Good morning and good evening. First of all, thank you all for joining this conference call. Now we will begin the conference of the fiscal year 2024 first quarter earnings result by Lotte Shopping. This conference will start with the presentation, followed by a divisional Q&A session. If you have a question, please press star three. That is star and three on your phone during the Q&A. Now we shall commence the presentation on the fiscal year 2024 first quarter earnings result by Lotte Shopping.
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Good afternoon, ladies and gentlemen. This is Ji Hwan Seol, Head of Investor Relations of Lotte Shopping. Thank you for joining us in Lotte Shopping's fiscal year 2024 first quarter earnings conference call. Today, we have Ho Joo Chang , Executive Vice President and CFO of Lotte Retail Headquarter, and Won-jae Kim, CFO of Lotte Shopping. Also the relevant department heads of planning and strategy for major business units are present in this conference call. Mr. Won-jae Kim will proceed today's presentation in Korean first, and I'll also provide explanation in English. Questions will be taken after the presentation. I'll now begin with the highlights on page three of the presentation.
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The first page of the presentation contains the highlights of the first quarter earnings. In the first quarter of 2024, Lotte Shopping's consolidated operating profit was KRW 115 billion , indicating 2.1% year-over-year increase, despite the one-off expense recognition of KRW 23.7 billion , including the employee early retirement compensation fee for the domestic department store divisions and et c. We also like to emphasize our strong performance from the grocery business units. First quarter of 2024, domestic grocery business operating profit was KRW 37 billion , indicating KRW 10 billion increase year-over-year.
For your reference, domestic grocery business consists of both domestic hypermarket and supermarket division. Our overseas business have shown continuous and solid revenue growth, with department store indicating 85.3% year-over-year growth and overseas hypermarket indicating 13.1% year-over-year growth. In addition, our Vietnam hypermarket operating profit margin have reached 9.5%, presenting a great operating efficiency in Vietnam operations.
Our subsidiary companies also have shown profitability improvement for the first quarter of 2024. The home shopping, Cultureworks, and Hi-Mart all have shown operating profit improvement through the restructuring effort.
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Page two is the financial summary of the first quarter earnings results. Lotte Shopping's first quarter 2024 consolidated revenue was KRW 3.5 trillion , indicating 1.4% YoY decline. Despite the increased revenue from department store, grocery, e-commerce, and Cultureworks division, the consolidated revenue decreased due to weak sales trend from Hi-Mart, which accounts for 15% of the consolidated revenue amount.
Lotte Shopping's 2024 first quarter consolidated operating profit was KRW 115 billion indicating 2.1% YoY increase. Operating profit was increased in all business units except department store with one-off expense and the e-commerce unit. First quarter consolidated net profit was KRW 73 billion , indicating 26.1% increase year-over-year. Please note that we have attached the revenue and the operating profit portion breakdown by each business segment on the right side of the page two
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Page three is the domestic department store unit information. In the first quarter of this year, domestic department stores revenue accounted for 22% of the consolidated revenue and 80% of the consolidated operating profit. The first quarter domestic department stores revenue was KRW 786 billion, indicating a 0.3% year-over-year decline. Despite the moderate SSSG trend, the net revenue has decreased mainly due to increased portion of a lower margin product, including F&B, living, and luxury categories. First quarter domestic department stores operating profit was KRW 92 billion, indicating 28.4% YoY decline due to one-off expense recognition of KRW 24 billion regarding employee early retirement compensation, fee recognitions, and et c.
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Next page four is the grocery business unit information, which is the combined performance of domestic hypermarket and supermarket units. In the first quarter of this year, grocery business revenue accounted for 39% of the Lotte Shopping's consolidated revenue and 33% of the consolidated operating profit. Our first quarter grocery business revenue was KRW 1.4 trillion, which was 0.8% YoY decline. Despite the increased SSSG in both hypermarket and supermarket, the net revenue has declined mainly due to store restructuring progress and accounting standard change regarding gas station operation from direct management to lease-based management. First quarter grocery business operating profit was KRW 37 billion, indicating 37.9% YoY increase, mainly driven by the gross profit margin improvement and the SGA optimization effort.
