Good morning, everyone. This is Shunmu Hong, the Manager of Investor Relations. Welcome to the Lotte Shopping 2025 third quarter earnings conference call. Today we have Mr. Won Jae Kim, CFO of Lotte Retail Headquarter. We also have other business representatives joining the call. Questions will be taken after the presentation. Page one is the overall review of Q3 2025 consolidated financial performance.
Lotte Shopping's third quarter revenue and operating profit declined mainly due to grocery business's unfavorable business environment, despite the strong performance in department store division. Department stores unit indicated moderate sales trend, led by high-margin fashion categories, as well as dramatic increase from foreign inbound customer sales, which was up by 34%.
Our overseas department store continued their solid performance. In particular, Lotte Mall West Lake Hanoi in Vietnam posted record high quarterly performance with revenue increased by 29% and operating profit increased by KRW 5.7 billion.
Domestic grocery business has shown weak performance, mainly due to the restriction from government-issued consumption voucher program and Korean Thanksgiving holiday timing difference year-over-year, and cost burdens from e-grocery operation. Overseas hypermarket units also indicated slow performance resulted by anti-government protests in Indonesia.
However, Vietnam operation has sustained its promising performance with revenue increased by 5% and operating profit increased by 24%. As for the e-commerce division, Lotte On GMV indicated 3% growth rate, and the efforts to streamline costs led to six straight quarters of OP improvements on YOY basis.
Hi-Mart also maintained its OP improvement trend when excluding one-off profit of KRW 22 billion in the same period of last year. Cultureworks achieved the first quarterly operating profit in 2025 through specialized theater reinforcement and a record-breaking box office performance from local movies in Vietnam.
Page two is the summary of 2025 Q3 consolidated financial performance. Despite the moderate sales trend in department store, our consolidated revenue was KRW 3.4 trillion, indicating 4.4% YOY decline, resulted by weak performance from grocery unit regarding the impact of differences in national holiday timing year-over-year, and exclusion from the government-issued consumption coupon program. Operating profit was KRW 131 billion, down by 15.8%.
It was mainly due to one-off expense regarding property tax in department store and reverse base effect of Hi-Mart's one-off profit in the same period of last year. Net profit was turned into net loss of minus KRW 49 billion due to impairment loss from invested property despite the dramatic increase in equity method profitability. Please note that we have attached Q3 2025 year-to-date revenue and OP breakdown by each segment on the right side of page three.
Page four is the domestic department store unit. Revenue was KRW 734 billion, indicating 0.7% increase. Same-store sales growth rate was 2.8%, thanks to solid sales trend by our core large format stores and foreign inbound tourists. OP was KRW 80 billion, increased by 9%, despite the one-off expense regarding property tax of KRW 8 billion. Next is the domestic grocery business.
Revenue was KRW 1.3 trillion, down by 8.8%, and OP was KRW 7 billion, down by 85.1%. Unfavorable business environment factors such as Korean Thanksgiving timing difference, exclusion from the government-issued consumption coupon usage list, and the reverse base effect from supermarket's one-off profit regarding Gwangju Cheongdam real estate sales last year has caused a weak performance in domestic grocery unit. Next is the e-commerce unit. E-commerce recorded KRW 23 billion of revenue, indicating 16% decline.
Our online platform, Lotte On GMV, was increased by 2.8%, but the revenue was decreased due to business strategic shift such as scale-down of Lotte Affiliate's online website maintenance service. Operating loss was KRW 10 billion, which has been reduced dramatically, driven by gross profit margin enhancement and cost reduction initiatives. Next is the overseas department store.
Overseas department store's revenue was KRW 31 billion, indicating 17.2% increase, and its operating loss has turned into profit generation, recording KRW 4 billion, increased by KRW 6 billion. Especially, Lotte Mall West Lake Hanoi has recorded 28.6% increase in revenue and all-time high quarterly operating profit of KRW 2 billion since the first open. Overseas hypermarket, the revenue was KRW 344 billion, indicating 0.9% decrease, and its OP was KRW 9 billion, indicating 7.1% decline.
Vietnam operation continued to achieve record high performance, recording 11.6% increase in SSSG and 23.5% increase in OP. But Indonesia unit indicated decline performance due to weak consumer sentiment regarding anti-government protests. But Indonesia still recorded a solid sales trend from recently renovated stores. Next is the Lotte Hi-Mart.
Revenue was KRW 653 billion, decreased by 4.9%. Sales declined due to sluggish domestic home appliance demand and reverse base effect from one-off VAT refund gains in the same period of last year. Excluding the one-off impact last year, our Q3 sales would have been decreased by 0.9%.
