[Click eStock] "Convenience Store and Supermarket Slump at GS Retail, More Time Needed for Improvement"

"Expect Synergy Between Online New Business and Existing Stores"

[Asia Economy Reporter Minwoo Lee] GS Retail is evaluated to have posted somewhat sluggish performance in convenience stores, supermarkets, and hotels in the fourth quarter of last year. Analysts suggest that synergy effects between new online businesses and existing businesses in the second half of the year should be anticipated.

On the 13th, Meritz Securities maintained its investment rating of 'Neutral (HOLD)' on GS Retail and lowered the target price by about 5.4% to 35,000 KRW. The closing price the previous day was 29,600 KRW.

Last year's fourth-quarter performance was forecasted at consolidated sales of 2.5772 trillion KRW and operating profit of 55.3 billion KRW. Although these figures represent increases of 19.3% and 115.4% respectively compared to the same period last year, this is attributed to the consolidation effect of home shopping. Excluding the consolidation effect, the existing business division's sales increased by 3.9% year-on-year, but operating profit decreased by 40.1%, effectively indicating a profit decline.

For convenience stores, sales of 1.7879 trillion KRW and operating profit of 37.3 billion KRW were expected. Sales are projected to increase by 3.5% year-on-year, while operating profit is expected to decrease by 0.3%. Yoonhee Choi, a researcher at Meritz Securities, analyzed, "Sales growth is merely due to the effect of new store openings, but same-store sales in November and December are expected to decline. With sales growth below market growth accompanied by cost inputs, profit growth is also difficult to expect."

For subsidiaries, supermarkets are estimated to record sales of 284.2 billion KRW and an operating loss of 9.4 billion KRW. Since same-store sales are expected to decrease by 5.0% year-on-year, profit improvement is unlikely. Hotels are projected to have sales of 54.4 billion KRW and an operating loss of 1.5 billion KRW. It is analyzed that growth in scale due to improved occupancy rates reduced the operating loss margin. Home shopping is expected to post sales of 331.8 billion KRW and operating profit of 39.9 billion KRW. Sales are forecasted to increase by 1.0% year-on-year, while operating profit is expected to decrease by 13.4%. Researcher Choi explained, "Although an increase in clothing sales is expected to improve the product mix, it is insufficient to fully offset the burden of increased broadcasting fees (8 billion KRW)."

There is a point that attention should be paid to synergy with new online businesses rather than short-term performance improvement going forward. This is because weakening core business competitiveness and cost pressure from new businesses (equity method loss from Yogiyo) are expected. Researcher Choi said, "GS Retail is expected to launch 'Yomart' in the second half of this year and actively pursue digital and quick commerce platform businesses. Sales growth in convenience stores and supermarkets, based on an overwhelming number of stores, can not only narrow the gap with competitors but also naturally stimulate growth through diversification of sales channels."