[Click eStock] "Core Business Slump GS Retail... Need for Expansion"

1Q Operating Profit Down 47.8% Year-on-Year
Net Increase in Store Numbers Stalls, Sales at Existing Stores Decline
Convenience Store Business Slump Expected to Continue

GS Retail's operating profit for the first quarter of this year is expected to plummet to about half compared to the same period last year. This is due to the rapid slowdown in the convenience store sector amid a worsening consumer economy. There are calls for the presentation of a mid- to long-term growth strategy.

On the 18th, IBK Investment & Securities maintained its 'Buy' rating and target price of 21,000 KRW for GS Retail based on these factors. The closing price the previous day was 14,210 KRW.

The first-quarter earnings are estimated at consolidated sales of 2.8023 trillion KRW and operating profit of 38.6 billion KRW. Sales are expected to decrease by 0.3% and operating profit by 47.8% compared to the same period last year. Even considering the partial effect of the hotel business division spin-off, operating profit is projected to decline by 22.3% year-on-year.

Amid the rapid slowdown in the core convenience store business, the deterioration of the consumer economy, a decrease in seasonal product sales, and a decline in the growth rate of existing supermarket stores were cited as reasons for the poor performance.

Above all, the poor performance of the convenience store division is viewed negatively. The net increase in the number of convenience store outlets is weaker than expected. It is analyzed that the sector's downturn is occurring faster than anticipated. This trend is expected to continue throughout the year, falling significantly short of the annual net increase target of 500 to 600 stores. Additionally, since the recovery of sales at existing stores seems distant, the contribution of the convenience store division to overall earnings is expected to decline further.

The poor performance is likely to continue through the first half of the year. Nam Seong-hyun, a researcher at IBK Investment & Securities, explained, "Although efforts are focused on cost reduction through store efficiency, there is no new business division to compensate for the profit decline after the spin-off, and the core business division is also sluggish. It is necessary to present a mid- to long-term growth strategy alongside business division efficiency."