'COVID-19' and Severance Pay Included... 'Mom's Touch' Haemaro, Operating Profit Halved

Decrease in Dining-Out Demand Leads to Employee Consolation Payments Through Sales
New Franchise Demand Also Shrinks...Poor Q1 Performance
Many Closed Stores Resume Operations...Mid-to-Long-Term Growth Expectations Rise

Mam's Touch Gangnam Station Branch Exterior

[Asia Economy Reporter Choi Saeng-hye] A red flag has been raised for the first-quarter performance of Haemaro Food Service, the operator of the fast-food franchise powerhouse 'Mom's Touch.' Following a decline in dining-out demand due to the spread of the novel coronavirus (COVID-19), the company is expected to face inevitable poor performance after paying tens of billions of won in consolation money to employees amid a private equity fund sale issue at the end of last year.

According to IBK Investment & Securities on the 13th, Haemaro Food Service's consolidated sales for the first quarter are estimated at 59.6 billion won, with an operating profit of 2.4 billion won. These figures represent decreases of 17.5% and 55.4%, respectively, compared to the same period last year. Considering that the first-quarter sales and operating profit last year, excluding subsidiaries Sugar Bubble and C&C Chemical, were 65.6 billion won and 4.5 billion won respectively, the actual decline rates in sales and operating profit are expected to be 9.1% and 47.0%, respectively.

In February, Haemaro Food Service transferred 100% (16.2 million shares) of its largest subsidiary, Sugar Bubble, a tax-specialized company, to former Haemaro Food Service Chairman Jeong Hyun-sik and one other individual. C&C Chemical Co., Ltd. is a wholly owned subsidiary of Sugar Bubble.

The payment of consolation money totaling approximately 2 billion won to employees after the private equity fund sale is also a factor behind the poor performance. In November last year, former Chairman Jeong transferred most of his shares to KL&Partners Co., Ltd., a private equity fund management company. Subsequently, as employee backlash grew due to concerns over job insecurity, the company took measures such as providing consolation payments and other compensation.

The biggest blow came from COVID-19. Mom's Touch's combined sales performance in January and February was generally favorable. With the increase in delivery demand, the proportion of delivery sales, which was around 26% before COVID-19, expanded to the early 30% range in February. Considering that the average spending per customer in stores is just over 10,000 won, while the average delivery order amount is about 20,000 won, the actual sales gap in January and February was not significant. However, as the spread of COVID-19 intensified from the end of February, the increase in delivery sales in March could not fully compensate for the decline in in-store sales. Kim Tae-hyun, a researcher at IBK Investment & Securities, said, "Considering that Mom's Touch's main consumer base is teenagers in their late teens to late twenties, sales performance in March likely suffered due to the postponement of school openings."

The pace of new store openings also slowed. As of the end of the first quarter, the number of Mom's Touch franchise stores was 1,253, an increase of 10 stores compared to the end of last year. Nine of these new stores are in the Seoul and Gyeonggi (including Incheon) metropolitan areas. Given that the number of stores increased by 76 over the past year, it can be interpreted that new franchise demand has also contracted due to the impact of COVID-19.

However, the industry expects that as the domestic spread of COVID-19 has recently eased, external activities will gradually increase after the end of the 'social distancing campaign' this month, and Mom's Touch's performance is likely to recover quickly. In fact, about 30% of Mom's Touch stores are concentrated in the Daegu and Gyeongbuk regions, where many stores had to stop in-store orders or temporarily close due to confirmed cases nearby, but many of these stores have recently resumed operations.

A Mom's Touch representative explained, "It has been recorded that franchise stores did not remain closed for long periods," adding, "Stores are reopening through discussions with supervisors."

Researcher Kim said, "Expectations for mid- to long-term growth momentum, such as expanding new store openings in the metropolitan area, reducing major raw material purchase costs like poultry, and strengthening overseas market entry, remain valid," offering a positive outlook.

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