Corporate Rehabilitation Process for Homeplus... "Possibility of Weakened Sales Power Due to Difficulty in Securing Inventory"

Homeplus has filed for corporate rehabilitation proceedings with the court. Although Homeplus stated that it would continue normal store operations, securities analysts have predicted that there may be disruptions to business due to the characteristics of its discount store operation method, which is centered on direct purchasing.

On the morning of the 4th, Homeplus applied to the Seoul Rehabilitation Court to initiate corporate rehabilitation proceedings for proactive restructuring. The company stated that this was to respond to potential funding issues caused by a lowered credit rating. Proactive restructuring means recovering financial soundness through rehabilitation procedures when the company is not insolvent but there is a risk of a cash shortage within a few months if the current financial structure does not improve.

Earlier in February, Korea Ratings and Korea Investors Service downgraded Homeplus's commercial paper and short-term bond credit ratings from A3 to A3-.

Homeplus said, "The credit rating announced on the 28th of last month did not sufficiently reflect many improvements such as increased online and offline sales and improved debt ratio, resulting in the downgrade," adding, "All channels of Homeplus, including hypermarkets, Express stores, and online, will operate normally."

In this regard, Sangjun Park, a researcher at Kiwoom Securities, assessed that there is a possibility of weakening sales power at Homeplus.

He said, "Unlike department stores, discount stores are centered on direct purchasing, so cash purchases or credit purchases must be made to secure inventory," and added, "Considering the high likelihood that the company applied for rehabilitation proceedings due to difficulties caused by liquidity deterioration, it is necessary to closely watch the possibility of a worsening sales capability in the mid-term."

Park also predicted that the weakening of Homeplus's sales power would lead to growth for its competitors. He explained, "If Homeplus's market share decline or store restructuring accelerates during the rehabilitation process, the existing store growth rates of discount store competitors such as E-Mart and Lotte Mart could rebound, potentially leading to upward revisions of their overall earnings estimates."

On the other hand, there is also an analysis that the impact of Homeplus's initiation of rehabilitation proceedings on the distribution industry will be limited.

Seongjun Choi, a researcher at NH Investment & Securities, said, "Since Homeplus has stated that it will continue normal operations across all distribution channels including hypermarkets, corporate supermarkets (SSM), and online regardless of the rehabilitation proceedings, there will be no change in the competitive landscape of the industry," adding, "However, given its large scale within the industry, continuous monitoring of developments after entering the rehabilitation process is necessary."

As of the end of last year, Homeplus operates 127 stores nationwide. It ranks second in the industry behind E-Mart (154 stores) and Lotte Mart (110 stores), but as of 2023, it posted an operating loss of 199.4 billion KRW, showing weaker profitability compared to competitors.

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