retailing is consistently viewed as one of Japan’s strongest brands and has
Valuation ¥ 68,900 never shied from its ambition to become the world’s top apparel retailer. We think
- DCF (WACC 6.5%, beta 0.9, ERP 8.0%, RFR 0.0%, it has the right combination of global brand appeal that focuses on functional
TGR 2.5%)
basics matched with a highly efficient supply chain and strong management.
12-month target ¥ 68,900
Growth is largely focused on China & Asia where its brand recognition is on par
Upside/Downside % +11.3
or stronger than global mega-brands. Domestically, we see rising share in an ex-
12-month TSR % +11.8
growth apparel market, though we also see potential for Uniqlo to transition into a
Volatility Index Medium
lifestyle brand, with adjacent category opportunities such as homewares, a clear
GICS sector Retailing
strategic focus for global apparel peers such as H&M and Inditex.
Market cap ¥bn 6,564
Market cap US$m 60,988 We view Fast Retailing as the ‘Toyota of Apparel Retail’
Free float % 51
30-day avg turnover US$m 459.8 Fast Retailing positions its Uniqlo brand to provide well designed, durable, price
Number shares on issue m 106.1 competitive products that meet universal consumer needs, matched with a highly
efficient just in time supply chain and an ongoing commitment to process
Investment fundamentals innovation and technology-based solutions. Sound familiar? It should be. It also
Year end 31 Aug 2019A 2020E 2021E 2022E
defines the DNA of Toyota, the world’s pre-eminent auto producer. We think Fast
Revenue bn 2,290.5 1,984.4 2,287.0 2,462.5
Retailing shares much of the same brand & business ethos that are the hallmarks
EBIT bn 257.1 123.5 223.6 276.3
EBIT growth % 9.1 -52.0 81.1 23.6 of Toyota’s sustained success over decades. Fast even regards itself not as an
Recurring profit bn 252.5 143.2 234.4 289.3 apparel company but rather a “Digital Consumer Retail Company”.
Reported profit bn 162.6 91.5 149.8 184.9
Adjusted profit bn 162.6 91.5 149.8 184.9 ESG commitments now best-in-class globally
EPS rep ¥ 1,591 895 1,466 1,809
EPS rep growth % 5.0 -43.7 63.7 23.4 We think the strength of Uniqlo’s ‘slow fashion’ brand identity is likely to become
EPS adj ¥ 1,591 895 1,466 1,809 more pronounced in the post COVID-19 world. The underpinnings of ‘fast
EPS adj growth % 5.0 -43.7 63.7 23.4
fashion’, namely ever shortening fashion cycles matched to a hyper-responsive
PER rep x 38.9 69.1 42.2 34.2
PER adj x 38.9 69.1 42.2 34.2 low-cost supply chain, as a viable, even preferred, business model have had
Total DPS ¥ 480 250 440 540 vulnerabilities exposed. Rising tariffs, an increased scrutiny of supply chain
Total div yield % 0.8 0.4 0.7 0.9 sustainability by regulators, and changing consumer preferences could usher in a
ROA % 13.0 5.7 9.2 10.6
ROE % 18.0 9.5 14.3 15.7
profound shift in industry structure and could cap or even reverse decades of
EV/EBITDA x 18.9 19.6 14.8 13.5 growth. We think Fast Retailing is well positioned to benefit from this shift and
Net debt/equity % -43.2 -41.4 -51.5 -59.2 believe its clear focus on sustainability, product circularity, underscored by its
P/BV x 6.7 6.4 5.7 5.1
LifeWear initiative, enhances its brand and investment appeal. We think its ESG
(all figures in JPY unless noted)
commitments are world class and raises investment appeal.
Near-term earnings
Analysts
Macquarie Capital Securities (Japan) Limited The short-term COVID-19 impacts are likely to be severe, and our FY 8/20 OP
Leon Rapp +81 335127879 forecast of ¥123.5bn is below the company target of ¥145bn and consensus of
leon.rapp@macquarie.com
¥149.6bn. With widespread store closure in reaction to COVID-19 near term
Shentao Tang +8 10335127851 sales are likely to be very weak (domestic same store sales dropped 56.5% YoY
shentao.tang@macquarie.com
in April). However, we think the market will look past weak short-term earnings,
Yuri Watanabe +81 3 3512 7859 which we think will mark a bottom, and instead focus on the pace of recovery.
yuri.watanabe@macquarie.com China and Asia store rollouts are continuing. Valuations are not stretched given
the fundamental quality and growth. We initiate with an Outperform rating.
Please refer to page 18 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
For the exclusive use of Fiona Qu (fqu@anatole-inv.com) at Anatole Investment Management Limited
Downloaded from Capital IQ by Fiona Qu (fqu@anatole-inv.com) at Anatole Investment Management Limited on Monday Aug 08 2022 08:41:19 AM,
Macquarie Research Fast Retailing (9983 JP)
Inside A global winner in apparel retailing

Company profile
Fig 1 Sales trends by operation • Fast Retailing is the largest apparel retailer in Japan and the second largest
globally. Its main brands are Uniqlo and GU as well as smaller niche brands
(Y en bn)
3,000,000
such as Theory, PLST & COMPTOIR DES COTONNIERS. The focus is on
2,500,000
casual basics with added functionality, and low exposure to fashion trends.
Fast Retailing operates some 3,600 stores globally across its brands. While
2,000,000
the domestic market is largely saturated with over 800 Uniqlo stores, the main
1,500,000
focus is on expanding the international market with some 1,400 stores, half of
1,000,000
which are in China, where the Uniqlo brand enjoys high recognition.
500 ,00 0
Fig 3 Fast Retailing Sales breakdown
Global Brands Other

UNIQL O Japa n UNIQL O Internation al GU Glo bal Brands Others 6% 0%
Source: Company data, Macquarie Research, GU

11% Men's clothing
June 2020 15%
Women's clothing
17% Children's & Baby's
clothing
3%
Fig 2 OP trends by operation UNIQLO International
45% Goods and other items
1%
Franchise-related
(bn Y en) income & alteration
charges
450 ,00 0 2%
400 ,00 0
350 ,00 0
300 ,00 0
Source: Company data, Macquarie Research, June 2020
250 ,00 0
200 ,00 0
150 ,00 0
100 ,00 0
50,000
-50,000
0 Fig 4 Fast Retailing Stores by region and operation
(stores)
4500
4000
UNIQL O Japa n ¥ m UNIQL O Internation al ¥ m 932
932
3500 932
932
GU ¥m Glo bal Brands ¥m 932
972 521
3000 984 501
1365 1002 481
Others ¥m 1339 461 203
217
2500 441 189
421 175
393 161 569 609
372 153 529
489
Source: Company data, Macquarie Research, 2000
319
350
81
102
342
131
384 419
449
68 317
June 2020 1500 263
560 645 726 807 886 970 1054 1138 1187
1000 467
500 841 837 831 827 817 817 817 817 817 817
0
2015 2016 2017 2018 2019 2020e 2021e 2022e 2023e 2024e
UNIQLO JAPAN Operations Greater China Asia & Oceania North America + EU GU Global Brand Operations
Fig 5 9983 JP rel TOPIX performance, & rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie
coverage at the time or there was an embargo period.
(all figures in JPY unless noted)
2 June 2020 2
Valuation, recommendation, risks

