Lotte Shopping’s third-quarter operating profit rises 34.5%; target price cut to 145,000 won

[Financial News] Korea Investment & Securities maintained its ‘Buy’ rating on Lotte Shopping, saying its third-quarter operating profit was in line with market expectations. However, reflecting weaker growth drivers in the department store sector, it cut its target price by 19.4%, from 180,000 won to 145,000 won.
Myung-joo Kim, an analyst at Korea Investment & Securities, said in a report on the 9th that “most of the disappointment over earnings and business conditions has already been reflected in the current share price.” She forecast that “the share price will recover quickly if even small catalysts, such as a recovery in same-store sales in November or a weaker won, materialize.”
Lotte Shopping’s third-quarter consolidated revenue rose 7.1% year over year to 3.6532 trillion won. Operating profit increased 34.5% to 175.6 billion won, in line with market expectations.
Same-store sales at domestic department stores rose 11%, but operating profit increased only 32.9% to 105.8 billion won, coming in somewhat below expectations. Cultureworks, by contrast, posted operating profit of 14.7 billion won—well above Korea Investment & Securities’ estimate of 5.9 billion won—offsetting the department stores’ weakness.
Same-store sales at domestic discount stores rose 18%, benefiting from a low base last year and spillover gains from Homeplus’s weakness. Operating profit jumped 725.5% to 17.9 billion won. However, costs related to Ocado came to 16 billion won, above the expected 12 billion won, leaving results short of market expectations.
Lotte Homeshopping’s operating profit rose 27.6% to 13.1 billion won, while Lotte Hi-Mart’s fell 70.6% to 5.6 billion won. Non-operating income and expenses included a gain of 72.6 billion won from the disposal of shares in Thu Thiem.
Analyst Kim noted that the won’s strength since July had lowered growth expectations for the department store sector and Lotte Shopping’s corporate value. However, with the rise in foreign visitors to Korea remaining robust and the won-dollar exchange rate recently stabilizing, she said the share of sales from foreign customers could rise again.
The share of sales to foreign customers at Lotte Department Store rose from 5.6% in September to 5.8% in October. Weak domestic consumption brought October’s same-store sales growth rate below September’s, but market expectations for November results from the three department store operators have already come down as well.
Analyst Kim said, “Lotte Shopping’s current market capitalization is similar to the average of 2.7 trillion won in January and February this year, before the inbound tourism effect was reflected in its share price.” She added, “The flow of foreign visitors to Korea remains robust, and Lotte Mart and Super continue to benefit from Homeplus’s weakness.”

[email protected] Lee Jeong-hwa Reporter