[Click eStock] "GS Retail, Digital Commerce Cost Burden... Synergy Creation Urgent"

[Asia Economy Reporter Hwang Yoon-joo] Shinhan Financial Investment evaluated GS Retail's performance on the 12th, stating that the burden of costs in the digital commerce business led to poor results. Accordingly, they maintained a 'Buy' investment rating and a target price of 31,000 KRW.

Researcher Cho Sang-hoon of Shinhan Financial Investment stated, "Second-quarter sales increased by 23.2% year-on-year to 2.82 trillion KRW, and operating profit rose by 10.8% to 47.4 billion KRW, falling 6% short of consensus."

Researcher Cho pointed out, "Convenience stores performed well, but the cost burden of digital commerce was the cause of the poor performance."

He explained, "Convenience stores recorded a same-store sales growth rate of +2.9% due to reopening, but operating profit was sluggish due to increased labor costs, promotion expenses, and logistics costs, similar to the first quarter. Supermarkets showed poor performance with a same-store sales growth rate of -0.4%."

Home shopping saw a 1% increase in operating profit due to improved gross profit margin despite increased transmission fees. Additionally, hotels turned profitable with increased occupancy rates despite property tax burdens. The other segment, which includes the digital commerce business, posted a loss of 67 billion KRW and remained sluggish.

Researcher Cho anticipated changes from the second half as GS Retail shifts to a profitability-focused strategy.

He said, "Since last year, the diversification of the business portfolio has led to a significant increase in investment costs related to digital commerce, resulting in poor performance. Recently, they decided to discontinue the dawn delivery service, and plan to withdraw from the H&B business by the end of November."

Researcher Cho analyzed, "The digital commerce business plans to focus on synergy with the core convenience store and supermarket businesses. Through this, they aim to secure differentiated competitiveness."

He pointed out, "In the short term, efforts are needed to reduce the gap in same-store sales growth with competitors by differentiating product categories in the core convenience store business, and in the long term, synergy from digital commerce investments must be realized."

He added, "Due to cost inputs associated with the expansion of the digital commerce business, an annual loss close to 200 billion KRW is expected, so sales growth that can justify this is urgently needed."