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Next is the e-commerce unit. In the first quarter of this year, e-commerce unit's revenue accounted for 1% of the Lotte Shopping's consolidated revenue and minus 19% impact on the consolidated operating profit portion. Our first quarter e-commerce revenue was KRW 30 billion, indicating 1.7% year-over-year increase. First quarter, Lotte ON's vertical platform GMV was grown by 1.8% YoY, and its customer traffic was also increased by 11.8% year-over-year. First quarter e-commerce operating loss was KRW 22 billion, stretched by KRW 2.4 billion compared to the same period of last year.
For your reference, Ocado business-related expenses will be reflected in the e-commerce unit starting from this year, and the first year recognition impact was KRW 1 billion. The e-commerce unit have launched the next day delivery service on April of this year to enhance its competitiveness in the online market. We're engaging to increase the frequency of purchases by offering cross-benefits to customers by utilizing Lotte affiliate companies.
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Page six contains the information about our overseas business, which is combined performance of overseas department store and overseas hypermarket units. In the first quarter of this year, overseas business revenue accounted for 13% of the Lotte Shopping's consolidated revenue and 14% of the consolidated operating profit portion. Our first quarter overseas department stores revenue was KRW 29 billion, indicating 85.3% year-over-year increase, and its operating loss was KRW 2 billion, mainly due to increased SGA associated with the new store opening of Lotte Mall, Westlake, Hanoi, Vietnam in the second half of last year.
As for the overseas hypermarket division, the revenue was KRW 428 billion, indicating 13.1% increase year-over-year. Its operating profit was KRW 18 billion, indicating 34.4% year-over-year increase. Vietnam hypermarket recorded KRW 10 billion of operating profit, which was 28.5% YoY increase, and the Indonesian hypermarket recorded KRW 8 billion, indicating 43.2% year-over-year increase. Vietnam hypermarket's operating profit margin has reached 9.5% in the first quarter of 2024. Page seven has the summaries containing our major subsidiaries. First subsidiary, the Hi-Mart, our electronic specialty subsidiary.
In the first quarter of this year, Hi-Mart's revenue accounted for 15% of Lotte Shopping's consolidated revenue, and it had -14% effect on the consolidated operating profit side. Our first quarter Hi-Mart's revenue was KRW 525 billion , indicating 16.1% YoY decline due to sluggish home appliance market situation. Its operating loss has improved through efficiency improvement effort as well as the ongoing restructuring process.
As for the TV home shopping operations, in the first quarter of this year, Home Shopping's revenue accounted for 6% of the Lotte Shopping's consolidated revenue and 9% of the consolidated operating profit. Our first quarter TV home shopping's revenue and the transaction volume were both declined by 1.6% and 5.4% respectively due to product portfolio adjustment in the e-commerce channel, but its operating profit was increased by 156.1% year over year through restructuring effort.
Next is the Cultureworks, our cinema division, which in the first quarter of this year, Cultureworks revenue accounted for 3% of the consolidated revenue and 1% of the consolidated operating profit. First quarter of this year, Cultureworks revenue was increased by 2.8% YoY. Domestic business revenue has maintained in terms of the year over year at flat level, but its overseas business revenue was increased by 21.3%. First quarter Cultureworks operating loss has turned into profit generation, mainly driven by the SGA optimization efforts.
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Page eight contains the non-operating financial summary. First quarter of 2024, non-operating loss was KRW 32 billion . Last year first quarter non-operating profit included gains and losses on foreign currency financial assets amount, majorly came from the Home Shopping in West Lake, Hanoi, Vietnam operations. First quarter of this year, non-operating profit included gains on disposal of asset held for sale, amount of KRW 16 billion , and the equity method gain of KRW 9 billion came from the FRL Korea, which runs the Uniqlo brand in Korea. I will now wrap up today's presentation here. Thank you for attending today's earnings announcement. Now, we can begin the Q&A session.
