Japan’s Fast Retailing Co, owner of clothing brand Uniqlo, said first-quarter profit slid 2 per cent, reflecting weakness at home and continuing Covid-19 restrictions in China.

A day after announcing plans for big wage rises, the company said operating profit had been US$889.82 million in the three months to the end of November.

Domestic results were hit by warmer weather in November that stifled sales of fall and winter wear, while Covid curbs continued to weigh on China, including the temporary closure of 247 stores in Beijing and Guangzhou.

“Once ‘with corona’ lifestyles take root, we think normal operations will come back on the Chinese mainland,” CFO Takeshi Okazaki told reporters.

Sales and earnings in all other regions increased. The company held its full-year operating profit forecast at $2.7 billion.

The company, Japan’s biggest retailer, sent shockwaves through the country on Wednesday by saying it would lift its employees’ wages by as much as 40 per cent. That greatly satisfied policymakers, who had been urging employers to raise wages to help offset the highest inflation in a generation.

“From a macro perspective, this move highlights that it is becoming increasingly difficult for Japanese companies to attract and retain workers,” said Mark Chadwick, an independent equities analyst who publishes on the Smartkarma platform.

Fast Retailing, which operates more than 3500 clothing stores worldwide, reported record profit last fiscal year, as growth in North America and Europe compensated for a slump in China.

The company is seen as a bellwether for the Chinese market, where it produces many of its goods and operates almost 900 Uniqlo stores, more than in Japan.

Last October, Fast Retailing posted a record annual profit despite a slump in China.

• Reporting by Rocky Swift; Editing by Clarence Fernandez, Bradley Perrett and Conor Humphries, of Reuters.