E-MART(139480) achieved double-digit profit improvement in its core business in the second quarter this year, but posted an operating loss in the 40 billion won range on a consolidation basis due to the fallout from Starbucks Korea (SCK Company)'s marketing controversy over the "May 18 tank day."
E-MART said in a regulatory filing on Aug. 13 that on a separate basis it posted total sales of 4.4428 trillion won and operating profit of 25.6 billion won in the second quarter. Compared with a year earlier, sales rose 3.5% and operating profit increased 64% (10 billion won). For the first half, total sales were 9.1581 trillion won (up 2.7%) and operating profit was 171.9 billion won (up 15.4%).
By contrast, on a consolidation basis, second-quarter net sales fell 1.8% to 6.915 trillion won, and the company recorded an operating loss of 43 billion won. First-half consolidated operating profit also fell by 45.6 billion won in a year to 135.3 billion won. In effect, losses at subsidiaries and affiliates offset the profits generated by the core discount store business.
The crux is Starbucks. SCK Company saw second-quarter net sales decline 6.1% to 747.3 billion won and posted an operating loss of 18.4 billion won. E-MART said in its earnings materials that the cause was "sales disruptions due to a marketing issue." Starbucks Korea drew fierce criticism for using expressions such as "tank day" while running a tumbler promotion on May 18, the anniversary of the May 18 Democratization Movement. The incident escalated with Shinsegae Group Chairman Chung Yong-jin issuing a public apology and then-CEO Son Jung-hyun being dismissed. A boycott movement and demands for refunds of prepaid balances followed, dealing a direct blow to second-quarter results.
Core-business indicators showed clear improvement. The warehouse-style discount chain Traders posted second-quarter total sales of 992.7 billion won (up 10.3%) and operating profit of 34.6 billion won (up 12.7%), achieving double-digit growth in both sales and profit. Sales of its private label "T Standard" rose 24.2%. E-Mart Everyday also reported total sales of 389.1 billion won (up 7.2%) and operating profit of 8.1 billion won (up 51.7%) thanks to integrated purchasing.
Store-renewal effects were also confirmed. At the three locations in Ilsan, Dongtan and Gyeongsan that were converted to Starfield Market, sales and the number of visitors increased by an average of 79.5% and 42.4%, respectively. The share of long-stay customers who stayed more than three hours rose by an average of 90.8%.
Among affiliates, Josun Hotels & Resorts performed well with net sales of 188.2 billion won (up 0.3%) and operating profit of 10.1 billion won (up 41.1%). E-Mart24 posted net sales of 532.5 billion won and an operating loss of 2.3 billion won, improving its bottom line by 2.1 billion won through store streamlining.
E-MART plans to cultivate new revenue sources in the second half through Starfield Market renewals and new openings, as well as a retail media network (RMN) business using signage inside Traders stores. For SCK Company, it set "reestablishing pre-approval processes and restoring brand image through expanded social contribution" as top priorities.