Convenience Store Slump Offset by Supermarkets... GS Retail Operating Profit Rises 19% [Click e-Stock]

Shinhan Securities: "Qualitative growth needed, rather than quantitative growth"

Shinhan Securities said on November 4 that it is maintaining its "Buy" rating and 31,000 won target price for GS Retail, a retailer operating convenience stores, supermarkets and a home shopping business. The target price implies 36.6% upside from the closing price of 22,700 won on November 3.

Analyst Cho Sang-hoon said, "When the industry restructuring process is completed, GS Retail's competitiveness as a leading player will come to the fore," explaining the decision.

GS Retail posted third-quarter revenue of 3.3143 trillion won and operating profit of 132.1 billion won, up 3.4% and 18.9%, respectively, from a year earlier. Third-quarter operating profit was 10% above the average estimate among securities firms, known as the consensus.

Supermarkets and home shopping drove the increase in earnings. Supermarket operating profit rose 160%, supported by new franchise store openings and the expansion of quick commerce, as same-store sales growth climbed to 10.7%.

Home shopping revenue increased 2% and operating profit rose 109%, as the business expanded around high-margin physical products. Excluding an 8 billion won VAT refund, operating profit growth was 40%.

Same-store sales growth at convenience stores was 2.3%. Sales were sluggish in July and August due to a high-base effect from consumer coupons in the same period a year earlier, but began to recover in September. Increased demand from foreign tourists was also a positive factor. "By focusing on improving efficiency through closing underperforming stores, the company improved the efficiency of its existing stores," Cho said. Net profit fell as fund valuation gains and losses worsened.

Since 2024, convenience store operators have entered a low-growth phase, making store closures a priority amid industry restructuring. But Cho forecast that "mid-sized and large, high-quality stores that have survived will lead the recovery in the convenience store sector."

Shinhan Securities estimates GS Retail's revenue this year at 12.6484 trillion won, up 5.8%, and operating profit at 406.2 billion won, up 39.0%. For next year, it forecasts revenue of 14.0336 trillion won and operating profit of 453.4 billion won, up 11.6%. Both estimates are above the average forecasts among securities firms.

Cho said, "To regain the high valuation it once commanded, the company needs qualitative growth driven by a rebound in same-store sales growth, rather than quantitative growth through new store openings. This can be achieved by strengthening product competitiveness and expanding its fresh-food-focused store format."

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