UPDATE 2-Aeon Q1 profit sinks 62 pct on sluggish sales
* Core supermarket same-store sales down 5.8 pct yr/yr
* Says to markdown further to attract customers
* Shares close down 1.9 pct vs 0.4 pct rise in retail index
TOKYO, July 7 (Reuters) - Japan's second-largest retailer, Aeon Co Ltd (8267.T), on Tuesday posted a 62 percent drop in quarterly profit as a slide in consumer spending hit its supermarkets and its U.S. women's clothing unit Talbots.
Aeon, which operates the Jusco supermarket chain, and its rivals have been suffering sharp sales falls as customers have less money to spend and defect to cheap specialty stores like apparel chain Uniqlo.
"We are experiencing an unprecedented retail slump," Masaaki Toyoshima, Aeon executive vice president, said at its earnings briefing.
"We have made drastic cost cuts, but falls in gross margins have had a bigger impact," he said.
The company, which runs 600 supermarkets, 1,200 grocery stores and thousands of specialty stores, said operating profit fell to 8.7 billion yen ($91.5 million) during its March-May first quarter.
Same-store sales at its core supermarket operation fell 5.8 percent from the previous year despite aggressive markdowns and increased ranges of cheap store-brand items.
Sales falls were particularly sharp in clothing, a trend that is especially damaging to Aeon and other all-in-one stores since apparel items typically have bigger profit margins than others products.
"What Aeon needs is topline growth. There is a limit to the amount of profit that can be achieved by cost cutting," said Naoki Fujiwara, a fund manager at Shinkin Asset Management.
U.S. unit Talbots (TLB.N), which mainly caters to women over 35, posted a loss for the quarter. Talbots has also announced further job cuts and the sale of its J.Jill division.
Last week, larger rival Seven & I Holdings (3382.T) posted a bigger-than-expected 17.5 percent decline in its first-quarter operating profit, hurt by a dismal performance by its supermarket and department store divisions. [ID:nT369185]
FURTHER MARKDOWNS
Aeon said it would further cut prices as it aims to achieve overall sales growth by increasing customer traffic and the number of items bought per shopper. Continued...
