Good morning everyone, and welcome to Lotte Shopping's 2026 first quarter earnings conference call. Today we have Mr. Jaechul Lim , CFO of Lotte Shopping. We also have other business representatives joining the call. Questions will be taken after the presentation.
Page one is the overall review of Q1 2026 consolidated financial performance. Lotte Shopping's first quarter consolidated revenue increased by 3.6% YoY to KRW 3.6 trillion. This growth was driven by strong sales from Department Stores, mainly from core stores and foreign inbound tourists, along with balanced growth across key business segments, including Cultureworks. Operating profit increased by 70.6% YoY to KRW 253 billion, driven by solid performance in Department Stores, led by strong sales in high-margin fashion categories and improved earnings in Vietnam, Cultureworks, and HomeShopping. Net profit was KRW 144 billion, indicating a 694.1% increase YoY, led by higher operating profit and improved equity method profit.
Please note that we have attached the Q1 2026 income statement and revenue and OP breakdown by each segment on page two. Page three is the Department Store unit. Revenue of domestic Department Store was KRW 837 billion, indicating 7.9% increase. This growth was driven by 13% of same-store sales growth, led by strong performance in large format stores and robust foreign inbound customers. Notably, at our Myeongdong Store, foreign customers' sales surged by 103%. As a result, the portion of foreign sales rose by 9 percentage points to 23%. Operating profit increased by 43.5% to KRW 184 billion, supported by steady growth across all product categories, including high-margin fashion items. Moving on to overseas Department Stores. Revenue grew by 14.7% to KRW 36 billion, while operating profit came in at KRW 8 billion, marking a 268.7% increase.
Gross sales increased across all overseas locations, including Lotte Mall West Lake Hanoi and Center Hanoi in Vietnam, as well as our Department Store in Indonesia. In particular, Lotte Mall West Lake Hanoi continues to break its record for the highest quarterly operating profit, posting KRW 4.9 billion for its first quarter. Next is the Hypermarket unit. Revenue of domestic Hypermarket was KRW 1.0 trillion, increased by 2.2%, and operating profit increased 30.9% to KRW 9 billion. Revenue increased through efficient promotion execution and a less competitive environment. While operating profit also grew due to lower SG&A ratio. As for the overseas Hypermarket, revenue was KRW 485 billion, indicating a 3.4% increase, and its operating profit was KRW 25 billion, indicating 16.8% increase.
Despite a decline in operating profit in Indonesia due to intensified wholesale competition, overall overseas Hypermarket performance was driven by higher operating profit in Vietnam, supported by strong sales across all product categories. Notably, the OP margin for Vietnam Hypermarket reached 12.6% as the operating leverage effect continues to expand on the back of robust sales growth. Next is the supermarket unit. Revenue was KRW 306 billion, increased by 0.2%, induced by disciplined promotion operations and store rebalancing efforts, including the closure of underperforming stores and new store openings. Operating profit declined due to a temporary increase in SG&A expenses from new store openings. Next is e-commerce unit. Revenue was KRW 27 billion, indicating a 3.8% increase, and its operating loss narrowed by KRW 2.7 billion to KRW 5.8 billion.
While Lotte online commerce revenue grew by KRW 3 billion, e-commerce's total revenue declined due to business portfolio adjustment, such as ending affiliate support contracts. Operating loss improved, driven by an improved gross profit margin and SG&A optimization efforts. The gross profit margin improvement was mainly a result of increased advertising revenue and improved profitability of the repeat business. Next is the Hi-mart. Revenue was KRW 497 billion, decreased by 6.1%. The problem domestic home appliance market downturn and fewer new housing moving pieces led to weak sales on major appliances. Despite SG&A reduction efforts, operating loss expanded to KRW 16 billion, a decrease by KRW 3.7 billion due to the [inaudible ] from lower sales. As for the HomeShopping, revenue increased by 2.1%, recording KRW 232 billion, and operating profit was KRW 26 billion, up by 118.6%.
Gross profit margin improved as hourly efficiency increased, driven by an expanded mix of high-margin products, such as health supplements and beauty. Operating profit surged significantly, coupled with SG&A optimization efforts. Next is the Cultureworks. Our cinema division revenue was KRW 125 billion, indicating 44% increase, and operating loss turned into profit, posting KRW 8 billion with an improvement of KRW 18 billion. With the February release, " The King's Warden " achieving the number two all-time box office record, domestic cinema attendance surged. This revenue increase created positive operating leverage, driving our profitability improvement. Page seven is non-operating profit summary. Non-operating loss was KRW 73 billion, an improvement of KRW 31 billion. The improvement was largely due to higher equity methods income, backed by solid results from our key affiliates, including FRL Korea, Lotte Card, Stonebridge Investment Fund and MUJI.
