[Click eStock] "Hotel Shilla Sees Significant Improvement in Downtown Store Profitability"

On April 28, Daishin Securities raised its target price for Hotel Shilla from 42,000 won to 50,000 won, stating that the duty-free industry has passed its lowest point and the company is likely to return to operating profit from the second quarter of this year. The investment rating was also upgraded from 'Market Perform' to 'Buy'.

In the first quarter, Hotel Shilla recorded sales of 971.8 billion won, a decrease of just 1% year-on-year, but posted an operating loss of 2.5 billion won, turning to a deficit. While sales at airport locations in the Travel Retail (TR) division rose by 19% due to expanded operating space at Incheon Airport, sales at domestic downtown stores fell by 21%. The hotel and leisure division also saw sales decline by 4% due to lower occupancy rates at the Jeju hotel during the off-season.

Yoo Jeonghyeon, a researcher at Daishin Securities, explained, "The sharp decrease in downtown store sales was due to a deliberate reduction in low-margin wholesale business, which significantly lowered discount rates." He added, "Operating profit in the TR division was negative 5 billion won, turning to a loss compared to 5.9 billion won in the same period last year, but the loss narrowed significantly from the previous quarter's negative 43.9 billion won." Considering downtown store sales, operating profit for the downtown stores is estimated at over 20 billion won, which is seen as a significant recovery from the previous quarter's break-even point.

Yoo also stated, "Thanks to efforts by the duty-free industry, profitability in the downtown store segment is showing meaningful improvement." He noted, "Airport rent continues to weigh on performance, but since the company is currently negotiating with both domestic and international airports, we expect visible results in the second or third quarter."