On the 14th, Samsung Securities said E-MART(139480), whose main business is discount stores, is continuing a recovery in that core business, but weak results at subsidiaries are weighing on consolidation results. It lowered its operating profit forecast for next year and cut its target price by 10% to 108,000 won from 120,000 won. It maintained a "buy" rating.
E-MART's consolidated sales in the second quarter of this year were 6.9 trillion won, down 1.8% from a year earlier. It posted an operating loss of 43 billion won, swinging to a loss from the same period last year and missing market expectations.
The core discount store business continued its recovery. Same-store sales at discount stores rose 3.8% from a year earlier, marking growth for three consecutive quarters. In addition to a rebound in consumption, the easing of competition as Homeplus Co. closed 22 stores through Apr. and further suspended operations at 37 stores starting in May was also reflected, according to the analysis.
The problem is the subsidiaries. SCK Company saw sales decline due to a marketing issue, and Shinsegae Engineering & Construction's losses widened. SSG.com also remained in the red, so the improvement in the discount store business did not carry through to consolidation results.
Baek Jae-seung, an analyst at Samsung Securities, said, "The recovery in the core business is welcome, but consolidation results were disappointing due to a slowdown at some subsidiaries."
Samsung Securities lowered its estimate for E-MART's operating profit next year by 12% to reflect weak subsidiary results. Accordingly, it also cut the target price by 10% to 108,000 won from 120,000 won.
Subsidiary results and the competitive environment are cited as variables in the second half as well. Although Homeplus Co., which had suspended operations at all of its stores, resumed operations at 67 stores from mid-month, Samsung Securities said it would be difficult for Homeplus' operating uncertainty to be resolved in the short term.
However, it projected that the recovery trend in the discount store business itself will continue. E-MART's same-store sales growth rate in July was 8.6%. Given the high base from the distribution of consumer coupons in the third quarter of last year, it said there is a possibility that discount store sales will recover sharply in the third quarter of this year as the base effect coincides with eased competition.
Baek said, "The likelihood that subsidiary results will slow further than in the second quarter is somewhat limited," adding, "We maintain a buy rating based on momentum in the core business results."