Both The Seoul Store and DFS Arm to Hit BEP within 2021

The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.

 

HDS’s 1Q21 results topped our estimates on both robust sales at The Seoul Store and increased sales of imported cosmetics at DFSs. The Seoul Store and its DFS business should both achieve BEP within the year, providing share price growth momentum.

Both The Seoul Store and DFS arm to hit BEP within this year

We raise our TP on Hyundai Department Store (HDS) from W100,000 to W120,000, advancing the likely timing of BEP achievement at The Seoul Store to 2H21, and upwardly adjusting our earnings outlook for the firm’s DFS business. We maintain a Buy rating.

For the Seoul branch, we initially estimated 2021 sales of W650bn and operating losses of W15bn, but reflecting its current strong sales, we now see sales of more than W700bn and an operating loss of less than W7bn. Daily sales at the DFS division have upped to W6.5bn in 2Q21 (vs the 1Q21 average of W5.5bn), helped by an easing in imported cosmetics shortage problems. Moreover, the division’s operating losses are continuing to shrink thanks to efficient management of SG&A expenses. Given such, BEP should be achieved in 2H21.

1Q21 review: Seoul branch showing healthy earnings; DFS margins improving

On a consolidated basis, HDS announced 1Q21 net sales of W683.2bn (+52%  y-y) and OP of W65bn (+336% y-y), with OP exceeding both our estimate and the market projection.

The department store division recorded net sales of W497.4bn (+27% y-y) and OP of W76bn (+122% y-y). Influenced by deferred consumption due to Covid-19, SSSG came to 24% y-y. The Seoul Store accounted for 8% of overall sales from March. In 1Q21, marketing expenses related to the opening of The Seoul Store were executed at W4bn, but profitability exceeded expectations on higher-than-forecasted sales.

The DFS division booked net sales of W215.3bn (+169% y-y) and operating losses of W11.2bn (y-y reduction). Daily sales remained at around W5.5bn, similar q-q. However, the division’s operating losses narrowed, supported by a widened portion of high-margin imported cosmetics sales (1Q21: 50% → 2Q21: 70%) in line with the alleviating of imported cosmetics supply shortages.
 

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