[Click eStock] "Lotte Hi-Mart Q4 Slump... New Business Model Needed"

[Asia Economy Reporter Lee Myunghwan] Meritz Securities announced on the 8th that it has maintained a buy rating on Lotte Hi-Mart despite the company's fourth-quarter earnings last year falling significantly short of expectations, but lowered the target price from 35,000 KRW to 31,000 KRW.

Lotte Hi-Mart recorded sales and operating profit of 893.1 billion KRW and 3.7 billion KRW, respectively, in the fourth quarter of last year. Compared to the same period last year, sales decreased by 7.3% and operating profit by 77.6%, resulting in performance significantly below market expectations. Yoonhee Choi, a researcher at Meritz Securities, explained that "the high base burden due to last year's revenge consumption effect continued," which was the reason for the company's poor performance.

The decline in performance is analyzed to be due to a double-digit decrease in sales of high-margin white goods such as washing machines and dryers. The kimchi refrigerator segment experienced a base burden as it had benefited from strong promotions with manufacturers the previous year, Meritz Securities reported. Additionally, the IT appliances segment succeeded in defending sales but was weaker than expected due to raw material supply disruptions for smartphones.

Meritz Securities pointed out that Lotte Hi-Mart is incurring costs for promotions amid a lack of new growth drivers. The expansion of low-margin online sales is insufficient to offset sluggish offline sales. Researcher Choi said, "Lotte Hi-Mart's earnings momentum depends on air conditioner sales in the second quarter, so performance improvement can be confirmed after the first quarter of 2022."

He added, "This year's performance is not burdened by growth thanks to the low base last year," but also diagnosed that "it is clear that a new business model for structural growth is urgently needed."