Lotte Hi-Mart Continues Performance Improvement... Stock Price Also Strong

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] Since the beginning of the new year, Lotte Hi-Mart's stock price has been strong. Expectations of strong earnings, with the company expected to significantly surpass last year's performance for three consecutive quarters, have driven the stock price. Due to increased time spent at home and a rise in the number of households, demand for home appliances continues, and it is anticipated that the performance improvement trend will continue this year as well.

According to the Korea Exchange on the 15th, Lotte Hi-Mart closed at 38,300 KRW, up 3.51% from the previous trading day. It has risen 23% so far this year. Except for the first trading day of the Year of the Ox on the 4th, the stock price has continued to rise for eight consecutive trading days.

The background for the strong stock price is analyzed to be the reflection of expectations for strong fourth-quarter earnings. Lotte Hi-Mart already showed improvements in both sales and operating profit in the second and third quarters of last year compared to the same periods in 2019. A significant growth in performance is also expected in the fourth quarter. According to the average estimates (consensus) from securities firms, Lotte Hi-Mart's fourth-quarter sales are expected to be 967.7 billion KRW, and operating profit 20.9 billion KRW, representing a 3.5% increase in sales and a 232% increase in operating profit compared to the same period last year.

The increase in performance was driven by sales of white goods. Sales in categories such as TVs, dryers, and PCs grew by more than 10% compared to the previous year. In particular, sales of clothing care appliances increased by up to 80%. This is thanks to heightened interest in personal hygiene due to the impact of the novel coronavirus infection (COVID-19).

The effect of closing non-profitable stores was also evident. While the number of offline stores was reduced by 18 over the past year, the proportion of online sales increased to 15%. In the fourth quarter, selling and administrative expenses decreased by 10.7 billion KRW compared to the previous year due to the alleviation of fixed costs for offline stores, leading to an expected 1.5 percentage point increase in operating profit margin. Park Jongdae, a researcher at Hana Financial Investment, explained, "Despite the reduction in offline stores, profitability is improving while maintaining a growth rate of over 5% in scale."

The boom in the home appliance market is expected to continue for the time being. It is analyzed that the spread and stabilization of COVID-19 will last at least until the first half of the year. The situation where increased time spent at home leads to increased home appliance sales is expected to continue. Structural benefits from the increase in the number of households are also anticipated. As of the end of last year, single-person households accounted for 39.2% of all households in Korea, the highest ever recorded. It has steadily increased from 35% in 2016. The industry expects that as single-person households become more common, the number of households will increase, and demand for home appliance items will also rise accordingly.

Lotte Hi-Mart's individual sales this year are estimated to reach 4.1724 trillion KRW, with operating profit of 183.1 billion KRW. This represents a 2.9% increase in sales and a 10.5% increase in operating profit compared to last year's estimated performance.

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