OP was KRW 19 billion, decreased by 39.3%. But again, excluding the one-off impact, our OP increase rate was 111.7%. Key strategic initiatives such as expansion of home care service, private label, and store format innovation delivered meaningful results, sustaining the performance improvement trend.
As for the home shopping, our revenue was increased by 1.6%, recording KRW 211 billion. OP was KRW 10 billion, up by 4.8%. Our growth sales was declined due to product mix adjustment, focusing on fashion, luxury and beauty products. But our improved sales margin and declined SG&A ratio has led to improvement in both top and bottom lines.
Next is the Lotte Cultureworks, our cinema division. Revenue was KRW 128 billion, weakened by 2.1% due to reverse base effect of major box office hits from last year's invested film, resulting decline in theater attendance and sales.
While our Vietnam operation have shown dramatic increase in OP through record-breaking box office success from local movie, weak performance from domestic content business has caused the 8.4% decline in operating profit, recording KRW 8 billion. Next page is the non-operating profit summary. Non-operating loss was KRW 145 billion.
Net interest income improved on the back of reduced borrowings and equity method losses turned into profit generation, driven by strong performance from FRL Korea. However, overall non-operating profit decreased due to higher foreign exchange losses on foreign currency borrowings from the weaker Korean won, and the recognition of an impairment loss on invested property related to the withdrawal from the Ulsan development project.
Next page is the balance sheet improvement. As of the third quarter of 2025, total debt stood at KRW 14.3 trillion, down by KRW 0.4 trillion from the end of 2024. Debt to asset ratio was 37.6%, remaining below 38% since the asset revaluation at the end of last year. However, the net debt to EBITDA ratio was 7.4x, reflecting one-off costs such as ordinary wage standard change in the fourth quarter of last year.
With expected earnings improvement and a further reduction in total debt level in the upcoming fourth quarter, our net debt to EBITDA ratio is projected to improve by the year-end. I will now finish today's presentation here. Thank you for attending today's presentation. We will begin the Q&A session. For your reference, the Q&A session is in Korean, English interpretation will be sequential.
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. The first question will be provided by Joo Younghoo from NH Investment & Securities. Please go ahead with your question.
Good morning. My name is Joo Younghoo from NH Investment & Securities. Thank you for the opportunity today. I have three questions. Question number one, can you please give us an overview about your business trends since October this year for all of the different business divisions? Second, you mentioned about the contribution of foreign inbound customers to the department store business.
Can you please elaborate that and discuss the foreign inbound customer trends for the overall department store business, not just the HQ and the flagship stores. And third, there was mentioning of one-off expense for the department store business in your presentation, and please give us more color on that. Thank you.
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I will first go over the department store business trends that we expect from October on for the remainder of this year. We have seen around double-digit growth in revenue in October, and I believe that we will be able to maintain this type of trend in November as well. The outlet malls have been doing exceptionally well, and if this trend continues, we believe we will be able to generate stable revenue growth for the entire 2025 year.
I would like to highlight that we are seeing significant improvement in the fashion category. Last year, this time, the weather was warmer than usual. And given that base effect, we believe that we will be able to generate higher revenues in the fashion category in Q4 this year. We are also observing the visible growth in the sports and outdoor categories.
For the October to December Q4 period, we believe that the high-margin fashion category will be driving operating profit as well. Therefore, we will be seeing better performance in Q4 compared to previous quarters of this year. Thank you.
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Next, I will go over the grocery business. In Q3, our businesses and stores were excluded from the government consumption coupon program. This weighed on our business in Q3. However, we are seeing recovery as we get into the mid and latter half of October.
As we get into November, we are seeing positive growth. In particular, we have launched a large-scale promotion campaign towards the end of October, and we believe that this will have positive contribution to the overall top-line growth of the grocery business in Q4. Thank you.
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I will move on to the e-commerce business. Online GMV overall, I think, was only around half of last year. However, as we get into Q3, we are seeing double-digit growth. So overall recovery trend is becoming quite visible.
As part of our vertical strategy, we have been focusing on the fashion and beauty categories, and especially in the fashion category, I think we will be seeing the strong growth for the remainder of the year.
The weather conditions were already mentioned in the previous answers, and so we believe we will also be benefiting from that base effect in Q4 compared to Q4 of last year. So I think we will be continuing to see visible growth of the fashion category, and that should have positive contribution to our overall business. Thank you.
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Next, I will go over the trends of foreign inbound customer contribution to the department store business. We are seeing very strong growth. In Q1 this year, the foreigner contribution grew by 28%, in Q2 it grew by 15%, and in Q3 it grew by 34%. Of course, this growth is mainly driven by our flagship HQ store. However, our Jamsil store is doing very well as well.
