"Ah! Duty-Free Shop..." Shinsegae Reports 43.1 Billion KRW Operating Loss in Q2 (Update)

First Quarterly Operating Loss Since 2011 Demerger
Excluding Duty-Free Business, Solid Performance... Department Store Operating Profit 14.3 Billion Won

[Asia Economy Reporter Lim Hye-sun] Shinsegae posted an operating loss in the second quarter. This was due to the duty-free shop business being hit hard by the impact of the novel coronavirus (COVID-19). It is the first time since May 2011, when the department store and E-Mart divisions were split into two separate companies, that Shinsegae has recorded a quarterly operating loss.

Shinsegae announced on the 12th that it recorded an operating loss of 43.1 billion KRW in the second quarter, turning to a loss compared to the same period last year. Sales amounted to 1.1444 trillion KRW, down 32.6%.

The duty-free shop business showed significant weakness. Shinsegae DF, which operates duty-free shops, saw sales plunge 58% to 380.8 billion KRW and posted an operating loss of 37 billion KRW. The operating loss for the first half of this year reached 69.4 billion KRW. Due to the impact of COVID-19, travel demand disappeared, making normal operations virtually impossible, with airport and downtown store sales falling by 92% and 31%, respectively.

On a standalone basis, Shinsegae Department Store's second-quarter sales decreased by only 3.7% to 353.9 billion KRW. Compared to the previous quarter, sales grew by 6.9%. Operating profit was 14.3 billion KRW. In March, when the impact of COVID-19 was greatest, sales contracted 28% year-on-year, but proactive quarantine measures and rapid sales recovery centered on large stores such as the Gangnam branch led to growth in June. The luxury and lifestyle sectors performed strongly, with sales in these sectors increasing by 28% and 23%, respectively.

Casamia, which is aggressively expanding its distribution network, saw a 53.2% increase in sales year-on-year due to the recent 'stay-at-home' trend boosting housing-related consumption. It reduced its operating loss to 3 billion KRW.

Shinsegae International (SI) is evaluated to have performed well despite a decline in duty-free cosmetics sales due to COVID-19. Shinsegae International's sales in the second quarter were 287.1 billion KRW, down 4.9% year-on-year. However, due to continued investment in the cosmetics business, including preparation for new brands and strengthening of serial marketing, it recorded a loss of 2.6 billion KRW. Sales in the cosmetics sector declined 26.5% due to the worsening duty-free business. Overseas fashion and lifestyle sales increased by 10% and 12%, respectively. For the cosmetics business, efforts are underway to secure new duty-free clients and expand Chinese online sales channels, while the domestic fashion division plans to improve profitability through brand optimization.

Central City also recorded a 21.5% decrease in second-quarter sales to 52.8 billion KRW due to the impact of COVID-19, with hotel and leased store sales declining, resulting in an operating loss of 2.5 billion KRW.

Shinsegae stated, "Despite the difficult business environment, we posted solid results centered on the rapid sales recovery of department stores in the second quarter. In the second half of this year, we expect improved results in the third quarter, supported by a gradual recovery in the duty-free business through rent negotiations at Incheon Airport and a rebound in domestic duty-free sales, strengthened profitability from the restructuring of Shinsegae International’s domestic fashion business, expansion of Chinese online sales channels, and continued sales growth at Casamia."

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