[Click eStock] "Hyundai Department Store's Rational Decision to Streamline Downtown Duty-Free Store Operations"

Kiwoom Securities has raised the target price of Hyundai Department Store, which decided to streamline the operation of its downtown duty-free shops, to 75,000 KRW. The buy rating was also maintained.

According to industry sources on the 2nd, Hyundai Department Store announced through a disclosure the previous day that its subsidiary, Hyundai DF, will cease operations of the Dongdaemun branch of its downtown duty-free shops as of July 31. Considering changes in consumption trends among Chinese tourists visiting Korea and the relative sluggishness of the Dongdaemun commercial district, it decided to operate only the Trade Center duty-free shop.

Hyundai Department Store explained, "The Dongdaemun branch accounts for about one-third of the duty-free shop transaction volume, and it accounted for about 50% of last year's downtown duty-free shop operating loss (50 billion KRW). Through this operational efficiency measure, part of the Dongdaemun branch's transaction volume (100 to 200 billion KRW) will be absorbed by the Trade Center, and the duty-free shop corporation's fixed costs can be reduced by about 35 billion KRW."

Regarding this, Park Sang-jun, a researcher at Kiwoom Securities, forecasted improved earnings visibility due to the downsizing of the downtown duty-free shop business.

Researcher Park said, "Downtown duty-free shops are businesses with low earnings predictability due to changes in Chinese travel trends and intensified competition in the Daigo business. By reducing the proportion of this business, the company can cut fixed costs, optimize working capital, and improve overall earnings predictability."

He added, "Since Hyundai Department Store has established a stable profit structure at airport duty-free shops compared to competitors, a turnaround to profitability in the duty-free sector is expected to become visible from the second half of this year."

Researcher Park also stated, "In the mid-term, benefits from the easing of political uncertainties and improved consumer sentiment remain valid. Department stores' sales base has been lowered since the second quarter of this year, and the cumulative improvement in household purchasing power due to interest rate cuts suggests there is sufficient potential for a rebound in same-store sales growth throughout this year."