[Click eStock] "Lotte Hi-Mart, Weak Performance Expected for the Time Being... Target Price Down"

[Asia Economy Reporter Song Hwajeong] Hanwha Investment & Securities downgraded the target price of Lotte Hi-Mart from 40,000 KRW to 35,000 KRW on the 24th, anticipating a continued sluggish performance for the time being. The investment rating was maintained at 'Buy.'

Nam Seonghyun, a researcher at Hanwha Investment & Securities, said, "The target price change was made following adjustments to earnings estimates," adding, "Due to sluggishness in the upstream industry, a decline in offline market share, and a decrease in margin rates caused by an increase in online sales proportion, Lotte Hi-Mart's performance is likely to continue to be weak for the time being."

Hanwha Investment & Securities forecasted Lotte Hi-Mart's Q4 earnings this year to show sales of 945.4 billion KRW, down 1.9% year-on-year, and operating profit of 15.5 billion KRW, down 6.6%. Researcher Nam analyzed, "Lotte Hi-Mart's Q4 performance is likely to be weak," explaining, "This is due to the burden from last year's high base, continued weakening of offline competitiveness, and expected short-term earnings decline and goodwill impairment losses due to some store restructuring."

The restructuring is seen as a rational strategy, but there is an opinion that strengthening offline competitiveness is necessary. Lotte Hi-Mart is currently conducting restructuring focused on small loss-making stores. The number of road shop stores was 356 at the end of 2020, and it plans to close about 17 stores by the end of 2021, reducing to 339 stores. As of the end of Q3, 11 stores have already been closed. Researcher Nam said, "This restructuring strategy is considered rational," explaining, "The online home appliance market is surpassing the offline market, fixed cost burdens are increasing, and unlike in the past, the competitiveness of small and medium-sized stores is weakening."

However, it is evaluated as regrettable that the company has not been able to fundamentally strengthen its offline competitiveness. Researcher Nam said, "Lotte Hi-Mart's basic strength lies in purchasing through manufacturer comparisons, but competitiveness is weakening as the premium product segment grows," adding, "Structurally, it is necessary to expand the high-end lineup to attract consumers and to develop a business model (BM) that can be linked to this."