Reinforcement of Apparel Lineup in 2H22
The author is an analyst of NH Investment & Securities. She can be reached at jiyoony@nhqv.com. -- Ed.
Handsome’s 2Q22 OP came in slightly below expectations. While online and offline sales grew 14% y-y, OP fell short of consensus due to greater operating expenses for the new Liquides Perfume Bar business and EQL mall. That said, the profit growth trend should sustain on the addition of new brands (eg, Lanvin Blanc and Our Legacy) in 3Q22.
Reinforcement of apparel lineup in 2H22
We maintain a Buy rating and TP of W43,000 on Handsome.
As the firm’s market share of imported brands in domestic department stores rises, it also plans to strengthen its in-house lineup. In August, the company will launch the high-end golf brand Lanvin Blanc based on existing Lanvin license know-how. The portion of overseas products is set to rise further on the securing of exclusive distribution rights for the Swedish brand Our Legacy. Since 2019, export wholesale sales in Paris have grown by double digits thanks to the company’s participation in Paris Fashion Week. In particular, strengthening of its in-house brand SYSTEM over the mid/long term is noteworthy.
In 2Q22, earnings growth at the cosmetics arm accelerated on: 1) the opening of the perfume select shop Liquides Perfume Bar in the Pangyo Hyundai Department Store; and 2) the launch of in-house cosmetics brand Oera at the Trade Center Hyundai DFS and addition of new products (serum and cushion)—that said, it will likely take some time for profit contributions to become visible.
2Q22 review: Expenses rise for new businesses
Handsome reported 2Q22 consolidated sales of W357.4bn (+14% y-y) and OP of W27.4bn (+17% y-y), with OP coming in slightly below consensus.
The firm’s two channel strategy resulted in online sales growth of 14% y-y and offline sales growth of 15% y-y. In detail, spurred by brisk department store and outlet sales, Handsome, for which offline channels make up 80% of sales, outperformed domestic apparel growth of 10% y-y in 2Q22. In particular, the brand’s men’s wear sales grew 20% y-y. Meanwhile, the firm’s consolidated online sales portion remained at 20%, thanks to solid traffic at The Handsome.com and the addition of new brands and increased customer loyalty at the online mall EQL.
OPM improved to 7.7% (+0.2%p y-y) in 2Q22, but slightly missed our estimate on increased SG&A expenses, including for manpower reinforcement for new business expansion (perfume bar) and advertising and promotion expenses for online mall EQL.