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. [Non-English content] Once again, if you have a question, please press star three. That is star and three on your phone. The first question will be provided by Jin-Hyeob Lee from Hanwha Securities . Please go ahead.
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Yes, I have three questions in total. First, for the domestic department store, even if we eliminate the one-off expense impact that you mentioned, it seems that there was still a considerable decline. Could you point out anything noticeable in terms of expense related issue or other factors that undermined the margin? Secondly, in terms of Ocado, you mentioned that there will be expenses that are reflected from this quarter. Moving forward, on a quarterly basis and annual basis, how much impact should we estimate? The third question would be, it seems that the overall portion of the overseas business is increasing. If you could provide some color on the outlook for the overseas business, that would be much appreciated. Thank you.
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First on the performance or earnings of the department stores. If we look at Q1 of 2024, the SSSG stood at a growth rate of 3.5% YoY. If we look at the previous year's Q1 results, the SSSG increase was 6.2%. It actually grew more last year. The reason for that was because the high margin categories like fashion increased quite considerably back then at 13% YoY.
This year, if we take into comparison the overall results for fashion, there was only about a 1% increase and there was more increase in terms of the low margin product categories of luxury, living and F&B. So there was a decline in the overall margin structure slightly. From Q2, we do expect that because we don't have the base effect to account for from the fashion category, we will continue or turn around to be more back on track on a growth trend.
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The next question for e-commerce. You asked about the expense that we will have to account on a quarterly basis for Ocado and on an annual basis as well. If we look at the numbers and totals for Q1, as we mentioned, the impact will be KRW 1.1 billion that we recognize as expense. Q2, the amount will be KRW 2 billion , and Q3 the amount would be KRW 5 billion . Q4 will be KRW 7 billion . So on an annual basis, the total would be about KRW 15 billion .
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For the overseas department stores, let me provide some updates on our plans moving forward. Last year, as you well know, we opened the Lotte Mall West Lake Hanoi store. We have the top priority at the moment to be stable operations of the Lotte Mall West Lake Hanoi and also future growth drivers as well. For Vietnam, we have Hanoi and Ho Chi Minh that we plan to further strengthen in terms of the existing stores operations. We are also reviewing the possibility of other major cities on the outskirts of Hanoi for additional store openings. We do believe that in a few years of moving into the future, we will be able to have more reviews and plans elaborated for new store openings.
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For the overseas hypermarket, as you saw in the presentation materials. For the overseas hypermarket, we have the operations in Vietnam and Indonesia, and you can see that compared to the previous year, we have had double-digit growth in both revenue and operating profit. The main drivers, we would say, are definitely K-culture and also considerably K-food. We have had a lot of appreciation from the local consumers from those categories. I think we also had a very good response with the new type of grocery specialized store opening in Incheon and domestically, and we plan to bring that and expand that model or format to Vietnam and Indonesia moving forward. In the future, such advanced grocery shopping type of format will be exported so that we could have this as a best reference for the overseas operations as well.
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[Non-English content] Currently there are no participants with questions. Please press star and three if you have questions [Non-English content] The following question will be presented by Lee Seung-eun from Yuanta Securities. Please go ahead. [Non-English content]
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Thank you for the opportunity to ask question. According to the information that you disclosed as of February 8, you said the annual guidance for this year in terms of revenue would be KRW 14 trillion and operating profit KRW 570 billion . I think if we look at the numbers or the performance of Q1, it is a little bit disappointing. If you could provide for each business division the strategies moving forward to achieve the guidance for the remaining quarters of the second, third, and fourth.
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First to give an overall response. The guidance that we provided as of February in terms of revenue KRW 14.7 trillion and KRW 470 billion in operating profit still holds. If you look at the overall structure or trend in terms of our revenue and operating profit throughout the year, we tend to have an increase of both numbers as we move on to Q4. Q1, we do acknowledge that we have underperformed or compared against market expectations, but please also consider that we had to reflect one-off expenses. If we do account for that also, that is an important point to consider. The details of each strategy for each business unit will be elaborated by each representative.
