Korea's E-Mart shares tumble despite push for profitability

South Korea’s largest hypermarket chain E-Mart Inc., a unit of a local retail giant Shinsegae Group, suffered a drop in its share prices to a six-month low as group Vice Chairman Chung Yong-jin’s drive for profitability has yet to ease concerns over the business outlook.

E-Mart’s quarterly earnings also disappointed investors, while its e-commerce competitor Coupang Inc. continued to improve profitability.

The hypermarket operator said its operating profit more than halved to 13.7 billion won ($10.3 million) in the first quarter from a year earlier on a consolidated basis although sales grew 1.9% to 7.1 trillion won. The profit fell short of an analyst forecast of 73.7 billion won.

On the other hand, SoftBank-backed Coupang reported an operating profit of $106.8 million in the January-March period, reversing the $205.7 million loss in the same period of last year. That marked the first time for the company listed on the New York Stock Exchange to post profits for three quarters in a row.

E-Mart’s stocks fell to as low as 86,000 won on May 12, the weakest since Nov. 4, 2022. The shares have lost 11.3% so far this month as of Wednesday, far underperforming the wider Kospi that eased 0.3%.

BEARISH OUTLOOK

The company said sluggish earnings of hypermarket business and its subsidiaries such as Starbucks Korea and Shinsegae Baseball Club Co. weighed on the overall profit although its online units including SSG.COM reduced losses.

The outlook for the second quarter is more bearish with Hana Securities Co. forecasting an operating loss of 7.3 billion won in the April-June period.

“Interest costs, rents and others kept rising while expenses for online businesses remained high,” said the brokerage house’s analyst Suh Hyun Jung in a note.

Despite the gloomy expectations, its shares are unlikely to fall further as its price-to-book ratio fell to 0.21 times, other analysts said.

SHINSEGAE UNIVERSE

For the rebound in the stock prices, the group-wide paid membership service that Chung has been working to launch next month needs to succeed, they added.

The vice chairman aims to establish the so-called Shinsegae Universe through the integrated membership service for all of the group’s online and offline businesses including E-Mart hypermarkets, department stores, duty-free shops, Starbucks, SSG.COM and Gmarket.

“The strategy indicated a shift in the group’s business focus to profitability from growth,” said Cho Sanghoon, an analyst at Shinhan Securities Co. “It is positive to decide to concentrate on loyal customers through the membership.”

Write to Man-Su Choe at bebop@hankyung.com
 
Jongwoo Cheon edited this article.