In the second quarter of this year, the performance of the three major department stores (Lotte, Shinsegae, Hyundai) fell short of securities expectations and entered a downturn phase. However, there is increasing industry anticipation for a rebound in performance in the second half of the year due to a potential recovery in consumer sentiment and improvement in the domestic economy.
According to the financial information firm FnGuide, all three major department stores are expected to show modest growth in their second-quarter consolidated results compared to the previous year, based on consensus estimates (average estimates by securities firms). Lotte Shopping's sales are anticipated to be 3.459 trillion won, a 1.08% increase compared to the same period last year. Shinsegae is expected to report 1.6724 trillion won, a 4.24% increase, while Hyundai Department Store is estimated at 1.0796 trillion won, showing a 5.45% increase.
Operating profit is expected to be highest for Shinsegae at 90.4 billion won. However, this figure marks a 23% decrease compared to the same period last year. Lotte Shopping's operating profit is estimated at 69.8 billion won, while Hyundai Department Store is projected at 81.7 billion won.
However, forecasts indicate that actual results may likely fall short of this consensus. The prolonged sluggish consumption has affected performance, coupled with the burden of fixed costs and increased selling, general and administrative expenses pressing profitability. Recent estimates from various securities firms suggest that Shinsegae's second-quarter sales will be 1.6319 trillion won, with operating profit estimated at 82.4 billion won, which is expected to show a 29.8% decrease compared to the same period last year.
Lotte Shopping's sales are expected to be 3.4 trillion won, with operating profit at 64.9 billion won, reflecting a 1.9% decrease in sales compared to the same period last year, and profits are also projected to fall short of the consensus. Hyundai Department Store is also likely to report sales of 1.0796 trillion won and operating profit of 76 billion won, which might not meet market expectations.
The industry expects improvements in business conditions due to a recovery in domestic consumption starting in the second half of the year. According to the Korea Chamber of Commerce and Industry, the Retail Business Survey Index (RBSI) for the third quarter has surged 27 points to 102 compared to the previous quarter. This index has exceeded the baseline of 100 for the first time in about four years since the third quarter of 2021 (106). A value above 100 indicates that many corporations view the next quarter's business conditions positively. The department store sector also recorded a value of 100.
The Consumer Sentiment Index (CCSI) released by the Bank of Korea in June also rose to 108.7, reflecting a 6.9-point increase from the previous month, surpassing the optimistic benchmark for two consecutive months. There are also expectations that the recent rebound in the KOSPI index, which surpassed the 3,200 mark during trading, could drive luxury goods sales.
However, there are variables to consider. The government's recovery support funds, set to be disbursed starting on the 21st, will have usage restrictions in department stores. Additionally, if the currently expiring credit card income deductions are abolished without extension, departments with high-priced goods, like department stores, could be significantly affected.
The three department stores plan to expedite strengthening their core businesses and securing new growth engines for a rebound in performance in the second half of the year. Lotte Department Store opened the 'Kinetic Ground,' a specialty store for K-fashion targeting the 2030 global generation, in Myeong-dong Lotte Town on the 4th. In the second half of the year, they are also set to conduct a major renovation of the Jamsil branch for the first time in 37 years and promote the conversion of regional stores, such as in Gunsan, Suwon, Gimhae, and East Busan, into shopping malls.
Shinsegae Department Store plans to secure performance momentum through the renewal of its Gangnam store's food hall (scheduled for completion in August), the opening of the Cheongdam SSG Food Market (in November), and the transformation of its main store into a luxury section. The beauty editing shop 'Chicor' will expand with additional openings in Myeong-dong and Hongdae.
Hyundai Department Store expects improvements in profitability through the closure of the Sindorim D-Cube City branch and the opening effects of Cheongju Connect Hyundai. The Sinchon branch will be revamped into an entertainment-specialized store, and The Hyundai Seoul aims to enhance competitiveness through the expansion of global brand acquisitions.
Securities analysts are also paying attention to the possibility of performance improvement in the second half of the year. Kiwoom Securities recently noted in an industry brief that "the easing of political uncertainties, cumulative effects of interest rate reductions, and the implementation of the second supplementary budget will lead to a full recovery of domestic consumption," predicting that "momentum for performance improvement compared to the first half will be strengthened."