In Q1, the growth was 27%, and Q3 the growth was 13%. We believe that this trend will be continuing. I think we can also compare this to pre-COVID levels. Pre-COVID, back in 2019, for the department store business, the foreigner contribution was around 2.9%, and this has grown to 4.3% in recent times. The HQ 2019 figure was 18%, and Q3 this year was 19%. So you can see that those numbers have recovered to pre-COVID levels.
I would like to highlight that we are seeing similar trend at our Jamsil store as well. 2019 it was 2.5%, Q3 it jumped to 4.5%. We are now trying to launch integrated marketing campaigns that can attract more customers to the Jamsil stores that we have. That puts together the attractions and the Lotte World Tower, the observatory, and the department store business. Also, more foreigners can be attracted to come to our Jamsil stores. Thank you.
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I would like to give more color on the hypermarket, supermarket, grocery business. There is some difference depending on the store, but overall, the foreigner contribution is also showing growth. Especially our Seoul station is highly visited by the foreign tourists.
The foreign inbound customer contribution to our Seoul station store is over 30% now, and this trend has become especially evident since the visa waiver program for Chinese tourists has been implemented by the government. For this business as well, the Seoul Station and Jamsil store are also benefiting from higher visitation of foreigners. Thank you.
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Lastly, I will address your third question on the one-off expense. I am Won Jae Kim, CFO. For the department store one-off expense, there was some additional property taxes that we paid for our regional store, which was around KRW 8.1 billion. We have some different thoughts on this tax issue. We paid the tax, and we reflected all of that on our balance sheets and income statements, but we are also currently exploring other options on how to address this issue. Thank you.
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The following question will be presented by Hyeeun Kim from Morgan Stanley. Please go ahead with your question.
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Good morning. I have largely two questions today regarding the grocery business. Your e-commerce business has been incurring some expenses, which has been leading to lower profitability. I believe that as the e-commerce business ramps up, there is possibility that the size of the loss will decrease. Compared to Q2, I think in Q3, the expense situation of the e-commerce business has improved.
I would like to get some further color on your outlook for the expense and profitability of the e-commerce business. My second question is also regarding the profitability, but for the entire grocery business.
In Q3, I think the same-store sales growth was quite weak, and this is what weighed on overall performance. You already mentioned today that you are seeing recovery as you get into later half of October and November.
It would be great if you can further elaborate on that. Also, do you think that the Homeplus incident is something that can benefit your business in Q4 and early next year as well? Some thoughts on these overall issues and profitability outlook will be appreciated. Thank you.
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Thank you for the question. As you mentioned at the initial stage of the launch of the e-commerce business, there were some costs that we need to incur. But as time passes, we see those cost elements stabilizing very quickly, especially regarding the packaging and delivery. We are seeing higher efficiency. This should bring down the cost overall. Also at the initial stage, we have invested in marketing to raise awareness of our application among our customers.
That upfront marketing cost was also something that was weighing on the business in the early stages. However, as more customers now are aware of our applications, we are able to rationalize the advertising costs as well. Overall, the cost is downward stabilizing. As for the profitability of our hypermarket business. As you already know, the overall market environment was not the most favorable for the offline business.
Homeplus incident is something that we believe can have positive impact on our business, especially for the stores that are closely situated to Homeplus stores. I think we will have clear idea on what will happen to Homeplus as we get into the end of this year.
Once that becomes more clear, I think the size or the type of benefits that we can enjoy will also become clearer as well. Having said that, internally, the stores that have been renovated to really focus on the food and beverage section, such as the Grand Grocery, have been doing very well, both in terms of revenue and profitability.
I think going forward, we will be driving the renovation to turn more of our stores to Grand Grocery and also to strengthen the overall product mix in these Grand Grocery stores, as we have already seen that it can have positive impact on both revenue and profitability. Thank you.
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The following question will be presented by Jin-Hyeob Lee from Hanwha Investment & Securities. Please go ahead with your question.
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Yes. Thank you for the questions. I largely have three questions. First, regarding your Vietnam businesses. It is doing quite exceptionally. Do you think this strong performance can be sustained? Second, in Indonesia, I understand there were some challenges and issues. Do you think that has largely wrapped up in Q3, or do you think it will have a lingering impact for the remainder of the year? Lastly, regarding the data and RMN businesses, this has been quite strongly emphasized by the Vice President. What are some of the businesses you are pursuing in this area?
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I will first go over the Vietnam business. In Q3 2025, the growth of Vietnam was definitely driven by the West Lake Mall. Growth revenue grew by 29%. The shopping mall and the hypermarkets show double-digit growth, but also the hotel, SR [Non-English content] all showed very high occupancy.
Overall, all of the business segments here have been showing very strong results, and we believe that these trends will continue in 2026. Especially for West Lake, the operating profit, I think, has some positive momentum. We extended the land usage period with the Vietnamese government for an additional 14 years.
