Reinforcing In-house Fashion Brands
The author is an analyst of NH Investment & Securities. She can be reached at jiyoony@nhqv.com. -- Ed.
Shinsegae International’s 2Q22 OPM arrived strong thanks to brisk sales growth for imported brands, rapid sales expansion for its own fashion brands (VoV, G-Cut, and Tomboy), and a turn to profit at the lifestyle division (JAJU). Earnings momentum is forecast to continue in 2H22.
Reinforcing its in-house fashion brands
We maintain a Buy rating and TP of W42,000 on Shinsegae International.
Sales of imported fashion brands grew by double digits for a sixth consecutive quarter thanks to domestic consumers’ preference for imported brands. Positives confirmed through the firm’s 2Q22 results include the following: 1) Solid sales growth for domestic brands (VoV, G-Cut, and Tomboy) was achieved. Thanks to marketing effects from S.I.Village, a reduction in inefficient stores, and brand reorganization for Komodo, improvement of the firm’s in-house brand structure is coming into view. 2) Earnings growth at the lifestyle division (JAJU) is noteworthy. The division should book positive annual OP on an expansion of premium product lines and changes to rental contracts. 3) At the cosmetics division, Swiss Perfection is to expand further into Europe and Asia, and an additional M&A is expected in 2H22.
2Q22 review: Logs record-high OPM
Shinsegae International announced consolidated 2Q22 sales of W383.9bn (+13% y-y) and OP of W38.7bn (+46% y-y), with OP beating the market projection.
Fashion (non-consolidated): Overseas and domestic brand sales growth arrived at 15% y-y and 12% y-y, respectively. In 3Q22, overseas fashion sales are continuing the double-digit growth trend started in 1H22. Sales growth for domestic fashion brands is also encouraging. Of note, with VoV/G-cut logging sales increase of 10% y-y, OPM reached 12%. Tomboy achieved OPM of 10% (+4.9%p y-y) on a strengthening of brand power. Healthy GMV (+20% y-y) at S.I.Village following store renewal also had a favorable impact.
Cosmetics (non-consolidated): Sales climbed 12% y-y, but OPM (6%) came in somewhat sluggish due to development/ad expenses for in-house brands (Loivie, Yunjac, and Poiret). However, 2H22 should be better considering the continuation of robust earnings growth for imported brands (sales +16% y-y; OPM of 15%) and the clear uptick in demand for VIDIVICI. Swiss Perfection saw 2Q22 cumulative sales of W6.1bn (+61% y-y). The company is aiming to grow related sales to W20bn this year via distribution channel diversification (from B2B (hotel/spa) to B2C (domestic department stores)).
At the lifestyle division (JAJU), OPM reached 3% on the back of a reduction in unprofitable stores and increased sales of high-margin products. In 2H22, the division should escape past deficits and enter a period of profit expansion. Normalization is expected within the year.