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First, for the department store. As we mentioned before, we do believe that moving forward from Q2, we will have a solid growth trend and other categories such as fashion. We do believe that we are on a solid base to achieve a considerable profit moving forward. This year we are carrying out the eight major renewal projects. We have already started four stores in Incheon.
The renewal has been ongoing, and we are in the process of renewal for the main flagship store and also the Suwon department store. We had a soft open for the Suwon department store as of April 25th this year, and in August there will be a grand opening with the new brand, Time Villas, as a complex shopping mall. We plan on top of that to carry out restructuring efforts for our low underperforming stores.
As of June, the Masan department store will be closed. After that, we plan and expect that there will be increase of our profit moving forward. In addition, if we look at the portion or contribution coming from foreign tourists, it is also on an increasing trend as well. If we look at the numbers for our flagship store and also the Chuncheon Department Store , the contribution coming from the foreigners have increased 73% on a YoY basis in terms of the numbers. After Q1, we believe that this will continuously increase to put us on a solid path for growth.
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Next for the hypermarket and supermarkets. We have three main pillars to talk about. The first one would be on the heels of last year, we have carried out a lot of consolidation and merging efforts to reduce costs and improve the margin, which we will believe have an impact continuing on to this year. Secondly, we have the private brands that we have launched since last year, and in the situation of an economic recession, we believe that this will have more of a competitive edge in terms of our product group that will contribute to the solid performance on our side.
Thirdly, we have, as mentioned, the new grocery shopping format that we opened in the Incheon store that differentiates in terms of food and deli. We plan to expand this type of model, and we believe that this will also be quite an improvement for us in the near future for the expansion of this new business format. If we have this favorable trend continue on from Q1 till the end of the year, we do believe that we have a very solid basis for achieving the plan or guidance as we set out.
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Next for e-commerce, we plan to leverage the Lotte membership data as much as possible to use that to expand our customer base. We plan to further leverage the strong points of Lotte, of the diverse offering of product and services of the Lotte Group. We plan to leverage the Lotte membership to the full potential so that we can increase the number of purchases from each member. We also plan to increase the monetization items by expanding online ads and also carry out continuous efforts for SGA optimization. With such efforts, we believe that it will be possible for us to achieve the plan as we set out in our annual guidance.
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Next, for Home Shopping, we plan to carry out continuous renewal of our product portfolio to focus on generating profit. Those would be the main categories of fashion, beauty that are more beneficial in terms of profit generation. We plan to also try continuous efforts to increase the margin and also expand the offering of our products through the broadcast. On top of that, we will make a lot of efforts to try to secure exclusive products and also global brands so that we can secure competitiveness in terms of our product offerings. We will also continue cost optimization efforts so that we could reduce the proportion of our low-margin product categories.
We will also carry out continuous efforts to reduce and optimize our variable expenses, such as credit card commissions and logistics costs. On top of that, we plan to strengthen targeted marketing to our main customer groups, who are people in their 40s to 50s. We will carry out more targeted marketing for them to provide the appropriate products that they desire, like healthcare, so that we have more efficiency in terms of marketing efforts.
Last year, from the month of February to July, we had to account for the broadcast suspension, the business suspension that we had to comply with. There is the base effect from that we have to consider. All in all, we believe that compared to last year, we are going to be able to turn around the performance to a positive to achieve the plan that has been set out.
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Next for Cultureworks. We believe that what is directly related to our performance is definitely the recovery that we see in the overall movie market or industry. If we look at Vietnam, compared to the domestic performance in terms of the recovery pace and also the numbers, it is quite solid. It is performing well. But if we look at the domestic side, despite growth on a YoY basis for Q1, it is not at still as much recovered before the pre-COVID levels. We have carried out preemptive cost optimization efforts from last year, which we do believe will continue to have an impact continuing on to this quarter and this year all together. We believe that that cost optimization efforts will continue to have an impact.
