[Click eStock] "Lotte Shopping, Continued Impact of COVID-19... Target Price Down 15%"

[Asia Economy Reporter Minji Lee] Yuanta Securities on the 15th maintained a buy rating on Lotte Shopping but lowered the target price by 15% from the previous level to 110,000 KRW, reflecting the lowered earnings forecast.

In the first quarter, the company recorded sales of 4.077 trillion KRW and operating profit of 52 billion KRW, down 8% and 75% respectively compared to the same period last year. The department store division, the main business unit, was affected by COVID-19, causing operating profit to fall significantly short of the market expectation of 102.2 billion KRW.

By segment, the department store posted an operating profit of 28 billion KRW, the same as the previous year. Domestic department stores saw a 22% growth rate in existing stores compared to last year, resulting in a negative leverage effect. Overseas department stores also showed poor performance with a 38% decline in existing store growth compared to last year.

Domestic discount stores showed strong performance with online sales increasing by 43% compared to a year ago, but offline sales declined by about 10%. However, depreciation expenses decreased by 10.4 billion KRW due to impairment losses on right-of-use assets reflected last year, leading to a 10% increase in operating profit compared to the previous year. Overseas discount stores continued their strong performance from last year, achieving a profit increase of 1.5 billion KRW compared to the previous year.

Culture Works also saw a 49% decrease compared to a year ago due to a decline in sales caused by COVID-19. Conversely, Lotte Super recorded a growth rate of 1.1% benefiting from COVID-19 and reduced its deficit. Home shopping also showed solid performance with a 10.6% increase compared to the previous year.

Lotte Shopping is expected to remain under the influence of COVID-19 in the second quarter as well. Jinhyup Lee, a researcher at Yuanta Securities, said, “It is positive that the recovery of department stores is gradually appearing, but the Southeast Asian market is beginning to be seriously affected by COVID-19 from the second quarter,” adding, “Overseas businesses, which had been supporting earnings, are also expected to perform poorly.”

The company plans to undertake store restructuring this year. It intends to close 121 stores, including 5 department stores, 16 discount stores, 75 supermarkets, and 25 LOHBs, with more than half of the 200 stores proposed for closure to be restructured this year.

Researcher Jinhyup Lee said, “The company’s strategy to reduce inefficient offline stores and expand competitiveness in the online business is positive,” but added, “However, since one-time costs of up to 100 billion KRW and 160 billion KRW are expected to be incurred in department stores and discount stores respectively for the time being, earnings uncertainty will increase.”

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