Department Store Stocks Rebound in Tandem... Next Year’s Earnings Key Amid Expectations for ‘Foreign Consumer Spending’ [STOCK NOW]

[Financial News] Department store stocks were rising together early on the 7th. Analysts said that spending by foreign tourists and a recovery in domestic consumption could support earnings improvements after the stocks underwent a correction following their highs in the first half of the year. However, they noted that for the rebound to continue, investors must see next year’s earnings outlook being upgraded enough to overcome the high base created by last year’s improved performance.
As of 9:57 a.m., Lotte Shopping was trading at 111,800 won, up 4.00% from the previous day. Hyundai Department Store was up 2.08% at 98,200 won, while Shinsegae was up 1.57% at 388,500 won.
The securities industry identified stagnant return-on-equity (ROE) forecasts as the main reason for the recent correction in department store stocks. In the first half, upward revisions to earnings forecasts drove share-price gains. But in the second half, more conservative views of next year’s performance were reflected in stock prices, weakening the momentum for further increases, analysts explained.
According to Hanwha Investment & Securities, the consensus operating-profit forecast for the department-store divisions of the three companies this year is approximately 1.7 trillion won, representing a 34% increase from the previous year. By contrast, next year’s consensus operating-profit forecast is about 1.8 trillion won, implying growth of only 5%. This is interpreted as reflecting concerns over whether growth will continue next year after the sharp improvement in this year’s performance.
The key issue is whether sales growth can be sustained. Lee Jin-hyeop, a researcher at Hanwha Investment & Securities, estimated that the minimum same-store sales growth rates needed to increase earnings are 5% for Shinsegae and about 3% each for Lotte Shopping and Hyundai Department Store. He said, "Even if growth slows from the first half, earnings forecasts could improve if the trend remains above these thresholds."
Spending by foreign tourists was cited as a factor that could expand department stores’ growth potential. Lee said, "In the second half, the contribution of foreign sales to same-store sales growth has expanded to about 5 percentage points," adding, "If this trend continues, the growth range for department stores could rise to 5%–15%, from the 0%–10% range seen when growth was driven mainly by domestic demand."
The potential weakening of foreigners’ purchasing power due to a stronger won is a short-term concern. In the domestic market, increased spending by high-income consumers was identified as a key factor. The indicator to watch going forward is fourth-quarter growth. Even as the base from the previous year’s performance rises, department stores must maintain solid growth for the improvement to translate into upward revisions to next year’s earnings estimates.

[email protected] Choi Doo-sun Reporter