By Rocky Swift

TOKYO (Reuters) – Japan’s Fast Retailing Co reiterated its forecast for a third year of record profits on Thursday, as the Uniqlo owner pushes ahead with its expansion into North America and Europe to take on established rivals H&M and Zara owner Inditex.

Its ambitious growth moves in Western markets come as sales in its home market are declining; seven flagship stores in the two overseas regions are now among Uniqlo’s top ten stores by sales.

“The clothing market in Europe is worth 70 trillion yen ($457 billion), but Uniqlo’s share is still only about 0.5 percent of it,” said Taku Morikawa, CEO of Uniqlo Europe, at a press conference to announce the results.

“In the central areas of London and Paris, Uniqlo had no chance compared to its competitors.”

Fast Retailing said both North America and Europe reported large, better-than-expected sales and profit increases and expects record results for the regions in the second half of the fiscal year ending in August.

For the second quarter ended February, Fast Retailing reported a 7% increase in operating profit to 110.4 billion yen ($721.80 million), slightly below market estimates.

By comparison, last year’s estimate was 103 billion yen, and the average estimate of five analysts in an LSEG survey was 114.3 billion yen.

Fast Retailing also left its full-year operating profit forecast unchanged at 450 billion yen, as results in China were dragged down last quarter by a warmer-than-usual winter and a drop in consumer confidence. Greater China is the company’s biggest market in terms of stores.

The company revised its full-year sales forecast down by 20 billion yen to 3.03 trillion yen to reflect weaker growth in the first six months.

CHINA MARKET

Fast Retailing, known for its fleece jackets and inexpensive basic clothing, is benefiting from the recovery in China and the yen’s decline to a 34-year low, boosting the value of its overseas sales.

And as the company pursues an aggressive growth trajectory in Greater China, North America and Europe, it is benefiting from the fact that many consumers are prioritizing value over luxury in the wake of the COVID pandemic.

The results follow a 25% jump in profit in the first quarter, driven by strong sales in China after years of crisis during the coronavirus pandemic. With its 922 stores in mainland China, Fast Retailing is an indicator of global retailers operating in the world’s second-largest economy.

The company, founded and led by Tadashi Yanai, Japan’s richest man, has achieved record results over the past two years and expects profits to rise again this year.

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As in previous press conferences, Yanai on Thursday dismissed the positive impact of the yen depreciation on Fast Retailing and described it as negative for Japan overall.

“I find it a bit strange that people are happy about a weaker yen,” he said. Fast Retailing expects an average exchange rate of 137 yen per US dollar for the current fiscal year.

Before the results were released, Fast Retailing shares closed 0.6 percent lower, while the broader market fell 0.4 percent. For the year, the company’s shares have risen 26 percent, while the Nikkei has gained 18 percent.

($1 = 152.9500 yen) ($1 = 153.1800 yen)

(Reporting by Rocky Swift; Editing by Miyoung Kim and Muralikumar Anantharaman)