Good morning and good evening. First of all, thank you all for joining this conference call. Now we'll begin the conference of the Fiscal Year 2024 Second Quarter Earnings Results by Lotte Shopping. This conference will start with a presentation followed by a divisional Q&A session. Now we shall commence the presentation on the fiscal year 2024 second quarter earnings results by Lotte Shopping.
[Non-English content] Good afternoon everyone. This is Jungwo o Hong, IR Associate of Lotte Shopping. Welcome to Lotte Shopping's fiscal year 2024 second quarter earnings conference call. Today we have Mr. Ho-joo Jang, Executive Vice President and CFO of Lotte Retail Headquarter, and Mr. Won-jae Kim, CFO of Lotte Shopping. We also have other business representatives joining the call to answer any questions for the Q&A sessions later. Mr. Won-jae Kim will pursue today's presentation in Korean and I will provide explanation in English. Questions will be taken after the presentation.
[Non-English content] Page one is the highlight of the 2024 second quarter consolidated financial performance. Lotte Shopping second quarter revenue was KRW 3.4 trillion, indicating 5.4% YoY decline, mainly due to weak sales trend from Grocery business and Hi-Mart division. Lotte Shopping second quarter operating profit was KRW 56 billion, indicating 8.9% YoY increase thanks to profitability improvement in core subsidiaries, mainly in Home Shopping and Cultureworks. Second quarter net profit was minus KRW 80 billion, turning into loss making due to asset impairment loss of KRW 59 billion from Shenyang Glory Properties, China and KRW 11 billion loss from disposal of Chengdu Department Store. I would like to emphasize our business in Vietnam, which has sustained its high growth rate in second quarter, including department store, hypermarket and cinema units.
[Non-English content] Page two is the financial summary of 2024 second quarter consolidated earnings results. Lotte Shopping second quarter revenue was KRW 3.4 trillion, indicating 5.4% YoY decline, and the first half revenue was KRW 6.9 trillion, down by 3.4%. Second quarter operating profit was KRW 56 billion, up by 8.9% YoY, and our first half operating profit was KRW 171 billion, indicating 4.2% increase. Second quarter net profit was minus KRW 80 billion and the first half net profit was minus KRW 7 billion. Please note that we have attached the revenue and operating profit portion breakdown by each segment on the right side of page two.
[Non-English content] Page three is the domestic department store unit. 2024 second quarter domestic department stores revenue was KRW 808 billion, indicating 0.8% YoY decline. Despite the increase in same-store sales, the net revenue has declined, mainly due to bigger portion of low margin products, such as F&B and living categories, compared to the same period of last year. Second quarter domestic department stores operating profit was KRW 60 billion, 9.7% YoY decline, due to one-off expense recognition of KRW 4 billion regarding underperforming store closure and rise in fixed costs caused by inflation.
[Non-English content] Next is the Grocery business, which is the combined performance of domestic hypermarket and supermarket. 2024 second quarter Grocery business' revenue was KRW 1.3 trillion, down by 5.1%. Despite the moderate sales trend in supermarkets, our hypermarket same-store sales was decreased due to intensified online competition triggered by expanded presence of Chinese e-commerce players in Korea. Second quarter Grocery business' operating loss was KRW 13 billion. Despite the increase in gross profit margin, our operating loss has stretched due to weak top-line trend.
[Non-English content] Next is the E-commerce unit. 2024 second quarter E-commerce revenue was KRW 28 billion, indicating 23.3% YoY decline. Second quarter Lotte ON app traffic was increased by 15.7%, but the platform GMV was decreased by 9.8%. Second quarter E-commerce's operating loss was KRW 20 billion, showing signs of improvement driven by product profit margin enhancement along with the IT cost optimization.
[Non-English content] Next is the international business. 2024 second quarter overseas department stores revenue was KRW 28 billion, indicating 83.8% YoY increase, and the operating loss was reduced despite the rise in SG&A regarding new store opening of Lotte Mall West Lake Hanoi, Vietnam in second half of last year. Lotte Mall West Lake Hanoi store is continuing to improve its operating loss every quarter since its opening. In the case of overseas hypermarket, the revenue was KRW 352 billion, indicating 7.3% YoY decline, and the operating profit was KRW 10 billion, indicating 15.9% YoY decrease. In particular, Vietnam hypermarket has sustained its solid growth trend, but the difference in Indonesian national holiday, compared to the same period last year has caused a weak sales trend as well as operating profit decline. Nevertheless, when looking at the overseas hypermarket's first half earnings, its revenue and operating profit are still on the right track, both indicating solid growth rate.