We use a DCF-based We use a DCF based methodology to set our target price with a WACC of 6.5%, beta 0.9x, ERP
methodology to set our 8.0%, RFR 0.0%, TGR 2.5%. We use a higher TGR than peers as we believe that Fast Retailing
target price. has a compelling brand strategy that will place it well in a post COVID-19 landscape.
Catalysts
(1) Higher earnings outlook for 2020.
(2) Higher shareholder returns.
Risks
Higher currency could negatively impact overseas revenue and profit translation. Chairman Yanai
is the founder and helms the company’s strategy. Should he step aside, the market may view this
negatively.
2 June 2020 3
Why Fast Retailing is actually ‘slow’ retailing

Fast Retailing is not fast fashion
Apparel retailing has a Apparel retailing has hundreds of brands, from haute couture and luxury houses, to discounters,
few global giants and sportswear and the global fashion chains. Each sub-segment requires a different brand and
many smaller niche business approach and each business model has adapted to serving the type of market niche
players where it is strongest. We view these as a continuum rather than one or the other. Brands tend to
rise and fall in popularity and, as an industry, bankruptcies and restructurings are common. Recent
names such as Forever 21, Nine West, Diesel, Jaeger, The Limited, BCBG Mac Azaria, American
Apparel, to name a few. However some strong brand names can be durable if they stick to their
knitting. Know your customers, anticipate trends and maintaining disciplined expansion is as
important as ever.
Fast Retailing appeal is Fast Retailing’s strategy has evolved and now captures a broad customer need. It is now the
universal second largest apparel retailer in the world when measured by market cap, and the only Asian
company in the top-10. It has achieved this by largely eschewing the typical apparel company’s
focus on fashion trends, instead by focusing on “mass appeal”. Consumers’ apparel tastes may be
viewed as being fickle, yet we think the value in functional quality basics that Fast Retailing
provides is a universal need. In many ways, Uniqlo is the opposite of fast fashion, its clothes are
designed to be worn every day and durable enough to last years, which is somewhat counter to
industry trends that have focused on shorter product cycles. We think these needs for well-made
basics are likely to be more pronounced in the post COVID-19 landscape.
Fig 6 Global apparel retailer sales (2003 vs 2019)

2003 2019
Country End of Sales Country End of Sales
Company Name and Region Fiscal Year (¥bn) Company Name and Region Fiscal Year (¥tr)
Gap USA FY 2002 1,693.4 INDITEX Spain Jan. 2020 3.40

Limited Brands USA FY 2002 989.3 Hennes & Mauritz Sweden Nov. 2019 2.63
Hennes & Mauritz Sweden FY 2002 739.2 FAST RETAILING Japan Aug. 2019 2.29
Inditex Spain FY 2002 507.0 Gap USA Feb. 2020 1.79
Liz Claiborne USA FY 2002 435.5 Limited Brands USA Feb. 2020 1.41
NEXT UK FY 2003 407.3 PVH USA Feb. 2020 1.08
FAST RETAILING Japan FY 2003 309.8 Ralph Lauren USA Mar. 2019 0.69
Polo Ralph Lauren USA FY 2003 285.9 NEXT UK Jan. 2020 0.60
Benetton Group Italy FY 2002 254.1 AMERICAN EAGLE OUTFITTERS USA Feb. 2020 0.47
Tommy Hilfiger USA FY 2003 221.2 Abercrombie & Fitch USA Feb. 2020 0.40
Matalan UK FY 2003 188.9 Esprit Hong Kong Jun. 2019 0.18
Source: Fast Retailing Company Materials, Macquarie Research, June 2020
The “Toyota of Fashion” We believe that there is a parallel to Fast Retailing’s business approach in the automotive industry
– Toyota – which is a brand that, to us, defines mass appeal. Toyota’s ethos is in many ways
similar to Fast Retailing – providing a broad lineup of high quality, safe, dependable, comfortable,
economical products equipped with functional innovative technology and offer it at low cost. High
customer satisfaction, beginning at purchase at the dealership, is maintained through vehicle
reliability and ongoing servicing ending with industry leading resale values. While these are
common sense basics, they result in a sustained competitive advantage. Combined with the
efficiencies and economies of scale from its namesake just-in-time supply chain has allowed
Toyota to become the most profitable automotive manufacturer in the world.
Is key to understanding Fast Retailing is in many ways similar in both brand positioning & customer experience. Designs
the broad appeal are offered across a wide variety of sizes and colors with inconspicuous labeling combined with
both natural fibers as well as the use of functional fabric technology that appeals to the broadest
customer base, across gender and age. Products quality is high and are designed to last several
years. Like Toyota, the early brand image of Fast Retailing was of cheap but lower product quality,
but a shift toward emphasizing absolute quality from ~2003 has been successful and like Toyota,
its brand image continues to be industry leading. We think Uniqlo’s early focus on including
technology in its fabrics such as HEATTECH and AIRism (co-developed with partner Toray) has
helped it to differentiate its product lineup.
2 June 2020 4
Comparing Fast Retailing to peers

Apparel retailing’s star Firstly, apparel retailing globally has been facing challenges when compared with other retailing for
has dimmed somewhat several reasons we discuss in our report. Growth has slowed and opertating metrics have
deteriorated. COVID-19 is impacting this further and recovery for the apparel retailing is tenuous.
We think the industry needs a shift to its emphasis and brand proposition as consumer patterns
adjust to the new normal. We pay particularly close attention to inventory management. the two
most important efficiency metrics for us are ROIC (Return on Invested Capital) and GMROI (Gross
Margin Return on Inventory) as they provide insight into the ability of management to grow while
remaining efficient. As seen in Fig 1 & 2, off price retailers have lower ROIC due to thin margins
but maintain strong GMROI due to its opportunistic purchasing. Luxury and
Sports/Footwear/Furniture have mid-level GMROI and ROIC. Lastly, apparel, having been the star,
has seen a steady deterioration in GMROI and ROIC, a trend we expect to continue.
Fig 7 Selected global retailer GMROI by category
(X)
4.5
3.5
2.5
1.5
0.5
0
Glo bal Ave rage Off Price/Discoun t Luxury Dive rsi fied /specialty App arel fo cused/fast fashio n
201 9 201 8 201 7 201 6 201 5 201 4 201 3 201 2 201 1 201 0 200 9
See end of report for names

