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. [Foreign language] . The first question will be provided by Jinhyeop Lee from Hanwha Investment & Securities. Please go ahead with your question.
[Foreign language]
I have three questions. Thank you very much for this opportunity. First, my question is about the domestic department sales and performance. My understanding is, well, as compared to the competitors, I think the overall performance of the domestic department store is about 3% higher. However, I believe the profitability, its improvement is slower than expected. I think, is there any specific reason for that?
I also would like to know, are there any specific cost-related factors that were captured for this third quarter. The second question is about the cost recognition concerning Ocado in relation to the hypermarket. I'd like to know how much of the cost has been recognized for quarter three. My last question is, the base effect has been quite favorable for the third quarter. I'd like to know the outlook concerning that. Thank you.
[Foreign language]
Turning to the domestic department business in the third quarter, the operating profit might appear lower than expected, but that is attributable to one-off expenses, including taxes. Excluding that factor, operating income would have been higher than what you can see on the material.
[Foreign language]
Turning to the hypermarket, as for the expenses concerning Ocado, I do not believe I can share with you the detailed numbers as to that, but what I can tell you is that the current level of cost and expenses are in line with our initial expectations. Turning to the outlook for the second half as well as next year,
I believe we have enjoyed double-digit growth in the third quarter thanks to the favorable base effect as well as the holiday timing shift. In the second half as well, we expect such a high and healthy growth momentum attributable to the indirect benefit from Homeplus, as well as the consumers' relative sensitivity to price due to the economic condition.
[Foreign language]
[Foreign language] . The following question will be presented by Rina Oh from LS Securities. Please go ahead with your question.
[Foreign language]
Thank you very much for this opportunity. I have three questions. The first is about the foreign customer sales in the area of the department store with changing exchange rate. I'd like to know how far do you believe the foreign sales would grow down the road, and please share with us the guide for the next year as well.
The second question is about the Ocado-related expenses. I understand the hypermarket has continued its healthy growth momentum. Then I'd like to know more specifically as to the number of orders currently handled by the Zetta Smart Center and its utilization rate as of now, and what is the expectation for next year.
My next question is about the voluntary retirement program at the department store. My understanding is that there will be another voluntary retirement program for the hypermarket in the fourth quarter. If that is the case, then how much expenses is expected to be incurred?
[Foreign language]
As for the foreign customer sales in the third quarter, we enjoyed whopping 80% growth year- over- year. In early October, for the first time in the Korean department store history, we reached ₩1 trillion cumulative revenue coming from foreign customers. In the Myeongdong store, the share of the foreign customer sales reached almost 30%, and this kind of healthy trend has been witnessed across all main stores.
We expect such a healthy growth trend and momentum down the road even into next year. If you take a look at the breakdown of the overall revenue, the share of the foreign customer sales has been maintained at the current level in a quite stable manner. We believe we'd be able to enjoy such healthy growth momentum and high level of foreign customer sales in 2027, although I cannot share with you detailed numbers.
[Foreign language]
Turning to the hypermarket, we opened our center in Busan in August, and that's the first ever largest scale fulfillment center in Korea. We initially focused more on the smooth and seamless service delivery since this is the first ever system provided to the customers.
Nevertheless, we are outperforming our initial expectations in terms of the number of orders and delivery. We are doing 100% more than our initial expectations, and we believe we'll be able to sustain such a healthy growth and smooth service down the road. Thank you.
[Foreign language]
As for the third question concerning the voluntary retirement program at the department store and hypermarket, the plan has not been finalized and confirmed yet. Once it is finalized and confirmed, we will share this with the investors through IR or media release. Thank you.
[Foreign language]
[Foreign language] . The following question will be presented by Sangjun Park from Kiwoom Securities. Please go ahead with your question.
[Foreign language]
I have only one question. In the Korean department store across the board, we can see that with the dropping exchange rate, the foreign customer sales has gone down, centered around luxury items.
However, we can see the healthy growth in terms of the inbound traffic or tourist traffic, as well as the diversity in terms of the nationalities of those inbound tourists. So I'd like to know whether at the department store, you have any strategy in order to boost the foreign customer sales. Thank you.
[Foreign language]
As I mentioned previously, in the third quarter, we saw the foreign customer sales up by 80% year- over- year. We are witnessing such a healthy growth momentum. In terms of the breakdown of the nationalities of the customers, China is the largest, followed by Taiwan and the United States.
We see such a diversity in terms of the nationality of our foreign customers. With declining foreign exchange rate, in September, we saw a drop and decline in the sales revenue. Yet, we are still enjoying double-digit growth. In order to minimize the impact from the dropping exchange rate, we are reinforcing foreign customer dedicated membership program and international ambassador related brand marketing,
Making the most of our brand ambassador, Jennie, as well as the collaboration with global network. In terms of the cumulative membership registration, as of now, we have more than 200,000 foreign customer members in our dedicated membership program, and related sales as well as per customer consumption are also showing quite a healthy trend.
[Foreign language]. Next question, please.
[Foreign language] . The following question will be presented by Hye Eun Kim from Morgan Stanley. Please go ahead with your question.
[Foreign language]
I have two questions. First is, due to holiday timing shifts in September and October, I believe there must have been some fluctuation in terms of the revenue and profit performance by channel. So I'd like to know channel-specific revenue trend for October. My second question is about Hi-Mart.
In terms of the overall size of the revenue, I think, well, they are doing okay, but when it comes to their operating margin, that has been rather sluggish. So I'd like to know whether you have any strategic plan in order to boost their performance. Somebody mentioned the voluntary retirement program, so including that, is there any specific plan or strategy you'd like to share with us? Thank you.
[Foreign language]
Third, department store: as you just mentioned, in September and October, we saw a holiday timing shift, and there was a limited impact as to that because we saw a steady growth in September in terms of sales. The same went true for October as well.
The level of growth for October was pretty much the same as last year. That is attributable to the increase in the size of the revenue as well as the share of the high-margin fashion items, and that has boosted the level of profits we enjoyed in September and October.
[Foreign language]
As for the impact of the holiday timing shift, I think its biggest impact will be on the gift set for the traditional holiday season. Depending on when this holiday gift set season falls, we would see the impact of this timing shift.
If we exclude this holiday gift set, we can see more accurately our performance for the month of October. Other than the gift set, in terms of the performance of the fresh food and grocery, we maintain the level of growth even in October, and our expectation is that such growth momentum will continue till the end of this year.
[Foreign language]
Turning to the hypermarket in the third quarter, attributable to the unfavorable business environment as well as extended rainy season in July, our air conditioning sales was more sluggish than expected. Turning to the Hi-Mart, in the third quarter, attributable to the longer-than-expected rainy season, we had lower-than-expected air conditioning sales, and the unfavorable business environment also played a part.
That is why we have seen underperformance in terms of the sale of large and high-ticket home appliances. However, we have witnessed healthy growth in terms of our online channel and smart appliances. In the third quarter, that is why we have seen two consecutive quarters of growth in terms of gross sales, and for the first time in five quarters, net revenue growth.
We will continue to focus on customer-centered care, and we will develop various private label products in order to boost our growth and focus on the needs of the customer. Furthermore, we will also convert our business structure into one more focused on higher margin and high frequency items so that we can create a virtuous circle of product sales leading to the repetitive visit of our customers, so that we will be able to sustain our revenue growth. Thank you.
[Foreign language] . Currently there are no participants with questions. We will wait for a moment until there is another question.
[Foreign language] . Since there are no more questions, we will end our conference call today. Thank you for joining.