[Click eStock] "Shinsegae, Strong 2Q Performance in Fashion and Department Stores... Target Price Maintained"

[Asia Economy Reporter Myunghwan Lee] NH Investment & Securities announced on the 5th that it maintains a buy rating and a target price of 350,000 KRW for Shinsegae. This is based on expectations that Shinsegae will deliver strong performance in the second quarter of this year, driven by increased fashion sales and growth in department stores.

NH Investment & Securities forecasts Shinsegae's consolidated net sales and operating profit for the second quarter of this year to be 1.8119 trillion KRW and 143.5 billion KRW, respectively. These figures represent increases of 30% and 49% compared to the same period last year. The growth rate of existing stores in department stores is estimated at 19%. From the second quarter onward, the growth rate of the fashion category is expected to surpass that of the luxury category, leading to improved profitability. Since the improvement in performance is mainly due to strong fashion sales, NH Investment & Securities also expects significant improvements in sales and operating profit for its subsidiary, Shinsegae International. The inclusion of Gwangju Shinsegae in the consolidated accounts since the fourth quarter of last year is also cited as a positive factor.

However, duty-free store net sales are projected to increase by 35% year-on-year to 756.7 billion KRW, while operating profit is expected to decrease by 88% to 2.3 billion KRW. This is attributed to a decline in sales flow due to reduced activity of daigou (Chinese personal shoppers) following lockdown measures in Chinese cities, along with continued burden from brokerage fees. Nevertheless, efforts to reduce other expenses are expected to result in a slight improvement compared to the previous quarter, which had turned to a loss. Although the improvement in duty-free store performance is delayed compared to expectations, NH Investment & Securities analyzes that there is no need for excessive concern as the improvement in department store profitability offsets this.

NH Investment & Securities evaluates that Shinsegae demonstrates differentiated competitiveness by recording the highest existing store growth rate among department store operators. Researcher Younghoon Joo of NH Investment & Securities stated, "In addition to the luxury category that has driven department store growth over the past two years, it is important that the clothing category has recently shown a recovery trend. Since the end of social distancing policies and the resumption of daily gatherings, the growth rate of clothing sales since April has outperformed that of luxury items."