[Click eStock] "Hyundai Department Store to Face Impact from COVID-19 Resurgence in Q4"

Hana Financial Investment Issues 'Buy' Rating and 90,000 KRW Target Price... Closing Price on 23rd at 69,700 KRW

Hyundai Department Store Trade Center Branch (Photo by Asia Economy DB)

[Asia Economy Reporter Kum Boryeong] An analysis has emerged that Hyundai Department Store's fourth-quarter performance will be affected by the resurgence of the novel coronavirus infection (COVID-19).

According to Hana Financial Investment on the 24th, Hyundai Department Store's consolidated total sales and operating profit for the fourth quarter are estimated at 2.04 trillion KRW and 64 billion KRW, respectively, representing a 12% increase and a 40% decrease compared to the previous year.

In particular, sales in the department store division are expected to decline by 4% year-on-year, acting as a major factor in the poor performance. Park Jongdae, a researcher at Hana Financial Investment, said, "The same-store sales growth rate increased to 6% in October, but due to the resurgence of COVID-19 and the elevation of social distancing to level 2.5, it dropped to -3% in November and -10% in December. The operating profit margin of the department store division is expected to fall to 5% due to an increase in the sales proportion of low-margin products such as luxury goods and living items, as well as increased promotional expenses." He added, "Sales in the duty-free division are expected to increase by 120% year-on-year due to the acquisition of the Dongdaemun branch and the expansion of global cosmetics brand categories. The operating loss is expected to decrease to 11 billion KRW compared to the previous quarter. However, it is regrettable that daily sales have been declining since peaking in September."

The resurgence of COVID-19 is placing a significant burden not only on sales but also on category mix and profitability. In December, sales of luxury goods and living categories grew by more than 20%, increasing their share of total sales to 40%. High-margin clothing sales are decreasing by around 15%. Researcher Park said, "This situation is completely different from October, when sales centered on clothing were rapidly recovering due to the renewal openings of the Middle East branch and the main store." He added, "The premium outlet is no different. In December, the Gimpo and Songdo branches are also experiencing a decline of more than 10%, and the Daejeon and Namyangju branches are underperforming compared to plans."

Hana Financial Investment has given Hyundai Department Store a 'Buy' investment rating with a target price of 90,000 KRW. The closing price on the 23rd was 69,700 KRW. Researcher Park said, "Due to the industry characteristic of selling nearly 90% of approximately 50,000 various manufactured goods through offline stores, department stores are the retail channel with the greatest performance volatility depending on the extent of COVID-19 spread. The average same-store sales growth rate of department stores decreased by 25% from February to April, but quickly recovered to 4% in October when social distancing was lowered to level 1. Therefore, there is significant potential for mid- to long-term performance improvement after vaccine commercialization, but at the same time, it has become the industry with the largest short-term performance decline." He concluded, "I believe the tug-of-war between short-term and mid- to long-term outlooks will reach a balance. A long-term approach with a buying strategy during corrections seems advisable."

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