[Click eStock] "Lotte Hi-Mart, Successful Turnaround to Profit Despite Continued Deficit Outlook"

NH Investment & Securities stated on the 19th that although it initially expected Lotte Hi-Mart to continue posting losses due to declining sales amid a sluggish home appliance market, the company successfully turned a profit thanks to the effects of restructuring, maintaining a hold rating and a target price of 11,500 KRW.

For the second quarter on a consolidated basis, Lotte Hi-Mart reported sales of 679.7 billion KRW, down 23% year-on-year, and operating profit of 7.8 billion KRW, up 3,016%, exceeding consensus estimates.

Joo Young-hoon, a researcher at NH Investment & Securities, explained, "The effects of the intensive offline store restructuring that has been underway since last year appear to have been greater than expected. We closed 40 stores last year that were deemed unsalvageable, and an additional 24 stores were closed in the first half of this year."

He added, "Although the absolute number of stores decreased significantly, leading to a sharp decline in sales, there was a positive effect on profitability. Along with this, margin improvement was also achieved through inventory reduction and the composition of a high-margin product portfolio."

Offline store closures and online business restructuring are expected to continue in the second half of the year. Therefore, the effect of performance improvement is anticipated to fully materialize from next year. While the bottom in terms of short-term performance is considered confirmed, uncertainty remains in future estimates as restructuring is not yet complete. Additionally, considering the risk of large-scale goodwill impairment losses occurring annually, a conservative investment opinion is maintained.

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