[Click eStock] "Lotte Shopping, Slow Recovery Trend"

[Asia Economy Reporter Song Hwajeong] Shin Young Securities maintained a 'Buy' investment rating and a target price of 150,000 KRW for Lotte Shopping on the 26th, anticipating that it will be difficult to recover to 2019-level performance in the second quarter as well as the first quarter of this year.

Shin Young Securities projected Lotte Shopping's total sales and operating profit for the second quarter to reach 5.5022 trillion KRW and 52.8 billion KRW, respectively. These figures represent increases of 2.3% and 3695% compared to the same period last year. By segment, department store total sales and operating profit are estimated at 1.9453 trillion KRW and 65.7 billion KRW, up 10.5% and 49.7% year-on-year, respectively. Discount store total sales are expected to increase by 1.2% to 1.6379 trillion KRW, with an operating loss of 30.9 billion KRW, significantly reducing the deficit. The major subsidiary Lotte Hi-Mart is expected to contribute less to consolidated earnings compared to the previous year due to a low base in the second quarter and sluggish air conditioner sales, while Lotte Cultureworks, which operates Lotte Cinema, is forecasted to see a somewhat wider operating loss than in the first quarter.

The main reasons why it is expected to be difficult to recover to 2019-level performance in the second quarter as well as the first quarter are the department stores, e-commerce, and Cultureworks. Researcher Seo Jeong-yeon of Shin Young Securities explained, "During the COVID-19 period, the representative product category driving department store performance has been overseas luxury goods, especially with a high contribution from major commercial districts in Seoul," adding, "Lotte Department Store has a higher proportion of regional stores compared to competitors, so it is analyzed that it has not benefited from this." Seo further noted, "In the case of e-commerce, it is understood that it takes time for each business unit such as department stores, marts, and supermarkets to stabilize their online operations after the integration of LotteON in the second quarter of last year, and Cultureworks will continue to face performance burdens due to the fourth wave of COVID-19." However, Lotte Hi-Mart is expected to see a recovery in seasonal home appliances due to the heatwave.

It is anticipated that department store sales will show a strong rebound once COVID-19 related restrictions are eased. Researcher Seo said, "Considering that domestic fashion consumption has not recovered to 2019 levels due to prolonged social distancing and private gathering restrictions, it is highly likely that department store sales will show a strong rebound led by fashion consumption once various restrictions are relaxed," adding, "It is necessary to maintain continuous interest in the performance recovery of Lotte Shopping, which has stores nationwide."