Retail: 2Q22 Preview: Expect Strong Revenues for Department Stores and CVS


The author is an analyst at NH Investment & Securities. He can be reached at [email protected] — Ed.

Since the end of social distancing measures in April, revenues from the reopening of beneficiary industries have increased. Examples are department stores and CVS. As leading players in their respective segments, Shinsegae and BGF Retail are expected to post strong results in 2Q22.

2Q22 Snapshot: Offline Retail Sector Growth Centered on Department Stores and CVS

We maintain a positive outlook towards the retail sector. Since the end of social distancing measures in April, revenues from the reopening of beneficiary industries have increased. As a result, we expect related retail players to post strong earnings in 2Q22.

The department store segment is showing the strongest profit growth. In terms of SSSG in 2Q22, we estimate 19% yy for Shinsegae Department Store and 13% yy for Hyundai Department Store and Lotte Department Store. Of particular note, as sales growth in the apparel category has outpaced that of luxury goods since April, earnings expansion likely outpaced sales growth.

We believe CVS benefited from an increase in outside activity, with 2Q22 SSSG of 6% YoY for BGF Retail and 3% YoY for GS Retail. We view the likelihood of CVS sales growth accelerating despite the absence of the one-time surge in Covid-19 self-test kit sales seen in 1Q22.

Top Picks: BGF Retail, Shinsegae, and Lotte Shopping

We feature BGF Retail, Shinsegae and Lotte Shopping as our top picks in the industry.

Shinsegae and BGF Retail displaying the most competitiveness in the industry, we expect them to see 2Q22 OP growth of 49% YoY and 29% YoY, respectively, showing earnings momentum dynamic.

At Lotte Shopping, however, the 2Q22 OP is expected to prove slightly below consensus due to weak earnings at subsidiary Lotte Himart. However, we are maintaining a buy rating on Lotte Shopping, noting a normalization of business for its other major businesses.

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