[Click eStock] "Lotte Shopping, Solid Performance... Growth Expected in the Second Half"

[Asia Economy Reporter Lee Jung-yoon] Korea Investment & Securities maintained a buy rating and a target price of 130,000 KRW for Lotte Shopping on the 8th, expecting growth in offline retail channels such as department stores and marts in the second half of this year.

Lotte Shopping's consolidated sales for the second quarter reached 3.9019 trillion KRW, and operating profit recorded 74.4 billion KRW, an increase of 882.2% compared to the same period last year. This figure exceeded market consensus by 27%. This was due to strong performance in department stores and a turnaround in the cinema sector. Additionally, the overseas segments of department stores and marts continued to record favorable operating profits following the first quarter.

The operating profit margin (OPM) of domestic department stores improved significantly to 12.3%, up 4.2 percentage points from the same period last year, driven by strong sales in high-margin apparel. In the case of domestic marts, excluding the impact of the online business division transfer, the actual operating profit improvement compared to the same period last year was about 1 billion KRW, which was considered a disappointing point. Major subsidiary Lotte Himart experienced a decline due to decreased demand for home appliances, with operating profit dropping 99.2% year-on-year to 300 million KRW.

Kim Myung-joo, a researcher at Korea Investment & Securities, explained, "The strong apparel sales due to reopening will continue to drive the good performance of department stores. Recently, outlets have been recording better results than department stores, and Lotte Department Store has the highest outlet ratio among its stores at about 37%."

He added, "Lotte Shopping has been undergoing structural improvements since 2019, and restructuring such as the closure of LOHBs and supermarkets will continue this year. Accordingly, Lotte Shopping's consolidated selling and administrative expenses are estimated to decrease by 3.7% compared to the same period last year." He further stated, "Due to reopening and the effects of store renewals, favorable growth in offline retail channels such as department stores and marts is expected in the second half of the year, and accordingly, operating profit leverage effects for Lotte Shopping are anticipated in the second half as well."