Source: Factset, Macquarie Research, June 2020
Fig 8 GMROI of Japan covered stocks
(X)
8 Worsening trends in Softline Apparel
Hardline furniture impressive
7
3
Off-price channel low
2
0
Global Averaage Pan Pacific International Nitori Holdings Co., Ltd. Ryohin Keikaku Co., Ltd. FAST RETAILING CO., LTD.
Holdings Corporation
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
We see the end of fast Fast Retailing is often compared to Inditex, H&M & Gap for good reason. In many ways, global
fashion accelerating pioneers such as Gap and Next helped to validate the non-wholesale vertically integrated apparel
due to COVID-19 model. Japan’s overpriced inefficient wholesaler dominated apparel industry in the 1980s and
1990s was ripe for the disruption opportunity that this model promised, referred to in Japan as an
SPA (Specialty retailer of Private label Apparel) and was a key driver of Fast Retailing early
success thought the 1990s and 2000s. While there are obvious similarities, there are some
important differences in its business models that we believe places Fast Retailing in a stronger
position, particularly given that COVID-19 is likely to see underlying consumption patterns globally
shift to Fast Retailing’s favour.
2 June 2020 5
Fig 9 Gross profit margin comparison Fig 10 EBIT margin comparison
(%) (%)
70 25
60
20
50
40 15
30 10
20
5
10
0 0
FAST RETAILING Gap , In c. H&M Henn es & Industr ia d e FAST RETAILING Gap , In c. H&M Henn es & Industr ia d e
CO., LTD. Mauritz AB Class Dise no Te xtil, S.A. CO., LTD. Mauritz AB Class Dise no Te xtil, S.A.
B B
Jan-20 Jan-19 Jan-18 Jan-17 Jan-16 Jan-15 Jan-20 Jan-19 Jan-18 Jan-17 Jan-16 Jan-15
Jan-14 Jan-13 Jan-12 Jan-11 Jan-10 Jan-14 Jan-13 Jan-12 Jan-11 Jan-10
Source: Factset, Macquarie Research, June 2020 Source: Factset, Macquarie Research, June 2020
There are several key Firstly the similarities. Beyond the fact that all there are apparel brands there are several strategies
similarities employed in the business models that have allowed these retailers to exploit market growth
• Direct-to-consumer model. Fashion traditionally was a wholesale model where retailing was
left to department stores and general merchandise stores. This landscape changed with the
emergence of the concept of the direct-to-consumer model where the brand engaged in
retailing, offering better customer insights. Names such as Benetton, Esprit, Giordano, Gap,
H&M, Inditex and Fast Retailing drove (and benefitted from) this shift and captured share from
incumbents that is still ongoing.
• Use a direct sourcing model. Pioneered by companies such as Gap, Inc decades ago and
used by Fast Retailing, Inditex and H&M, having control and visibility over a supply chain. For
Fast Retailing this allows it to bypass the traditional reliance on manufacturers and wholesalers
and for Inditex has improved responsiveness to consumer trends. Different approaches but the
end result is lower channel inventory, fewer bottlenecks or overcapacity and less likelihood of
the “bullwhip” effects or “out-of-stock” opportunity losses.
• Global just-in-time supply chains. Fast Retailing , Inditex and H&M use efficient supply chain
management systems that rely upon efficient delivery and logistics systems with centralized
inventory control. These chains have been established globally to benefit from the lowest cost
production locations and the economies of scale generated by having global scale bricks and
mortar operations.
• A focus on affordability. Much like their forbears, these apparel retailers have stuck to their
knitting by focusing on bringing reasonably priced fashion to as broad a customer base as
possible. Unlike the one-stop shop of department stores or emporiums such as Marks and
Spencer (MKS LN, Not Rated) or the exclusivity of luxury labels housed in conglomerates such
as LVMH (MC FP, Not Rated), their focus has allowed them to thrive even with less spending
on clothing by consumers in developed markets.
• Focus on business models that minimize mark downs. One of Apparel retailing’s biggest
challenges is missing seasonal trends, dealing with unseasonable weather patterns and
delivery issues. A few weeks can be the difference between not having enough inventory or
having too much and being forced to mark down, dragging down margins. Softline retailing has
much shorter product cycles and inventory carried over to next season can drag down new
season sales negatively impacting profitability and undermining brand image. This is why
markdowns can be so aggressive. Inditex manages this by having inbuilt supply chain flexibility
with minimum manufacturing pre-commitment. Uniqlo avoids write downs by focusing less on
fashionable items and rather on perennial items that do not rely on fashion trends and less
seasonality, thus fewer write downs are needed to move excess inventory which typically range
from 20~30%.
2 June 2020 6
• The presence of founding families. Inditex is 64% owned by the founding Ortega family, H&M
is 46.5% owned (74% of voting rights) by the Persson family, Gap is 43% owned by the Fisher
family and Fast Retailing is 42% owned by the Yanai family.
And several differences There are however several differences in brand identity and business models that are notable:
• Gender focus. Inditex and H&M have a higher exposure to females, Fast Retailing is more
broad between male and female. This allows for less focus on fashion forward items and lower
markdown risk at Uniqlo.
• Pull versus push. Accurately forecasting consumer trends and what is in fashion or out of
fashion is key to maintaining relevant brands. Inditex is known for its “pull” type model which is
built on reacting quickly to near term short demand cycles, limited runs making items ‘scarce”,
new products are replenished twice weekly and remain in stores for just a few weeks. Fast
Retailing typifies the opposite with cycles of 6~12months from design to delivery.
• Inditex defines short cycle “Fast” fashion, Fast Retailing is long cycle “slow” lifewear.
Inditex operates on a one-month cycle from design, planning, production, distribution and
retailing, with very high inventory turnover. Uniqlo operates on a 6~12-month cycle Inditex has a
high proportion of fashion, Fast retailing focuses on functional casual basics with lower
inventory turnover. Inditex does it through very flexible supply chain response and committing
only partially six months ahead with the ability to adjust in-season production flexibly. By
focusing on basics and more perennials mark downs at Uniqlo tend to be lower.
• Inditex runs a more efficient supply chain. As per Figs 11 and 12, Inditex runs the highest
efficiency supply chain with negative working capital and negative CCC. We think this is difficult
to replicate given Inditex own its supply chain, whereas other apparel retailers (including Fast)
outsource.
• Sourcing strategy. Inditex uses proximity sourcing (58% of production was in Europe in 2018) ,
H&M & Fast use more central supply chains focused on China, while Gap uses a diversified
approach (21% from China, 28% from Vietnam). Fast Retailing outsources its supply chains of
which of which we estimate a little over half is source from China, down from 90% level in 206
(had 50 subcontractors with 60 plants).
• SKU counts. Inditex has a high SKU Count of 75,000 and smaller lot sizes. Uniqlo has fewer
SKUs but uses massive scale. An average order batch size for jeans is said to be a million
units.
• Supply chains are global, but sales are still regional. Though all are global, their home
markets are still the largest source of earnings. Gap still sees 81% of revenues from the US,
H&M and Inditex both see 65% of revenues from Europe and Uniqlo sees 38% of revenues
from Japan.
• Locations Uniqlo grew with the help of low rent largely suburban roadside locations following
the collapse in land prices following the Japanese bubble. Though this has changed with a shift
to flagship stores in key urban locations. Inditex (Zara) and H&M generally operates in high
rent, high street locations.
• Fabric Technology While H&M and Zara push fashion, Fast Retailing pushes fabric technology
and generates stronger brand identity benefits that resonate with consumers. Fast focuses on
technology innovation from its partnership with Toray for fiber development through to
innovations such as HEATTECH, AIRism and SEAMLESS DOWN, which uses pressure
bonding instead of stitching. Stretch materials with water-repellent coatings This positions the
brand in a better position given the continuing shift to athleisure globally and brands such as
Nike, Lululemon and adidas have a similar focus on increased use of fabrics. Fast Retailing also
sponsors athletes to demonstrate the performance of its fabrics.
2 June 2020 7
Fig 11 Cash conversion cycle Fig 12 Inventories – days held
(Day s) (Day s)
140 140
120
120
100
100
80
60 80
40 60
20
40
0
-20 20
-40 0
FAST RETAILING Gap , In c. H&M Henn es & Industr ia d e FAST RETAILING Gap , In c. H&M Henn es & Industr ia d e
CO., LTD. Mauritz AB Class Dise no Te xtil, S.A. CO., LTD. Mauritz AB Class Dise no Te xtil, S.A.
B B
Jan-20 Jan-19 Jan-18 Jan-17 Jan-16 Jan-15 Jan-20 Jan-19 Jan-18 Jan-17 Jan-16 Jan-15
Jan-14 Jan-13 Jan-12 Jan-11 Jan-10 Jan-14 Jan-13 Jan-12 Jan-11 Jan-10
Source: Factset, Macquarie Research, June 2020 Source: Factset, Macquarie Research, June 2020
International and domestic expansion

