Empty Bank Account... The Youngest Daughter of Hanse Owner's 'Debt Management' [Why&Next]

Convertible bonds and bond issuance totaling 35 billion KRW borrowed this year
Cash assets of 4 billion KRW, company operations funded by external financing
Downward revision of this year's performance forecast, rapid performance improvement unlikely

Kim Ji-won, the youngest daughter of Hanse Group Chairman Kim Dong-nyeong and CEO of fashion retail company Hanse MK, has attracted attention as the company has consecutively raised funds this year. Hanse MK primarily operates casual brand 'BUCKAROO' as well as NBA, golf license brands LPGA and PGA Tour, and also owns children's clothing brands such as NBA Kids and Nike Kids.

According to the Financial Supervisory Service's electronic disclosure system on the 18th, Hanse MK issued convertible bonds worth 10 billion KRW to raise operating funds and refinance debt. Convertible bonds are bonds with an option for investors to convert them into stocks. They are a financing method mainly used by companies in urgent need of cash as they allow easy fundraising at low interest rates. This is the first time Hanse MK has issued convertible bonds since 2013.

Ji-won Kim, CEO of Hansae MK

Rolling Over Operating Funds... Short-Term Borrowings Balloon

Hanse MK has increased its borrowing scale this year. In May, it issued privately placed bonds worth 15 billion KRW with a one-year maturity and an interest rate of 5.85%, and on the 25th of last month, it issued privately placed bonds worth 10 billion KRW. Including the convertible bonds issuance, the company has borrowed 35 billion KRW this year.

The two corporate bond issuances were guaranteed by Hanse Yes24 Holdings, the largest shareholder and chaired by Kim Dong-nyeong, the father. Chairman Kim had served as a co-CEO of Hanse MK alongside Kim Ji-won and Lim Dong-hwan but stepped down as CEO in March this year and currently holds only an inside director position.

Hanse MK plans to use the funds raised through this convertible bond issuance to pay off accounts payable (8 billion KRW) incurred from purchasing fall/winter (FW) season products this year and to repay debt borrowed from the Korea Development Bank. A Hanse MK official explained, "The increase in purchase amounts due to higher production volumes of fall and winter products led to the fundraising. Investment costs also increased due to interior renovations of the brands 'Curlysue' and 'Moimoln' and the opening of a large exclusive Nike Kids store."

Since last year, Hanse MK has been opening exclusive Nike Kids stores in Seoul, Gyeonggi, Daegu, and Busan through Play Kids Pro. As competitor New Balance Kids has emerged as the number one player in the kids market with sales exceeding 200 billion KRW domestically, Hanse MK plans to increase sales through Nike Kids stores.

Long-Term Poor Performance... Cash Assets Only 4 Billion KRW

As of the half-year report this year, the company's cash assets amount to only 4 billion KRW. Short-term borrowings due within one year have surged to 110.7 billion KRW, sharply increasing from 37.6 billion KRW at the end of 2021. Poor sales have led to inventory accumulation, and funds were borrowed to purchase new products.

In fact, Hanse MK's scale has significantly shrunk over the past five years. Sales, which were around 320 billion KRW in 2017 and 2018, plummeted to 220 billion KRW in 2020 and further dropped to 200 billion KRW the following year. The poor performance of TBJ and ANDEW, which had been cash cows, was a painful blow. As a result, operating profit turned negative from 2019. Although sales expanded again to around 270 billion KRW after merging with children's clothing company Hanse Dream in 2022, the deficit trend has continued to date.

Last year, domestic (separate basis) sales increased, slightly improving overall performance, but it is expected to take more time to return to profitability. As of the first half of this year, sales decreased by 30 billion KRW compared to last year, and operating losses increased by 1 billion KRW. This was due to a nearly 50% drop in domestic adult clothing sales from 60 billion KRW to 38.5 billion KRW in the first half of last year amid a recession and weakened consumption.

Hanse MK's largest shareholder is Hanse Yes24 Holdings, the holding company of Hanse Group, and the second-largest shareholder is Kim Kyuhyun (10 years old), son of Kim Ik-hwan, vice chairman leading Hanse Silup. Hanse MK also has Park Gun-hee (13 years old), son of CEO Kim Ji-won, holding a 0.43% stake.

Impact of Consumption Slump in China... Subsidiaries' Sales Also Plummet

Subsidiaries excluding Japan also showed poor performance. The Chinese subsidiary operating NBA Kids stores (Mankun Shangwu Co., Ltd.) saw sales shrink from 24 billion KRW to 7.7 billion KRW, and the Chinese subsidiary operating Moimoln (Ga Aesu Clothing Co., Ltd.) also saw sales drop by about 2 billion KRW compared to the first half of last year. The consumption slump in China affected these results, and it is analyzed that Mankun Shangwu Co., Ltd.'s sales declined further as the inventory clearance of NBA Style, whose license contract was terminated, ended in March this year. The Japanese subsidiary, Moimoln, recorded sales of 3.8 billion KRW, an increase of 1 billion KRW compared to the same period last year.

Due to this, Hanse MK recently revised its operating performance forecast from sales of 301 billion KRW and operating profit of 3.1 billion KRW to sales of 262.5 billion KRW and operating loss of 8.4 billion KRW. Although the company promised investors a turnaround to profitability last year, it has become practically difficult to keep that promise. Furthermore, the launch of a new brand scheduled for the second half of this year has been postponed to the end of the year. It is judged that there are no factors to quickly rebound performance.

Meanwhile, on the 15th, Hanse MK held a corporate briefing and press conference in Vietnam for domestic and foreign investors and analysts. Lim Dong-hwan, CEO of Hanse MK, who attended the press conference, presented next year's business operation plans including ▲ various marketing activities to strengthen brand awareness ▲ operation of customized online and offline channels to meet consumer needs ▲ expansion of mega-store outlets by brand ▲ launch of a new baby line and expansion of the NBA line.

Moimoln Isetan Department Store Kyoto Branch Popup Store.
Photo by Hanse MK