[Into the Stocks] Emart Clouded in Q2... Future Outlook Also Uncertain

Amortization Related to Acquisitions Including Starbucks
Deterioration in Online Commerce Sector
Only Deficit Among Major Retail Stocks
Five Securities Firms Downgrade Target Prices

[Asia Economy Reporter Myung-Hwan Lee] Emart, which holds the top position among large domestic marts, was the only major retail stock in Korea to report a loss. Its stock price has nearly halved over the past year. Moreover, with the outlook shrouded in uncertainty, investors' concerns are expected to deepen.

According to the financial investment industry on the 22nd, Emart posted an operating loss of 12.3 billion KRW in the second quarter of this year, falling short of market expectations. This contrasts with other retail stocks that reported solid earnings during the same period. Lotte Shopping, which operates the competing discount store Lotte Mart, recorded an operating profit of 74.4 billion KRW in Q2, a sharp increase of 882.2% year-on-year. BGF Retail achieved an operating profit of 70.8 billion KRW, up 20.6%, while GS Retail posted an operating profit of 47.4 billion KRW, up 10.8%.

The securities industry attributed the loss largely to amortization expenses related to the PPA (Purchase Price Allocation) from the acquisitions of Starbucks and eBay Korea, as well as deteriorating performance in the online commerce sector, including SSG.com and Gmarket. A PPA amortization expense of approximately 40 billion KRW was incurred, alongside expanded operating losses at SSG.com (-40.5 billion KRW) and Gmarket Global (-18.2 billion KRW).

The short-term outlook is also bleak. Following the Q2 earnings announcement, five securities firms lowered their target prices. Jong-Dae Park, a researcher at Hana Securities, noted, "Due to Emart's business structure and market conditions, a decline in earnings per share (EPS) is inevitable for the time being," adding, "With unclear direction and ongoing uncertainty, it will be difficult to find stock momentum in the near term." Eun-Kyung Park of Samsung Securities also analyzed, "The appropriate time for aggressive buying would be after inflationary pressures ease or once balanced growth in the online business is confirmed."

Emart's stock price has steadily declined over the past year. While it traded in the high 170,000 KRW range as recently as August last year, it fell to 104,000 KRW as of the closing price on the 19th. This represents a drop of over 40% in one year.

However, Young-Hoon Joo, a researcher at NH Investment & Securities, advised, "With the second half strategy aiming to improve online business profitability through operational efficiency of the Picking & Packing (PP) center and reduction of marketing expenses, it is necessary to monitor the outcomes of these efforts."