Uniqlo profits alert to be followed by further grim news from Gap

The Japanese owner of the Uniqlo clothing stores which opened with great fanfare in Britain in September, issued a calamitous profits warning yesterday amid slumping sales. The warning raises questions about the group's performance in the UK where it has ambitions to open at least 50 stores within five years.

The warning by Fast Retailing, will be joined by a grim trading update from US clothing giant Gap today. The fallen star is expected to report a 24 per cent year on year plunge in its sales for December.

Gap has 133 stores in Britain and 3,800 worldwide but it has over-expanded in too many markets and is labouring under $5.5bn of debt. Its bonds now have junk status and yield over 10 per cent.

The stores were once seen as a cool place to buy basic items such as jeans and T-shirts. But a move into trendier styles, often in brilliant orange or bright turquoise has turned shoppers off. Its prices have also started to look expensive compared with rivals such as the recovering Marks & Spencer and Uniqlo where fleeces start at £10 and jeans at £15. Its UK stores were cutting prices before Christmas with dramatic markdowns on racks of unsold merchandise. "Gap has lost its way and its problems look really serious," one London retail analyst said.

The profits warning from Uniqlo was a botched affair and came only minutes after it announced a briefing to discuss expansion plans. Profits for this year will fall a third short of expectations. The company could not provide a UK spokesman yesterday but said all five of its stores in the country were performing ahead of expectations. The group's UK managing director quit before Christmas, less than three months after the first stores opened.