After initial stop-start, Fast Retailing currently has 1,431 international Uniqlo stores and expects to raise this to 1,466 by
now refocused. August 2021. We expect this expansion to continue for the foreseeable future, though we may see
a slowdown over the short term due to COVID-19. The initial expansion overseas was marked by
failures Uniqlo's first foray was in the UK began in 2001. After an aggressive initial expansion by
2003, Uniqlo closed 16 of 21 UK stores and this initial misstep has slowed the Uniqlo's growth in
western developed markets (US, Europe) compared to Asia, particularly in China. Much stronger
success has been seen in Asia where a different tactic was employed. Rather than relying on
internal resources and direct hiring of staff, with the Uniqlo has developed partnerships with local
entities or with Japanese trading houses.
North America and Europe
North America & Europe These markets are highly competitive with its competitors (Gap, H&M, Zara, Next,) already well
are still challenges established. Most notably all have been struggling to maintain SSS growth in the US as D2C
ecommerce ands and off-price retailers continue to grab share. Though Uniqlo store expansion
continues at a pace of about 30 new stores annually. We expect this pace to slow to around 15
new stores annually following COVID-19. However should we see the retail industry continue to
struggle with lower demand levels should consumer discretionary spending remain low, rental falls
for make the economics of more aggressive store expansion better, there could be upside to
higher growth. Operating margins were 9.5%.
South-East Asia and Oceania
SEA is much more Fast Retailing has chosen to expand largely through joint ventures with local partners or Japanese
promising trading houses in Asia and some other emerging markets such as Russia. In Korea (the largest
market, it has 182 stores) where it has a joint venture with Lotte Shopping. In Other markets it has
tied up with Mitsubishi Corporation, for example, PT Fast Retailing Indonesia: (Ownership is Fast
Retailing 75%/Mit Corp 25%) began in 2013, and the same ownership stake ratio in Vietnam in
2018, Russia in 2017, Thailand in 2011.We think this stemmed from the lessons it derived from its
initial UK expansions. We anticipate store growth rates of just under 30 new locations annually SM
group in the Philippines.
China
China continues to be While success has been more difficult to attain in North America and Europe, Uniqlo’s success in
successful China is undisputed. Uniqlo retains a very high brand recognition among Chinese consumers. Fast
Retailing believes its success in China comes from (1) strong branding – consistently regarded as
strongest brand (2) omni channel approach – e-commerce growing at 30% YoY and accounts for
about 20% of sales in China with at targeted 30%. (3) strong KOL relationships – good value for
consumers and (4) strong teamwork.
2 June 2020 8
We expect further While H&M, Gap and Inditex are restructuring stores in China and Topshop and Newlook have
expansion in stores withdrawn. Uniqlo is targeting 100 new store openings annually and looking at a target of 1000
store network by 2021 (which we think may be slightly too ambitious and we expect an 80~90
pace). Of the total 807 stores currently in greater China (748 mainland China, 31 Hong Kong & 68
in Taiwan) about one third are in tier one cities (200 stores) and the focus of expansion is likely to
continue to be in tier 1 & tier 2 cities. By comparison Inditex has some 570 stores and H&M have
520 stores in China but both have been rationalizing the number of stores in contrast to Uniqlo’s
expansion plans.
Global Brands
Other global brands still Other Global brands currently have 966 stores but are loss making in aggregate. such as Theory
yet to be meaningful (464 stores), Princesse Tam (121 stores), PLST (102 stores) and COMPTOIR DES COTONNIERS
(278 stores) continue to be loss making though remain small enough to have a limited impact on
the P&L.
Japan Domestic
We expect flat number We expect a flat store count going forward for Uniqlo domestically as it undertakes a more scrap-
of stores and rising e- and-build policy. With 811 Uniqlo stores nationwide (-10 YoY) we think that broad geographic
commerce saturation has been reached. Any further store expansion carries the risk of cannibalization in
certain population catchment areas. Conversely GU brand stores (younger age and lower price
focused), we expect to continue to grow at a pace of 20 new stores (437 currently) domestically.
Fast Retailing had targeted overseas growth to some 1,000 stores for the GU brand, (with a first
store opened in South Korea in 2018) but we believe the priority is Uniqlo brand expansion for the
time being.
Fig 13 Uniqlo domestic market share
(%)
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
Source: Company data, METI, Factset, Macquarie Research, June 2020. Excludes GU & Global brands
Will e-commerce make physical store presence less important?
Unsurprisingly, we Post COVID-19 is beginning to see the importance of e-commerce rising (currently 10% of sales).
expect more e- We expect this ratio to rise further as Fast Retailing builds out its omnichannel Ariake Project. With
commerce COVID-19 impacts expected to be long-lasting, we find ourselves questioning the traditional store
expansion model and associated costs (leases, labor etc). While omnichannel is a well know shift,
we think this e-commerce opens up a larger total addressable market and obviates the necessity
(and cost) of a dense store network. We think COVID-19 is making consumers more comfortable
with online purchasing (and click and collect) and we could see stores becoming more branding
opportunities rather than POS locations, lessening the need for higher inventory. Uniqlo targets a
30% e-commerce ratio which currently accounts for 11% of total sales in 2019. Domestic Japan is
~10% (grew 32% YoY in 2019), China ~20% of sales (+30% YoY), US ~25% and Asia just 5%.
Inditex was 14% of sales in 2019.
2 June 2020 9
Homewares is attracting We also see potential untapped adjacent opportunities beyond its apparel focus into homewares
attention from apparel and furnishings. The category continues to see strong fundamentals (see Fig 10) in Japan &
specialists eager to tap overseas and we have already seen H&M, Zara and Gap now expanding into interiors category,
new category growth. rebranding themselves more as “lifestyle brands”. Most notably, Inditex integrated Zara Home
operations into Zara in 2018 (launched in 2003) because of rising synergies and are rolling out a
more omnichannel approach of the Zara Home products on its existing Zara online store from
2019. As of Jan 2020, there are currently 596 Zara Home stores globally, about 8% of Inditex’s
7469 stores globally but a larger 21% of 2,866 Zara branded stores (Zara, Zara Kid & Zara Home).
Inditex regards Home as a ‘fourth pillar” of its business. Inditex also has 18 Zara Home stores in
Japan. H&M HOME was launched in 2009 and is mainly shop-in-shop but began expanding
standalone stores in 2018 (11 stores out of 5,053 globally at Feb 2020. Gap also announced plans
in May 2020 to move into the homewares category.
Fig 14 Japan chain store sales trends
(% YoY)
30%
20%
10%
0%
-10%
-20%
-30%
-40%
Household Goods Clothing Furnitire
Could Fast Retailing With COVID-19 making work-from-home more accepted in Japan and the rise in the stay-at-home
look to enter economy, we think homewares could be viewed as an appropriate brand extension for Fast
homewares? Retailing and could offer further opportunities for growth in a domestic market worth some ¥3tr (per
Nitori). Moreover, should the apparel market remain demand challenged in a post COVID-19
environment, this category could be viewed upon with more significance. We believe the
adjacencies are significant and homewares are particularly well suited to Fast Retailing’s
developing omnichannel infrastructure, as well as its sustainability commitments. When we look at
Williams Sonoma, e-commerce is surprisingly advanced – accounting for more than 55% of total
sales. We will monitor for any developments in this area.
Fig 15 Japan apparel sales vs furniture/interiors (Japan chain stores)
(bn Yen)
3000
2500
2000
1500
1000
500
Apparel Furniture/Interior
Source: Factset, Japan Retailer Association, Macquarie Research, June 2020
2 June 2020 10
The Ariake Project & other supply chain initiatives
External collaboration Even though Fast Retailing claims to be focused on long cycle, improvements and investment to
and technology raise innovation and supply chain efficiency are ongoing. The company uses its purchasing power
solutions to negotiate material prices with textile manufacturers, to keep raw material costs low. The most
recent is the Ariake Project which was launched in 2017, an investment of ¥100bn over three years
designed digitize its supply chain. Initially this project was integrating the merchandising, R&D,
product development and marketing functions under one roof in Ariake and combine it with the
state-of-the-art warehouse in Ariake. It was also designed to integrate physical stores with its
online store to make same-day order delivery for online orders and, more broadly, improve
consumer demand forecasts, shorten the supply chain from both planning and production in order
to make it more responsive.
Higher efficiencies We like the company’s willingness to solicit outside expertise and form tie-ups under this
ahead transformation plan. Logistics were targeted for reform beginning with an alliance with Daifuku in
October 2018 with a focus on rolling out warehouse automation globally (Daifuku is the world’s top
vendor of materials handling systems). More recently this has been expanded to included smaller
automation suppliers Mujin and Exotec Solutions for AI automated picking. Initial results have been
impressive, with overall warehouse productivity improving 80x, shipment productivity by 19x and
Storage efficiency 3x following warehouse automation. We have also seen other initiatives such as
its garment production initiative with Shima Seiki as well as a succession of collaborations with
Google and Accenture, to use big data to become more responsive to and better predict consumer
trends.
RFID deployment As part of the project, we think the introduction of RFID (Radio Frequency ID) tags is a welcome
(H&M and Inditex are also deploying RFID globally) step. A significant step-up from barcodes,
RFIDs not only allow for self-checkout and reduce checkout time but also provide accurate real-
time inventory levels through the supply chain as well as finished goods store inventory levels and
is a significant efficiency improvement over physical inventory counts and manual bar code
reading. The cost of a single RFID is only a few cents yet is critical to the success of the
omnichannel strategy with click and pick-up now forming part of the strategy.
Expect a shift to Due to increased risk of tariffs, increased scrutiny by regulators and consumers on the carbon
proximity sourcing footprint of dispersed supply chains and now increasingly pressing with COVID-19 exposing the
fragility of supply chain structures, we expect Fast Retailing to increasingly adopt sourcing
strategies that match local production to local demand. However, for the time being we expect Fast
Retailing’s supply chain infrastructure to remain focused in both China and South East Asia which
will also serve its global footprint. Over time, we expect further capacity additions to be based on
proximity sourcing, matching potential demand growth in other regions.
Fig 16 Clothing and imports to Japan
(bn Yen)
450
400
350
300
250
200
150
100
50
International Trade, Imports, Value, Clothing and Accessories, Thous JPY - Japan
Foreign Trade, Value of Imports, Clothing and Accessories, China, Thous JPY - Japan
2 June 2020 11
Strong ESG Initiatives

