[Click eStock] "Hyundai Department Store, Department Store Growth and Operating Profit Improvement to Continue in Second Half"

[Asia Economy Reporter Lee Jung-yoon] Korea Investment & Securities maintained a buy rating and a target price of 110,000 KRW for Hyundai Department Store on the 12th, stating that growth will continue in the second half of the year.

Hyundai Department Store's sales in the second quarter of this year increased by 30.3% year-on-year to 1.1252 trillion KRW, and operating profit rose by 23.5% to 71.2 billion KRW.

In the department store segment, similar to competitors, the high-margin fashion category grew by 17%. The operating profit margin for the department store segment in the second quarter was 14.4%, up 2.4 percentage points compared to the same period last year. Despite strong sales in the high-margin clothing category, the reason for the relatively small margin improvement compared to competitors is due to an increased proportion of outlet sales, which have lower margins than general department stores.

The total sales of the duty-free segment increased by 8.4% from the previous quarter to 636.9 billion KRW, while the deficit remained similar to the first quarter at 13.8 billion KRW. Since the uncertainty in the duty-free industry was at a similar level in the first and second quarters of this year, it is estimated that the competitive intensity was also similar. As of the end of June, the mattress and bed manufacturer Zinus, in which Hyundai Department Store holds a 36.9% stake, is expected to be consolidated from the third quarter of this year.

Kim Myung-joo, a researcher at Korea Investment & Securities, explained, "Clothing demand, which recovered from the first quarter due to reopening and the resumption of economic activities, is expected to continue into the F/W (fall/winter) season, leading to favorable top-line growth and operating profit improvement for department stores in the second half of the year." He added, "Last month, which saw strong outing demand, is estimated to have recorded better top-line growth than the second quarter."

He also stated, "In the second half of the year, improvement in the duty-free business conditions will offset concerns about a peak-out in the department store industry." He added, "Hyundai Department Store's duty-free MD (merchandise planning) restructuring is scheduled to begin as early as the fourth quarter of this year, and this restructuring will contribute to both sales growth and profitability improvement in Hyundai Department Store's duty-free business."