[Into the Stock] Lotte Shopping, Key to Reversing Poor Stock Performance: Restructuring and LotteON 'Synergy'

Stock Prices Sliding
1-Year Stock Return Down 27%
All Divisions Except Department Stores Underperform
Estimated Negative Growth in Q4 Last Year

[Asia Economy Reporter Minji Lee] Lotte Shopping's stock price has been sliding for a year. The sluggish performance of business divisions other than department stores appears to be dragging down both earnings and stock price. To reverse the poor stock movement, the effects of restructuring and noticeable growth of ‘LotteON’ are necessary.

As of 12 PM on the 20th, Lotte Shopping recorded 82,000 KRW, down 0.5%. The stock return over the past year has dropped by more than 27%. This year, concerns over earnings have been reflected in the stock price, which has fallen about 5%.

Lotte Shopping is expected to report weak earnings for the fourth quarter of last year. Securities firms estimate that the fourth quarter sales were 3.8991 trillion KRW and operating profit was 151.8 billion KRW, down 1% and 16% respectively compared to the same period last year. While department store performance was solid, the poor results from discount stores, home shopping, Hi-Mart, and Culture Works divisions were painful.

The department store division is predicted to have a same-store sales growth rate of 12%. Although the spread of COVID-19 increased, demand for items such as cosmetics and fashion rose significantly due to increased outings. On the other hand, discount stores, supermarkets, and home shopping are expected to have recorded losses. Profitability likely deteriorated due to the disappearance of COVID-19 special effects and the inclusion of 10 billion KRW in voluntary retirement costs. The same-store sales growth rates for discount stores and supermarkets are estimated at around -3% and -8%, respectively. Hi-Mart’s operating profit likely decreased by 30% due to a worsening product mix, and home shopping’s operating profit likely fell by 10% due to increased broadcasting fees. Culture Works saw an increase in visitors due to higher vaccination rates but was insufficient to escape operating losses.

Choi Yoon-hee, a researcher at Meritz Securities, said, "Except for department stores, all business divisions are experiencing profit declines and losses, making earnings improvement difficult. The removal of the department store’s revenge consumption effect this year creates a high base effect, and repeated earnings volatility each quarter is dampening investor sentiment."

The ‘key’ to reversing the stock price lies in whether the effects of the large-scale restructuring carried out over the past four years can be realized. Offline store restructuring and voluntary retirement have slimmed down the organization, but the effects can only be expected once operations normalize.

The trend of LotteON, the e-commerce platform that continues to make intensive investments, also needs to be monitored. Park Eun-jung, a researcher at Samsung Securities, said, "The number of app users is increasing significantly, showing positive indicators from a long-term perspective, but losses are also expanding due to intensive investments and marketing. Organic and inorganic investments that could burden the financial structure will continue."

Meanwhile, securities experts advise a conservative approach to Lotte Shopping for the time being. Since a rapid earnings recovery is unlikely, the consensus is that the stock price will be difficult to rise in the short term. Daishin Securities, NH Investment & Securities, and Meritz Securities have all issued ‘neutral’ investment ratings, and major securities firms have lowered their target prices, considering 100,000 KRW as appropriate for the stock price.