[Non-English content] Next is Hi-Mart, our electronics specialty subsidiary. 2024 second quarter Hi-Mart's revenue was KRW 589 billion, down by 13.3% YoY, due to sluggish home appliance market situation. The operating profit was KRW 3 billion, declined by 64.4% YoY, due to weak sales trend. As for the home shopping operation, 2024 second quarter home shopping's transaction volume was decreased, but the revenue was increased by 0.7%, induced by high margin product categories expansion. Home shopping's second quarter operating profit was KRW 16 billion, increased by 711.2% YoY, through efficiency improvement effort.
Next is Cultureworks, our cinema division. 2024 second quarter Cultureworks revenue was weakened by 10%, and in detail, Vietnam business's revenue was increased by 31.7%, but domestic business's revenue was declined by 14.5% due to weak box office sales in Korea. Second quarter Cultureworks operating profit was KRW 6 billion, indicating 188% increase YoY.
[Non-English content] Non-operating financial summary is provided on page eight. 2024 second quarter non-operating loss was KRW 129 billion. Last year's second quarter gain and loss on derivative asset includes the gain of KRW 22 billion from home shopping put option execution. 2024 second quarter equity method profit contains KRW 30 billion from FRL Korea, which runs the Uniqlo brand. The total equity method profit has decreased due to reverse base effect of gain from sale of Lotte Card's subsidiary, Loca Mobility , in the same period last year. 2024 second quarter non-operating profit includes asset impairment loss of KRW 59 billion from Shenyang Glory Properties, China, and KRW 11 billion loss on disposal of Chengdu Department Store in China. I'll now finish today's presentation. Thank you for attending today's conference call. We'll begin the Q&A session.
[Non-English content] 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 star and three. For translation, please press star four. Star and four on your phone. [Non-English content] The first question will be provided by [inaudible] from Citi Securities. Please go ahead with your question.
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I have two questions. First question is regarding the guidance that you have shared earlier. The operating profit guidance was KRW 570 billion for this year. But when we look at the accumulated result for the first half of this year, is it still achievable? Is there any risk in not being able to achieve this? And can you tell us what is the discrepancy? The second question is regarding the hypermarket operating profit. We've been seeing the improvement in the profitability over the past few quarters, after the integration of hypermarket and supermarket. However, the second quarter trend seems to be reversed. Can you help us understand whether this trend will continue in the second half of this year? You did mention about the Chinese players, and do you have any strategies to tackle this?
[Non-English content] For the first question, yes, we have shared our guidance of KRW 570 billion for operating profit in this year February. Now we are at the end of the first half of this year, but the trend could change toward the end of this year regarding the different mixes in the department store. At the moment, we assess that this guidance is something that we can achieve.
[Non-English content] Regarding your second question, yes, since the integration of hypermarket and supermarket that began last year, our gross profit margin has been improving, and that is actually still the case for the second quarter as well. The second quarter gross profit margin was 1% as well. The direct result of why the overall result is not good for the second quarter is because of the non-grocery categories like fashion that have been struggling. We believe that this trend is going to stand for a long time. As you saw our transition or conversion of Eunpyeong store outlet into a grocery-focused store outlet, we will apply such concept in other outlets as well. And considering the economic climate of this time of the year, we will expand our PB products and focus on the expansion of PB products as well.
[Non-English content] The following question will be provided by Ju Young-hoon from NH Investment & Securities. Please go ahead with your question.
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Thank you very much for giving me the opportunity to ask a question. The first question is regarding the non-operating profit. You saw the loss in this category due to the Chinese business. Is there any other losses that you expect in the second half of the year? I'm asking this because so far, in the second quarter, you have seen a net loss, but last year you have turned into a profit. So I would like to understand how the rest of the year is going to be like. The second question is that you have recorded 8% operating profit, which is a very impressive result. Is this sustainable in the long run, and do you have any other strategies regarding that?
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Regarding the first question, we had three businesses in China, but the Shenyang GPT and the Chengdu Department Store business is now fully closed. There will be no extra additional losses that will be incurred from these two businesses. We are currently working on selling the Chengdu HK business, but it's still ongoing, so we cannot give you the concrete number on that. The issue regarding the Chinese business was always the impairment of assets, and still we are working on the assessment. Currently, we cannot give you the concrete figures just yet. The first-half net loss was KRW 6.8 billion, and we will do our best to turn that around.
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Regarding the hypermarket in Vietnam, the locals love K-food, and since last year, we've been working on accelerating the transitioning focus to groceries. When we look at the product profiles, we have value products and high-margin products. I can confidently say that we are on our way to sustainably generate sustainable operating profit, and we will be able to continue and sustain this operating margin in the near future.
Also I would like to mention that in terms of managing SG&A, we are adopting the IT technologies of Korea, which is advanced preemptively in Vietnamese operation. We are optimizing the HR management and various management and dealing with SG&A in that sense. There is still room to improve in that category as well. Regarding expanding the business in Vietnam, we are looking into new lots. Currently, we have businesses in Hanoi and Ho Chi Minh, but we are also looking into first-tier and second-tier cities as well as possible potential locations.
