Hotel Shilla(008770) continued its earnings recovery in the second quarter of this year on the back of growth in the hotel business and improved profitability in the duty-free business. After withdrawing from the Incheon International Airport duty-free shops in April, making an annual sales decline of more than 400 billion won unavoidable, the hotel and leisure business has been offsetting the reduced sales thanks to more foreign tourists and higher room rates.
The duty-free business has also returned to profitability by withdrawing from loss-making business sites and improving the efficiency of promotional expenses, helping enhance companywide profitability. Despite the pullout from airport duty-free shops, the industry is watching to see whether Hotel Shilla can maintain sales of 4 trillion won this year, similar to last year.
According to the Financial Supervisory Service's Data Analysis, Retrieval and Transfer System (DART) on the 31st, Hotel Shilla posted second-quarter sales of 971.8 billion won and operating profit of 61.1 billion won. Compared with a year earlier, sales fell 5.2%, but operating profit jumped 602.3%.
In the second quarter, the duty-free division recorded sales of 772.6 billion won and operating profit of 36.4 billion won. While sales fell 9.1% from a year earlier, operating profit increased by 47.7 billion won, swinging to a profit. In the same period, the hotel and leisure division posted sales of 199.2 billion won and operating profit of 24.7 billion won, up 13.6% and 23.5%, respectively.
Hotel Shilla's recovery trend has been evident since the first quarter of this year. First-quarter sales rose 8.4% on-year to 1.0535 trillion won, and operating profit turned to a surplus of 20.4 billion won.
In the first quarter, the duty-free division's sales increased 7% on-year to 884.6 billion won, and it swung to an operating profit of 12.2 billion won from an operating loss of 5 billion won a year earlier, logging a profit for the first time in seven quarters. This reflected efficient management of discount rates at downtown duty-free stores and rent reductions at overseas airport locations. The hotel and leisure division recorded sales of 168.9 billion won and operating profit of 8.2 billion won, up 16.7% and 228% from a year earlier, respectively.
In the second quarter, the recovery trend became more pronounced. With room demand rising mainly at THE SHILLA Seoul and Shilla Stay, the limited hotel supply in Seoul helped drive up room prices.
According to the Korea Tourism Organization (KTO), 10,709,919 inbound tourists visited Korea in the first half of this year, up 21.3% from the same period last year. In June alone, 1,993,128 visitors came to Korea, nearly 2 million. Cumulative arrivals this year surpassed 10 million on the 20th of last month, about a month earlier than last year.
Helped by this favorable market, second-quarter Shilla Stay sales rose 19.7% from a year earlier. Sales at THE SHILLA Seoul and The Shilla Jeju also increased 10% and 10.4% on-year, respectively.
Heo Jena, an analyst at DB Securities, said, "With occupancy improving mainly in Seoul and Jeju, room rates at THE SHILLA Seoul and Shilla Stay in the second quarter of this year rose more than 15% from a year earlier."
◇ Outlook for normalization of duty-free division profitability
The duty-free division is normalizing profitability despite lower sales. Earlier, The Shilla Duty Free logged consecutive losses totaling 130 billion won for six straight quarters from the third quarter of 2024 to the fourth quarter of last year.
In response, Hotel Shilla took a bold step on Apr. 16 by ending DF1 operations—the perfume and cosmetics, and liquor and tobacco concessions—at Incheon Airport's Terminal 1 and Terminal 2. The establishment generated more than 400 billion won in annual sales, making a companywide sales gap inevitable, but the deficit structure caused by high rent was improved.
The industry expects that if growth in the hotel and leisure divisions continues in the second half, Hotel Shilla will be able to maintain a sales scale similar to last year. On a consolidation basis, Hotel Shilla recorded sales of 4.0683 trillion won and operating profit of 13.5 billion won last year. Cumulative sales for the first half of this year came to 2.0253 trillion won.
Jang Min-ji, an analyst at Kyobo Securities, said, "Although a drop in duty-free sales is inevitable due to the suspension of DF1 operations at Incheon Airport, increased sales at the Jeju store and online store will partially offset it," adding, "The hotel division will also support the earnings recovery by maintaining solid growth backed by higher room rates."