[Click eStock] "GS Retail, Disappointing Q2 Earnings"... Target Price Down

[Asia Economy Reporter Lee Jung-yoon] Daishin Securities announced on the 10th that it lowered the target price for GS Retail from 34,000 KRW to 30,000 KRW due to downward revisions in this year's and next year's earnings. However, the investment rating of "Buy" was maintained.

GS Retail's total sales in the second quarter of this year increased by 23% year-on-year to 2.8169 trillion KRW, and operating profit rose by 11% to 47.4 billion KRW. Excluding the home shopping effect incorporated since the third quarter of last year, the actual operating profit decreased by 27.5 billion KRW to 15.3 billion KRW.

The convenience store division saw an 8% increase in sales compared to the same period last year due to the effect of new store openings, while operating profit remained at last year's level. This was attributed to increased advertising and promotional expenses and a rise in personnel due to the expansion of new organizations. The supermarket division also experienced a 5% increase in sales due to new store openings. However, operating profit was sluggish at 300 million KRW.

In the hotel and home shopping divisions, sales increased by 56% year-on-year and operating profit rose by 15.6 billion KRW, resulting in a profit of 8.1 billion KRW due to higher occupancy rates. Home shopping also saw improved profitability despite increased transmission fees, thanks to favorable consumer trends. The other divisions recorded losses mainly due to approximately 34.9 billion KRW losses in the e-commerce business unit and increased losses from About Pet and Cookat. Additionally, increased investment costs in quick commerce led to an operating loss of 67 billion KRW, which was a major cause of poor performance.

Researcher Yoo Jung-hyun of Daishin Securities explained, "This year was a year in which investments in new businesses including convenience stores, supermarkets, and e-commerce were concentrated, significantly damaging profitability. Because of this, even the margin of the core convenience store division tended to decline somewhat."

He added, "Recently, due to the increased burden of investment costs, businesses such as dawn delivery and nationwide parcel services were withdrawn. Efforts to reduce and reorganize businesses with low marketability are positively evaluated." He continued, "However, it appears that this is still not meeting market expectations. In the short term, it is judged necessary to focus more on improving core competitiveness, such as enhancing the margin of the convenience store division."