[Click eStock] "GS Retail, Home Shopping Slumps Amid Consumer Spending Slowdown"

Target Price Lowered from 27,000 KRW to 21,000 KRW

IBK Investment & Securities has lowered the target price for GS Retail from 27,000 KRW to 21,000 KRW, forecasting last year's fourth-quarter earnings to fall significantly short of market expectations. The investment rating remains at 'Buy.'

In a report dated the 31st, IBK Investment & Securities estimated GS Retail's consolidated sales for the fourth quarter of last year to be 2.8657 trillion KRW, down 2.2% year-on-year, and operating profit to be 52.3 billion KRW, a 42.7% decrease. The operating profit estimate is significantly below the recently lowered consensus of 63 billion KRW (average securities firms' forecast).

Nam Seong-hyun, a researcher at IBK Investment & Securities, pointed out, "Due to the decision to spin off the hotel and Fresh Meat divisions, excluding these business units, and despite same-store growth in the convenience store sector, it is highly likely that the increased fixed costs will not be covered." This refers to GS Retail's reduced profit-generating capacity following the spin-off of its hotel and food processing (Fresh Meat) business units.

The sluggish performance of GS Retail's core home shopping division and the cost burden in the convenience store sector were also cited as causes of the earnings decline. Researcher Nam analyzed, "Home shopping is underperforming due to a contraction in consumer spending and unfavorable weather, and the increase in costs from opening new convenience stores is expected to limit profit growth in the supermarket division." He particularly estimated the fourth-quarter same-store sales growth rate for convenience stores at around 2%, predicting that increased promotional expenses and amortization costs due to a higher proportion of headquarters rental fees will restrict profit growth.

Nam added, "The pace of new convenience store openings is expected to slow compared to recent years, and the benefits from opening new stores are diminishing." He believes GS Retail is likely to pursue a profitability-focused strategy in 2025. He further stated, "While this strategy may limit contributions to top-line growth, we view it positively as a realistic approach."