[Non-English content] Currently, there are no participants with questions. Please press star three to give your question. [Non-English content] The following question will be provided by Lee Jinyeop from Hanwha Investment and Securities. Please go ahead with your question.
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I have two questions. First question is regarding non-operating profit item. When you look into that section, the lease gain and loss seems to be varying a lot. Can you shed some light into it? Second question is regarding e-commerce. The traffic has increased by 16%, but unfortunately, the GMV has declined. Can you help us understand why that's the case?
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The biggest item in the gain and loss list was KRW 41.6 billion that incurred last year, and it's associated with the differences in the accounting principles or accounting recognition of property tax. This is something that I need to share in detail, so please contact us through the IR team, and we will get back to you.
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Regarding the e-commerce, when you look at the overall traffic, it was -13%. When you look at the web traffic, it is positive. We'll focus on the traffic that is more efficient, and we will focus on converting the loyal customers. Overall, we'll be able to improve the traffic as well. Regarding the GMV that was lower, it's because of the margin profiles. We had low margin and even the reverse margin products, something like home appliances, and the reason behind why GMV was low as a result.
[Non-English content] The following question will be provided by [inaudible] from Shinhan Investment & Securities. Please go ahead with your question.
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There was some crisis regarding TMON and WeMakePrice, and I wonder if it has impacted your business as well. [audio distortion] Regarding Lotte ON and Ocado expenses that are related to it, would the expense remain at KRW 15 billion, which is the current level? Will it continue?
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Regarding the department store, the loss for the second quarter was KRW 5.6 billion. That was the amount that was recognized. With the collaboration with the affiliated channels that we are working with, we will be able to improve this loss.
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Regarding Ocado, KRW 334.2 billion was invested and the composition was building construction and also for the lot. For the second half of the year, we are expecting about KRW 136 billion that will occur regarding this Ocado business. When we look at the breakup, KRW 14.2 billion is for the lot and KRW 80.2 billion is for the construction. There will be some other additional expenses that will be added to this as well, so in total, we are looking at KRW 136 billion.
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Please reach out to us, and we will be able to give you the additional breakdown of the correct concrete figure.
[Non-English content] The following question will be provided by Park Sangj un from Kiwoom Securities. Please go ahead with your question.
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The first question is regarding the consumption climate. When we look at the overall climate of the second quarter, when we look at other retail companies, they were also struggling, I think, because of the shrinkage in the consumption. I want to understand how this would look like in July and onward for department store, mart, and supermarket. Regarding the second question, the yen price has been varying a lot, and some are saying that this might have some positive impact or have upside for the department store. Is there any room to make up the loss because of the low end?
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For the second half of this year, I would like to share some outlook that we assess. The first half of this year, the consumption was suppressed and as a result, the revenue struggled. However, when we look at the second half this year, we have a lot of new products that are in line that will be launching. We also have some cosmetics and also fashion fairs, and we have events that focus on fashion. We believe that this, and also the low performance of last year, which works as a base effect positively for the second half of this year, means there is a room to turn around in the second half of this year.
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For July, the business climate was not favorable, and as a result, the revenue recorded -5% year- over- year. However, we expected the business climate to be unfavorable, so as a result, we have met the internal goal that we have set out.
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Regarding the hypermarket, the second quarter revenue struggled due to the suppressed consumption. In July, we had more rain and heavy rainfalls compared to previous years, so that weak revenue trend has been sustained. However, in August, we had many warm days, so the seasonal products, especially the grocery products, were doing very well. This trend has been recovering compared to the second quarter. As for supermarket, the second quarter was positive, and this trend has been sustained throughout July and August. We expect this revenue trend will sustain for supermarkets.
[Non-English content] Currently, there are no participants with questions. Please press star three, star and three to give your question.
[Non-English content] There was a question about the low yen earlier, and we will prepare the answer and share that with you later on.
[Non-English content] The following question will be provided by [inaudible] from Snowball. Please go ahead with your question.
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My question is regarding the overseas department store. They've been growing at a positive rate. However, when we look at how fast the loss is shrinking, it seems a bit slow. Can you help us understand how it's going to be like towards the end of this year? Can you share with us the outlook on this?
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On overseas department, we are seeing the operating loss due to the opening of a new location, which is in West Lake, Hanoi, and that's causing the loss. If you look at the revenue numbers, it's on a growing trend. Also, if you look at the operating loss, the size has been improved. We are looking at October this year. We expect the total revenue to be around KRW 300 billion, and we expect the operating loss to turn to profit by October. Of course, after October, we may not be able to sustain operating profit every month. However, we expect to maintain positive improved performance.
[Non-English content] Currently, there are no participants with questions. Please press star three, star and three to give your question.
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Since there are no more questions, we'll now finish today's earnings announcement. Thank you for joining us on today's conference call, and further questions will be answered by investor relations. Thank you.