[Click eStock] "Declining Home Appliance Demand and Weakened Revenge Spending... Lotte Hi-Mart Faces Poor Outlook"

4Q Operating Profit Expected at 9.1 Billion KRW... 44.4% Decrease YoY
Reduced Post-COVID-19 Rebound Consumption... Increase in Online Direct Sales Also a Negative Factor

[Asia Economy Reporter Minwoo Lee] Lotte Hi-Mart is expected to face poor performance in the fourth quarter of this year. Demand for white goods such as washing machines and refrigerators has weakened, and the rebound consumption following COVID-19 has also diminished.

On the 20th, DB Financial Investment lowered Lotte Hi-Mart's target stock price by 22.7% to 34,000 KRW due to these factors. The investment opinion was maintained as 'Buy.' The closing price on the previous trading day was 25,950 KRW.

Sales for the fourth quarter of this year are estimated at 896.4 billion KRW, and operating profit at 9.1 billion KRW, representing decreases of 7% and 44.4%, respectively, compared to the same period last year. This is attributed to the overall weakening demand for white goods such as washing machines, refrigerators, and dryers, as well as the weakening of COVID-19 rebound consumption. Despite cost-cutting efforts such as restructuring inefficient stores, operating profit is expected to decline to about half of the previous year's level due to the burden of fixed selling and administrative expenses caused by the drop in sales.

The recovery next year is also expected to be gradual. The number of stores is expected to decrease by six to 420. Operating profit next year is estimated to increase by 13.9% from this year's forecast to 135.4 billion KRW, due to the easing of selling and administrative expense burdens following sales recovery.

Jaehun Cha, a researcher at DB Financial Investment, explained, "The rebound consumption demand for large home appliances that appeared after COVID-19 is weakening, and purchases of home appliances through e-commerce and other online channels are increasing. Major appliance manufacturers are expanding their own sales channels, changing the operating environment of appliance retail stores." He added, "The weakening demand for large home appliances, poor quarterly performance trends, and intensified competition with manufacturers are the reasons for the downward revision of the target stock price."