Global best-of-breed Fast Retailing has seen sharply improved ESG commitments over the past several years and we
ESG commitments regard them as a global best-of-breed and the best in our Japan coverage. Fast is a signatory and
member of several recognized global initiatives. For example, Fast participates in the UN Global
Compact, UN Fashion Industry Charter for Climate Action, is a UN Climate Action Signatory and
collaborates with several external organizations (eg, Sustainable Apparel Coalition, Better Cotton
Initiative) and provides sustainability report and databook compiled according to Global Reporting
Initiative (GRI) guidelines and independently verified by SGS. It has committed to increasing the
use of recycled fibres and reducing energy consumption, though we note that longer-term
quantifiable targets remain limited in comparison with peers H&M and Inditex that have been more
ambitious is setting longer-term climate agendas. We note that the company announced in
February 2019 that it would set Science Based Targets (SBTs) within two years and we look
forward to further initiatives from Fast Retailing on this front.
Fig 17 Bloomberg ESG Disclosure Score – Overall Fig 18 Bloomberg ESG Disclosure Score – Environmental
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Source: Bloomberg, Macquarie Research, June 2020 Source: Bloomberg, Macquarie Research, June 2020
Valuations
High Quality and growth Fast Retailing is frequently misinterpreted as being optically expensive based on traditional
= high valuations. yardsticks (eg, PER), although a closer look shows that these valuations have been appropriate
given the growth and quality metrics (eg ROIC, GMROI). EV/EBITDA and EV/Sales show that Fast
Retailing has been suitably valued when compared with similar high growth peers such as Inditex
and H&M, though a premium compared to Gap which has seen much lower levels of growth.
Fig 19 Apparel brands – indexed historical sales ($USD)
1999=100
2400
2300
2200
2100
2000
1900
1800
1700
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
H&M Hennes & Mauritz AB Class B Industria de Diseno Textil, S.A. FAST RETAILING CO., LTD.
Ryohin Keikaku Co., Ltd. Gap, Inc.
2 June 2020 12
Fig 20 Fast Retailing ROIC vs TOPIX
(%)
25
20
15
10
0
TOPIX Fast Retailing
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
Fig 21 Daily EV/Sales trends
(X)
6
FAST RETAILING CO., LTD. Industria de Diseno Textil, S.A. H&M Hennes & Mauritz AB Class B Gap, Inc.
Fig 22 EV/EBITDA trends
(X)
30
25
20
15
10
FAST RETAILING CO., LTD. Industria de Diseno Textil, S.A. H&M Hennes & Mauritz AB Class B Gap, Inc.
2 June 2020 13
2020 earnings outlook

