Emart 2Q Operating Loss of 53 Billion Won 'Earnings Shock'...Direct Hit from Weak Consumption and Cost Burden (Comprehensive)

Q2 Deficit Widens
Significantly Below Market Estimate (Operating Loss 20 Billion KRW)
Expecting Renewal Effect in H2 + Focus on Profitability Improvement

Emart received a performance report for the second quarter of this year that fell significantly short of market expectations. For the second half of the year, the company plans to focus on improving profitability through cost structure improvements while expecting the effects of store renewals to become visible.

Operating loss of 53 billion KRW in Q2... Impact of investment costs and cost burdens

On the 14th, Emart announced that its consolidated operating loss for the second quarter of this year was 53 billion KRW, widening from an operating loss of 12.3 billion KRW in the same period last year. This figure fell far short of the market consensus (operating loss of 20 billion KRW) compiled by FnGuide. During the same period, sales increased by 1.7% to 7.2711 trillion KRW, while net loss widened to 103.2 billion KRW compared to a net loss of 63.1 billion KRW in the previous year.

It was explained that the operating loss was influenced by cost burdens from SCK Company's rising exchange rates and a decline in gross profit margin due to cost increases at Shinsegae Construction, amid a domestic market downturn caused by weakened consumer sentiment due to high interest rates and inflation.

Emart’s standalone operating loss for Q2 was 25.8 billion KRW, an increase in deficit compared to an operating loss of 19 billion KRW in the same period last year. Total sales decreased by 0.5% year-on-year to 3.939 trillion KRW. This was attributed to large-scale renewal investments, the closure of the Gayang store in September last year and the Seongsu store in April this year, as well as increased energy costs due to rising electricity prices.

Specialty stores such as No Brand recorded an operating profit of 10.8 billion KRW, an increase of 7 billion KRW, focusing on restructuring the business towards profitability. Sales rose 5.6% to 276.1 billion KRW.

Operating losses for SSG.com and Gmarket were 18.3 billion KRW and 11.3 billion KRW, respectively. Compared to the same period last year, the deficits narrowed by 22.2 billion KRW and 6.9 billion KRW, respectively. This improvement was credited to logistics cost efficiency and a product mix focused on profitability, which increased gross profit margins.

Chosun Hotel & Resort also recorded an operating profit of 8.5 billion KRW, supported by improved occupancy rates due to the endemic phase of the pandemic. This was an improvement of 7.1 billion KRW compared to the same period last year. Shinsegae Construction posted an operating loss of 30.9 billion KRW due to a decline in gross profit margin caused by rising costs.

Emart stated, "Sales growth effects are emerging from renewal investments aimed at transforming into a 'future-oriented Emart' with enhanced experiential content," adding, "If the renewal effects fully materialize in the second half, performance improvement will follow." Sales at eight major renewed stores in the first half of this year increased by about 10%. The company plans to continue store renewals in the second half, including the Kintex store, which reopened after renewal in July.

All-in on profitability improvement in the second half

Emart plans to turn the tide in the second half by improving profitability through cost structure innovation and investment efficiency enhancement. Discount stores will focus on increasing differentiated products, activating operations of renewed stores, and maximizing store operation efficiency to achieve both scale growth and profitability. Emart said, "We will continue to make large-scale investments in store renewals that transform existing offline stores into customer experiential spaces in the second half."

Traders plans to strengthen customer attraction by discovering cost-effective products such as 'T-Standard.' No Brand intends to expand competitively priced products based on strong sourcing capabilities.

In July, the first month of the second half, same-store sales at discount stores increased by 1.6%. Despite last year’s early Chuseok holiday causing holiday gift pre-orders to start from July 21, partially including holiday sales in July, this year’s sales surpassed last year’s.

The online business, which has focused on profitability improvement since the second half of last year, will continue to focus on both profitability improvement and scale growth in the second half of this year. Gmarket aims to reach breakeven point (BEP) in the fourth quarter by concentrating on high-margin products, reducing inefficient sales channels and one-time promotions, and improving logistics operations.

SSG.com plans to enhance fresh food quality control capabilities and expand product assortment through direct sourcing from production areas to strengthen grocery competitiveness. In fashion, luxury, and beauty sectors, it will increase product reliability and secure differentiated competitiveness through strategic collaborations with leading market brands. The company also plans to boost AI-based advertising service competitiveness to secure additional advertising revenue.

The paid membership program, Shinsegae Universe Club, launched in June, plans to increase customer loyalty by expanding member benefits. Connections with group affiliates such as W Concept and Emart24, as well as external partners in travel and telecommunications, will be gradually expanded.

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