The author is an analyst at Shinhan Investment Corp. She can be contacted at firstname.lastname@example.org. — Ed.
2Q22 review: uniform growth reported in all areas
Shinsegae International reported consolidated sales of KRW 383.9 billion (+12.7% YoY) and operating profit of KRW 38.7 billion (+46.1% YoY) for 2Q22 , beating both our estimate of KRW 33.5 billion and the market consensus of KRW 33.8 billion by around 15%. The company recorded double-digit sales growth in all areas, including imported apparel brands, domestic apparel brands, cosmetics and lifestyle. After posting weak 1Q22 profits, domestic apparel brands reported 12.4% year-over-year sales growth on efforts to increase store efficiency and streamline product categories for VOV brands and G-CUT. Meanwhile, more than 40 of the company’s imported luxury brands reported consistent sales growth in 2Q22.
Cosmetics sales increased 12% year-on-year to KRW 91.2 billion, including KRW 68 billion from imported brands that contribute to higher margins. Cosmetics sales reach a total of KRW 94.3 billion including the sales of the subsidiary Swiss Perfection. At the current rate, the luxury cosmetics brand is expected to secure sales in the KRW 20 billion range for the full year of 2022. On top of the positives, the earnings of the lifestyle brand JAJU have risen in positive territory as sales recovered in 2Q22.
3Q22 outlook: solid results and sustainable margin gains
We believe strong earnings continued in July-August, despite concerns about a slowdown in global consumption. With its focus on the luxury category, Shinsegae International should see continued strong growth momentum even in times of polarized consumer spending.
The cosmetics business, in particular, saw net growth in its results, driven by imported brands and Swiss Perfection. With imported cosmetics generating high margins, changes in sales mix should lead to improved profitability in the future. The subsidiary Swiss Perfection is set to expand its presence in the US and European markets and gradually increase the profit contribution of domestic and Chinese operations. National apparel brands and the lifestyle business should continue to post margin gains in 2H22 on further improving fundamentals.
Keep the BUY and the target price of 45,000 KRW
Shinsegae International’s apparel business is expected to maintain a strategic focus on the luxury category to ensure further growth. The cosmetics business should benefit from a recovery in demand following the economic reopening of Korea and China. Seeing strong earnings gains from domestic cosmetics and apparel brands, we are maintaining our BUY rating on Shinsegae International. We also think it’s positive that an increase in cosmetics’ contribution to earnings could lead to a revaluation of stocks.