BGF Retail Strengthens Earnings Momentum Starting from Q2

[Asia Economy Reporter Song Hwajeong] BGF Retail recorded earnings below market expectations in the first quarter of this year, but securities firms anticipate that the earnings momentum will strengthen from the second quarter onward.

According to the Financial Supervisory Service's electronic disclosure system on the 8th, BGF Retail posted consolidated sales of 1.5012 trillion KRW and operating profit of 21.6 billion KRW in the first quarter. These figures represent increases of 7.8% and 16.8%, respectively, compared to the same period last year. Eun Kyung Park, a researcher at Samsung Securities, stated, "Operating profit fell short of market consensus by 10%," adding, "The main reason for the shortfall was the larger-than-expected sluggish performance in high-profit specialty stores (such as hospitals and university areas) during January and February." The same-store sales growth rate for general locations in the first quarter was 0.2%, whereas for specialty locations it was approximately -5.6%. Park explained, "In March, customer traffic recovered, resulting in a significant rebound with general locations growing 4.4% and specialty locations 22.1%."

Jong Ryeol Park, a researcher at Hyundai Motor Securities, commented, "Although the results slightly missed forecasts, the operating performance was solid enough to compensate for last year's downturn," and evaluated, "The positive aspect is that the impact of COVID-19 is gradually diminishing as time progresses this year."

The trend of earnings improvement is expected to strengthen further in the second quarter. Researcher Park said, "With the recovery of the domestic economy and an increase in domestic travelers improving the business environment, combined with proactive expansion of the store network, the scale of growth will expand," adding, "Along with a decrease in the proportion of tobacco sales and growth in high-margin categories, profitability will improve due to product mix enhancement, accelerating the earnings improvement trend." Hyundai Motor Securities estimated BGF Retail's consolidated second-quarter results at sales of 1.6797 trillion KRW and operating profit of 55.9 billion KRW, representing increases of 8.4% and 25.6%, respectively, compared to the same period last year.

Once school attendance normalizes, the pace of earnings improvement is expected to accelerate. Shinae Park, a researcher at KB Securities, predicted, "From the second quarter, earnings momentum will be highlighted based on a low earnings base and the seasonal peak period effect," adding, "If school attendance normalizes, sales at stores near schools will recover, speeding up earnings improvement. Market share is also expected to increase slightly each year." KB Securities projected BGF Retail's consolidated sales for this year to increase by 9% year-on-year to 6.7086 trillion KRW, and operating profit to rise by 26% to 204.9 billion KRW.