Good afternoon, everyone. This is Hyun Kim, Head of IR. Welcome to the Lotte Shopping's 2024 Q4 earnings conference call. Today, we have Mr. Won-Jae Kim, CFO of Lotte Retail Headquarter. We also have other business representatives joining the call. Mr. Won-Jae Kim will proceed today's presentation in Korean, and I will provide explanation in English. Questions will be taken after the presentation.
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Page one is the overall review of Q4 2024 consolidated financial performance. Revenue and operating profit were below the guidance provided in last year, but Lotte Shopping has been making dedicated efforts to improve profitability, and the effects of renewed stores are becoming visible. Lotte Shopping's Q4 gross sales decreased from KRW 20.4 trillion to KRW 19.8 trillion, down by KRW 630.7 billion, YoY. However, KRW 475.9 billion, 75% of those decreased revenue, was due to internal efficiency improvements and store restructuring plan.
Moreover, GP margin recorded 48.2%, indicating 1.7%-point YoY increase. In addition, recently renovated stores such as hypermarket Grand Grocery in Eunpyeong and Time Villas Suwon s hopping mall have shown solid performance as they recorded double-digit sales growth rate. Next, I want to briefly mention about the ordinary wages effect. In December 2024, the Supreme Court of Korea changed its ruling to expand the scope of ordinary wages, and the increase in personnel expenses, such as retirement benefits to be paid in the future, was temporarily reflected in Q4. In response to the Supreme Court's decision, we have reflected the expected future increase in labor cost of KRW 53.2 billion in Q4 of 2024.
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Next, I would like to share the result of the land revaluation announced in October last year through Lotte Shopping value- up plan. At the end of 2024, the land value increased by KRW 9.5 trillion, from KRW 8.3 trillion before evaluation to KRW 17.7 trillion, and the debt ratio decreased by 61.8% points to 128.6% compared to Q3 of 2024. Last, but not least, we target to achieve KRW 14 trillion of revenue and KRW 600 billion of operating profit as our 2025 earnings guidance. Efforts to improve the growth and profitability of new business, including overseas, will continue, but the plan was established taking into account recent domestic and global risks.
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Page two is the highlight of Q4 of 2024 consolidated financial performance. Lotte Shopping's Q4 revenue was KRW 3.5 trillion, indicating 4.3% YoY decline. Lotte Shopping's overseas business, which we have been focusing on, continued to grow. However, sales declined due to the prolonged weakness in domestic demand and unfavorable consumer environment caused by political uncertainty. Operating profit was KRW 147 billion, indicating 27.3% YoY decrease, mainly due to one-off expenses of KRW 64.1 billion regarding the ordinary wages effect and bad debt expenses in Cultureworks. Excluding those one-off expenses, operating profit would be KRW 211.3 billion, indicating 4.4% YoY decrease. Net loss expanded due to impairment losses resulting from land revaluation. 2024 annual revenue was KRW 14.0 trillion and OP was KRW 473 billion. However, if we exclude one-off expenses, OP would be KRW 537 billion, indicating 5.7% increase YoY.
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Please note that we have attached the revenue and OP portion breakdown by each segment on the right side of page three.
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Page four is the domestic department store unit. Domestic department store's Q4 revenue was KRW 880 billion, indicating 3.5% YoY decline due to decrease in domestic fashion categories affected by high temperature compared to the same period of last year, despite the large-sized stores growth sales increase. OP was KRW 181 billion, declined by 20.6% YoY, impacted by a higher portion of low-margin categories such as luxury fashion, F&B, and home appliances, as well as increased labor costs. Excluding one-off expenses regarding impact of ordinary wages, OP would be KRW 202 billion, indicating an 11.5% decline.
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Next is the domestic grocery business. Domestic grocery business's Q4 revenue was KRW 1.3 trillion, down by 3.3% YoY. However, recently renovated stores such as Grand Grocery Eunpyeong have shown solid performance as sales growth was 9.3%. Operating loss was KRW 25.3 billion due to the impact of ordinary wages and the transfer of the online grocery businesses from e-commerce to hypermarket as of October 2024. Excluding the impact of ordinary wages, the operating loss would be KRW 3.1 billion.
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Next is the e-commerce unit. E-commerce recorded KRW 35.3 billion of revenue, indicating 7.0% YoY decrease. Despite the vertical specialized platforms GMV growth, the net revenue was declined mainly due to the business portfolio transformation for profitability optimization. Operating loss was KRW 7 billion. Loss has been reduced, driven by product profit margin enhancement, cost optimization, and the impact of transfer of the online grocery business from e-commerce to hypermarket.
