[Click eStock] "Hansome, Weak Domestic Consumption and Rising Costs... Target Price Down"

Shinhan Investment Corp. maintained its 'Buy' rating on Handsome on the 9th but lowered the target price to 31,000 KRW.

Handsome recorded consolidated sales of 405.9 billion KRW and operating profit of 54.3 billion KRW in the first quarter of this year. Sales met expectations, but operating profit slightly missed the company's estimate of 59.9 billion KRW. This is due to increased marketing expenses and store opening costs related to the launch of new brands, which have been ongoing cost issues since the second half of last year. These related expenses are expected to continue for the time being as part of securing mid- to long-term growth drivers.

In terms of sales, the women's character segment grew by 4% year-on-year. Growth was driven mainly by strong brands such as Time, Mine, and The Cashmere. Additionally, the imported luxury category showed favorable results with a 24% increase in sales by securing new categories. By channel, the online channel's sales proportion steadily increased to 21%, and the channel mix improvement effect appears to be maintained.

Domestic consumption is expected to remain sluggish in the second quarter as well. Marketing expenses and store opening costs related to new brand launches are expected to continue increasing. Therefore, it is necessary to slightly adjust the profit expectations for the second quarter. Furthermore, domestic consumption in April and May has not improved compared to March, so sales are expected to remain at the same level as the previous year’s corresponding period.

Although new brands such as Our Legacy and Oera show double-digit growth rates, their market share is minimal. In a situation where domestic consumption capacity is declining compared to last year, it seems difficult for Handsome, a strong player in the women's brand sector, to escape market impacts. However, despite the challenging business environment, the company’s efforts to secure mid- to long-term growth opportunities by investing with solid cash flow are positive.

Hyunjin Park, a researcher at Shinhan Investment Corp., analyzed, “Although profitability is low due to concentrated investment for virtuous cycle, it appears to steadily converge with market growth rates. The continuous launch of overseas imported brands is positively filling the sales gap of some domestic brands, but due to the absence of short-term profit momentum, it is preferable to take a wait-and-see approach for the time being and adopt a long-term investment perspective.”

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