"Lotte Confectionery Sees Slight Growth in Q2 Thanks to 'Overseas Reopening Effect'... Mixed Domestic Performance Remains a Challenge"

Leading Growth in Overseas Markets Including India and Kazakhstan

[Asia Economy Reporter Eunmo Koo] Lotte Confectionery slightly improved its second-quarter performance, supported by sales growth effects from the easing of COVID-19 lockdowns in major overseas subsidiaries such as India and Kazakhstan. However, the domestic business showed some sluggishness due to burdens such as raw material costs.

Lotte Confectionery announced on the 9th that its consolidated operating profit for the second quarter of this year was tentatively estimated at 24.955 billion KRW, a 0.5% increase compared to the same period last year. During the same period, sales increased by 11.5% to 567.774 billion KRW, and net profit rose by 96.6% to 30.034 billion KRW.

The overseas subsidiaries led the performance improvement. Second-quarter sales of overseas subsidiaries grew 44.1% year-on-year to 193.9 billion KRW, and operating profit also increased by 82.8% to 13.7 billion KRW. The reopening effect caused demand to recover sharply, leading to increased sales.

By country, the growth trend in the Indian market was remarkable. The Indian ice cream market, which was worth 24 billion KRW in the second quarter of last year, grew about 2.5 times to 60.2 billion KRW this year, and the dried fruit market also expanded by 82.6%, from 10.9 billion KRW to 19.8 billion KRW. Lotte Confectionery explained, “Sales increased in the Indian ice cream and dried fruit markets as schools reopened and outdoor activities increased following the easing of COVID-19 lockdowns.”

Additionally, the Kazakhstan market grew 32.9% from 38 billion KRW to 50.5 billion KRW due to the lifting of COVID-19 restrictions and supply disruptions of competitors’ products caused by the Russia-Ukraine conflict. The Russian market also increased in size from 10.8 billion KRW to 19 billion KRW.

On the other hand, domestic performance diverged from overseas results. Domestic sales in the second quarter were 376.2 billion KRW, down 1.8% from the same period last year, and operating profit fell 32.6% to 13.6 billion KRW. It is analyzed that profitability deteriorated due to rising raw material costs, and sales slightly decreased as the burden of increased raw material input prices was reflected in product prices. A Lotte Confectionery official stated, “The burden of raw material costs is expected to increase through the second half of the year.”

Lotte Foods recorded its last performance before the corporation’s dissolution with second-quarter sales of 408.5 billion KRW and operating profit of 18.9 billion KRW, increasing 19.5% and 11.5% respectively compared to the same period last year. Since May, rising milk prices, reopening of dining establishments, and demand for ready meals have had an impact. However, despite sales growth, the improvement in operating profit was not significant, and the deterioration in profitability of the dairy, meat processing, and home meal replacement (HMR) businesses remained a disappointment.