[Click eStock] "Lotte Shopping, Profit Increase Expected from Restructuring... Target Price Up 16%"

Hana Financial Investment Report
Q3 Operating Profit 103 Billion KRW...18% Increase YoY

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating on Lotte Shopping on the 8th, expecting profitability to improve due to intensive restructuring and business recovery, and raised the target price by 16% from the previous level to 100,000 KRW.

Consolidated sales for the third quarter are estimated to record 4.133 trillion KRW, down 6.2% from the same period last year. Operating profit is expected to increase by 18% to 103 billion KRW. The mart and supermarket sectors are expected to deliver solid results, but the department store segment is likely to face increased business burdens.

Lotte Mart's sales of agricultural and livestock products increased by more than 10% compared to the same period last year, and the same-store sales growth rate for the third quarter is expected to turn positive at 2% year-on-year. Since asset impairment losses were significant until the second quarter, depreciation expenses are also greatly reduced. Mart operating profit is forecasted to expand to 20 billion KRW, a 180% increase from last year. Jongdae Park, a researcher at Hana Financial Investment, said, “The same-store sales growth rate of supermarkets is also expected to recover to -1% compared to the same period last year,” adding, “Since restructuring was carried out most aggressively, fixed cost burdens will be reduced, leading to a turnaround to profitability.”

Lotte Shopping announced a restructuring plan to close about 200 inefficient stores, accounting for 30% of its 700 offline stores including department stores and large supermarkets. In Seoul, Big Market Dobong Branch will operate until November 30 and is scheduled to close. On the 29th of last month, Big Market Dobong Branch in Dobong-gu, Seoul, was preparing to open./Photo by Kang Jin-hyung aymsdream@

The department store's same-store sales growth rate based on management standards for the third quarter is estimated to decrease by 10% compared to the same period last year. Considering the sales proportion of low-margin product categories such as luxury goods and daily necessities, the same-store sales growth rate based on accounting standards is expected to decline further. Overseas department stores are also experiencing poor sales, but China is expected to record profits due to reserve reversals, and Vietnam is expected to achieve profitability through selling and administrative expense reductions.

Home shopping and Hi-Mart are expected to contribute the most to third-quarter earnings. Lotte Home Shopping's handling volume growth rate is expected to increase by 10% compared to the same period last year, with operating profit expected to exceed 30 billion KRW. Gross profit margin (GPM) is estimated to improve due to reduced travel product offerings and increased direct purchases. Hi-Mart is forecasted to record an operating profit of 56 billion KRW due to external growth and reduced selling and administrative expenses. Culture Works and Lotte.com (e-commerce) are expected to face increased burdens due to a decline in moviegoers and sluggish sales.

Lotte Shopping is conducting intensive restructuring by planning to scrap 200 stores (department stores, LOBS, marts, supermarkets) over three years. This year, it plans to close more than 100 stores. It intends to additionally close more than 10 large marts, 40 LOBS stores, and 10 outlets. Researcher Jongdae Park said, “Most of the restructuring stores are leased stores with sublease methods, so cost burdens are limited,” adding, “With a low base, business recovery, and restructuring effects, earnings growth will continue.”

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