Registers 1Q22 Earnings Surprise
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. -- Ed.
HDS’s department store earnings improved significantly in 1Q22, offsetting its disappointing DFS results. In 2Q22, its department store earnings should continue to strengthen, spearheaded by the fashion category.
Raise TP to W110,000
- We raise our TP on Hyundai Department Store (HDS) from W105,000 to W110,000, taking into account upward adjustments to our earnings estimates to reflect higher margins alongside an ongoing recovery in fashion sales. We calculate our TP by applying a target P/E of 10x for the department store sector.
- Starting with its venture into the DFS arena, HDS is pursuing business diversification, including recently acquiring a majority stake in Zinus (013890.KS), a consumer goods player. HDS’s new businesses are not yet at the stage of making stable profit and creating synergies with existing businesses. That said, we positively view HDS’s change in strategy, considering that the company had in the past been somewhat conservative, focusing almost exclusively upon its core business (department stores).
Registers 1Q22 earnings surprise, led by department store division
- On a consolidated basis, HDS announced 1Q22 sales of W934.4bn (+37% y-y) and OP of W88.9bn (+37% y-y), with OP exceeding consensus.
- The department store division recorded sales of W543.3bn (+9% y-y) and OP of W102.7bn (+35% y-y). The luxury goods showed a high SSSG of over 20% y-y in 1Q22, but we attribute the division’s stellar earnings mainly to a recovery trend across the fashion category. GPM improved significantly, leading to sound overall earnings for 1Q22. In April, fashion category SSSG clocked at over 20% y-y, a pace faster than that for the luxury category, taking HDS one step further in the direction towards stronger profitability.
- The DFS division booked sales of W424.3bn (+97% y-y), with operating losses widening y-y to W14bn. The business environment was adversely affected by a both a drop in Daigou (Chinese personal shopper) activity owing to the Beijing Olympics Games and pandemic-related lockdowns of major cities. With these negatives still in play, HDS’s operating losses will likely remain flat q-q in 2Q22. But, we expect to see earnings improvement in 2H22, noting positive factors such as a rebound in passenger demand since April and the achieving of monthly BEP at airport DFSs.