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Next is the overseas department store. Overseas department store's revenue was KRW 32.5 billion, indicating 13.4% YoY increase, and its operating loss recorded KRW 0.8 billion, which is almost close to BEP level, e specially, both the Vietnam and Indonesia business have been increased in sales and OP, and Lotte Mall West Lake Hanoi has continued to improve its performance, turning to profit in October and November.
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As for the overseas hypermarket, the revenue was KRW 370 billion, indicating 5.9% increase, and its OP was KRW 11 billion, indicating 61.9% increase. Same-store sales growth rate was 4.2% in Vietnam and 0.8% in Indonesia with grocery-focused renewed stores. OP in both Vietnam and Indonesia also increased, showing a sustained improvement in overseas business performance.
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Next is the Hi-Mart, our electronic specialty subsidiary. Revenue was KRW 556 billion, down by 3.8% YoY due to sluggish domestic home appliance market situation. Operating loss was KRW 16 billion due to rising labor costs regardless of the GP margin improvement. Excluding the ordinary wage impact, operating loss was KRW 6 billion, improved compared to the same period of last year.
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As for the home shopping, revenue was KRW 257 billion, declined by 1.2% YoY due to reducing the sales of direct sourcing product sales that are sluggish. However, OP was KRW 14 billion, up by 38.2% YoY through products profitability enhancement in lower margin categories and cost optimization efforts. Excluding the impact of ordinary wages, annual OP is showing a turnaround at KRW 50.8 billion.
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Next is the Cultureworks, our cinema division. Revenue was KRW 92 billion, weakened by 45.7% YoY due to slow recovery in the domestic box office sales and absence of major content works despite the sales increase in Vietnam. In terms of OP, despite the SG&A reduction, a loss of KRW 16 billion was recorded due to bad debt expenses related to litigation. Excluding these one-off expenses, annual OP turned to black at KRW 11.2 billion.
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Non-operating profit summary is provided on next page. Non-operating loss was KRW 1.2 trillion. Gains on foreign currency and derivative asset was KRW 1.8 billion, indicating KRW 8.3 billion increase regarding foreign currency deposit revaluation loss recognition of KRW 1.3 billion in Q4 of 2024, and a base effect from the previous year's losses of foreign currency translation loss of KRW 3.1 billion in Cultureworks, valuation loss regarding TRS KRW 2.0 billion, foreign exchange loss regarding Ocado CapEx KRW 0.6 billion. The equity method increased due to improved performance of FRL Korea and Lotte Card. However, as mentioned earlier, including asset impairment due to land revaluation, the annual net loss recorded KRW 984.3 billion.
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Lotte Shopping dividend for 2024 is maintaining at the previous year's level despite the sluggish domestic market environment. The dividend per share was set at KRW 3,800, the same as the previous year, which is 7.1% based on the dividend yield. Please refer to the table on the right for the dividend status for the past five years.
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This page is the result of land revaluation. The land book value, which was KRW 8.3 trillion before the revaluation at the end of 2024, increased to KRW 17.7 trillion after the revaluation increased by KRW 9.5 trillion. In terms of the debt ratio, it decreased by 61.8% point from 190.4% in Q3 of 2024 to 128.6%, improving the financial structure. However, asset impairment of KRW 745 billion occurred, mainly in stores with low fair value compared to the increased book value. I will now finish today's presentation here. Thank you for attending today's presentation. We will begin the Q&A session.
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Now, Q&A session will begin. Please press star three, that is star and three, if you have any questions. Questions will be taken according to the order you have pressed the number star three. For cancellation, please press star four, that is star and four, on your phone.
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Once again, if you have a question, please press star three, star and three on your phone.
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The first question will be provided by Lina Oh from LS Securities. Please go ahead, sir.
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Good afternoon. My name is Lina Oh from LS Securities and t hank you for the presentation today. I know that we just started February, but it will be great if we can have an update on the operating trends of this year from January to February to up to date. It will be also very helpful if we can get an idea of the segments that you are concentrating most, and also the business plan that you have set out for 2025. And it will be helpful if the information can be provided by each business unit. Thank you.
