[Into the Stocks] Despite China's Lockdown Weakening Reopening Stocks... Hyundai Department Store Smiles Brightly

[Asia Economy Reporter Lee Jung-yoon] The reopening effect was diluted due to the impact of China's lockdown. However, despite this situation, Hyundai Department Store posted results that exceeded market expectations in the first quarter of this year. Although the duty-free sector was not free from the effects of the China lockdown, the clothing sector led the growth trend.

According to the financial investment industry on the 19th, Hyundai Department Store's consolidated sales in the first quarter increased by 36.8% year-on-year to 934.4 billion KRW, and operating profit rose by 37% to 88.9 billion KRW. Operating profit exceeded the consensus (estimate) by 13%. Thanks to this, the stock price also performed well. While reopening stocks affected by the China lockdown showed weakness, Hyundai Department Store closed the trading day up 1.3% at 78,100 KRW. However, in the morning session, the domestic stock market showed weakness due to the impact of a sharp drop in the US stock market.

Hyundai Department Store's favorable performance was due to the department store sector, especially clothing sales. The department store sector's first-quarter sales and operating profit increased by 9% and 35%, respectively, compared to the same period last year. Except for living (-2%), most categories recorded growth, including women's fashion (15%), men's fashion (14%), sports (11%), and luxury goods (20%). The clothing sector showed a sharp increase after the social distancing measures were lifted on March 18, and it is understood to have grown by more than 20% as of April.

This increase in clothing sales offset the sluggishness in the duty-free sector caused by the China lockdown. Although the duty-free sector's sales increased by 97% year-on-year to 424.3 billion KRW, operating losses expanded to 14 billion KRW. The decrease in activities of daigou (Chinese personal shoppers) due to the spread of COVID-19 in China had an impact. While sales were increased by expanding the imported cosmetics sector, operating losses grew by 2.8 billion KRW compared to the previous year due to increased brokerage fees caused by intensified competition.

Hyundai Department Store's performance growth is expected to continue into the second quarter. Clothing sales continue to increase, and the easing of China's lockdown is also positive. Shanghai City in China announced that it will fully lift the lockdown from the 1st of next month, assuming no resurgence of COVID-19.

Researcher Cho Sang-hoon of Shinhan Financial Investment said, "Although the department store sector showed favorable results, concerns about the duty-free sector seem to have been excessively reflected in the stock price," adding, "In the first quarter of this year, sales were mainly from daigou, so brokerage fees and competition costs were high, but as the lockdown eases, these issues will gradually be resolved."