'Corona Shock'... Lotte Shopping Q1 Operating Profit Down 74.6%

Decline in Consumer Sentiment Leads to Sales Slump at Department Stores and Culture Works
Department Stores Experience Sales Decline Mainly in High-Margin Fashion Categories
Supermarkets and Nearby Shopping Channels See Sales Growth Both Online and Offline

[Asia Economy Reporter Seungjin Lee] Lotte Shopping received a poor performance report for the first quarter of this year due to the impact of the novel coronavirus disease (COVID-19). The sales of department stores and movie theaters, which repeatedly closed due to COVID-19, were significantly affected.

On the 14th, Lotte Shopping announced that its operating profit for the first quarter of this year recorded 52.1 billion KRW, down 74.6% compared to the same period last year. Sales decreased by 8.3% to 4.0767 trillion KRW, and net loss was recorded at 43.3 billion KRW.

By business division, the department store recorded sales of 606.3 billion KRW and operating profit of 28.5 billion KRW in the first quarter. Due to the domestic spread of COVID-19, avoidance of visiting multi-crowd facilities such as department stores and weakened consumer sentiment led to sluggish sales, especially in high-margin fashion product categories, resulting in a significant decrease in operating profit.

Overseas department stores also saw a sharp decline in sales due to reduced foot traffic and closures caused by COVID-19, as well as the closure of the Shenyang branch in April 2020. The department store business has shown a recovery in same-store sales growth since April.

Discount stores recorded sales of 1.6023 trillion KRW and operating profit of 21.8 billion KRW in the first quarter. The domestic same-store sales growth rate in the first quarter was -6.5%. Although online sales increased by 42.5% due to COVID-19, overall sales declined due to decreased offline foot traffic. Despite sluggish same-store sales, operating profit increased by 10.6% due to reduced selling and administrative expenses.

Overseas same-store sales growth in the first quarter was 1.5%, with continuous sales increases in Vietnam and Indonesia leading to a 14.2% increase in operating profit. Lotte Shopping plans to continue efforts to improve profitability through store restructuring in domestic discount stores and strengthen competitiveness through online logistics innovation.

For the electronics specialty store (Hi-Mart), first-quarter sales were 925.3 billion KRW and operating profit was 19.5 billion KRW. First-quarter sales decreased by 10.8% year-on-year due to weakened consumer sentiment caused by the spread of COVID-19 and the postponement of the new school semester, which led to decreased sales in the information and communication sector. Operating profit decreased by 19.6% year-on-year despite an improvement in gross profit margin due to the sales decline.

Since April, sales recovery is expected due to increased demand for TVs and PCs driven by the expansion of untact (non-face-to-face) consumption. Sales promotion is anticipated through high-efficiency home appliance rebate policies scheduled to continue until the end of the year, along with steady sales growth in online channels, leading to expected performance improvement.

Supermarkets recorded sales of 491.3 billion KRW and an operating loss of 6.3 billion KRW in the first quarter of 2020. First-quarter sales increased by 3.6% year-on-year as both online and offline sales rose due to a preference for nearby shopping channels amid COVID-19. Operating loss improved by 11.2 billion KRW year-on-year due to increased sales and reduced selling and administrative expenses.

Home shopping recorded sales of 269 billion KRW and operating profit of 36.7 billion KRW in the first quarter of 2020. Continuous sales growth was achieved by strengthening healthcare, infection prevention products, and premium products, resulting in a 16.0% increase year-on-year. Operating profit increased by 10.6% year-on-year to 36.7 billion KRW. Although broadcasting fees increased by 13.4 billion KRW, operating profit increased by more than 10.0% for the second consecutive quarter due to sales growth.

Culture Works recorded sales of 102.5 billion KRW and an operating loss of 34.4 billion KRW in the first quarter. Sales decreased by 49.0% year-on-year due to the closure of some domestic movie theaters, reduced audience numbers, and postponed new releases. The first-quarter loss was 34.4 billion KRW due to sluggish sales and limited reduction in selling and administrative expenses.

To minimize the impact of COVID-19, cost efficiency and reduction measures are being implemented. When the impact of COVID-19 decreases, the company plans to activate movie theater visits through safe cinema positioning and recover movie revenue by releasing major tentpole films in the second half of the year.

A Lotte Shopping IR official said, “The first quarter of this year was challenging for domestic retail companies due to avoidance of large crowd facilities and deteriorated consumer sentiment caused by the spread of COVID-19. However, we plan to continuously strengthen the e-commerce business environment by utilizing Lotte On, Lotte Shopping’s integrated online platform.” He added, “This year, additional efficiency improvements will be carried out based on the profitability of stores such as department stores, marts, and supermarkets.”

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