[Into the Stocks] Emart Hit Hard by Inflation, Earnings and Stock Price Both Plummet

This Year's Operating Profit Forecast Cut by 360 Billion Won
Key to Stock Price Rebound Is Price Stability

[Asia Economy Reporter Myung-hwan Lee] Emart, a leading domestic retailer, is suffering from the adverse effects of rising prices. Although retail stocks are generally considered defensive stocks less affected by inflation, Emart's performance has deteriorated as rising prices have also increased costs.

According to the Korea Exchange on the 21st, Emart's stock price retreated from the 170,000 won range in November last year to the low 100,000 won range at the end of last month. In addition to Emart's first-quarter 'earnings shock,' U.S. retail giants such as Target and Walmart also reported results far below expectations, causing negative impacts.

The second-quarter performance is also expected to continue the earnings shock impact. Many analysts predict that sales will increase as Emart's subsidiaries, eBay Korea (Gmarket) and SCK Company (Starbucks), are included in the consolidated results. However, securities firms expect operating profit to worsen due to business expenses, resulting in an operating loss.

The discount store segment is expected to see sales growth of around 3%, but considering the burden of rising costs, this is not a significant figure. Samsung Securities pointed out that the increase in discount store sales did not translate into profits due to inflation. This means that the burden of rising prices was not passed on to consumers. The online sector, which Emart is focusing on expanding, is also expected to post losses. Shinhan Investment Corp. analyzed, "Due to initial marketing costs related to the launch of SSG.com's paid membership, losses are expected to continue following the first quarter."

As negative factors continue, market forecasts for annual performance are also being revised downward. According to Samsung Securities, Emart's operating profit forecast for this year, which was 640 billion won at the beginning of the year, has now fallen to 280 billion won. There is a strong possibility of further downward revisions, according to securities industry views. The stock price outlook is not very optimistic either. Among the seven securities firms that issued target prices with Emart's second-quarter earnings forecast report, five have lowered their target prices.

Ultimately, price stabilization is a key point for stock price rebound. Eun-kyung Park, a researcher at Samsung Securities, said, "A re-evaluation of valuation will be possible when the market consensus downward adjustment trend comes to an end," adding, "That point will be when the inflation rate peaks and starts to decline."

The fact that the Presidential Office announced on the 20th that the proposal to abolish mandatory closure of large marts was included in the excellent national proposals may also have an impact. Upon hearing this news, Emart's stock surged 8.33% in one day on the 20th. However, caution is advised as it is still difficult to predict whether the mandatory closure system will actually be abolished. Young-hoon Joo, a researcher at NH Investment & Securities, said, "Assuming the abolition of mandatory closure, Emart's discount store operating profit is expected to increase by 144 billion won," but added, "We need to watch the results of the online national vote, and legal amendments are necessary for actual abolition."