Bom Kim, chair of Coupang Inc, explained on the 5th (Korea time) during the second-quarter earnings conference call the background behind the operating loss of 835 billion won, the largest since listing. He said sales fell short of the original plan as customers left after a massive personal data leak at the end of last year, and logistics facilities and fixed costs that had been put in place in advance for pre-incident demand became a direct burden. Kim said that even so, the company will not cut logistics investment.
Coupang Inc, Coupang's parent company, disclosed in a consolidated earnings report filed with the U.S. Securities and Exchange Commission (SEC) that second-quarter sales were $8.856 billion (about 13.3007 trillion won) and operating loss was $556 million (about 835 billion won. Sales rose 4% from a year earlier (10% on a constant-currency basis), but operating profit swung to a loss as a 624.6 billion won penalty surcharge imposed by the Personal Information Protection Commission was reflected. It marks a second straight quarter of losses after the first quarter (operating loss of about 354.5 billion won).
Kim said, "We plan logistics throughput and fixed expenses in line with the projected demand curve, and a significant portion of logistics processing requires a long lead time until final buildout," adding, "With current sales temporarily falling short of plan, these expenses have grown as a share of sales."
He added, "We could cut expenses, but the right long-term decision is not to cut and instead to gradually expand logistics processing capacity to support the customer experience." He continued, "Instead, the strategically increased marketing expenses to win back customers will be reduced starting next year after the period of impact."
On the penalty surcharge from the Personal Information Protection Commission, the direct cause of the loss, Gaurav Anand, Coupang's chief financial officer (CFO), said, "This quarter's Product Commerce results include a $410 million penalty surcharge recently imposed by Korean regulators." He said, "This surcharge is subject to judicial review and we plan to challenge it in court, but we reflected it under SG&A this quarter."
Kim emphasized that customer attrition has entered a recovery phase. He said, "Most of the expenditure that had been affected by the personal data incident has already recovered, and we are now showing the same growth trajectory as before the incident," adding, "Most customer expenditure is unchanged, and their spending is at an all-time high." On the number of Wow membership subscribers, he said, "It has surpassed the level before the personal data incident," and added, "Because new members start at the early stage of the spending curve, the record-high number of members will be reflected in sales with a time lag."
They also offered an outlook that a sluggish trend will continue in the third quarter. Anand, the CFO, said, "On a consolidated basis, third-quarter sales growth is expected to be 8–9% on a constant-currency basis," adding, "Given the timing of Korea's Chuseok holiday, this year's third quarter is likely to have an unfavorable year-over-year comparison." Second-quarter growth was 10% on a constant-currency basis. On margins, he said, "Fundamental improvement work in the Product Commerce segment will continue in the third quarter," and forecast, "On a consolidated basis, third-quarter adjusted EBITDA margin will narrow by 3–4 percentage points year over year."
In its second-quarter report disclosed the same day, Coupang Inc said it will begin recognizing from the third quarter losses from the Incheon logistics center fire in July. The company estimated at about $246 million (about 350 billion won) the book value of inventory and fixed assets at the facility just before the fire and obligations to compensate for sellers' inventory. In addition, after the National Tax Service completed in June a tax audit for the 2021–2025 tax years, the additional tax due it notified amounts to about $208 million (about 300 billion won), including additional tax and interest. Coupang said it will contest this through administrative and judicial procedures.