IBK Securities said on the 10th that the slump at Starbucks Korea (SCK) has exceeded previous expectations and that E-MART(139480)'s third-quarter results will fall short of expectations. It maintained a Buy rating and a target price of 100,000 won. E-MART's closing price the previous day was 75,000 won.
Nam Seong-hyeon, an analyst at IBK Securities, projected that E-MART's third-quarter operating results on a consolidation basis will fall short of previous estimates and market consensus.
Nam said, "Initially, we interpreted the sharp growth in E-MART's core business results and the deterioration in SCK's second-quarter results as temporary," adding, "Also, as SSG.com's profitability improves and the loss narrows, we projected that earnings growth would be possible."
However, the analysis is that SCK's slump appears likely to exceed previous expectations. As a result, it saw a higher possibility that third-quarter operating profit will decrease from a year earlier.
IBK Securities projected that E-MART will post third-quarter consolidated revenue of 7.7413 trillion won and operating profit of 128.5 billion won. Revenue would increase 4.6% from a year earlier, but operating profit would decline 15.1% compared with last year.
Nam said, "The main reason for the third-quarter earnings estimate is SCK's weaker profitability," adding, "The decline in foot traffic due to SCK-related issues has continued through the third quarter, and we expect higher fixed-cost burden to reduce profitability."
SCK's operating profit in the third quarter of last year was 60 billion won. For the third quarter of this year, SCK is estimated to post an operating loss of 24.2 billion won. Accordingly, the operating profit contribution is projected to decrease by about 84.2 billion won.
However, it analyzed that the slump at SCK will not be fully reflected, as same-store sales growth at discount stores is expected to exceed 5%, along with growth at subsidiaries and a narrower loss at SSG.com.
Nam said, "E-MART's earnings trend for the time being depends on SCK's direction," adding, "It is difficult to expect short-term improvement, but stronger won will likely ease cost-ratio pressure, the company will continue its growth strategy through new store openings, and gradual base effects are expected, so the drivers of earnings decline appear limited."