Now begin the Lotte Shopping Q2 earnings presentation. Page one is the overall review of Q2 2025's consolidated financial performance. Lotte Shopping second quarter revenue and operating profit declined mainly due to worsening consumption slowdown and weak demand from domestic grocery and cultural divisions. However, for the first half of 2025, the OP increased by 11% year-over-year by solid performance from department store and overseas operations. For the department store unit, large format stores continued to indicate strong sales trend and foreign customers sales also grew. In particular, our flagship Myeongdong store's foreign customer sales contribution was 17%, up by 2 percentage points YoY. Our overseas department stores continued their favorable performance trend, including Lotte Mall Westlake Hanoi, posting second consecutive quarter of OP. In grocery business, OP was declined due to initial costs from launching our new grocery application, Lotte Mart Zetta.
However, our newly opened hypermarket, Guri branch, delivered a strong performance, ranking second in sales across all Lotte hypermarkets since the first opening of the store. Among our overseas hypermarket businesses, Vietnam operations revenue was increased by 5% and its operating profit was up by 28%. For the first half, revenue rose by 7% and OP was increased by 25%. As for the e-commerce division, Lotte ON GMV indicated 15% growth YoY, and the hard efforts to streamline costs led to five straight quarters of OP improvement YoY. Lotte Hi-Mart also continued its recovery for a second consecutive quarters, indicating both sales and OP increase. However, Lotte Cultureworks business posted weak results due to the lack of blockbuster movie releases in domestic box office. Page two is the summary of 2025 Q2 consolidated financial performance.
Revenue was KRW 3.3 trillion, indicating 2.3% YoY decline, resulted by delayed recovery in consumer sentiment and the impact of holiday time difference in Indonesia. Operating profit was KRW 31 billion, down by 27.5%. It was mainly due to fixed cost pressures amid revenue decline. Just as a reference, the property tax expense stayed relatively flat YoY at KRW 152 billion. Net loss was narrowed to KRW 10 billion by reverse base effect of last year's one-off losses regarding impairment loss from Shenyang and the disposal loss of Chengdu Department Store in China. Please note that we have attached the first half revenue breakdown by each segment on the right side of page three. Page four is the domestic department store unit. Revenue was KRW 786 billion, indicating 2.7% YoY decline.
Same store sales increased by 0.5% thanks to solid sales trend by our top-tier VIP customers, but the net revenue was decreased due to lower exposure of high-margin fashion category sales. OP was KRW 63 billion, increased by 15.7% YoY, induced by SG&A optimization effort. Next is the domestic grocery business. Revenue was KRW 1.3 trillion, down by 3.3% YoY. OP was -KRW 45 billion. Loss has been stretched due to initial promotional costs from launching the new grocery application, Lotte Mart Zetta, in April of this year, and the reverse base effect from supermarket one-off profit regarding Gwangju Cheongdam Real Estate sales last year. Also, taking over online grocery business from e-commerce unit has caused a further margin decline. Next is the e-commerce unit. E-commerce recorded KRW 27 billion of revenue, indicating 4.6% YoY decrease.
Lotte ON Commerce sales increased by strong GMV growth, product margin enhancement, and increased advertisement sales. However, the revenue decreased due to business strategic shift, including scale down of Lotte affiliated companies' website maintenance service. Operating loss was KRW 8 billion, which has been reduced dramatically, driven by gross profit margin enhancement and cost reduction through business portfolio transformation and the transfer. Next is the overseas department store. Revenue was KRW 30 billion, indicating 5.2% YoY increase, and its operating loss has turned into profit recording KRW 2 billion. Lotte Mall Westlake in Hanoi has recorded 25.1% increase in revenue and sustained its momentum with the second straight quarter to achieve open impact. As for the overseas hypermarket, the revenue was KRW 350 billion, indicating 0.6% decrease, and its OP was KRW 90 million, indicating 6.3% decline.
Vietnam operation continued to show strong performance, recording 8.8% in SSSG and 27.6% increase in OP. But Indonesia indicated weak performance due to the time period difference in national holiday YoY. But Indonesia unit still recorded solid sales trends from recently renovated stores. Next is the Lotte Hi-Mart. Revenue was KRW 594 million, up by 0.8% YoY, indicating sales growth in both online and offline channels, despite the slow recovery in domestic electronic market. OP was KRW 11 million, increased by 277.4% thanks to strong sales trend in private label, lifestyle and kitchenware categories, as well as steady demand for our home care services. As for the Home Shopping, revenue was slightly decreased, recording KRW 231 billion. OP was KRW 12 million, down by 24.8% YoY.