We do believe, though, with the recovery of the overall industry, we do expect that we will be able to achieve the growth target as we set out to achieve. For Hi-Mart, since the second half of 2023, we are operating based on four major pillars in terms of our strategy. The first is store renewal, second is strengthening of service, the third is rebranding of PB, and fourth is immersive experience of on and offline experience. If we look at the first part, the store renewal, we are carrying out continuous efforts for store renewal efforts. In Q1, the number of stores subject to renewals sit at 56, and throughout the year, we expect that the number will, on an accumulative basis for the full year, be 108.
For strengthening of services, we plan to expand our service from the existing home appliance and home care to other areas such as disaster management and also surveillance protection for family care. In the second half, we also plan to strengthen our efforts for PB rebranding that we will have on the second half to have an increased portion coming from the revenue from PB brands. Fourth, in terms of the immersive experience of online and offline, we are going to provide more tailored content for an immersive experience with specialized curators, which we have special category shops opening in the month of May, July, and September moving forward.
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[Non-English content ] Currently there are no participants with questions. Please press star three. That is star and three on your phone. [Non-English content ] The following question will be presented by Cho Sanghoon from Shinhan Investment Securities . Please go ahead.
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Thank you for the opportunity to ask a question. I have two questions in total. The first, if you could provide some more color per business division in terms of the overall business atmosphere that you saw for the month of April, that would be much appreciated. Secondly, for the e-commerce business results, if we look at Lotte ON, despite some positive numbers like the 12% increase overall, still in terms of the breakdown of revenue, if we look at the GMV growth at the vertical mall level, it seems that it is performing at a slightly sluggish pace. Do you see some impact from the, I guess, competition from Chinese e-commerce companies?
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If we look at the department store performance for the month of April, we would say that there were some seasonal factors to consider in terms of the overall environment. But internally, we have achieved 100% of the target that we have set out. Considering such seasonal factors, we had a growth rate of 0.9%. We believe that it was a positive month for us, and we do see a similar trend for the month of May as well.
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For the hypermarkets and supermarkets, we do see in the month of April, as you saw probably in the press, there was rapid increase in terms of inflation pressures. That had an impact of reducing the number of purchase quantities of the general customers. On a YoY basis, we also saw that in terms of the seasonal impact, there were less days of rain, and it was more warmer than usual.
As a result, there were a lot of increase of outdoor activities, which in turn had, I guess, more of a disappointing result in terms of our overall revenue for the weekend for the hypermarkets. Compared to our expectations, the performance on the hypermarket side was not as up to our previous initial expectations. However, for the supermarket channel, we did continue to see the solid growth trend that we have observed before. If we look at the month of May, we do see a turnaround of such momentum. In terms of the revenue, it is back on a positive track, as we saw for the overall momentum for Q1.
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For e-commerce, if we look at the performance for April, we would say that we have about a 10%-15% impact to account for from the competition of Chinese e-commerce companies like Ali and Temu. We do believe that though we have continued on with our also profit improvement activities to carry out restructuring of our low margin products. From Ali and Temu, mostly the impact was from home appliances and also the volume products. Moving forward, we do believe that is not going to have an impact on our strategic product focus, which is beauty, fashion and kids luxury. We will continue to be able to achieve the positive momentum that we have been seeing.
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[Non-English content] The following question will be presented by Joo Young Hoon from NH Investment & Securities. Please go ahead.
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Just a short question on my side. In terms of the non-operating profit side, you have achieved quite good results, all the results in Q1. Are there any sides from the non-operating side that we should consider for the month of May? Thank you.
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In terms of the non-operating profit, we do have an increase in terms of our interest income and expenses in Q1 to a considerable number of KRW 11.8 billion. But at this moment, we can't accurately estimate for the other parts of the non-operating that will have a considerable impact like impairment losses and such. Probably as we move on to the next quarters, we will be able to see probably more concrete numbers and the interest income and expense related factors are definitely taking impact from the high interest rate environment, which we believe will be continued to mitigate as we move forward.
[Non-English content] Due to the time constraint, we will now finish today's earnings announcement. Thank you for joining today's conference call, and the further questions can be answered by the IR team through individual meetings, or you can give us a call.