Shinsegae's performance likely to remain sluggish in 2nd half
Workers put up signs at Shinsegae's duty free shop in Incheon International Airport prior to its opening in this 2018 file photo. / Yonhap
By Kim Jae-heun
The second half outlook for Shinsegae, one of the country's largest retailers, doesn't look good despite expectations that the impact of the COVID-19 pandemic here will gradually diminish
Shinsegae generated an operating profit of 3.28 billion won in the first quarter of 2020, down 97 percent from a year ago on revenue that fell 21.1 percent to 1.19 trillion won.
Sales from its department store business fell 11.7 percent to 331.1 billion won, as many of its outlets were forced to close temporarily after shoppers visiting them tested positive for COVID-19.
While its online shopping mall, luxury goods and home appliances sectors mounted a “strong defense,” the poor performance in groceries, fashion and children's goods disappointed the market and investors.
Shinsegae's duty free sector was struck the hardest with a 30 percent decline in sales in the first quarter producing a loss of 32.4 billion won ― revenue from airports and downtown shops nosedived 40 percent and 21 percent, respectively.
Yuanta Securities Korea said a recovery in the duty free business was essential to overcome the earning shock in the first three months of the year. Analyst Lee Jin-hyeob said the worst of the COVID-19 outbreak in South Korea has passed and Shinsegae's department store business could possibly get on a normal track soon.
“We still need to keep an eye on a recent infection cluster that occurred in Itaewon, but for now, Shinsegae's department stores are making their way up. The chances of a recovery in the duty free sector remain low for the time being, but if the government allows the retailor to sell its duty free products via other distribution channels, and rental fees for duty free shops operating at airports are lowered, it may find some breathing space,” he said.
Samsung Securities said it will take longer for Shinsegae to see a rebound.
An earlier forecast predicted the COVID-19 pandemic would abate soon, allowing Shinsegae's duty free business to recover from May and peak in July. However, as the outbreak is continuing, the brokerage said the retailer's future is murky, although Samsung's Park Eun-kyung said the government's support policy for local duty free business operators will keep Shinsegae afloat.
“The Incheon International Airport Corporation will cut its rent for the duty free shops by 40 billion won over the next six months. The government will also allow duty free products to be sold domestically, which can solve stockpiling issues,” Park said.
Both Lee and Park said that if China introduces reflationary measures and lifts its travel ban on Korea, these could have a positive impact for Shinsegae's stock price.