Despite the effort on improving product mix, such as low margin intangible goods reduction, lower TV viewership has caused a decline in both top and bottom lines. Next is the Lotte Cultureworks. Our cinema division revenue was KRW 92 million, weakened by 19.5% YoY due to the absence of major box office hits, resulting decline in theater attendance and sales. In terms of OP, despite the SG&A reduction, a loss of KRW 60 million was recorded mainly due to weak sales trend in domestic box office sales. Next page is non-operating profit summary. Loss was KRW 65 million due to gains on foreign currency and derivative asset was turning red due to derivative trading valuation loss and FX loss on foreign borrowings. The equity method profit was decreased due to weak performance from Hanssem, Lotte Card and Lotte-KDB Open Innovation Fund, despite increased profit from FRL Korea.
Other non-OP in Q2 2025 includes dividend income of KRW 13 million and Q2 2024 profit includes impairment loss from Lotte Property Shenyang and disposal loss of Chengdu Department Store. I'll now finish today's presentation here. Thank you for attending today's presentation. We'll begin the Q&A session. For your reference, the Q&A sessions, Korean and 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. [Non-English content] The first question will be provided by [inaudible] from Hanwha Investment & Securities. Please go ahead with your question.
Thank you very much. My name is [inaudible] from Hanwha Securities. I have three questions. I would like to know the third quarter outlook, and can you tell me briefly by division? My second question is regarding the loss that has been stretched for the grocery division. Can you tell me the outlook for that? My third question is regarding Home Shopping, the commission. Can you also add some color to it?
I will start with the department store outlook. Looking at the second half of the year, including third quarter and fourth quarter, we expect the situation going to be similar to last year. The renovated department stores are doing very well, and also we are seeing increase in the foreign customer contribution. First half of the year, it was 20%, and we believe that this trend will continue. Overall, we are expecting about 1% growth. On grocery decision, there are two issues that I would like to point out for the third quarter. First of all, the negative condition is due to the government subsidy that is provided as a coupon, and it was given end of last month. But as you know, the large hypermarket and supermarkets were excluded. There are some short-term negative impact on our business.
However, when this impact wears off, after Chuseok, which is Korean Thanksgiving, we expect the domestic consumption to resume compared to even more than last year. After Chuseok holiday, we expect the condition to be more favorable for us. Second, when we look at our performance for second quarter, it was impacted heavily by the changes in the labor cost law, which has impacted our labor cost. This is one of, and short-term, it will have a temporary impact on our numbers. To address this, we have adjusted our headcount, and we adjusted our workload. We optimized basically our labor costs. We are seeing the effects of this end of after June. With these efforts, as the domestic condition turn around and as our optimization impact realizes, we are expecting that the third quarter and fourth quarter performance to improve.
On e-commerce, when we look at the overall outlook for e-commerce in Korea, the growth is stagnated compared to last year. Naver and Coupang, the major dominant players, are expected to continue their leading position. But still there are ongoing adjustment in the landscape, including 11Street going through restructuring. The expectation is that for overall e-commerce, the industry is expecting one-digit growth in the second half of the year. However, there are areas that are supported by the consumers and seeing 2 digit growth, which is vertical players.
Coming back to Lotte Shopping, we are strengthening our vertical aspect and we are seeing solid growth. We expect to achieve another 2 digit growth in the second half of the year.
[Non-English content] .
On Home Shopping, as you can see, the commission has been on a declining trend because we have been improving the commission system. We saw a decline in the first half of the year, and we will continue this effort in the second half of the year. Looking at the outlook for Home Shopping, we are continuously improving our portfolio, including the high-margin products and also working on optimizing our cost.
[Non-English content]
We like to add some more information about the department store. Adding on to what I've shared about the second half of the year outlook. As you can see, the foreign fashion category and the food category show solid growth. As you can see, the foreign fashion has recorded 3.7% growth and the food category recorded 6% growth. We believe this trend will continue in the second half of the year. The entire fashion category was -1.8% growth, but we will be adding new model and new stores such as Kinetic Ground in the second half of the year. We believe that this will improve our results in the second half of the year. The first half of the year, the growth was 0.7%, and we expect this revenue growth to grow to 1% stitch point.
We will continue our restructuring effort, labor cost optimization effort, and SG&A optimization effort in the second half of the year. We are expecting to close our operating profit at KRW 480 billion-ish.
