Shinsegae cuts target price to 410,000 won as department store growth slows

[Financial News] Citing slower growth in Shinsegae’s department store business, Korea Investment & Securities cut its target price by 22.6%, from 530,000 won to 410,000 won. It maintained its “Buy” rating, saying the current share price carries little valuation pressure.
In a report on the 11th, Korea Investment & Securities analyst Myung-joo Kim said, “The department store sector needs a recovery in momentum,” adding, “We need to watch November sales trends across the department store industry and see whether growth recovers.”
Shinsegae’s consolidated net sales in the third quarter totaled 1.6562 trillion won, up 1.2% from a year earlier. Operating profit rose 64.6% to 164.3 billion won, but came in 3.9% below market expectations.
Same-store sales at department stores rose 16%, showing a healthy trend. However, sales of luxury goods, which have relatively low profitability, increased 20%, leaving operating profit growth short of market expectations.
The department store division’s accounting gross sales rose 8.5% to 1.8565 trillion won. Operating profit increased 23.5% to 103.7 billion won, but was slightly below Korea Investment & Securities’ estimate of 110.6 billion won.
Operating profit at the DF division, Shinsegae’s duty-free business, swung to a profit of 25.3 billion won from a loss a year earlier. However, it fell 24.1% from the previous quarter amid the off-season for daigou buyers and the burden of rent at Incheon Airport resulting from an increase in outbound travelers.
Shinsegae International Inc. posted operating profit of 5.1 billion won, affected by fixed-cost pressures and other factors. It returned to profitability year on year, but fell 27% short of market expectations.
The slowdown in growth in department store sales to foreign customers was also cited as a concern. The growth rate of sales to foreign customers fell from 149% in the second quarter to 71% in the third quarter. Over the same period, foreign customers’ share of total department store sales also declined from 8.2% to 7.5%.
In October, the high base and the won’s appreciation combined to bring the growth rate of sales to foreign customers down to 25%. As a result, same-store sales growth at department stores was also limited to 1%.
“Despite the won’s recent appreciation, inbound tourism remains solid, with the number of visitors to Korea up 21.1% last September,” analyst Kim said, forecasting that “sales to foreign customers at department stores will continue to grow at a rate in the 20% range.”
Shinsegae’s 12-month forward price-to-earnings ratio (PER) currently stands at around 5x. With little difference from the historical low of 4.2x recorded in August 2024, the potential for a further valuation decline is limited, the analyst said.

[email protected] Jeong-hwa Lee Reporter