[Click eStock] "Lotte Hi-Mart, Market Share Expected to Decline"... Target Price Down

On the 13th, IBK Investment & Securities maintained a neutral investment rating on Lotte Hi-Mart, citing expected market downturn and share decline due to store closures, and lowered the target price from 14,000 KRW to 12,000 KRW.

Lotte Hi-Mart's first-quarter performance this year is expected to be weak. First-quarter sales are estimated at 774.3 billion KRW, down 8% year-on-year, with an operating loss of 8.54 billion KRW. Nam Seong-hyun, a researcher at IBK Investment & Securities, explained, "The reason for the expected poor performance is due to decreased moving demand caused by a sluggish construction market, reduced durable goods sales due to economic slowdown, and sales decline from store scrap. In January and February this year, home appliance sales shrank by 4.7% and 12.5% respectively compared to the previous year, and including telecommunications devices and computers, sales decreased by 2.6% year-on-year."

Lotte Hi-Mart is closing unprofitable stores and closed 36 stores last year. Considering that the number of stores was 427 in 2021, this represents about an 8% closure rate. Additionally, the company is seeking profitability improvement through adjustments in sales personnel. Researcher Nam said, "In the first quarter, operating performance is likely to underperform the industry due to decreased sales at existing stores caused by sluggish upstream industries and the impact of store closures. The effect of sales personnel adjustments is expected to be difficult to realize in the first quarter due to reduced store profitability."

He added, "Growth in online channels is also expected to be limited in the first quarter. This is because the proportion of stores in shopping malls seems to have decreased as part of a profitability-focused policy, and the impact of the market downturn is also at play."

Researcher Nam also added, "This trend is expected to continue until the first half of the year, but from the second half, operating performance is expected to gradually improve due to structural store closure effects and efforts to reduce fixed costs for profitability improvement."