[Non-English content] Next question please.
The following question will be presented by Jong -ryul Park from Heungkuk Securities. Please go ahead with your question.
[Non-English content]
[Non-English content]
I have three questions. Hyper market show struggling growth and you have explained it's due to the initial cost that incurred in the first half of the year due to the Zetta app. Do you think this trend will continue in the second half the year as well? Also you mentioned that the e-grocery business transfer to the e-commerce business has also impacted negatively. How much contribution did it impact on the operating loss? My second question, I think it is positive that the amount of operation loss has been narrowed. When do you expect the e-commerce business to turn to profit? What are your plans to achieve that goal? My third question is regarding the financial health. As you can see, the net borrowing is pretty high.
Compared to the money that you're earning, the interest expense is pretty high. What are your plans to address this problem as well?
[Non-English content]
[Non-English content]
I am answering from the grocery division. Regarding the first question on online Zetta app, we have collaborated with Ocado from U.K. Last May, we have launched our Zetta app, which is our new online commerce business. The CapEx is within our plan, and we believe that through optimization and the efficiency that we will achieve through these activities and also the robotics that we are adopting, we believe that the benefit will outweigh the cost. There was a growth in the initial cost. It was because we had to migrate the customers and the users from the existing Lotte Mart app and other apps to Zetta app, and that is why the cost has incurred. The migration has been pretty smooth.
In the second half the year, the cost that is incurred due to migration will not be as large as first half of the year. Moving on to the second part of your question, we have transferred the grocery online service from e-commerce to Mart last year, October 2024. Last year, that is why the P&L of e-commerce business did not reflect on our numbers. We believe the contribution for this year due to this transition is KRW 16 billion.
[Non-English content]
[Non-English content]
Answering the third question regarding the financial health. Our goal is to turn to profit by 2026. To continue the solid growth going forward, we will strengthen our vertical business. In the past, the sellers were selling products to the users, but we are transitioning this to a system where brands sell their products to the users. We are expecting that this will improve our competitiveness. Also we have launched a Lotte Gateway service, which cuts across our entire group. The Lotte Giants shop in particular is doing very well. Overall, our revenue have grown double fold, and we will continue strengthening this business as well. Third, we are advancing our advertisement service. In the first half of this year, it has recorded 40% growth, and we are continuously upgrading our advertisement system and the way we operate the business.
Although the sheer amount of the revenue is not large, however, we expect that there is room to grow. Lastly, we are working on new businesses targeting new groups of specific customers. Next year, in order to achieve our goal, we will continuously restructure our organization. We are hoping to achieve this goal by the end of next year.
[Non-English content]
Thank you very much. I am the CFO of Lotte Retail Headquarter. I would like to share information on the financial health. Since last year, we have been working on improving our financial health. End of last year, we have conducted asset revaluation. The result, we have reduced our debt to equity ratio to 129% and our debt to asset ratio to 37.9%, which is an improvement. We are continuously working on improving our financial health, and this year in particular, we are doing various activities to lower the volume of borrowing. We are investing within the EBITDA volume, and also in terms of Capex, we have reduced to 50% compared to last year. We will continuously review our assets and the appropriate ones that are identified, we will work on selling them. If any of the plans are finalized, we will disclose this information.
Also we are reviewing and identifying low-performing leased stores, and we will restructure these. Due to the various efforts that we have conducted early this year, we have reduced our interest expense by KRW 220 billion early this year. We will continue our efforts.
[Non-English content] Next question please.
[No-English content]
The following question will be presented by Young- Hoon Joo from NH Investment & Securities. Please go ahead with your question.
[Non-English content]
Thank you very much. I have two questions. The earnings performance for first half of this year was not positive. Do you plan to adjust the year-end guidance? My second question is regarding Cultureworks. I understand the MOU is ongoing. Are there any updates that you can share?
[Non-English content]
I am CFO of Lotte Retail Headquarter, I would like to answer the first part of your question. You have asked about whether we plan to adjust the year-end guidance. As you can see, most of our operating profit is contributed by the department store division, which is our main business. Their performance is being improved. The grocery showed unfavorable results in the second quarter. Due to various efforts that we have mentioned earlier, we expect the result to turn around in second half of the year. The overseas division under grocery division is actually pretty solid. We expect the second half to turn around due to those results. When we look at Lotte Shopping operating profit trends, normally the operating profit was contributed by the third quarter and fourth quarter.