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Yes. I will first go over the Department Store. In January, Department Store's revenue growth was around 10%. The large stores showed around 12% and the smaller and [inaudible] also generated around 27% growth. The luxury brands like Chanel and Cartier raised their prices, so t he luxury brand category has also shown around 16% growth. Kids and outdoor segments have also shown around 8% growth. So, the various categories and stores are showing balanced growth in 2025. For the major d epartment stores, like the flagship store, the Jamsil, Incheon, Nowon, Jeonju, our main core stores are scheduled for renovation this year, and so w e believe that that will help us generate a stronger momentum for growth. Last year, the Christmas market was very popular among our customers, so w e are planning to hold these types of events more frequently throughout the year to ensure that we can generate stronger growth than the previous year.
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Next, I will go over the supermarket and hypermarket segments. So, January this year, I think saw subdued overseas travel in Korea due to the various events that have occurred in the domestic society. As a result of that, we saw a significant increase of holiday gift set sales. Given that there is continued high inflation, I think the customers are more willing to dine in at home rather than eat out, and so t hat has also supported the sales of the grocery segment. Overall, the supermarket and hypermarket both have shown double-digit growth. For this year, as we all know, the economy is expected to be sluggish throughout the entire year. Despite the challenging operating environment, we believe that our private brand of products and the fresh foods and F&B category can really help us overcome this challenging environment.
As for the areas that we are focusing in for 2025, for the hypermarkets, we will be continuing the support of our overseas business, a nd in the domestic market, we are concentrating on the growth of the existing offline stores by renovating them into our Grand Grocery brand. Also, we have launched the online grocery business October last year, and so, o ne of our other main goals will be to ensure the successful launch of the online grocery business and to make sure that it has online presence in the market.
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Now, I will go over the e-commerce business. So, before we dive into 2025, I would like to first look back on 2024. So, 2024 was when we were really focusing on restructuring our overall business portfolio to focus on the high-margin vertical businesses, and we have been also trying to reduce and overcome some of the businesses that were less related or not related to the e-commerce business. So, we have been going through all the restructuring, and we have also been making efforts to downsize fixed costs. So, these are, first, to strengthen our fundamentals. We're concentrated in Q4 2024, and we believe that we will be bearing fruit in 2025.
However, data is not yet provided for the January 2025 in the presentation. If there are longer holidays, then the revenue tends to go down online. However, although we are seeing double digit growth and the vertical, especially the fashion and beauty categories, are driving this growth. And we believe that our [inaudible] are currently 1.5x than the enterprise-wide growth rate. In 2025, we will be continuing to accelerate the restructuring efforts, especially, we will have a focus on the fashion and beauty vertical segments, and this means that we are also implementing organizational changes to support the growth for fashion and beauty categories. Of course, we are also making effort to enhance profitability and so, advertisements can be one way to achieve this, and we believe that advertisements will also grow by around 30% YoY. Thank you.
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Currently, there are no participants with questions. Please press star three , star and three to give your question.
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The following question will be presented by Lee, Jin-Hyeob from Hanwha Investment & Securities. Please go ahead, sir.
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Good afternoon. My name is Lee, Jin-Hyeob from Hanwha Investment & Securities , and I have largely two questions. First, it is regarding your overseas business. I remember that on the CEO IR Day, there was heavy emphasis on driving the overseas business of the company. So, I would like to have a better understanding of your overseas business expansion strategy and the outlook for your overseas business in 2025. My second question is regarding the depreciation expense. I know there has been a lot of the asset appraisal reevaluation, and I believe that that may lead to a reduction of depreciation expense. So, I would like to know by how much the depreciation expense can go down. Thank you.
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I am Kim, Won-jae, CFO of the company, and thank you for your questions. You mentioned our overseas business and what was mentioned at the CEO IR Day. To that end, I would like to talk about some progress we have been making. The SPC in Singapore is now converting to IHQ, and we are currently in the process of training the expats that will be dispatched to Singapore to that end. So, the employee training is going on. We believe that by end of Q1 or Q2, we will be able to start the normal operations of IHQ. We are also in negotiations with the Singapore Economic Development Board as well, so that hopefully, we can receive some kind of benefits when we start the actual operations of IHQ.
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As for our overseas business, I will be mainly talking about the hypermarkets and supermarket business. In 2025, we believe that the growth in Vietnam and Indonesia will be stronger than what we have seen in 2024. First, if you look at Vietnam, we were mainly focused on large hypermarkets and mainly based in Hanoi. In 2025, we plan to diversify the size of our branches and also expand not only in Hanoi and also in Ho Chi Minh as well. We will be launching a more diverse array of sizes of our stores as we enlarge our branch network in Vietnam. As for Indonesia, our K-food segment was very popular and successful last year, and we were able to drive and innovate the new types of concepts for these types of stores in Indonesia. We will be continuing those efforts. We also plan to launch hybrid format of retail stores towards the end of the year so that we can continuously be a leader in this area.