Other non-operating items reflect KRW 5.8 billion in dividend income and KRW 1.4 billion on the disposal of tangible assets, such as fixtures and equipment following the closure of one of the offline stores. This concludes our presentation. We'll now move on to Q&A. Please note that the Q&A session will be conducted with consecutive translation.
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Now Q&A session will begin. Please press star one, that is star and one, if you have any questions. Questions will be taken according to the order you have pressed the number star one. For cancellation, please press star two, that is star and two on your phone.
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The first question will be provided by Sang-jun Park from Kiwoom Securities. Please go ahead with your question.
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Yes. Good morning. I am Sang-jun Park from Kiwoom Securities, and thank you for the opportunity today. I have three questions. First question is regarding your revenue trends and guidance. What will be the revenue trends you see for April for your major business lines? I would also like to ask the outlook and guidance you have for Q2. I am especially interested in the Department Store and Hypermarket businesses. My second question is related to the closure of 37 stores of Homeplus. How will this impact the earnings and performance of Lotte Shopping in Q2 and future months? My last question is regarding the HomeShopping business. For this quarter, we see strong revenue growth, but even stronger profitability improvement. What were the main drivers behind this robust profitability improvement? Do you think this trend can continue in Q2 and onwards as well? Thank you.
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I will first start with the Department Store. If we look at the domestic business, we believe that in Q2, Q1 trends will continue. In April, we saw strong double-digit growth, and this trend seems to continue in May as well. If you look at the categories, the global luxury brands and fashion categories were the main drivers, and this trend will probably continue on. As for our overseas business in Vietnam, there were some major holidays, including Labor Day and Children's Day in May. We have implemented active promotions to generate stronger revenue during this period. Thanks to our diligent promotions, we were able to outperform the initial expectations. Strong growth is also visible in our overseas business as well.
To summarize, both for domestic and overseas Department Store business, Q1 trend is continuing in Q2, and operating profit growth is showing double-digit growth, and this trend should probably continue.
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We will move on to the Hypermarket business. Like the Department Stores, we believe that Q1 trend is continuing in Q2. Let me address the second question that you asked as well regarding the closure of 37 stores of Homeplus together. In April and May, we have seen a slight increase in terms of revenue and operating profit on YoY basis. This trend is similar to Q1, and we believe that this revenue cost and operating profit trend can be sustained from Q1 and Q2. But as we get into May, there are largely positive and negative factors that may have combined impact on our business. First of all, as you know, the government is distributing the fuel subsidies. The fuel subsidies cannot be used in the Hypermarkets. This can be a negative factor.
However, like you already asked in your question, 37 Homeplus stores are expected to close, and this can have a positive impact to our stores that are approximate to these stores that are closing down. Last year, there were 22 Homeplus stores that closed, and we have already seen the positive impact up to the revenue and profit growth of our stores nearby the area. We believe that this closure of 37 stores of Homeplus will have similar impact on our business this year.
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We'll move on to your third question regarding our HomeShopping business. The main reason why you see very strong profit growth in Q1 is mainly because we have adjusted our portfolio to include more high margin products. The low margin products like fashion and home appliance programming time decreased, while we increased more efficient, in terms of timing and process, the health supplements and beauty categories. This programming strategy will continue on. We believe for the HomeShopping business, overall profitability should be higher than last year. Thank you.
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Currently there are no participants with questions. Please press star one, star and one to give your question.
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The following question will be presented by [inaudible] from Morgan Stanley. Please go ahead with your question.
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Good morning and congratulations on the very strong performance you disclosed today. My question is related to the contribution of foreign customers to the overall revenue. You mentioned during the presentation that the revenue generated by foreign customers for the Department Store grew by 92%. What would be their overall contribution? You also mentioned the main category drivers were foreign grocery brands and fashion categories. Can you also elaborate a little more on the revenue trends of the major categories? My second question is regarding e-commerce.
I understand that you are going through some adjustment and a restructuring process, but can you give some more color on the overall GMV trends? I am also aware that you are launching and strengthening your Zetta platform . What will be the online grocery trends? Can you also give a little more picture on the cost trends as well? Thank you.
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Yes, I will take the first question. If you look at the increase in revenue and the contribution coming from foreign customers, our flagship Myeongdong Store, our Seoul Station , and Jamsil Store , these stores are largely popular among the foreign customers. Their contribution has been growing equally across these major stores. In terms of the category, global fashion, fashion and sports, these are the main category drivers in that order. The foreign customers have been generating the higher revenue for these categories. If you look at the category trends in Q1, the global fashion category showed the strongest growth, and it was followed by general fashion, groceries, and living categories. For these three categories as well, on top of the main driver, global fashion category, they have all been showing double-digit growth. We see the growth coming equally across multiple categories.
