[Click eStock] "Shinsegae Expected to Be the Biggest Beneficiary Among Distribution Channels When Consumption Recovers"

[Asia Economy Reporter Song Hwajeong] Daishin Securities maintained a 'Buy' rating and a target price of 400,000 KRW for Shinsegae on the 13th, expecting that the improvement in performance will be stronger than other retail companies once social distancing measures are eased.

In the second quarter of this year, Shinsegae recorded consolidated total sales of 2.3116 trillion KRW, a 38% increase compared to the same period last year, and operating profit turned positive at 96.2 billion KRW, showing solid performance. The department store's standalone total sales increased by 15%, with explosive consumption recovery leading to significant growth in scale and profit improvement. Researcher Yoo Jeonghyun of Daishin Securities analyzed, "The standalone operating profit margin of the department store recorded 4.4%, marking a historical high for the second quarter," adding, "Luxury goods grew by 47%, women's by 18%, men's by 27%, and sports and children's categories grew by 20% and 14% respectively, reflecting the recovery in domestic clothing sales that mirrors the consumption economy, which improved the department store's gross profit margin (GPM)."

The duty-free sector maintained daily sales of around 9 billion KRW in the second quarter, and operating profit turned positive at 19.2 billion KRW due to changes in the rental fee system at Incheon Airport duty-free stores. Shinsegae International recorded operating profit of 26.5 billion KRW, significantly exceeding the market expectation of 15 billion KRW, as domestic and overseas fashion sectors improved due to the recovery in domestic consumption in the second quarter.

Concerns about the Delta variant have already been largely reflected in the stock price. One researcher stated, "Since mid-July, sales in major channels except duty-free stores seem to have been somewhat affected by strengthened social distancing measures, but despite this, the basic sales situation in July and August is estimated to be favorable," adding, "Considering that the demand for high-end domestic consumer goods itself has not slowed down and that offline retail companies are somewhat affected due to concerns over the spread of the Delta variant, the improvement in performance during the period of social distancing easing from September to year-end, when consumption is highest throughout the year, is expected to be stronger than other retail companies."

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