Annual Operating Profit of 473.1 Billion KRW... Ordinary Wage Burden Reflected
Sales at 13.9866 Trillion KRW, Down 3.9%
Sales Decline Due to Profitability-Focused Business Activities
Land Book Value Up by 9.5 Trillion KRW... Debt Ratio Reduced by 61.8 Percentage Points
Lotte Shopping experienced a continued decline in sales last year due to domestic economic stagnation and structural improvements, while profitability also deteriorated due to the reflection of labor costs following the Supreme Court's ruling on ordinary wages.
Lotte Shopping announced on the 6th that its consolidated operating profit for the previous year was tentatively estimated at 473.1 billion KRW, a 6.9% decrease compared to the previous year. During the same period, sales dropped 3.9% to 13.9866 trillion KRW. Operating profit for the fourth quarter of last year, including the emergency martial law situation last month, fell 27.3% year-on-year to 147.2 billion KRW, and sales during this period also decreased by 4.3% to 3.4771 trillion KRW.
Lotte Shopping explained, "Sales slightly declined due to an unfavorable consumption environment, including prolonged domestic sluggishness and increased uncertainty in the domestic political situation, as well as profitability-focused business activities such as continuous store efficiency improvements across all business divisions." Annual operating profit also declined further as an estimated burden of 53.2 billion KRW related to the Supreme Court's ordinary wage ruling on the 19th of last month was reflected as a one-time expense. Excluding this one-time cost, the annual operating profit was approximately 537.2 billion KRW, representing a 5.7% increase compared to the previous year.
In the fourth quarter of last year, when the group’s liquidity crisis emerged, Lotte Shopping conducted an asset revaluation for the first time in 15 years to reflect the real value of assets and improve its financial structure. As a result, the book value of land increased by 9.5 trillion KRW compared to before the revaluation in the third quarter of last year, reaching 17.7 trillion KRW, and the debt ratio was reduced from 190.4% to 128.6%.
Lotte Shopping expects positive effects in terms of credit rating and investment fund procurement through this. Although net profit remained positive until the third quarter of last year, it turned to a deficit due to impairment recognition from asset revaluation and goodwill impairment. Lotte Shopping has set a 2025 guidance of 14 trillion KRW in sales and an operating profit of 600 billion KRW, a 26.9% increase.
Record High Domestic Department Store Transaction Volume... Overseas Business Performance
The results varied by division. The core department store sales were 3.3193 trillion KRW, and operating profit was 400 billion KRW, down 0.5% and 17.8% respectively from the previous year. The annual transaction volume of domestic stores reached 18.4 trillion KRW, achieving a record high. Domestic department store annual operating profit was 406.1 billion KRW, a 19.9% decrease year-on-year. Excluding the estimated ordinary wage burden of 19.2 billion KRW, it was 425.3 billion KRW. Last year, the department store started the Times Villas shopping mall business and carried out renovations to strengthen the competitiveness of key stores such as the main store and Incheon branch. In particular, Jamsil branch surpassed 2 trillion KRW in annual sales (transaction volume) in 2022 and exceeded 3 trillion KRW in sales within two years.
This year, domestic department stores plan to improve performance through the creation of Lotte Town and expansion of Times Villas. Jamsil branch will begin renovating the main building starting with the food hall to strengthen the competitiveness of 'Lotte Town Jamsil.' The main store will pursue renovations of the luxury goods hall and establishment of a K-fashion hall, and the Incheon branch will also renovate its kids and fashion halls. Additionally, following the opening of Times Villas Suwon last year, the Times Villas Gunsan will further strengthen the shopping mall business.
Lotte Mart and Supermarkets also saw annual sales decline by 3.8% to 5.3756 trillion KRW due to store efficiency improvements aimed at profitability enhancement. Operating profit was 46.5 billion KRW, down 36.2%, but excluding the ordinary wage burden of 22.2 billion KRW, it was 68.7 billion KRW, reducing the deficit rate to 5.8%. Lotte Mart and Supermarkets plan to actively expand their footprint this year by opening new mart stores, continuously renovating grocery specialty stores, and strengthening the supermarket franchise business. They also plan to secure new growth momentum through an online grocery new business based on the Ocado smart platform.
Overseas, sales and operating profit grew significantly, centered on Vietnam. The department store overseas business recorded annual sales of 115.7 billion KRW, a 43.7% increase year-on-year. In particular, sales at Lotte Mall West Lake Hanoi, which is continuously growing in Vietnam, increased by 116.3%, leading the growth. Lotte Mall West Lake Hanoi achieved profitability in October and November last year, and operating profit at the Indonesian department store also grew more than threefold.
Lotte Mart's overseas business recorded annual sales of 1.497 trillion KRW, up 3.0%, and operating profit of 47.8 billion KRW, up 19.6%. Especially in the Vietnam business, sales and operating profit have increased year-on-year for 12 consecutive quarters since the first quarter of 2022. In Indonesia, operating profit has increased every year for three years from 2021 through last year. Based on expertise in local overseas business environments, Lotte Shopping plans to establish an International Headquarters (iHQ) organization overseeing Southeast Asian business within the first half of this year, using it as a hub to expand overseas business.
e-Commerce Deficit Recovery, Home Shopping Performance Improvement Effects
The e-commerce (Lotte ON) division recorded an operating loss of 68.5 billion KRW last year, reducing the deficit by 14.1 billion KRW compared to the previous year. The company explained this was due to improved product profit margins and cost efficiency efforts. Sales decreased by 11.3% to 119.8 billion KRW. This year, the plan is to continue serving as a gateway that organically connects affiliates through initiatives like 'Monthly Lotte' while strengthening the vertical specialty store business, which is seeing transaction volume growth, to lay the foundation for turning profitable.
Lotte Home Shopping's annual sales decreased by 1.8% to 924.9 billion KRW, but operating profit surged 503.4% to 49.8 billion KRW. They significantly increased operating profit by expanding the proportion of high-margin products, strengthening senior marketing, and reducing selling and administrative expenses. Going forward, they plan to maintain a profit-centered business approach and accelerate their leap to a media commerce company by strengthening new businesses such as content business.
Additionally, Culture Works recorded sales of 451.7 billion KRW, down 19.6% year-on-year due to sluggish recovery in the domestic film market and lack of major releases, but turned operating profit positive (300 million KRW) through efforts to reduce selling and administrative expenses.
Kim Won-jae, Head of Finance at Lotte Shopping, said, "Although sales declined last year due to business activities focused on strengthening fundamentals across all divisions, operating profit excluding one-time costs increased compared to the previous year. We will strive to overcome the impact of the sluggish domestic market by strengthening overseas business and new businesses this year."
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