Department Store Stocks Stretching Out Confident in Their Performance

Base Effect and High-Margin Product Sales Drive Performance Up
"Limited Impact of Omicron on Luxury Goods-Focused Department Store Results"

Exterior view of Shinsegae Department Store Myeongdong Branch

[Asia Economy Reporter Minwoo Lee] Department store stocks, which recently hit yearly lows, are rebounding. This appears to be driven by expectations of stronger-than-anticipated earnings and the assessment that the spread of the new COVID-19 variant, 'Omicron,' will have a limited impact on department store performance, which has a high proportion of luxury goods.

As of 11:27 a.m. on the 3rd, Shinsegae's stock price rose 2.9% from the previous day to 241,500 KRW. Since hitting an intraday yearly low of 211,500 KRW on the 29th of last month, it has been steadily recovering. This marks about a 12% increase since the closing price that day. Hyundai Department Store showed a similar trend. After hitting a 52-week low of 66,600 KRW on the 30th of last month, it rebounded more than 6%, recovering to 72,900 KRW as of 11:27 a.m. on the same day.

The securities industry analyzes that the stock prices, which had plunged due to excessive concerns, are rebounding on expectations of strong earnings. According to the Ministry of Trade, Industry and Energy, department store sales in October increased by 21% compared to the same period last year. Excluding the performance of new stores, the growth rate of existing stores is interpreted as about 9% higher than in October last year. November earnings are also expected to increase by 5%, 18%, and 9% year-over-year for the three major department stores?Lotte, Shinsegae, and Hyundai, respectively. Considering that November this year has fewer holidays than last year, even better performance than in October is anticipated. Since last month was heavily affected by the resurgence of COVID-19, a base effect can also be expected. In particular, sales of high-margin products are rising, so the increase in operating profit is expected to be even greater.

Experts predict that while there will be some impact from the spread of 'Omicron,' the extent may be limited. According to the Bank of Korea, the consumer sentiment index last month was 107.6, up 0.8 points from the previous month, marking three consecutive months of increase. Although the consumer price inflation rate in the same month reached 3.7% year-over-year, which is a burden, it is analyzed that this will have a limited effect on department store sales, which have a high proportion of luxury goods.

Jongdae Park, a researcher at Hana Financial Investment, explained, "Although uncertainty about the Omicron variant is spreading, if the relationship that higher transmissibility corresponds to lower fatality rate is not broken, the impact on the consumption economy will be limited. Since the 12-month forward price-to-earnings ratios of Shinsegae and Hyundai Department Store have fallen to 5 to 6 times, a bottom-fishing strategy focusing on high-quality companies will be effective."

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