Earnings Slump Freezes Stock Prices of Distribution Companies

Emart Q4 Operating Loss of 10 Billion Won
Lotte Shopping Operating Profit Down 51.8%
Stock Prices Plunge Due to Earnings Decline
Direct Hit from COVID-19...Weakness Expected for a While

[Asia Economy Reporter Oh Ju-yeon] As domestic retailers continue to report sluggish fourth-quarter earnings for last year, their stock prices are also struggling. In particular, there is an analysis that stock prices will continue to weaken for the time being due to the direct impact of the novel coronavirus infection (COVID-19) since the beginning of this year.

According to the Financial Supervisory Service's electronic disclosure system on the 14th, Emart announced through a disclosure the previous day that it recorded an operating loss of 10 billion KRW on a consolidated basis for the fourth quarter of last year. The operating profit on a separate basis was 25.3 billion KRW, falling short of market expectations.

The poor operating profit on a separate basis is analyzed to be due to sluggish growth rate of existing stores (-3.4%) and the closure of specialty stores (a one-time loss of around 20 billion KRW). Jaehun Cha, a researcher at DB Financial Investment, analyzed, "The consolidated entity's loss of 35.3 billion KRW was larger than expected, which is likely due to the expanded losses of 'SSG.COM,' poor performance of L'Escape, and other one-time losses."

Lotte Shopping also announced on the same day that its consolidated operating profit for the fourth quarter was 43.6 billion KRW, down 51.8% compared to the previous year. This was because of the one-time reflection of increased depreciation expenses (45.8 billion KRW) and one-time losses such as acquisition tax on REITs assets (78.6 billion KRW). Lotte Shopping also announced a high-intensity store restructuring plan. It plans to carry out intensive restructuring over the next three years for about 200 stores, which is approximately 30% of the total 700 stores.

The decline in earnings has also led to continued stock price weakness. Lotte Shopping's stock price, which was 202,500 KRW at the closing on January 2 last year, fell 33.01% to 135,500 KRW on January 2 this year. In February, due to the impact of COVID-19, the stock price continued to fall and as of 9:10 a.m. on this day, it was 117,500 KRW, down 41.98% compared to early last year. Emart, which has been continuously declining since rising to the 320,000 KRW range in August 2018, fell 37.78% from 180,000 KRW at the closing on January 2 last year to 112,000 KRW on this day.

Shinae Park, a researcher at KB Securities, said, "The intense competition in the online food market continues, and the number of customers leaving offline channels is expected to continue, so it is difficult to say that the business environment has structurally improved." She added, "While there is still hope that Emart will gain a dominant market share in the fresh food online market in the long term, the uncertainty of short- to mid-term earnings is high, so a stock price rebound is unlikely."

At least home shopping stocks have slightly risen this month amid expectations that the COVID-19 issue could act as an opportunity. GS Home Shopping rose 4.03% from 131,600 KRW on the 3rd to 136,900 KRW on this day, and Hyundai Home Shopping rose 8.36% from 75,400 KRW to 81,700 KRW.

Jeongyeon Seo, a researcher at Shin Young Securities, diagnosed, "Due to the COVID-19 issue, demand for TV and online is expected to increase," adding, "It is an important time for a product mix strategy that should replace offline purchases."

Regarding GS Home Shopping, which closed its headquarters building for 41 hours from the 6th to the 8th after the 20th confirmed COVID-19 case was identified as an employee belonging to GS Home Shopping, the negative impact is expected to be limited. Researcher Park explained, "As consumers refrain from going out due to fears of infection and spend more time at home, home shopping and online purchases will increase," adding, "The home shopping industry benefits more from COVID-19."

This content was produced with the assistance of AI translation services.