E-MART(139480), whose core affiliate is Starbucks (SCK Company), saw its second-quarter results overshadowed by fallout from the so-called "Tank Day" marketing controversy. Still, as its core businesses such as discount stores and Traders maintain a steady trend on the back of a consumption recovery and a windfall from Homeplus Co. store closures, expectations are growing that earnings will rebound toward the second half.
According to FnGuide on the 10th, E-MART's second-quarter consolidation revenue consensus (the average of securities firms' forecasts) is 7.0811 trillion won, with operating profit at 75.3 billion won. While operating profit alone is more than three times the same period a year earlier (21.6 billion won), the securities market's second-quarter expectations have recently been trending lower as the Starbucks earnings shock is factored in.
◇ "cash cow" Starbucks expected to swing to a loss
Starbucks, once E-MART's "cash cow," weighed on its results this time. Starbucks was engulfed in the so-called "Tank Day" controversy in May, which spread into some boycott moves. Hanwha Investment & Securities estimated that SCK Company's second-quarter revenue fell 18% on-year to 653.7 billion won, with an operating loss of 13.1 billion won. That would mark a swing to loss from a profit last year. Lee Jin-hyup, an analyst at this securities firm, said, "June is when the high-volume frequency promotion is regularly held, so we assess that the sales disruption was significant." The related industry also projected that Starbucks Korea's sales would drop about 26% from before the controversy.
However, the picture changes when looking only at the core business. According to the Financial Supervisory Service's electronic disclosures, on a separate basis E-MART's cumulative total sales in the first half (January–June) rose 2.7% on-year to 9.1578 trillion won. In particular, sales at warehouse-style discount chain Traders increased 10% in the same period, driving overall growth. Total sales at discount stores (large hypermarkets) also rose 0.2% for all stores on a half-year basis, while same stores open for more than a year increased 2.9%. Hanwha Investment & Securities projected that, on a standalone entity basis, second-quarter operating profit would rise 135% on-year to 36.7 billion won, in line with market expectations.
◇ Homeplus windfall to kick in in earnest from the third quarter
The securities market expects the windfall from Homeplus Co. closures to materialize in earnest from the second half. As the Seoul Bankruptcy Court recently decided to terminate Homeplus' rehabilitation proceedings, there is an outlook that the cleanup of underperforming stores will accelerate.
Homeplus Co. has been rapidly reducing stores during its rehabilitation process. Hana Securities analyzed that after the end of the first half of last year, 59 Homeplus stores closed, boosting sales at nearby E-MART stores by about 10%.
Accordingly, expectations for E-MART's third-quarter results are also rising. Based on FnGuide, the third-quarter consensus calls for revenue of 7.5067 trillion won and operating profit of 223.6 billion won, up about 48% from the same period a year earlier (151.4 billion won). Hanwha Investment & Securities projected that if E-MART and Lotte Mart absorb around 30% of Homeplus Co.'s sales, operating profit could improve by 300 billion–400 billion won. The view is that demand for large hypermarkets will ultimately shift to other large hypermarkets.
Still, the online business remains a burden. As Gmarket, which moved to a joint venture with Alibaba Group, is reflected as an equity-method loss, the current net loss under consolidation is the outlook. SSG.com is also continuing to post losses as its shrinking scale adds to fixed-cost pressure. Because of this, the securities market says that for a clear recovery in the core business, uncertainty in the results of subsidiaries, including e-commerce, needs to be resolved.