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Uniqlo parent logs first September-November profit drop in 3 years

New winter collection lacked appeal during mild Japanese autumn

Mild temperatures forced Uniqlo to hold many clearance sales in Japan, as at this store in Tokyo's upscale Ginza shopping district.

TOKYO -- Uniqlo operator Fast Retailing's net profit declined 6% for the three months ended Nov. 30, marking the quarter's first drop in three years, as warm temperatures hampered sales in the company's home market of Japan.

Net profit slid to 73.4 billion yen ($677 million) on revenue of 644.4 billion yen, up 4%, in results out Thursday. Operating profit sank 8% to 104.6 billion yen. Japanese Uniqlo operations dragged performance down, with the segment's operating profit tumbling 30% and its revenue sliding 4%.

Uniqlo, previously a dominant presence in Japan's apparel industry, has stumbled this season. "While new ranges and trendy products such as premium lambswool sweaters, boa fleece sweatshirts, fluffy fleece, and knitted coats sold well, sales of core Winter items struggled overall in the face of especially mild weather in October and November," the company said of Japan.

A year earlier, cold temperatures had fueled sales so strong that store inventories ran short. This time around, such key seasonal offerings as down clothing, sweaters and Heattech undergarments struggled amid warmer-than-expected weather.

The fall-winter product mix is "too focused on warm clothing," Chief Financial Officer Takeshi Okazaki told a news conference.

Discount sales put the squeeze on margins. One Tokyo location was dotted with red signs for items at clearance sale prices.

"Seasonal factors are not the only reason for sluggish sales" in Japan, a company official pointed out. A lack of new hit products appears to be another. Uniqlo added items like redesigned Heattech leggings to its lineup, but these products lack a "wow" factor, a company source said. The core of the apparel lineup for the fall-winter 2018 season was little changed from a year earlier.

The slowdown at home stands in stark contrast to brisk performance abroad. In China, the company reported double-digit operating profit growth despite the warm weather as new offerings fared well and discount sales were limited. Uniqlo operations outside Japan booked 13% operating profit and revenue growth for the September-November quarter, driven by Chinese business. Their profit of 52.5 billion yen exceeded Uniqlo Japan's 37.9 billion yen.

Earnings estimates for the full year ending Aug. 31 have been kept unchanged. Fast Retailing sees net profit growing 7% to 165 billion yen on revenue of 2.3 trillion yen, up 8%.

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