South Korea's three major department store operators each posted operating profit of more than 100 billion won ($72 million) in the second quarter, lifted by rising numbers of foreign tourists and strong sales of luxury goods, fashion and other key categories. Analysts said the companies improved both their top and bottom lines, as revenue growth was accompanied by a sharp gain in profitability.
Operating profit at the department store businesses of Lotte, Shinsegae (004170.KS) and Hyundai Department Store (069960.KS) all exceeded 100 billion won in the second quarter, according to industry sources on the 12th.
Lotte Department Store showed sharp improvement in both scale and profitability. Net sales at the department store division of Lotte Shopping (023530.KS) rose 9.2% year-on-year to 891.2 billion won, a record high for a second quarter. Second-quarter operating profit climbed 84% from a year earlier to 119.7 billion won.
An industry official said the profitability of the department store sector appears to have improved sharply. "Consumption has expanded as foreign tourist numbers rose and sales of key categories such as luxury goods and fashion remained strong, while a wealth effect from rising asset prices in stocks and real estate has boosted the spending power of high-income earners," the official said. "Expanded sales of high-margin products, store efficiency and an operating leverage effect from higher revenue have all combined to sharply improve profitability in the department store industry."
Looking only at its domestic department stores, second-quarter net sales rose 8.8% to 855.6 billion won and operating profit rose 77.6% to 112.3 billion won. Stronger customer traffic at key stores such as the main branch and the Jamsil store, along with a growing number of foreign customers and robust sales of high-margin categories such as fashion, drove the results.
Its overseas department store business also stood out. Operating profit from overseas stores surged 309.7% year-on-year. In particular, Lotte Mall West Lake Hanoi posted record operating profit for a sixth consecutive quarter, underscoring an improvement in the profitability of the overseas business.
Shinsegae, which reported its earnings the previous day, posted net sales of 738.5 billion won and operating profit of 108.8 billion won in its department store segment in the second quarter, up 17.5% and 53.5% respectively from a year earlier. The company said the results reflected returns on strategic investments such as renovations centered on its main branch and its Gangnam store, along with consumption that spread evenly across all product categories including fashion, home goods and food, not just luxury. Second-quarter sales at Shinsegae's main branch and Gangnam store rose more than 60% and 20% respectively from a year earlier. By category, luxury sales grew 35%, while fashion rose 10.1%, home goods 16.6% and food 13.7%, marking broad-based growth.
Hyundai Department Store posted net sales of 643.8 billion won and operating profit of 110.1 billion won in the second quarter, up 9.1% and 58.6% respectively from a year earlier. The company said sales rose evenly across key categories such as luxury goods, watches and jewelry, fashion and home goods, while growing interest in Korean content drew more foreign customers and boosted the results. In the first half, foreign sales at its flagship stores rose 134% year-on-year at The Hyundai Seoul and 131% at the Trade Center branch.
The rise in foreign tourists is cited as the key factor behind the earnings growth at the three operators. In the first half, foreign sales at Lotte Department Store rose 125% year-on-year to 640 billion won. Over the same period, foreign sales at Shinsegae and Hyundai department stores rose 120% and 112% to 580 billion won and 500 billion won respectively. As a result, the three companies' combined foreign sales for the first half reached 1.72 trillion won, already about 83% of their combined full-year total of 2.08 trillion won last year.
