Brokerages cut E-Mart’s share price target after disappointing Q2

South Korea’s largest hypermarket chain E-Mart Inc., a unit of domestic retail giant Shinsegae Group, on Wednesday posted disappointing second-quarter results, promoting brokerage houses to deeply slash the company’s share price targets.

E-Mart said its net loss in the April-June period widened to 103.2 billion won ($77.2 million) on a consolidated basis from 63.1 billion won a year earlier. Its operating loss also widened to 53 billion won from 12.3 billion won due to less consumer spending amid rising inflation.

Sales inched up 1.7% to 7.27 trillion won.

Weighted by its weak second-quarter results, E-Mart’s shares closed down 5.4% at 73,500 won on Wednesday, underperforming the benchmark Kospi index’s 1.8% fall.

E-Mark’s weak results, which came below the market consensus, were partly due to disappointing performance at its affiliates such as Starbucks Korea and Shinsegae Construction.

SCK Company, the operator of Starbucks Korea, saw its second-quarter operating profit drop by 11.1 billion won to 36.4 billion won.

“Reflecting the worse-than-expected earnings at Starbucks and Shinsegae Construction, we’ve slashed E-Mart’s 2023 operating profit estimate by 23%,” said KB Securities analyst Park Shin-ae. “Engaging in diverse businesses is actually causing performance uncertainty for the company.”

She cut E-Mart’s share price target to 95,000 won from 100,000 won.

COST EFFICIENCY REQUIRED

For its share price to rebound, she said E-Mart needs to secure competitiveness in its main business by achieving cost efficiency across its offline distribution channels and share a mid-to-long-term roadmap for its e-commerce business.

Shinhan Securities Co. lowered its share target price for E-Mart to 90,000 won from 100,000 won following the weak second-quarter results.

NH Investment & Securities Co. adjusted down its target price for E-Mart to 100,000 won from 120,000 won.

"To respond to the rise in operating expenses, E-Mart has implemented a strategy of reducing operating hours by one hour. But apparently the strategy didn’t work,” said NH analyst Joo Young-hoon.

But he said he expects E-Mart’s earnings to improve from the third quarter, buoyed by improved consumer sentiment after June.

EBEST Investment & Securities has slashed its E-Mart target price to 91,000 won from 123,000 won.

Write to Eui-Myung Park at uimyung@hankyung.com

In-Soo Nam edited this article.