LS Securities said on the 24th that although Shinsegae's duty-free business is expected to post a 6 billion won loss in the third quarter of this year, it has likely hit bottom and will gradually recover. The firm maintained a target price of 240,000 won and a Buy rating. Shinsegae's closing price in the previous trading session was 178,800 won.
For the third quarter of this year, Shinsegae's revenue is estimated at 1.6834 trillion won, up 9.3% from a year earlier, and operating profit at 96.2 billion won, up 3.5% over the same period.
In the third quarter of this year, same-store sales growth at the department store was solid at around 5% on a management basis, but due to higher depreciation, the department store business's operating profit is expected to fall 11.4% year over year to 78.2 billion won. The duty-free stores' average daily sales in the third quarter are estimated at around 8.1 billion won, and as the number of travelers increased, rental costs likely weighed more than in the second quarter of this year. The duty-free business is expected to post a third-quarter loss of 6 billion won this year.
Orin-a, an analyst at LS Securities, said, "Shinsegae International, a major subsidiary, is projected to record an operating loss in the third quarter as weakness in the domestic fashion business continues despite strength in the cosmetics business," and added, "Central City is solid on hotel strength, but Shinsegae Casa will post a small loss as sales recovery is delayed."
At the department store, the main store's Reserve key luxury boutiques are set to open in November this year and are expected to drive fourth-quarter results.
In the duty-free business, the worst appears to be over as the share of free independent travelers (FIT) at downtown duty-free stores increases and competition at airport locations eases. Oh said, "With a competitor returning the Incheon Airport DF1 concession, a favorable operating environment has formed for Shinsegae, and a reevaluation of the airport duty-free business can be expected."
Oh added, "Based on the year-end shopping season and base effects, the department store flagship renovation effect, increased inflows of foreign tourists, and expectations for improved duty-free profits are aligning, pointing to a gradual recovery in results."