[Click eStock] "Lotte Hi-Mart, Losses End in Q1... Strong Turnaround Expected"

Q1 Operating Loss of 5.7 Billion KRW, Deficit Reduction as Expected
Performance Expected to Improve from Q2 Due to Store Optimization
Strong Turnaround Anticipated for the Full Year

On the 19th, IBK Investment & Securities analyzed that the first quarter of this year will be the last quarter in which Lotte Hi-Mart records a loss. They maintained a 'neutral' investment rating and a target price of 12,000 KRW. Lotte Hi-Mart's closing price on the previous trading day was 9,130 KRW.

Nam Seong-hyun, a researcher at IBK Investment & Securities, stated, "Due to store efficiency improvements and store renewals (50 stores last year, 50 stores this year), performance is expected to rise again from the second quarter." He added, "Although there is a possibility of a year-on-year decrease in the third quarter due to temporary profit effects, we expect a strong turnaround on an annual basis." He further noted, "The improvement in product margin rates has already been demonstrated, and since the effect of store efficiency improvements will be fully realized in the second half of the year, the first quarter of this year is expected to be the last quarter recording a loss."

Lotte Hi-Mart's first-quarter performance showed sales of 560.5 billion KRW (a decrease of 10.5% year-on-year) and an operating loss of 5.7 billion KRW (a reduction in deficit). Following the loss in the fourth quarter, losses are expected for two consecutive quarters. Regarding the reason for forecasting a loss in the first quarter, researcher Nam explained, "The recovery in sales volume in the home appliance market has not occurred, it is a period with a high fixed cost burden, and ongoing efforts to improve online profitability have lowered the contribution to sales."

Nevertheless, this scale of loss was anticipated. Rather, the reduction in the deficit is proceeding as planned, indicating strengthening fundamentals, according to researcher Nam. He also assessed that profitability improvement efforts are progressing normally and, considering the sluggish market conditions, structural improvement efforts are proceeding as expected. Nam said, "Most of the offline store efficiency improvement work was completed last year, and online efficiency improvement work is scheduled to continue until early this year." He added, "Due to the resulting decrease in scale and sluggish market conditions, short-term performance remains weak, but after the completion of these efforts, a rapid recovery in operating performance is highly likely."