'Big Investor' NPS Has Already Cut Its Losses... Sold Department Store Stocks in Q3 Despite Strong Earnings Outlook

NPS Cuts Holdings in Department Store Stocks by 1.4 Million Shares in Three Months
Hyundai by 690,000 Shares, Lotte Shopping by 590,000 and Shinsegae by 130,000
Shares Halved Despite Q3 Operating Profit Forecast to Rise by Up to 80%

The National Pension Service (NPS), a major player in South Korea’s stock market, reduced its holdings in the country’s three major department store companies by about 1.4 million shares in the third quarter of this year. This marks a contrast with last year, when it increased its stakes amid improving earnings in the department store industry and expectations of expanded shareholder returns. Department stores continue to grow sales, driven by high-end consumption fueled by an increase in foreign tourists and the “wealth effect” from the stock market boom in the first half of the year. However, their share prices have fallen sharply from their peaks, drawing attention to the investment decisions of the NPS and other major domestic investors.

According to the Data Analysis, Retrieval and Transfer System (DART) of the Financial Supervisory Service on October 15, the NPS disclosed in a recently filed report on its shareholdings that it had reduced its combined holdings in the three department store companies—Lotte Shopping, Shinsegae, and Hyundai Department Store—by 1,403,787 shares compared with its previous report.

Hyundai Department Store saw the largest reduction in the NPS’s stake. The NPS’s holdings in the company fell from 2,908,844 shares (13.49%) as of June 30 to 2,222,313 shares (10.31%) as of September 30. In just three months, it sold 686,532 shares, equivalent to about 23.6% of its holdings, reducing its stake by 3.18 percentage points.

The NPS also cut its stakes in Lotte Shopping and Shinsegae. Over the same period, its stake in Lotte Shopping fell by 2.07 percentage points, from 3,643,493 shares (12.88%) to 3,057,116 shares (10.81%). Its stake in Shinsegae declined by 1.38 percentage points, from 1,201,833 shares (12.72%) to 1,070,954 shares (11.34%).

The large-scale sell-off has drawn attention because it came as operating conditions in the department store industry were improving. All three department store companies posted strong results in the first half of this year. Lotte Department Store recorded first-half revenue of KRW 1.6924 trillion, up 8.4% year over year, and operating profit of KRW 295.9 billion, up 54.8%. Shinsegae Department Store reported revenue of KRW 1.4794 trillion and operating profit of KRW 249.9 billion, increases of 14.9% and 39.7%, respectively. Hyundai Department Store also posted revenue of KRW 1.2764 trillion, up 8.3%, and operating profit of KRW 246 billion, up 47.7%.

The outlook for third-quarter results is also bright. According to financial information provider FnGuide, Lotte Shopping’s third-quarter revenue and operating profit are forecast at KRW 3.6015 trillion and KRW 179.7 billion, respectively. Shinsegae’s are estimated at KRW 1.7075 trillion and KRW 177.7 billion, while Hyundai Department Store’s are projected at KRW 1.0941 trillion and KRW 90.8 billion. Revenue is expected to rise by 4% to 8% year over year, while operating profit is forecast to increase by about 30% to 80%.

Share prices, however, have moved in the opposite direction. After rising steeply in the first half of this year, the three department store companies’ shares underwent a sharp correction in the second half. From mid-June, when their share prices peaked, through the close on October 14, Shinsegae’s shares fell 64%, Hyundai Department Store’s declined 63.4%, and Lotte Shopping’s dropped 57.5%.

Concerns about slowing spending by foreign visitors are cited as a key reason for the share price declines. The won-dollar exchange rate has fallen from the KRW 1,550 range in early July to the KRW 1,340 range recently. A stronger won could make luxury goods and fashion products in South Korea less attractive in price to foreign tourists. Expectations for earnings had also risen following the sharp gains in the first half, while profit-taking pressure is thought to have weighed on share prices.

“As the won has strengthened, concerns have grown that department stores’ sales to foreign customers will decline, which has led to lower valuations for department store companies,” said Kim Myung-joo, a researcher at Korea Investment & Securities.

Some analysts, however, say it is too early to conclude that earnings growth in the department store sector has stalled. They also expect advance demand for luxury goods and other high-end purchases to emerge from the end of the year, ahead of major domestic companies’ bonus payments in the first quarter of next year.

“The recent sharp decline in the domestic stock market and the resulting reduction in the wealth effect have led to a correction in department store share prices. However, sales growth among foreign customers remains strong, and bonus payments by major companies in the first quarter of next year could mean that same-store sales growth at department stores from the fourth quarter of this year will be stronger than expected,” said Park Sang-jun, a researcher at Kiwoom Securities.

This content was produced with the assistance of AI translation services.