Hanwha Investment & Securities assessed on August 12 that concerns over domestic consumption are growing due to recent stock market adjustments affecting Shinsegae. As a result, the firm lowered its target price from 870,000 won to 690,000 won while maintaining a 'buy' rating.
Lee Jin-hyup, a researcher at Hanwha Investment & Securities, stated, "The recent stock market correction has dampened the wealth effect, raising the possibility of a slowdown in domestic consumption. In particular, the deceleration in fashion growth rates serves as an indicator of this potential decline in domestic spending."
However, Lee believes that the current concerns about consumption slowdown are likely to be temporary. He noted, "These worries could dissipate starting in the fourth quarter when the income effect becomes more pronounced. Once short-term concerns are alleviated, two growth factors for department stores—expansion of domestic consumption driven by structural income growth and the structural increase in foreign tourists—could come to the forefront again."
Shinsegae reported total sales of 3.1 trillion won in the second quarter, a 9% increase compared to the same period last year, while operating profit surged 122% to 167.1 billion won, exceeding market expectations of 152.6 billion won.
In the department store sector, same-store sales rose 27% year-on-year in the second quarter, resulting in an operating profit of 108.8 billion won, a 53% increase from the previous year. Among the same-store growth, domestic customers contributed 22 percentage points, while foreign customers added 5 percentage points.
In contrast, the duty-free shop segment saw a 10% decline in sales to 542.6 billion won year-on-year in the second quarter, although operating profit improved by 348 million won to 33.3 billion won. Despite a reduction in scale due to the withdrawal from DF2, profitability improved significantly due to lower rental costs and reduced wholesale discount rates.
Central City reported an operating profit of 14.9 billion won, a 52% increase from the previous year, bolstered by strong performance from the Marriott Hotel. Subsidiaries such as Shinsegae International and Casamia also continued to show signs of recovery.
Lee noted, "Shinsegae International has indicated that the operating environment in the third quarter is improving compared to the second quarter, expressing strong confidence in fashion growth. The recent slowdown in fashion growth rates is likely a temporary phenomenon rather than a signal of declining domestic consumption."
He added, "Shinsegae is also estimated to have same-store sales growth of over 20% year-on-year in the third quarter. Once short-term concerns are resolved, a long-term reassessment of corporate value based on the expansion of domestic consumption and the increase in foreign tourists could be possible."
* This article has been translated by AI.
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