Overall, the strategy will be to add new stores to enlarge our branch network, a t the same time, changing and innovating the store formats to ensure that we can cater to diverse needs of customers overseas. Thank you.
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As to your second question regarding the depreciation expense, so t he total amount of impairments that we recorded after the asset reevaluation process was KRW 745 billion . It is across diverse assets including buildings, land, office equipment, goodwill, and so on, so i t is difficult to give you the exact number of depreciation expense related to the impairment losses that we have booked. However, earlier today, we gave you a guidance for 2025. That was revenue KRW 14 trillion and operating profit KRW 600 billion . In this outlook and guidance, we have already incorporated the changes in the depreciation expense, and we believe that this guidance is something that we can very much achieve in 2025.
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Currently, there are no participants with questions. Please press star three, star and three 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.
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The following question will be presented by Lee, Jin-Hyeob from Hanwha Investment & Securities. Please go ahead, sir.
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Thank you for the opportunity to ask questions today. I believe that the e-grocery business has been transferred to the market, or the supermarket and hypermarket segments, which resulted in about KRW 7 billion impact. I would just like to check if that KRW 7 billion impact will continue on a quarterly basis down the road.
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Yes. So, for last year, from October to December, as the e-grocery business was transferred to the hypermarket and supermarket business unit, there was about KRW 7 billion impact. For this year, we are, of course, continuously working to enhance the cost efficiency and also making effort to boost revenue. We believe that the number will improve this year. However, we've just started this business, and so it's difficult to project a number for the full year. Please, I ask for your understanding on that, but we believe that the overall number will improve for 2025.
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The following question will be presented by Baek, Jaes eung from Samsung Securities. Please go ahead, sir.
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Good afternoon. My name is Baek, Jaes eung from Samsung Securities, and I have a couple of questions. First of all, if you look at the 2025 guidance, it seems that revenue growth is largely flat, while there is visible growth in the operating profit. Even excluding the one-offs, it seems that operating profit is expected to grow by around KRW 60 billion- KRW 70 billion this year. So, I would like to know where this increase of operating profit is coming from. Is it from specific business units, or is it from other company-wide efforts? It would be great if we can have a better understanding on that. Then, second question was regarding to the asset revaluation. So, I think the benefit of revaluation, and having a more recent fair value is largely two.
One would be based on the new fair value, you can accelerate your branch network restructuring efforts. And second, with a lower debt ratio, you may benefit from higher credit ratings and lower interest expense. Can you talk a little bit about both?
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Regarding your first question, the guidance for operating profit for 2025 that we have presented is KRW 600 billion. If you look at 2024, there were some one-off expenses regarding the ordinary wage effect and the bad debt allowance from Cultureworks. Incorporating all of that, the operating profit for 2024 was around KRW 537 billion, so a guidance of KRW 600 billion for 2025 is a KRW 60 billion- KRW 70 billion increase from the previous year. We are unable to provide the business unit breakdown of the KRW 60 billion- KRW 70 billion increase in operating profit of 2025 due to disclosure regulations and so on.
But one way to achieve this is the reduction in depreciation expense coming from the impairment loss we booked around KRW 750 billion from the assets revaluation that we have conducted. I would like to highlight that KRW 600 billion guidance for operating profit for 2025 is quite a conservative number, and on a more personal note, I believe that we can maybe even achieve something higher than that. As for your second question, the branch network restructuring aspect of the second question. We didn't conduct the asset revaluation to accelerate the branch network restructuring process. We have been working to, so, the asset revaluation was to ensure that our book value was closer to fair value of the assets that we hold. We continuously are making effort to restructure the overall portfolio, enhance the efficiency of our branch network as well. To that end, there can be various methods.
We can renovate the existing stores. We may decide to dispose or sell some of the existing stores. And we are monitoring the performance of each store very closely to ensure that we can boost efficiency of our branch network. As for the interest expense, after the asset revaluation, our liability- to- equity ratio went down, dropped to around 128%, and our reliance on borrowings have gone down significantly as well. So, with higher cash flow and stronger profitability, our financial status will improve visibly down the road, and we believe that these factors combined can help reduce our interest expense in the future.
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Currently, there are no participants with questions. Please press star three, star and three to give your question.
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Currently, there are no participants with questions. We wait for a second until there is another question.
[Non-English content] Since there are no more questions, we will now finish today's earnings announcement. Further questions will be answered by our IR team. Thank you for.