Time to Consider Buying at the Bottom
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. -- Ed.
Retail sector share prices have fallen sharply due to the re-emergence of concerns related to Covid-19. However, considering that contrary to concerns, sales flows are better than expected and valuation burden remains absent, we believe that it is time to start buying at the bottom.
Improved industry conditions: Time to consider buying at the bottom
In October, sales at major retailers climbed 14.4% y-y. While this figure was recorded before the easing of social distancing measures, it still represents the second-highest monthly y-y sales growth of 2021 thus far. As sales flows in November are believed to be favorable thanks to the arrival of the living with Covid-19 era, there appears to be room for raising expectations towards 4Q21 earnings in the sector.
Recently, with the number of newly confirmed Covid-19 cases in Korea once again nearing 4,000/day and concerns rising over the Omicron mutation, retail industry shares have declined back to the levels seen before the reflection of re-opening expectations. In contrast to the sluggish share price action, however, industry conditions are improving as predicted. Accordingly, we view now as a time to consider buying from the perspective of earnings and valuations.
October sales up 14.4% y-y (offline +10.0% y-y, online +19.7% y-y)
In September, large offline stores were excluded from accepting the use of emergency relief funds, and earnings proved sluggish. However, this negative disappeared in October. In addition, solid performances were witnessed for the shopping events of individual players, and sales rebounded at all businesses except SSM.
Department store: Sales +21.0% y-y. Alongside continued high sales growth for major overseas brands (+39.4% y-y), the fashion category also posted a second consecutive month of sales increase. We attribute this positive to an uptick in clothing purchases following the resumption of daily gatherings.
Hypermarket: Sales +1.4% y-y. Hypermarket sales displayed the strongest rebound on a m-m basis (September sales: -13.3% y-y), and sales in the food category improved significantly.
CVS: Sales +9.0% y-y. In October, growth in number of stores and sales per store came to +6.2% y-y and +2.6% y-y, respectively. As of end-October, the number of Big 3 CVSs (CU, GS25, 7-Eleven) totaled 42,026.
SSM: Sales -1.6% y-y. Sales in October decreased for all categories (excluding agricultural/livestock/fisheries) on a drop in store number amid restructuring.
Online: Sales +19.7% y-y. October saw the third-highest online sales growth rate of 2021. In addition to ongoing robust sales growth centering on the food and home appliance categories, which account for a high portion of overall sales, service/other sales rebounded on strengthened demand for travel products.