Near-term trends are We expect COVID-19 to essentially determine trends for Fast Retailing over the coming quarters.
dire, but are likely at a Nearer term we are seeing substantial drops, with April SSS falling -56% YoY and -12.8% FYTD.
bottom 299 stores were operating shorter hours and 311 are temporarily closed. China has seen a sharp
fluctuation, falling 80% in February, recovering to almost flat YoY in early March, then stabilizing at
near -30% YoY pace subsequently. Elsewhere, we expect 2Q to represent the greatest COVID-19
earnings pressure as it coincides with lockdown globally. As we move into 3Q and 4Q we should
see signs of a recovery, though this may be halting depending of the progression of further
outbreaks.
Fig 23 Japan existing store sales trends
(% YoY)
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
-40.0%
-50.0%
-60.0%
-70.0%
exisiting stores sales exisiting stores # of customers exisiting stores sales/customer
Source: Company Data, Macquarie Research, May 2020
Fig 24 Fast Retailing 2H FY2020 revenue assumptions

Actual Assumption
Mar. Apr. ~ May Jun. ~ Aug.
UNIQLO Japan Japan -28% -30% ~ -10% -10% ~ -5%
UNIQLO International Greater China -40% -40% ~ -10% -10% ~ ±0%
South Korea, -50% -70% ~ -40% -40% ~ ±0%

South East Asia &
Oceania
North America, -50% -70% ~ -50% -40% ~ ±0%

Europe
GU Japan -1% -5% ~ ±0% -5% ~ -5%
Global Brands Theory -55% -90% ~ -50% -30% ~ -5%
March results for UNIQLO Japan and GU are confirmed. March results for UNIQLO International and Global
Brands are approximate figures.
Source: Company data, Macquarie Research, May 2020
Key stocks mentioned

Inditex (ITX SM, Not Rated)
Hennes & Mauritz (HMB SS, Not Rated)
Gap, Inc (GPS, Not rated)
Marks and Spencer (MKS LN, Not Rated)
Lotte Shopping (023530 KS, Not Rated)
2 June 2020 14
Selected Global Retailers in Fig 7

Apparel Focused: Fast Retailing, Inditex, H&M, Gap, PVH, Lululemon, Columbia, V.F. Corp,
ANTA Sports
Diversified/Specialty; L Brands, Nike, PUMA, adidas, Skechers, Ryohin Keikaku, Nitori, Williams-
Sonoma
Luxury: LVMH, Christian Dior, Hermes, Kering, Ralph Lauren, Prada
Off price/discount: TJX, Burlington Stores, Ross Stores, PPIH, Dollar general , Dollar Tree,
Costco
2 June 2020 15
Macquarie Quant Alpha Model Views
The quant model currently holds a marginally positive view on Fast Retailing. Attractive
Displays where the
The strongest style exposure is Profitability, indicating this stock is efficiently
company’s ranked based on
converting investments to earnings; proxied by ratios like ROE or ROA. The
Fundamentals
the fundamental consensus
weakest style exposure is Valuations, indicating this stock is over-priced in
Price Target and
the market relative to its peers.
Macquarie’s Quantitative
198/517 Alpha model.
Two rankings: Local market
Global rank in (Japan) and Global sector
Retailing (Retailing)
Quant
% of BUY recommendations 62% (10/16)
Local market rank Global sector rank
Number of Price Target downgrades 8
Number of Price Target upgrades 0
Macquarie Alpha Model ranking Factors driving the Alpha Model

A list of comparable companies and their Macquarie Alpha model score For the comparable firms this chart shows the key underlying styles and their
(higher is better). contribution to the current overall Alpha score.
Ryohin Keikaku 0.7 Ryohin Keikaku
Fast Retailing 0.3 Fast Retailing
Seven & I 0.1 Seven & I
Aeon -0.5 Aeon
Gap -0.7 Gap
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
Valuations Growth Profitability Earnings Price Quality
Momentum Momentum
Macquarie Earnings Sentiment Indicator Drivers of Stock Return

The Macquarie Sentiment Indicator is an enhanced earnings revisions Breakdown of 1 year total return (local currency) into returns from dividends, changes
signal that favours analysts who have more timely and higher conviction in forward earnings estimates and the resulting change in earnings multiple.
revisions. Current score shown below.
Ryohin Keikaku
Ryohin Keikaku -0.2
Fast Retailing
Fast Retailing -0.4
Seven & I
Seven & I 0.1
Aeon -0.3
Aeon
Gap 0.2 Gap
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 -80% -30% 20% 70%
Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
What drove this Company in the last 5 years How it looks on the Alpha model
Which factor score has had the greatest correlation with the company’s A more granular view of the underlying style scores that drive the alpha (higher is
returns over the last 5 years. better) and the percentile rank relative to the sector and market.
⇐ Negatives Positives ⇒
Normalized Percentile relative Percentile relative
EV/EBITDA (NTM) 25% Score to sector(/517) to market(/1701)
Price to Book NTM 24%