This should have positive impact on our depreciation expense and therefore also our operating profit as well. As well, on top of that, the Lotte Mall West Lake Hanoi has also been renovated and this has had some positive impact on the performance this year, and it should continue to next year as well. Thank you.
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As for the hypermarket business in Vietnam, we have seen strong growth and that should continue into next year. We have been renovating some of the existing stores. As we continue with our expansion, we are planning to diversify the size format. Currently or up to date, we have been more focused on large formats. As we move forward, we will be also launching mid and small sized formats for our expansion.
This type of trend should continue next year as well. In Indonesia, the political situation has been quite unstable, and that has caused our Q3 earnings to be quite weak. We believe that this is temporary. The overall political situation is stabilizing as we get into October, and we believe that the overall consumer sentiment and our store revenues and performance should also start to normalize. As we see overall situation calming down, as we move into Q4, I think we should be able to see quite robust earnings growth for the remainder of the year.
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Next I will be speaking about the RMN business. It is very early on and so it is a bit too early to announce any numbers. However, we are putting together the organization, demand power and the system together step by step. Probably maybe Q1 next year, we will be able to have more meaningful communication with the market on this topic. 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 Hye eun Kim from Morgan Stanley. Please go ahead with your question.
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Yes, I have a question on the annual guidance. We are already past Q3 of this year. In order for you to meet the annual guidance, I think the performance has to be quite strong in Q4. Of course, the department store business is showing strong signs of improvement, and that is a positive, but how are you tracking the progress to meet your annual guidance?
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Good morning. I am CFO Won Jae Kim, and I will be going through the annual guideline. Q3 performance has been quite weak, underperforming our expectations. There was one-off expense coming from the department store business and grocery store performance have been quite subdued. But as we get into October, we are seeing things turn around. From October to today, I think overall, we are already observing stronger performance than Q3.
Q4 has always had a very high contribution to our annual profitability and revenue, and we believe that if we get strong results out of Q4, we will be able to meet our targets. Like you have mentioned, the department store performance has been exceptional recently. If the grocery business can bounce back, I think there is very high possibility that we will still meet our targets. We will be making utmost effort corporate-wide to try to meet our annual guidance numbers. Thank you.
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The following question will be presented by Lina Oh from LS Securities. Please go ahead with your question.
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Good morning. I am Lina from LS Securities, and I have a question regarding Ocado. What would be the expenses that you are forecasting for the Ocado business next year? I think this can be quite important in terms of the enhancement of profitability of your overall grocery business.
Second, I understand that the building has already been constructed, and now you are installing the relevant equipment and facilities. How are you preparing for the opening? How do you think this can help boost the overall earnings and profitability next year?
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The progress of Ocado is going as planned. Like you mentioned, we have completed the construction of the buildings, and now we are installing the relevant equipment and facilities. As everything is going as planned at this pace, I believe we will be able to open first half next year as planned. Of course, we are currently making investments in the CFC, which will open first half of next year.
Because of the up-front investment cost, there can be some increase in the overall expense. However, the main purpose of this investment is to reduce the operating cost. If that can offset some of the investments that we make early on and up-front, I think overall, we will also be able to be within our planned expectations in terms of managing the overall cost.
We are also making effort to ensure that this can be successful at launch. So we are testing the app preemptively. We are acquiring and accumulating know-how to run the system, and so on, so that this can have positive impact as we launch it in the first half of next year. Thank you.
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Currently, there are no participants with questions. Please press star one and one to give your question.
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The following question will be presented by Younghoo Joo from NH Investment & Securities. Please go ahead with your question.
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Thank you for giving me a chance to ask additional question. I have one quick question regarding the non-operating profits. So I think there were some unexpected incidents or events that occurred that had impact on the non-operating profit, and that has ultimately turned the company's overall profit to net loss. Do you think we will be seeing additional unexpected incidents in Q4 that can have similar impact? And for the full year, do you think net income can turn to profit? Thank you.
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Yes. For one of the main one-offs in Q3, there was KRW 65.7 billion investment impairment that we incurred for withdrawing from the Ulsan project that has led to a net loss. In Q4, we regularly do the asset appraisal that can lead to booking of some impairments. However, we did large-scale asset revaluation last year. We believe the overall number that we booked as impairments will significantly decrease.
For the Lotte Hi-Mart goodwill as well, we will be reappraising that in Q4, but we think the number will be very minimal or close to zero. There is the equity method. FRL Korea Uniqlo brand is doing very well. That can have positive impact on our equity method profits. Interest expense is showing decline in trend as well. For the full year, I still believe that there is strong possibility that we can turn to net income. 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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Since there are no more questions, we will now finish today's earnings announcement. Further questions will be answered by IR team. Thank you for joining today's call.