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Japan-Update

Shimamura's first-half profit seen missing estimate

Weather rains on the Japanese apparel retailer's results

TOKYO -- Shimamura's operating profit likely missed the target for the March-August half as unseasonably cool weather forced the apparel retailer to offer steep discounts.

Consolidated operating profit for the period is seen falling 9% on the year to around 23 billion yen ($206 million). In June, Shimamura predicted operating profit to climb 13% to 28.5 billion yen.

Sale, including operating revenue, likely edged up on the year to 285 billion yen. Shimamura's print T-shirt line SweaT's did not sell well at core chain Fashion Center Shimamura, which accounts for 80% of total sales. Existing-store sales sank 1.5% due to poor weather in early spring. 

Shimamura also provided more discounts to shed excess inventory accumulated during the usually busy spring-summer season. The company's cool denim and pants line normally retails for 2,900 yen but the price was cut 30% at one point to 2,030 yen. Spending per customer fell 2.1% across all stores, canceling out a 2.2% increase in foot traffic.

Advertising and labor costs also rose. The company quadrupled the number of television commercials it aired but the advertising fell flat amid cool temperatures. Labor shortages also took a heavy toll due to higher hourly wages for part-time workers. 

Shimamura is reviewing domestic store openings for the year due to the weak first-half results. The company opened 23 new stores in the first half compared with 29 the prior year. The retailer had planned to open 85 new locations in the year ending in February but has now lowered that to 70. 

Despite the lackluster performance, there are some signs of recovery. Existing-store sales declined year on year for four straight months through June but gained 6.4% in July and 2.4% in August. Cool sleepwear is selling well and knitted clothing, wide pants and other autumn items have also gotten off to a brisk start.

In June, the company said it expects full-year sales to rise 8% to 611 billion yen and operating profit to grow 16% to 56.7 billion yen. But operating profit for the first half represents only 40% progress toward that goal. By contrast, the company was halfway to its target at the same point last year.

(Nikkei)

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