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For our e-commerce business, we have been adjusting the business to focus more on high margin categories and products. Despite this adjustment, we were still able to generate positive growth in Q1, and we believe that this robust trend will continue in Q2.
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I will take your last question regarding Zetta and the e-grocery business. We launched the Zetta app last year, and there was many activities to raise awareness of the Zetta app among our customers, which weigh on revenue. However, in Q1, we see the negative growth narrowing. We are looking forward to further improvements in the future. The core business of Ocado and Zetta would be definitely the online dedicated center, and this will open in mid to latter half of this year. Once the center opens, we believe that we will be able to offer customers with differentiated services through the Zetta platform, which will have a positive contribution to our overall revenue and profit. As for the cost items, because we are building the online dedicated center at the moment, the associated cost is continuing.
However, for the in-store fulfillment services, we are working to optimize manpower and also making effort to increase the efficiency of the delivery vehicles and routes. We are making every effort to stabilize the cost so that we can have more stable profits in the future. Thank you.
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Currently, there are no participants with questions. Please press star one, star and one to give your question.
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The following question will be presented by [inaudible] from HSBC. Please go ahead with your question.
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Good morning. My question is related to the Department Store. You already mentioned the foreign customer revenue contribution to the Department Store business for the major flagships, your Myeongdong Store for Q1. What would be their contribution for the overall revenue of the Department Store, of the total revenue? My second question is, we are seeing very strong growth for the Department Store in Q1, and you mentioned today that it will probably continue in Q2. Do you think this trend can be sustained for the mid and long- term? For example, do you think this trend will continue in the first half and then the second half remainder of the year? For how long do you think this trend will continue?
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Yes. For our flagship store, the Myeongdong Store, the contribution of foreign customers to revenue is around 22%. The number is especially high for stores like our Jamsil and our Busan flagship as well. For the other stores, I think their contribution will be something closer to 5%. You can see that the major stores and the flagship stores show higher contribution of foreign customer revenue. We believe that the current double-digit growth rate will continue for the time being. You also asked whether this trend can be sustained in the second half. There is continued increase of inbound tourists, and the FX rate is also favorable for the foreigners as well. These two factors combined, and assuming that will continue, we believe that the current strong growth will continue in the second half as well.
When we are developing business plans and coming up with business estimates for the second half, we are incorporating that the foreign customer revenue contribution trend will continue in the second half. Thank you.
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The following question will be presented by Sang-jun Park from Kiwoom Securities. Please go ahead with your question.
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Good morning. I have three questions. The first question is regarding the Department Store for the domestic business. In the first half, a robust double-digit growth trend seems very highly likely. Do you think the growth rate, this double-digit growth rate, will also be observed in the second half? Or do you think there can be changes in the growth rate in the second half? My second question is regarding your Vietnam business. Both the Department Store and Hypermarket are doing very well in Vietnam. What would be your new store opening plans for Vietnam for this year and next year? My last question is related to FRL Korea. FRL, it takes up a large portion in your equity method profits, not only in the absolute amount, but also in the growth as well. This is especially visible in Q4 last year and Q1 this year.
Can you give a little bit more color on the revenue and profit growth trends and what you believe will be the trends for the second half of this year as well?
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To answer your first question, as already mentioned today, we believe that the trends up to May this year will continue in the second half. Having said that, we are also closely monitoring how external factors like geopolitical tension in Middle East can impact the consumer sentiment in the domestic business. But overall, we believe that trends to date will continue for the remainder of the year. Thank you.
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Regarding your second question, our expanding business in Vietnam. For this year, we do have plans to open new Hypermarkets, but we are not able to clearly communicate on how many new stores we are planning to open for this year. Please understand that. As for the shopping malls, we are reviewing major cities in Vietnam for us to venture in and expand, and we are approaching this in a careful manner, and it will be mainly focused on the Department Stores. We will be communicating with the market once we have more concrete plans.
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I will take the last question regarding UNIQLO. There are two reasons why you see strong profit growth. The first one is the difference between Japan and Korea in terms of closing and accounting. Then second is that UNIQLO actually shows strong growth in Q1. As for the revenue growth on a YoY basis, it was around 60%. As for the trend and outlook, since the No Japan campaign, the revenue and sales of UNIQLO has been showing continuous growing trend. But please understand that we are not able to communicate clear numbers on this. Thank you.
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Currently there are no participants with questions. Please press star one. Star and one to give your question.
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Currently there are no participants with questions. We will wait for a second until there is another question.
[ Non-English content] As there are no further questions, we conclude today's earnings conference call.