Lotte Shopping Plunged into the 'Corona Swamp', Q2 Operating Profit Plummets (Update)

Large-scale Venue Avoidance and Restrictions on Emergency Disaster Relief Fund Usage Lead to Poor Performance of Discount Stores and Culture Works
Home Shopping and Hi-Mart Manage to 'Hold Up'... Operating Profit Increases Year-on-Year

[Asia Economy Reporter Lim Hye-sun] As the COVID-19 pandemic prolonged, Lotte Shopping's earnings sharply declined in the second quarter following the first quarter. The performance of Culture Works, the investment and distribution company operating discount stores (large marts) and Lotte Cinema, collapsed. Although department store operating profit improved compared to the first quarter, it did not recover to the usual level compared to the previous year. However, with more time spent at home, the electronics specialty store (Hi-Mart) and home shopping managed to 'hold their ground' to some extent.

Lotte Shopping announced on the 6th that its operating profit for the second quarter of this year was 1.4 billion KRW, a 98.5% decrease compared to the same period last year. Sales amounted to 4.0459 trillion KRW, down 9.2%.

For department stores, sales and operating profit were 666.5 billion KRW and 43.9 billion KRW respectively, down 12.3% and 40.6% compared to the same period last year. Compared to the first quarter (sales 606.3 billion KRW, operating profit 28.5 billion KRW), there was a slight improvement. A Lotte Shopping official explained, "Sales of overseas luxury goods and home appliances increased," adding, "Operating profit also rose 54% compared to the first quarter due to the reversal of provisions for the Shenyang department store in China, rent reductions in Indonesia, and decreased selling and administrative expenses in Vietnam."

The discount stores recorded an operating loss of 57.8 billion KRW, with the deficit widening compared to the same period last year. Sales also decreased by 8.5% to 1.465 trillion KRW. Temporary closures, shortened operating hours due to the spread of COVID-19, and restrictions on the use of emergency disaster relief funds had a significant impact. Culture Works' second-quarter sales were 31.7 billion KRW, down 82.2% year-on-year. The decline in movie theater attendance and the non-release of major films were the main causes. The second-quarter loss also reached 50.6 billion KRW due to sluggish sales and limited reductions in selling and administrative expenses.

Supermarkets recorded an operating loss of 9.6 billion KRW, with the deficit narrowing compared to the same period last year. This was the result of reducing selling and administrative expenses and adjusting underperforming stores. Sales were 429.8 billion KRW, down 9.2% year-on-year.

However, Hi-Mart and home shopping showed improved performance. Hi-Mart's operating profit was 69.3 billion KRW, a 51.1% increase compared to the same period last year. Sales also rose 4.2% to 1.1157 trillion KRW. Growth in high-efficiency premium home appliances and increased demand for PC and TV-related products due to the expansion of non-face-to-face classes and remote work were key factors.

Home shopping sales and operating profit were 259.8 billion KRW and 37.6 billion KRW respectively, growing 10.1% and 13.3%. Continuous sales growth was driven by the expansion of health products and directly purchased items.

A Lotte Shopping official stated, "In the second quarter of this year as well, domestic retail companies faced many difficulties due to avoidance of large gathering facilities and deteriorating consumer sentiment caused by the spread of COVID-19," adding, "Department stores are showing signs of sales recovery, and Hi-Mart and home shopping are riding a trend of strong performance. Efforts to strengthen premium products are creating synergy effects, so we expect steady performance improvement in the second half of the year."