[Edaily Reporter Shin Ha-yeon ] On the 10th, Shinhan Investment Securities assessed that while Lotte Department Store ( LOTTE SHOPPING CO., LTD.(023530)) continues to enjoy strong growth in its department store segment, its potential for earnings improvement is expanding to include the grocery sector as well. The firm maintained its “Buy” rating but lowered the target price by 18% from 200,000 won to 165,000 won.

Cho Sang-hoon, a research analyst at Shinhan Investment Securities, noted, “The department store sector continues to show exceptional strength,” adding, “This is the result of rising labor income, rising asset prices, and a surge in sales to foreign customers, coupled with efforts to renovate key stores and expand overseas operations.” He continued, “Customer data spanning department stores, supermarkets, and e-commerce, along with offline assets, are key differentiators,” adding, “A revaluation of the company’s enterprise value is possible once its RMN (advertising business) and AI commerce strategies become more tangible.”

LOTTE SHOPPING CO., LTD.’s second-quarter revenue reached 3.485 trillion won, a 4% increase year-over-year, while operating profit rose 121.2% to 89.9 billion won. Although operating profit fell 21% short of the market consensus, it met market expectations when excluding one-time costs of approximately 22.8 billion won.

Department stores drove the earnings growth. Same-store sales growth for domestic department stores reached 15%, and sales grew by 11% in July as well. In particular, large-format stores posted a growth rate of 21%, and sales to foreign customers surged by 120% at the flagship store. The share of sales to foreign customers also rose to 29%. With all product categories—including luxury goods and fashion—performing strongly, department store operating profit increased by 78% year-over-year.

Overseas department stores also saw a significant improvement in operating profit, driven by Vietnam’s strong growth. Sales in Vietnam rose 26% year-over-year, and West Lake Hanoi set a new record for quarterly operating profit.

In the grocery segment, while same-store sales growth for discount stores and supermarkets reached 1% in the second quarter, the operating loss widened due to one-time costs of 8.2 billion won related to voluntary retirement programs. However, analysts expect significant sales growth starting in July, driven by spillover benefits from Homeplus, the low base effect from last year’s consumer coupons, and the launch of differentiated products. In fact, same-store sales growth for discount stores reached 17% in July.

In the e-commerce segment, the operating loss narrowed thanks to an improved gross profit margin and cost efficiency. Subsidiary performance was mixed. While E-MART Co., Ltd.’s operating profit decreased and Cultureworks’ operating loss widened due to one-time costs of 14.6 billion won, Home Shopping saw a significant increase in operating profit.

LOTTE SHOPPING CO., LTD.’s revenue for this year is projected to reach 14.1573 trillion won, a 3.0% increase year-over-year. Operating profit is estimated to rise by 46.7% to 802.5 billion won. Operating profit for the department store segment is expected to increase from 504.0 billion won last year to 679.0 billion won this year.

Although the target price was lowered to 165,000 won, the firm maintained a positive assessment regarding the stability of the core business and asset value. Research Analyst Cho explained the rationale behind the target price reduction, stating, “This reflects the decline in industry-wide valuations (27F department store EV/EBITDA ratio from 7x to 6x).”

He added, “The 12-month forward price-to-earnings ratio has fallen to 7.2x due to concerns over a slowdown in department store growth,” but noted, “Unlike in the past, the core business is stable, and the reliability of book value has increased through asset revaluation.”