Endemic Consumption Dispersion Hampers... Lotte Shopping 2Q Operating Profit 51.5 Billion KRW, Down 30.8% (Comprehensive)

Sales of 3.622 trillion KRW... 7.2% YoY decline

Department store base effect & SG&A increase... Operating profit below consensus
Mart & supermarket see profit improvement from integrated sourcing

Focus on Lotte Mall Hanoi stabilization and strengthening fundamentals in H2

Lotte Shopping recorded earnings below market consensus (expectations) in the second quarter of this year. The department store struggled due to a low base effect following last year's reopening-driven strong performance, leading to a decline in operating profit. It was also hampered by inflation, including public utility fee increases.

Lotte Department Store Main Branch [Photo by Lotte Department Store].

Lotte Shopping announced on the 10th that its operating profit for the second quarter of this year was 51.5 billion KRW, down 30.8% compared to the same period last year. Sales for the same period decreased by 7.2% to 3.6222 trillion KRW. These figures fell short of the consensus compiled by FnGuide (operating profit of 81.4 billion KRW, sales of 3.8273 trillion KRW).

In the second quarter, the department store and Culture Works saw a decrease in operating profit due to increased selling and administrative expenses caused by rising prices. However, the mart and supermarket showed improved operating profits as the integrated sourcing efforts, which began at the end of last year, started to yield tangible results. E-commerce also saw increases in both sales and operating profit due to the stabilization of vertical services, and Hi-Mart significantly improved its operating profit through continuous efforts to enhance profitability. Net profit for the period surged by 156.3% in the second quarter to 117 billion KRW, driven by a substantial increase in non-operating income such as equity-method gains.

The department store recorded an operating profit of 66 billion KRW and sales of 822 billion KRW in the second quarter. These figures represent decreases of 36.9% and 0.8%, respectively, compared to the same period last year. Sales were slightly up in food and fashion categories amid weakened consumer sentiment, but sales in the home appliance category declined due to reduced demand for appliance replacement, resulting in sales remaining at a similar level to last year. Operating profit decreased due to increased selling and administrative expenses caused by inflation. It is expected that sales and profits will improve in the second half of the year as the impact of inflation eases and major metropolitan stores such as the Incheon branch food hall and Suwon branch undergo renovations. Overseas department stores saw increased sales, but operating profit declined due to a low base effect from last year's rent reductions for stores in Indonesia. In the second half, efforts will focus on 'Lotte Mall West Lake Hanoi,' which had a pre-opening at the end of July in Vietnam.

The mart posted an operating loss of 3 billion KRW in the second quarter, reducing its deficit, and sales decreased by 1.3% to 1.422 trillion KRW. The supermarket turned a profit with an operating profit of 5 billion KRW, while sales fell by 2.2% to 325 billion KRW. Despite a slight decline in sales due to weakened consumption amid ongoing high inflation, the integrated sourcing effect of mart and supermarket products, which began at the end of last year, showed significant results, greatly improving operating profits for both, especially in the food category. Notably, Lotte Super recorded profits for two consecutive quarters following the first quarter. The mart's operating profit in the first half of the year increased by more than 200% year-on-year, achieving significant improvements in both domestic and overseas businesses. Domestically, the company plans to continue improving cost of sales through the integrated sourcing organization of mart and supermarket, thereby enhancing profitability.

Jamsil Lotte World Mall [Photo by Lotte Department Store].

E-commerce recorded an operating loss of 21 billion KRW in the second quarter, reducing the deficit by 28 billion KRW compared to the same period last year. Sales increased by 41.5% to 36 billion KRW. E-commerce has been improving its deficit for four consecutive quarters since the third quarter of last year. The stabilization of vertical services in beauty, luxury goods, and fashion, which have been operating since last year, and the good performance of the newly launched kids vertical service 'On and the Kids' in April contributed to this improvement. Cost reductions through IT work efficiency and advanced customer service response systems also positively impacted operating profit. E-commerce plans to further enhance vertical services to strengthen platform competitiveness.

Hi-Mart posted an operating profit of 7.8 billion KRW (+3016.0%) and sales of 679.7 billion KRW (-23.4%) in the second quarter. Although sales declined due to sluggish home appliance market conditions caused by the real estate downturn, the company focused on improving its business structure across all areas, including inventory normalization, store competitiveness enhancement, logistics efficiency, and service expansion, significantly increasing operating profit in the second quarter. The company plans to continue growth through store renovations and strengthening private brand (PB) development.

Home shopping recorded an operating profit of 2 billion KRW and sales of 231 billion KRW in the second quarter, down 92.8% and 15.2%, respectively, compared to the same period last year. Home shopping faced overall industry challenges such as a decline in TV viewership and was also affected by the suspension of early morning broadcasts, resulting in poor performance. However, with the resumption of early morning broadcasts this month, performance is expected to improve.

Culture Works posted an operating profit of 2 billion KRW (-79.5%) and sales of 127 billion KRW (+4.5%) in the second quarter. Despite a slight decrease in attendance in the second quarter, sales increased due to higher ancillary revenues such as advertising. However, operating profit declined due to increased selling and administrative expenses caused by public utility fee hikes and an increase in part-time workers.

Kim Won-jae, head of finance at Lotte Shopping, said, "The second-quarter results of Lotte Shopping reflect the impact of weakened consumer sentiment due to the intensifying high inflation trend, but profitability improvement trends continue thanks to the efforts of business units such as mart and supermarket. In the second half, we plan to focus on successfully stabilizing Lotte Mall West Lake Hanoi, which had a pre-opening at the end of July, and improving performance through continuous internal strengthening in the domestic business."

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