Lotte Hi-Mart Expected to Continue Performance Improvement in the Second Half of the Year

[Asia Economy Reporter Song Hwajeong] Lotte Hi-Mart is expected to record second-quarter results that exceed expectations this year, driven by strong sales of large white goods and reduced selling and administrative expenses. The favorable performance is anticipated to continue into the second half of the year.

According to NH Investment & Securities on the 27th, there is currently about 14 trillion won in emergency disaster relief funds and approximately 34 trillion won annually in overseas consumption substitution, resulting in significant discretionary funds among middle-class and higher households. Additionally, increased time spent at home due to the novel coronavirus disease (COVID-19) has highlighted home-related consumption, and with the government's high-efficiency appliance rebate program, demand for large home appliances is expected to remain strong throughout the second half of the year.

Lee Ji-young, a researcher at NH Investment & Securities, stated, "Air conditioner sales in the third quarter of last year were about -40%, so the base is very low," adding, "This year, due to the heatwave in the third quarter, there is strong sales of air conditioners and high expectations for earnings leverage." The researcher also noted, "In addition, 12 underperforming stores will be closed this year, and efforts to improve fixed cost efficiency and reduce advertising and promotional expenses are actively underway, raising expectations for profitability improvement."

NH Investment & Securities forecasted that Lotte Hi-Mart's second-quarter standalone sales will increase by 2% year-on-year to 1.0923 trillion won, and operating profit will rise by 7% to 49.2 billion won, exceeding market expectations. The researcher explained, "Favorable results are expected to continue in the second half due to increased domestic appliance demand, a low base from the previous year, and restructuring of underperforming stores."

Reflecting the strong appliance sales and profitability improvement from restructuring underperforming stores, NH Investment & Securities raised Lotte Hi-Mart's earnings per share (EPS) forecast for this year by 35% and increased the target stock price from 35,000 won to 45,000 won.

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