[Click eStock] With 80 Billion Won in Property Tax and Disaster Relief Funds... Is This the End of Emart's Slump?

2Q Deficit Forecasted at 40 Billion Won... Losses Widen
Impact of Disaster Relief Fund Restrictions... Discount Store Deficit Doubles

[Asia Economy Reporter Minwoo Lee] Emart has been unable to escape poor performance in the second quarter as well. The losses were larger than expected due to the combined effects of not being able to use disaster relief funds during the discount store off-season and an additional holding tax of 80 billion KRW.

On the 15th, Korea Investment & Securities forecast that Emart would record consolidated sales of 5.061 trillion KRW and an operating loss of 40 billion KRW in the second quarter of this year. Although sales increased by 11% compared to the same period last year, the operating loss was expected to be larger than the market consensus of 27 billion KRW. The impact of the holding tax of 80 billion KRW added to the discount store off-season was significant. As the discount store, a major cash generator, continued to operate at a loss, the operating loss on a separate basis was expected to nearly double from 7 billion KRW in the same period last year to 13 billion KRW.

Researcher Na Eun-chae of Korea Investment & Securities explained, "In May, the damage was inevitable due to the inability to use disaster relief funds at large marts, while still not fully recovering from the impact of COVID-19 in April."

Subsidiary operating losses are expected to slightly improve compared to the previous quarter but are likely to continue at an operating loss of 26 billion KRW. SSG.com had the largest operating loss at 21 billion KRW. Emart24 and the hotel business division are also expected to continue operating at a loss. However, net profit is expected to be 295 billion KRW, reflecting a gain of about 500 billion KRW from the sale of the Magok site in the second quarter.

The same-store sales growth rate for discount stores in the second quarter is estimated at -1.2%. Considering that the number of holidays in the second quarter was one day more than the previous year, which has a 0.7% positive effect on sales, the adjusted figure is about -1.9%. In May, when the impact of disaster relief funds was expected to be greatest, the sales growth rate was estimated at -4.7%. In June, it was -1.5%, which is about 3% when adjusted for the number of holidays. Researcher Na explained, "The main factors are estimated to be discount store renovations, increased online sales through the PP center, and easing competition intensity."

However, there are also opinions that the end of the slump is in sight. SSG.com’s sales in the second quarter are expected to increase by 42% year-on-year, continuing the strong trend from the first quarter. The online food and beverage market is thriving, and online brands and product assortments are becoming more diverse. Sales at Traders, a warehouse-type store, increased by 19%, and despite continued closures of specialty stores, sales increased by 18% year-on-year thanks to the strong performance of the private brand No Brand. Starbucks’ performance, reflected as equity-method income, is also expected to be favorable.

Against this background, Korea Investment & Securities maintained a 'Buy' rating and a target price of 140,000 KRW for Emart. The closing price on the previous day was 113,500 KRW.

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