Alpha Model Score 0.31
Valuation -0.42
Price to Sales NTM 24% Growth -0.20
Sales to EV NTM 23%
Profitability 0.81
Earnings Momentum -0.14
Profit Margin FY1 -21% Price Momentum -0.09
Earnings Stability -21% Quality 0.41
Capital & Funding -0.06
Profit Margin NTM -22% Liquidity 0.95
3m Recom. Revisions -27% Risk -0.17
Technicals & Trading 1.17
-30% -20% -10% 0% 10% 20% 30%
0 50 100 0 50 100
0 0 1 1
Source (all charts): FactSet, Thomson Reuters, and Macquarie Quant. For more details on the Macquarie Alpha model or for more customised analysis and
screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com)
2 June 2020 16
Fast Retailing (9983 JP)
Quarterly Results 2Q/20A 3Q/20E 4Q/20E 1Q/21E Profit & Loss 2019A 2020E 2021E 2022E
Revenue m 585,028 364,700 411,190 694,100 Revenue m 2,290,548 1,984,402 2,287,000 2,462,500
Gross Profit m 263,866 171,400 184,510 329,700 Gross Profit m 1,119,561 932,700 1,086,300 1,182,000
Cost of Goods Sold m 321,162 193,300 226,680 364,400 Cost of Goods Sold m 1,170,987 1,051,702 1,200,700 1,280,500
EBITDA m 90,047 39,628 31,085 115,628 EBITDA m 305,550 295,269 390,119 428,828
Depreciation m 11,704 8,000 9,029 7,700 Depreciation m 38,781 38,900 30,800 32,200
Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0
Other Amortisation m 33,100 34,200 32,700 33,900 Other Amortisation m 9,695 132,900 135,700 120,300
EBIT m 45,243 -2,572 -10,644 74,028 EBIT m 257,074 123,469 223,619 276,328
Net Interest Income m 13,107 2,000 -1,023 1,700 Net Interest Income m 7,833 15,100 6,600 8,800
Associates m -198 -198 -198 -198 Associates m 562 -345 -792 -792
Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0
Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0
Other Pre-Tax Income m -9,308 1,250 3,750 1,250 Other Pre-Tax Income m -13,017 5,000 5,000 5,000
Pre-Tax Profit m 48,844 480 -8,115 76,780 Pre-Tax Profit m 252,452 143,224 234,427 289,336
Tax Expense m -17,240 -100 4,514 -23,000 Tax Expense m -74,400 -43,000 -70,300 -86,800
Net Profit m 31,604 380 -3,601 53,780 Net Profit m 178,052 100,224 164,127 202,536
Minority Interests m -2,053 0 -5,715 -4,700 Minority Interests m -15,467 -8,700 -14,300 -17,600
Reported Earnings m 29,551 380 -9,316 49,080 Reported Earnings m 162,585 91,524 149,827 184,936
Adjusted Earnings m 29,551 380 -9,316 49,080 Adjusted Earnings m 162,585 91,524 149,827 184,936
EPS (rep) 289.0 3.7 -91.1 480.1 EPS (rep) 1,591 895.1 1,466 1,809
EPS (adj) 289.0 3.7 -91.1 480.1 EPS (adj) 1,591 895.2 1,466 1,809
EPS Growth yoy (adj) % -27.2 -99.1 nmf -30.8 EPS Growth (adj) % 5.0 -43.7 63.7 23.4
PE (rep) x 38.9 69.1 42.2 34.2
PE (adj) x 38.9 69.1 42.2 34.2
EBITDA Margin % 15.4 10.9 7.6 16.7 Total DPS 480.0 250.0 440.0 540.0
EBIT Margin % 7.7 -0.7 -2.6 10.7 Total Div Yield % 0.8 0.4 0.7 0.9
Earnings Split % 32.3 0.4 -10.2 32.8 Basic Shares Outstanding m 102 102 102 102
Revenue Growth % -6.1 -34.3 -12.1 11.3 Diluted Shares Outstanding m 102 102 102 102
EBIT Growth % -33.7 nmf nmf -19.0
Profit and Loss Ratios 2019A 2020E 2021E 2022E Cashflow Analysis 2019A 2020E 2021E 2022E
Revenue Growth % 7.5 -13.4 15.2 7.7 EBITDA m 305,550 295,269 390,119 428,828
EBITDA Growth % 8.9 -3.4 32.1 9.9 Tax Paid m -74,400 -43,000 -70,300 -86,800
EBIT Growth % 9.1 -52.0 81.1 23.6 Chgs in Working Cap m 56,949 -52,576 -9,700 1,800
Gross Profit Margin % 48.9 47.0 47.5 48.0 Net Interest Paid m 7,833 15,100 6,600 8,800
EBITDA Margin % 13.3 14.9 17.1 17.4 Other m 4,575 7,530 5,000 5,000
EBIT Margin % 11.2 6.2 9.8 11.2 Operating Cashflow m 300,507 222,323 321,719 357,628
Net Profit Margin % 7.1 4.6 6.6 7.5 Acquisitions m 0 0 0 0
Payout Ratio % 30.2 27.9 30.0 29.9 Capex m -65,744 -111,400 -121,200 -125,600
EV/EBITDA x 18.9 19.6 14.8 13.5 Asset Sales m 0 0 0 0
EV/EBIT x 22.4 46.9 25.9 21.0 Other m -13,012 -22,340 0 0
Investing Cashflow m -78,756 -133,740 -121,200 -125,600
Balance Sheet Ratios Dividend (Ordinary) m -57,748 -51,322 -23,474 -50,010
ROE % 18.0 9.5 14.3 15.7 Equity Raised m 0 0 0 0
ROA % 13.0 5.7 9.2 10.6 Debt Movements m -34,077 0 0 0
ROIC % 31.0 15.5 25.8 33.8 Other m -10,603 -68,158 0 0
Net Debt/Equity % -43.2 -41.4 -51.5 -59.2 Financing Cashflow m -102,428 -119,480 -23,474 -50,010
Interest Cover x nmf nmf nmf nmf
Price/Book x 6.7 6.4 5.7 5.1 Net Chg in Cash/Debt m 86,827 -11,770 177,045 182,018
Book Value per Share 9,196.9 9,669.4 10,907.4 12,229.4
Free Cashflow m 234,763 110,923 200,519 232,028
Balance Sheet 2019A 2020E 2021E 2022E
Cash m 1,086,519 1,074,748 1,251,793 1,433,811

Receivables m 60,398 52,300 60,300 64,900
Inventories m 410,526 368,700 408,200 422,600
Investments m 145,728 183,957 183,957 183,957
Fixed Assets m 162,092 128,206 134,006 138,706
Intangibles m 68,209 460,275 409,175 377,575
Other Assets m 77,079 76,203 78,211 79,119
Total Assets m 2,010,551 2,344,389 2,525,642 2,700,668
Payables m 191,769 172,200 196,600 209,700
Short Term Debt m 161,991 270,725 270,725 270,725
Long Term Debt m 499,948 374,946 374,946 374,946
Provisions m 33,814 33,377 33,377 33,377
Other Liabilities m 139,495 456,084 472,284 481,684
Total Liabilities m 1,027,017 1,307,332 1,347,932 1,370,432
Shareholders' Funds m 938,621 986,871 1,113,224 1,248,150
Minority Interests m 44,913 50,186 64,486 82,086
Other m 0 0 0 0
Total S/H Equity m 983,534 1,037,057 1,177,710 1,330,236
Total Liab & S/H Funds m 2,010,551 2,344,389 2,525,642 2,700,668
All figures in JPY unless noted.

