Operating Profit of KRW 132.3 Billion, Total Gross Sales of KRW 2.878 Trillion
Department Store Sales and Operating Profit Both Decline
"Main and Gangnam Branch Investments Impacted Core Business Competitiveness"
Subsidiaries: Duty Free and Shinsegae International
Continue Intensive Structural Improvement Amid Weak Performance
Shinsegae posted disappointing results for the first quarter of this year, affected by a slump in consumer spending. This was largely due to significant investment costs in the department store business aimed at strengthening its core competitiveness.
According to the Financial Supervisory Service's electronic disclosure system on May 13, Shinsegae's consolidated operating profit for the first quarter was KRW 132.3 billion, down KRW 30.7 billion (19%) from KRW 163 billion in the same period last year.
Total gross sales reached KRW 2.878 trillion, up 2.1% year-on-year. Net sales, after deducting discounts and returned sales, rose 3.81% year-on-year to KRW 1.6658 trillion in the same period. Net profit for the period dropped by about 40% to KRW 77 billion, mainly due to increased interest expenses.
'Large-scale Investments Amid Consumption Cliff... Department Store Performance Declines'
In the department store segment, first-quarter sales were KRW 1.7919 trillion, down 0.5% from the first quarter of last year. Although sales of luxury watches and jewelry remained strong, a sharp decline in fashion sales led to an overall contraction in performance. In fact, the consumer sentiment index has remained below 100 for five consecutive months since December of last year, standing at 93.8 in April. A reading below 100 indicates a pessimistic outlook for the economy.
Operating profit was KRW 107.9 billion, down 5% (KRW 5.8 billion) from the same period last year. The increase in costs was due to the ongoing renovations at the Gangnam branch (House of Shinsegae, Shinsegae Market) and the main branch (The Estate).
However, Shinsegae stated that the effects of these investments are becoming visible, raising expectations for long-term performance. In February, the Gangnam branch's "Shinsegae Market" attracted over 400,000 customers within a month of opening. The main branch's "The Estate (New Wing)", which reopened after renovations in mid-March, saw sales increase by about 27% year-on-year for a month, with customer traffic rising by more than 20%.
A Shinsegae Department Store official explained, "We plan to shift to growth by leveraging differentiated content, such as the opening of 'The Heritage' (a luxury boutique hall) at the main branch in early April and the hosting of pop-up stores at all locations."
Subsidiaries: "Strong Cost Reduction, Expecting Structural Improvement"
Shinsegae DF, which operates duty free stores, posted sales of KRW 561.8 billion and an operating loss of KRW 2.3 billion. Sales increased by 15% year-on-year, driven by higher revenues from downtown and airport duty free stores. In the first quarter, Shinsegae Duty Free sequentially opened stores for brands such as Hermes, Louis Vuitton, and Dior in Incheon Airport Terminal 2.
Exterior view of the liquor store at Shinsegae Duty Free located in Incheon Airport Terminal 2. Provided by Shinsegae Duty Free.
Despite the increase in sales, profitability deteriorated due to rising costs. It is estimated that Shinsegae faced a heavier burden of rent compared to competitors, as it operates more stores within Incheon Airport. However, the deficit narrowed compared to the previous quarter (KRW -34.5 billion), as management efficiency measures, such as voluntary retirement implemented in the second half of last year and the closure of the Busan branch in the first quarter of this year, were reflected in the results.
Shinsegae International, the fashion and beauty subsidiary, recorded first-quarter sales of KRW 304.2 billion and operating profit of KRW 4.6 billion, down 1% and 59% year-on-year, respectively. This was mainly due to a significant decline in fashion sales, as abnormal weather and polarization in fashion consumption became more pronounced. However, the beauty segment performed well, with first-quarter sales of the brands Yeonjak and Vidivici rising by 82% and 20%, respectively.
A Shinsegae International official stated, "Although sales and operating profit declined due to weakened consumer sentiment amid ongoing domestic and external uncertainties and the impact of abnormal weather, the cosmetics segment achieved its highest-ever quarterly sales in the first quarter. For the fashion segment, we will secure high-growth imported brands, and for beauty, we will actively expand into overseas markets such as Japan and the United States."
Shinsegae Central, the company's comprehensive real estate development arm, posted sales of KRW 88.7 billion and operating profit of KRW 22.2 billion, down 0.3% and 15%, respectively. The decrease in overseas business volume led to lower hotel occupancy (OCC) and higher fixed costs, which negatively affected profits.
Casamia, the furniture retail specialist, recorded sales of KRW 62.3 billion and operating profit of KRW 100 million. Both sales and operating profit declined due to reduced move-in volumes and weaker business-to-business (B2B) demand.
Shinsegae Live Shopping, the data home shopping subsidiary, was the only subsidiary to post increases in both sales and operating profit, with sales of KRW 81.1 billion and operating profit of KRW 5.7 billion. The strong performance was attributed to robust sales of beauty, health supplements, and fashion private brand (PB) products.
A Shinsegae official commented, "Despite a challenging business environment and increased investment spending to strengthen our core business and drive future growth, we maintained operating profit above KRW 100 billion. We will continue to pursue solid growth through structural improvements at each subsidiary."
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