Lotte and Shinsegae Seen Retreating Amid Clothing Slump
Hyundai Department Store to Announce Tomorrow... Relative Strength Expected
As the three major department stores begin to announce their second-quarter earnings for this year starting from the 7th, attention is focused on whether they can simultaneously achieve both top-line growth and profitability. The industry expects a rebound in performance this year following a sluggish second quarter last year. However, securities analysts predict that operating profit will decline compared to the previous year due to slowed top-line growth amid economic recession and high inflation, along with weakness in high-margin categories such as apparel and accessories.
The 'Big 3' department stores in Korea: Lotte Department Store, Shinsegae Department Store, and Hyundai Department Store (clockwise from top) [Photo by Lotte, Shinsegae, Hyundai Department Store]
According to a consensus (earnings forecast) compiled from reports by four securities firms over the past month, Lotte Department Store's consolidated second-quarter sales and operating profit are estimated to be approximately KRW 825.5 billion and KRW 61.5 billion, respectively. Compared to the second quarter of last year (sales of KRW 822 billion, operating profit of KRW 66 billion), sales are expected to decrease by about 1%, and operating profit by about 7%.
Lotte Department Store has recently been focusing on store renovations under the leadership of CEO Jeong Junho. In April, it reopened the Lotte Mall Suwon as a new complex shopping mall called 'Time Villas' in a pre-opening. However, the fact that several key stores, including Suwon, underwent renovations and could not operate normally is expected to negatively impact earnings.
Park Jongryeol, a researcher at Heungkuk Securities, analyzed, "Lotte Department Store can maintain solid earnings momentum through stable profit generation, but due to slowing growth in existing stores and weakness in fashion, it is difficult to expect earnings growth."
On the same day, Shinsegae Department Store is expected to report second-quarter sales of KRW 638.6 billion and operating profit of KRW 75.6 billion. This figure combines the results of the separate entities of Shinsegae Department Stores in Gwangju, Daegu, and Daejeon, showing a sales increase of about 1.6% and an operating profit decrease of about 18% compared to the second quarter of the previous year.
Yu Jeonghyun, a researcher at Daishin Securities, stated, "Growth in the luxury category has slowed, and sales in the high-margin fashion segment recorded negative growth. Although sales in daily necessities and home appliances showed signs of recovery, overall growth rate decline and increased selling and administrative expenses could not be offset, leading to an expected decrease in operating profit compared to last year."
Hyundai Department Store will announce its second-quarter earnings on the following day, the 8th. Hyundai Department Store's second-quarter sales are estimated at KRW 620 billion, a 4.4% increase from KRW 594.1 billion in the same period last year. Operating profit is also expected to rise by 9.3% to KRW 67 billion. Hyundai Department Store owns stores strong in the fashion category, such as The Hyundai Seoul, and is expected to maintain relative strength following the first quarter.
Lee Seungeun, a researcher at Yuanta Securities, said, "Hyundai Department Store is expected to see high operating profit growth due to the base effect from the Daejeon store. The proportion of foreign sales at The Hyundai Seoul and Trade Center is also estimated to have increased by about 5 percentage points from the first quarter to 16%."
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