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Japan-Update

Muji operator's first-half profit seen bouncing 6% to record

Ryohin Keikaku soars in Japan, but black ink likely dipped overseas

Muji outlets, like this one in central Tokyo, lifted same-store sales in July.

TOKYO -- Ryohin Keikaku, the Japanese operator of the Muji retail chain, appears poised to achieve a sixth straight record operating profit for the March-August half, benefiting from a strong domestic business.

The black ink likely will climb 6% from a year earlier to around 21 billion yen ($192 million), aided by an 11% bounce in operating revenue to roughly 180 billion yen. Both sales and profit figures look to be moving roughly in line with Ryohin's projections.

Japanese operations, which account for over 60% of the earnings, received a boost from improved inventory controls. The company overhauled practices after it could not maintain stocks of underwear and similar clothing during last summer's extended hot weather. Ryohin also lifted customer traffic by lowering prices on certain products.

Sales of cosmetics and other household goods grew in the period. Muji wire clips, which have hooks on one end for hanging recipes or other articles around the kitchen, gained a wide following after being introduced on a television program. A new packaged spicy chicken curry meal also became popular.

Same-store sales in July rose 12%, a rate not seen in roughly two years. Customer intake for August also looks to top the year-earlier performance despite long spells of rain. These numbers offset higher labor and logistics costs and serve to underpin profit growth.

However, profit apparently fell by double digits in offshore markets, which are positioned as growth drivers. Ryohin had opened more locations and secured bigger sales, but profitability likely deteriorated.

In China, Ryohin had already anticipated surging inventory costs as the yen's decline against the yuan slows. What is more, customer traffic reportedly slumped in April after state TV alleged in March that Muji stores sold food from areas in Japan where exports are banned due to radiation concerns.

Chinese operations are recovering, but same-store sales from April to June rose only 1.8% on the year, a far cry from the 5.8% growth in the January-March period. Ryohin seems unlikely to achieve its goal of an 11% profit increase in East Asia, which revolves around China.

Ryohin predicts consolidated operating revenues will climb 12% to 373.9 billion yen for the current fiscal year ending in February 2018. Full-year operating profit is seen advancing 11% to 42.3 billion yen. The company is widely anticipated to maintain that guidance.

(Nikkei)

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