2 June 2020 17
Important disclosures:
Recommendation definitions Volatility index definition* Financial definitions
Macquarie – Asia and USA This is calculated from the volatility of historical All "Adjusted" data items have had the following
Outperform – expected return >10% price movements. adjustments made:
Neutral – expected return from -10% to +10% Added back: goodwill amortisation, provision for
Underperform – expected return <-10% Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging,
expected to move up or down 60–100% in a year IFRS impairments & IFRS interest expense
Macquarie – Australia/New Zealand – investors should be aware this stock is highly Excluded: non recurring items, asset revals, property
Outperform – expected return >10% speculative. revals, appraisal value uplift, preference dividends &
Neutral – expected return from 0% to 10% minority interests
Underperform – expected return <0% High – stock should be expected to move up or
down at least 40–60% in a year – investors should EPS = adjusted net profit / efpowa*
Note: expected return is reflective of a Medium Volatility be aware this stock could be speculative. ROA = adjusted ebit / average total assets
stock and should be assumed to adjust proportionately ROA Banks/Insurance = adjusted net profit /average
with volatility risk Medium – stock should be expected to move up total assets
or down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
Low–medium – stock should be expected to *equivalent fully paid ordinary weighted average
move up or down at least 25–30% in a year. number of shares
Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks
down at least 15–25% in a year. are modelled under IFRS (International Financial
* Applicable to select stocks in Asia/Australia/NZ Reporting Standards).
Recommendations – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Recommendation proportions – For quarter ending 31 March 2020

AU/NZ Asia USA
Outperform 53.43% 61.07% 67.03% (for global coverage by Macquarie, 4.62% of stocks followed are investment banking clients )
Neutral 34.30% 26.77% 31.87% (for global coverage by Macquarie, 3.10% of stocks followed are investment banking clients )
Underperform 12.27% 12.17% 1.10% (for global coverage by Macquarie, 3.57% of stocks followed are investment banking clients )
9983 JP vs TOPIX, & rec history
(all figures in JPY currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, April 2020
12-month target price methodology

9983 JP: ¥Y68,900 based on a DCF methodology
Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available publicly at
www.macquarie.com/research/disclosures. Clients receiving this report can additionally access previous recommendations (from the year prior to
publication of this report) issued by this report’s author at https://www.macquarieinsights.com.
Target price risk disclosures:
9983 JP: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include
geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global
economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates,
foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to
manage certain of these exposures.
Sensitivity analysis:
Clients receiving this report can request access to a model which allows for further in-depth analysis of the assumptions used, and recommendations
made, by the author relating to the subject companies covered. To request access please contact insights@macquarie.com.
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We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or
their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views
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including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities.
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2 June 2020 18
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Fast Retailing (9983 JP) : A Global Winner in Apparel Retailing

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Fast Retailing (9983 JP) : A Global Winner in Apparel Retailing

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2 June 2020 Japan

EQUITIES Fast Retailing (9983 JP)

 Strong ESG commitments and sustainability agenda helps branding.

 Valuations appropriate given growth and brand positioning. We initiate

H&M Henn es & Mauritz AB Class B

Ryo hin Keikaku Co., Ltd.

9983 JP Outperform Ambition and execution

Inside A global winner in apparel retailing

Fig 3 Fast Retailing Sales breakdown

Global Brands Other

Source: Company data, Macquarie Research, GU

Source: Company data, Macquarie Research, June 2020

Fig 5 9983 JP rel TOPIX performance, & rec history

(all figures in JPY unless noted)

Valuation, recommendation, risks

(2) Higher shareholder returns.

Why Fast Retailing is actually ‘slow’ retailing

Fig 6 Global apparel retailer sales (2003 vs 2019)

Gap USA FY 2002 1,693.4 INDITEX Spain Jan. 2020 3.40

Source: Fast Retailing Company Materials, Macquarie Research, June 2020

Comparing Fast Retailing to peers

Fig 7 Selected global retailer GMROI by category

See end of report for names

Fig 8 GMROI of Japan covered stocks

Source: Factset, Macquarie Research, June 2020

Fig 9 Gross profit margin comparison Fig 10 EBIT margin comparison

Fig 11 Cash conversion cycle Fig 12 Inventories – days held

International and domestic expansion

North America and Europe

South-East Asia and Oceania

Fig 13 Uniqlo domestic market share

Will e-commerce make physical store presence less important?

Fig 14 Japan chain store sales trends

Household Goods Clothing Furnitire

Source: FactSet, Macquarie Research, June 2020

Fig 15 Japan apparel sales vs furniture/interiors (Japan chain stores)

Source: Factset, Japan Retailer Association, Macquarie Research, June 2020

The Ariake Project & other supply chain initiatives

Fig 16 Clothing and imports to Japan

Source: Factset, Macquarie Research, June 2020

Strong ESG Initiatives

Fig 19 Apparel brands – indexed historical sales ($USD)

Source: Factset, Macquarie Research, June 2020

Fig 20 Fast Retailing ROIC vs TOPIX

Source: Factset, Macquarie Research, June 2020

Fig 21 Daily EV/Sales trends

Source: Factset, Macquarie Research, June 2020

Fig 22 EV/EBITDA trends

Source: Factset, Macquarie Research, June 2020

2020 earnings outlook

Fig 23 Japan existing store sales trends

exisiting stores sales exisiting stores # of customers exisiting stores sales/customer

Source: Company Data, Macquarie Research, May 2020

Fig 24 Fast Retailing 2H FY2020 revenue assumptions

UNIQLO International Greater China -40% -40% ~ -10% -10% ~ ±0%

South Korea, -50% -70% ~ -40% -40% ~ ±0%

North America, -50% -70% ~ -50% -40% ~ ±0%

GU Japan -1% -5% ~ ±0% -5% ~ -5%

Global Brands Theory -55% -90% ~ -50% -30% ~ -5%

Key stocks mentioned

Hennes & Mauritz (HMB SS, Not Rated)

Gap, Inc (GPS, Not rated)