As a result, we don't plan to adjust the year-end guidance at this moment.
[Non-English content]
I would like to clarify some of the figures that were shared by the representative of the department store. The department store division has shared their expected numbers for the second half of the year. It is not the official view of Lotte Shopping, and it was the personal review of the expectation. It is because we expect the numbers to be much larger from our view. Please bear that in mind.
[Non-English content]
Regarding the MOU between Cultureworks and Megabox, the discussion is continuously done between the groups. Since the MOU that happened in May, we are continuing various activities. The government authority is also looking into it, whether they can approve it or not. We are looking at how we can finance this. Currently, nothing is finalized, so we don't have any updates that we can share at this point of time.
[Non-English content] Next question please.
[Non-English content]
The following question will be presented by Hye -eun Kim from Morgan Stanley. Please go ahead with your question.
[Non-English content]
Okay. I have follow-up questions regarding the grocery division. You have mentioned that the e-commerce business transitioning to the grocery division has impacted the loss of KRW 15 billion. I want to understand the relationship with this, with the loss that is incurred every quarter due to Ocado collaboration. What would be the cost per quarter that is incurred by the Ocado part? Without these effects, I understand there were some initial costs or temporary costs that have incurred because of the new store opening. What would be the earnings outlook for offline grocery if you take these impact away?
[Non-English content]
On your first part of the question, the loss that was contributed by the transitioning of the business from e-commerce to grocery was not impacted by the Ocado cost. To help you understand this a bit more clearer, the e-grocery business was under e-commerce division until last October, and the operation or the governance has been transitioned to grocery division. During that transition, there was some related costs that had incurred. It is not because of Ocado related activities. Second part of your question was regarding second half of the year outlook, excluding the online business aspect. To repeat some of the reasons that I have mentioned earlier, there is some negative impact on our business due to the government subsidy coupons that we were not able to enjoy. This does have a temporary short-term impact, but this will wear off.
After this government coupon ends, we believe that the domestic consumption will be activated, and this will have a positive impact on our business. Also, as the tariff from the United States is being more materialized and the uncertainty is declining. As a result, we are seeing the improvement in the supply chain related activities. All in all, we expect that the second half, the year earnings will significantly improve compared to the first half of the year.
[Non-English content] Next question please.
[Non-English content]
The following question will be presented by Sang Jun Park from Kiwoom Securities. Please go ahead with your question.
[Non-English content]
I have two questions regarding the overseas operation. You have operations in terms of department stores and hypermarket, and they show solid growth in the first half the year. What is the outlook for the second half of the year? Are there any moving factors that we should be aware of? Moving on to the second part of the question, it is on groceries. With the E-grocery business transitioning to hypermarket division, it has incurred some losses. What is the expectation for year-end loss due to E-grocery business and when do you expect to see turnaround?
[Non-English content]
On overseas department business, the Vietnam Lotte Mall Westlake Hanoi has been leading the great solid growth performance, and we expect to see the solid performance until the end of this year as well. Ho Chi Minh and Jakarta also driven by the K-content movement. It is showing positive growth and we expect this trend to continue in the second half of the year as well. We do not have plans to open new stores in the short term, but we are looking into opening up second and third stores like Vietnam Lotte Mall Westlake Hanoi, which is doing very well. We believe that in the future going forward, the overseas operation will lead the performance of department store performance.
[Non-English content]
[Non-English content]
[Non-English content]
On the overseas grocery division, the overseas groceries have shown solid growth in the first half the year, and July and August numbers are pretty solid as well. Due to the K-food and K-culture wave in the countries that we are operating, like the department store division, we are seeing solid momentum. We are focusing on appealing ourselves as a grocery specialized store. This is showing a positive growth as well. We will work on diversifying our formats overseas, and we will renovate our stores to create an experiential store. In terms of the new potential locations, we are working on securing the locations that has high potential. When this is materialized, we will share this information in the near future.
On e-grocery questions, we have launched our Zetta app this year, and we are focusing on making sure that the customers understand our value proposition and to give great experience compared to our competitors. So in this year, 2025, we will focus on successfully launching our business, and creating the foundation for future success. Still at the same time, we are working on maintaining our profit and loss to stay at least as it is. As we have our goal to turn to profit, which is our important goal, we will work on that continuously on our schedule.
[Non-English content] Next question please.
[Non-English content]
Currently, there are no participants with questions. Please press star one star and one to give your question.
[Non-English content]
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 your time.