"Consumer Sentiment Shrinks... Department Stores and Fashion Hit" Shinsegae Q3 Operating Profit Down 14% (Comprehensive)

Q3 Operating Profit 131.8 Billion KRW, Down 13.9%
Sales 1.4975 Trillion KRW, Down 23.4%

Department Store Operating Profit 92.8 Billion KRW, Down 15.1%
Increased Management and Promotion Costs Due to Inflation

Shinsegae posted results below market expectations for the third quarter of this year. The contraction in consumer sentiment negatively impacted the performance of department stores and Shinsegae International, which had recorded strong results last year. However, duty-free shops (Shinsegae DF), Central City, and Shinsegae Casa achieved improved results.

Shinsegae Department Store Gangnam Branch [Photo by Shinsegae].

Shinsegae announced on the 8th that its consolidated operating profit for the third quarter of this year was 131.8 billion KRW, a 13.9% decrease compared to the same period last year. This figure slightly missed the third-quarter operating profit consensus (estimate) of 147.9 billion KRW compiled by FnGuide. Sales for the same period were 1.4975 trillion KRW, down 23.4%, also falling short of the market estimate (1.6111 trillion KRW). The prolonged high interest rates led to stagnation in the stock and real estate markets, and disposable income also decreased, resulting in weakened consumer sentiment that adversely affected performance.

The department store's third-quarter operating profit recorded 92.8 billion KRW, down 15.1% from the same period last year (including separate entities in Gwangju, Daegu, and Daejeon Shinsegae). Increases in management and promotional expenses linked to inflation had an impact. Although the department stores, which posted strong results last year, faced significant burdens, their scale remained similar to last year. Sales amounted to 604.3 billion KRW, a 0.9% decrease compared to the same period last year. For the year-to-date, sales reached 1.8536 trillion KRW (up 1.9%), continuing the growth trend.

Shinsegae Department Store stated, "In the third quarter of this year, we demonstrated competitiveness through offline space innovation and content differentiation, including the renewal and reopening of the Gangnam branch's young fashion specialty hall 'New Street,' renovation of the Gyeonggi branch's children's, golf, and cinema sections, and participation in the global art fair 'Frieze Seoul.' We will continue to strengthen the online gift service 'Shinbaek Gift Hall' until the end of the year and focus our efforts on expanding online and offline synergy by renewing the department store's mobile application (app)."

Shinsegae DF posted an operating profit of 13.3 billion KRW for the third quarter, a 160.8% increase compared to the same period last year, while sales decreased by 49.1% to 436.1 billion KRW. Sales declined due to reduced commission fees paid to Chinese traders (Daigou), but profitability improved as the proportion of individual travelers (FIT) increased. Shinsegae Central City also achieved an operating profit of 24.9 billion KRW (+10.2%) and sales of 94.2 billion KRW (+10.3%), supported by higher hotel occupancy rates and improved performance of leased stores.

Shinsegae International's operating profit sharply declined by 75.1% year-on-year to 6 billion KRW. Sales also fell by 18.5% to 315.8 billion KRW. This was analyzed as a result of the burden from last year's strong performance and the impact of some brand contract terminations. However, the company expects that globally popular brands newly incorporated since September, such as Courr?ges and Vuori, will contribute to a recovery in fourth-quarter results. Shinsegae Casa recorded an operating loss of 1.8 billion KRW in the third quarter, but this was a significant improvement compared to the third quarter of last year (-5.8 billion KRW).

A Shinsegae official said, "We expect improved results in the fourth quarter through innovation in department store online and offline channels and expansion of each company's core competitiveness."