Uniqlo Bets on Basics & Pawn Shop Stocks Soar

**SPEAKER_1** (0:00)
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**Ann Berry** (0:27)
Pepsi, lower chip prices haven't brought back shoppers. We have the latest on what leadership says is keeping customers at bay.
Porn shops, their shares trading at all time highs. We explore the boom and what it might tell us about the state of the American consumer.
And Uniqlo, the retailer's parent just posted yet another blockbuster quarter. We examine why the clothier is zipping past the rest of the apparel industry. For Thursday, July 9th, it's Brew Markets Daily, and I'm Ann Berry.
More market details to come. But first, Fast Retailing, that's not a theme, that is a company, and it's showing investors how it's done in a global market with supply chain uncertainty and patchy consumer sentiment. The Japanese company, which owns Uniqlo and has ADR ticker FRCOY, just reported a blowout fiscal third quarter. Revenue jumped 22% to just over 1 trillion yen, that's about $7 billion, while operating profit jumped a whopping 46%.
Well, to top it all off, management raised full year guidance for the third straight quarter in a row and is expecting record operating profit for the year. Well, the standout from even all of these great numbers, the nugget is that profit is growing much faster than sales, which for finance nerds like me is a sign of something called operating leverage, on top of which there's clearly disciplined inventory management. Two elements of strong execution that investors have rewarded in what's otherwise been a pretty challenging environment for global apparel.
When you compare Fast Retailing to its peers, divergence is notable. Gap, the US clothed staple, Stalwart, remains focused on its turnaround. That's been a little bit bumpy. Stock recently hitting a 52 week low. Meanwhile, Inditex, the owner of Zara, has been growing sales at half the rate of Fast Retailing. While over at Sluggish, H&M, that business relying heavily on promotions to move inventory. Which speaks to Fast Retailing strategy, despite the name. It's actually focusing on premium everyday basics, instead of chasing fast fashion cycles. And there's more to the company than just Uniqlo. Market cap of around $168 billion, that's the parent company, about the same size as TJX. There are other brands in there because Fast Retailing also owns GU, a lower priced trendy fashion brand aimed at younger consumers. Along with the office favorite, Theory, one of my staples, PLST and Princess Tam Tam amongst others.
Though Uniqlo is still the growth engine and accounts for the vast majority of revenue and earnings. And just where that growth is coming from also caught our eye, because North America and Europe are becoming real growth engines for this company that again is headquartered in Japan. And then let's talk about China, which has been so tough for so many competitors. For Uniqlo, it's stabilizing. Consumer spending overall there remaining uneven, something that's hit global apparel brands hard. But Fast Retailing has improved profitability by closing its weaker stores and managing its inventory tightly.
While there are still some headwinds, a week EIN is pushing up import costs, leading to a roughly 4% price increase on fall and winter products in Japan. And then let's talk about Europe, where it saw softer traffic in its stores during June's heatwave. Meanwhile, of course, geopolitical tensions continuing to create uncertainty around the supply chain. But it's a fun one. We're going to keep on watching. And it also is one that we're putting up there in front of people, because just like SK Hynex, it's an Asian name that is getting more attention here in the United States, a trend that we think is likely to continue. Well, in a moment, we answer a listener who's curious as to why shares in publicly traded porn shops are at an all-time high. But first, a few headlines from the day's trading session.

**John Carteau** (4:27)
You kicked off the show with Uniqlo, so let's stick with earnings, this time at a PepsiCo.
Shares in the food and beverage giant ticker PEP fell more than 5% this morning after the company reported results that missed earnings estimates. Its North American food business saw revenue decline 2%, which the company blamed on higher gas prices keeping consumers away from convenience stores.

**Ann Berry** (4:47)
Pepsi is still trying to revive its snack division through lower prices. Earlier this year, the company cut prices on brands including Lay's, Doritos, Cheetos and Tostitos by as much as 15% in an effort to win back shoppers. Well, that strategy did deliver an initial improvement, volumes did increase, but this latest quarter suggests the turnaround still has work to do. And a lot of discussion today as the management team went out there to talk about these results, about the consumer continuing to be pressured. Well, despite all this, Pepsi did reaffirm its full year 2026 guidance, is that it expects those lower prices to support the business gradually as the year progresses.