[Click eStock] "Lotte Shopping, Expectations for Improvement in Offline Distribution Channels Including Discount Stores"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintains a buy rating and a target price of 130,000 KRW for Lotte Shopping as of the 31st. This is because a favorable business environment is expected for discount store companies, including Lotte Shopping, this year.

In the first quarter of this year, Lotte Shopping's consolidated sales are estimated to reach 3.9439 trillion KRW, a 1.4% increase compared to the same period last year, and operating profit is expected to grow by 127% to 140.5 billion KRW. The significant increase in operating profit is due to one-time expenses incurred last year in the first quarter related to acquisition taxes on REITs assets. Additionally, structural improvements such as the closure of LOBS stores since 2020 are believed to have improved the profitability of discount stores. Department store same-store sales are predicted to grow by 8% compared to the same period last year, while the discount store segment is expected to decline by 0.7%.

Lotte Shopping is projected to record solid performance this year. Consumer price inflation is a factor improving same-store sales in offline retail channels such as discount stores and supermarkets. The discount store business is expected to grow by 2.3% year-over-year due to consumer price inflation and a slowdown in online market growth. This growth in the discount store business increases the downside resilience of Lotte Shopping's stock price.

The impact of declining customer traffic in offline channels, attributed to the rapid growth of the online market and previously cited as a factor for stock price weakness, is also expected to significantly diminish. This year, online penetration is estimated to reach 38.5%, a 2.4 percentage point increase from the previous year. Market growth is analyzed to be 12.1%, down 6.8 percentage points from one year ago. Lotte Mart's same-store sales growth this year is expected to be 0%, an improvement compared to -3.3% in 2020 and -1.2% last year.

Researcher Myungjoo Kim of Korea Investment & Securities stated, "However, the online sector remains disappointing," adding, "Annual sales growth in the e-commerce division is expected to exceed the market growth rate at 25%, but due to a lack of platform differentiation competitiveness, losses are projected to increase to 169.6 billion KRW, higher than last year." Researcher Kim further analyzed, "The structural improvement effects that have continued since 2020 are expected to persist this year, with overall selling and administrative expenses decreasing by 5.7% compared to the previous year. Although the online division's performance is disappointing, considering the profit and loss improvement from structural reforms, it is judged that continued investment is advisable."

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