New World Weeps Over COVID-19... Department Stores, Duty-Free, Fashion, and Beauty Severely Hit

Operating Profit of 3.3 Billion KRW in Q1... 97% Decrease YoY

Shinsegae Department Store Main Branch Exterior View

[Asia Economy Reporter Cha Min-young] Shinsegae Group has received a disappointing first-quarter report card as expected amid the novel coronavirus disease (COVID-19) crisis.

Shinsegae announced on the 12th through a public disclosure that its consolidated operating profit for the first quarter of this year was 3.3 billion KRW, a 97.0% decrease compared to 109.6 billion KRW in the same period last year. Sales amounted to 1.1969 trillion KRW, down 21.1% year-on-year, and net profit was 160 million KRW, down 99.8%.

The operating profit plummeted to less than one-tenth mainly due to poor performance in key business sectors. The department store’s standalone operating profit, the core business, was 22.6 billion KRW, down 30.8 billion KRW from the previous year. Shinsegae International, a fashion and beauty subsidiary, posted an operating profit of 12 billion KRW, down 17.2 billion KRW, while Central City, a real estate development and operation subsidiary, recorded 11.7 billion KRW in operating profit, down 9.7 billion KRW.

Several subsidiaries even turned to operating losses. Shinsegae DF, the duty-free subsidiary, saw its operating profit plunge from 12.6 billion KRW last year to a loss of 32.4 billion KRW. Daegu Shinsegae posted an operating loss of 3 billion KRW, down 7.7 billion KRW. Casa Mia, a furniture subsidiary, expanded its deficit from a loss of 1.1 billion KRW last year to an operating loss of 2.7 billion KRW.

Major equity-method affiliates also saw a decline in performance. Shinsegae Simon, which operates four premium outlets nationwide (with a 25.0% stake), recorded an operating profit of 13.3 billion KRW, down 1.7 billion KRW year-on-year. Gwangju Shinsegae (with a 10.4% stake) saw its profit drop sharply by 3.7 billion KRW to 10 billion KRW.

In the duty-free business, airport store sales fell 40% year-on-year in the first quarter, and downtown store sales also decreased by 21%. Shinsegae International’s cosmetics sales dropped 11.1% due to blocked sales channels in the Chinese duty-free market. The fashion lifestyle segment shrank 10.1% due to warm winter weather and domestic consumption stagnation. Shinsegae Central City also faced setbacks in its leasing business. Despite operating losses, Casa Mia continued to expand its number of stores.

The company explained, "Due to the spread of COVID-19, domestic demand stagnation and a decrease in foreign tourists affected sales and operating profits of department stores and duty-free shops. In the case of department stores, sales declined across all sectors except for purpose-driven purchases such as luxury goods and home appliances."

Meanwhile, Shinsegae’s total consolidated assets at the end of the first quarter stood at 13.1037 trillion KRW, an increase of 85.2 billion KRW from the end of last year. Among these, liabilities rose by 218.8 billion KRW to 7.7222 trillion KRW, while equity decreased by 133.5 billion KRW to 5.3816 trillion KRW.