Grocery Business Remains in the Red Amid Weak Consumer Sentiment
Department Store Segment Strengthens Profitability Both Domestically and Overseas
Hi-Mart Achieves 277% Growth in Operating Profit
Lotte Shopping reported disappointing results for the second quarter, marking an earnings shock. While the department store business segment performed well, the overall results were dragged down by the sluggish performance of the mart business, which has the largest share of total sales. However, the company managed to post solid results for the first half of the year, thanks to strong performance in the first quarter.
According to the Financial Supervisory Service's electronic disclosure system on August 8, Lotte Shopping's second-quarter revenue and operating profit were KRW 3.3497 trillion and KRW 40.6 billion, respectively, down 2.3% and 28% year-on-year. These figures fell far short of market expectations, which had forecast revenue of KRW 3.4463 trillion and operating profit of KRW 61 billion.
For the first half of the year, revenue was KRW 6.8065 trillion and operating profit was KRW 188.9 billion. Thanks to strong first-quarter results, revenue declined by 2%, but operating profit increased by 11%.
Grocery Business Slumps, Department Store Profitability Strengthened
The most challenging segment was the grocery business unit (mart and supermarket). The mart division posted second-quarter revenue of KRW 1.2542 trillion and an operating loss of KRW 45.3 billion. Revenue decreased by 3.3%, and operating losses continued. The decline in consumer sentiment led to lower sales, and initial costs related to e-grocery (ZETTA app) resulted in a wider operating loss. Although the company tried to rebound by holding the "Red Festival" in June, the impact of weak consumption in April and May was unavoidable.
The overseas discount store (mart) business segment also saw slight declines in both revenue and operating profit. While the Vietnam business continued to grow steadily, resulting in increases in both revenue and operating profit, the Indonesian discount store experienced a decline in sales. In Indonesia, differences in the number of business days due to the timing of the Lebaran holiday were identified as a factor.
However, the department store business segment delivered solid results both domestically and overseas. The domestic department store segment reported revenue of KRW 786.2 billion and operating profit of KRW 63.2 billion, with revenue down 2.7% year-on-year but operating profit up 14.7%. Profitability was strengthened by improving operational efficiency and reducing selling and administrative expenses. The increase in sales to foreign customers was also a positive factor. At the main branch, the proportion of sales to foreign customers was 17%, up 2 percentage points from the same period last year.
The overseas department store segment, including Lotte Mall West Lake Hanoi, recorded revenue of KRW 29.5 billion and operating profit of KRW 1.8 billion, with both figures rising year-on-year. Lotte Mall West Lake Hanoi posted a profit for the second consecutive quarter, driving overall results. In the first half of last year, this store reported an operating loss of KRW 7.3 billion, but this year it achieved an operating profit of KRW 700 million.
The e-commerce business recorded an operating loss of KRW 8.4 billion in the second quarter, a significant improvement from the previous year's loss of KRW 19.9 billion. This was due to improved gross margins and increased advertising revenue. However, as the focus shifted to profitability, revenue fell by 4.6% year-on-year to KRW 26.6 billion.
Lotte Shopping expects both the department store and grocery business units to show improved results in the second half of the year. This is because department store sales have been rising since July, and the Lotte Mart Grand Grocery Guri Store, which opened at the end of June, has been well received by customers, resulting in significant sales growth.
A Lotte Shopping representative stated, "We are strengthening the competitiveness of our core department store locations through large-scale renovations and focusing on enhancing our core business capabilities, such as reorganizing mart stores around grocery offerings. We will also continue efforts to improve profitability by expanding exports of private brand products and integrating logistics between marts and supermarkets."
Hi-Mart Thrives... Home Shopping and Cultureworks Struggle
Among Lotte Shopping's consolidated subsidiaries, Lotte Hi-Mart delivered standout improvements. In the second quarter, Hi-Mart posted revenue of KRW 594.2 billion and operating profit of KRW 10.5 billion, up 0.8% and 277.4% year-on-year, respectively. The company explained that increased purchases of private brand products, the growth of the "安心Care" service, and higher sales in the home and kitchen appliance sectors all contributed to improved profitability. Lotte Shopping noted, "Despite the downturn in the domestic electronics market, we have achieved increases in both revenue and operating profit for two consecutive quarters, marking a full-fledged turnaround."
The home shopping segment posted second-quarter revenue of KRW 231 billion and operating profit of KRW 12.2 billion, down 0.6% and 24.8% year-on-year, respectively. While total sales in the data home shopping (T-commerce) segment grew by about 6%, TV live broadcast and e-commerce sales declined by approximately 5% and 10%, respectively. The decrease in TV viewership was identified as the cause of the declines in both revenue and operating profit.
Cultureworks recorded revenue of KRW 91.9 billion and an operating loss of KRW 6.2 billion, with revenue down 20% and operating profit turning negative year-on-year. The company attributed the sharp decline in performance to a contraction in the film market due to the absence of major domestic releases.
Kim Wonjae, head of finance at Lotte Shopping, stated, "Although we faced a challenging business environment in Korea due to the delayed recovery in consumer sentiment, our overseas businesses have continued to deliver robust results. As we expect the domestic economy to recover in the second half of the year, we will do our utmost to achieve meaningful growth in Korea as well."
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