Meritz Securities projected on November 11 that BGF Retail will see improved performance driven by store efficiency and increased sales from foreign tourists. The firm maintained a "buy" rating and raised its target price to 190,000 won.
Kim Jung-wook, a researcher at Meritz Securities, noted that BGF Retail's consolidated revenue for the third quarter reached 2.5152 trillion won, a 2.1% increase compared to the same period last year, while operating profit rose by 3.2% to 100.8 billion won. However, the operating profit fell short of market expectations of 106.5 billion won by 5.4%.
The primary reasons for the underperformance were attributed to increased depreciation costs from the early completion of a logistics center in Busan and rising logistics expenses due to higher oil prices. These related costs were estimated to have impacted earnings by more than 2 billion to 3 billion won.
Despite the disappointing results, the recovery in sales from existing stores is a positive sign. The same-store sales growth rate for the third quarter was 0.9%. Although the number of visitors decreased by 0.4%, the average transaction value increased by 1.2%, contributing to revenue growth. Notably, the same-store sales growth rate, which had stagnated in July and August, rebounded to 2.7% in September.
The increase in foreign tourists is also emerging as a new growth driver. In the third quarter, sales from foreign customers surged by 66.8% compared to the previous year, accounting for 2.5% of total sales, up 1.0 percentage point. Including cash payments, the share of foreign sales is estimated to exceed 3%.
Moreover, the increase in foreign sales accounted for 35.5% of the overall sales growth in the third quarter. The average transaction value for foreign customers was 107.2% of that of domestic customers, with growth rates for foreign sales in non-metropolitan areas surpassing those in metropolitan regions.
Changes in store operations are also reflecting a focus on profitability. The average daily sales of new stores reached 98.3% of existing stores, improving by 4.7 percentage points year-on-year. The proportion of medium to large stores opening also increased to 21.0%, up 3.8 percentage points.
Meritz Securities forecasts that BGF Retail's revenue will rise by 5.9% to 10.0514 trillion won in 2027, with operating profit expected to increase by 8.3% to 326.2 billion won. The anticipated improvement in profitability is expected to be supported by rising average transaction values and a reduced proportion of tobacco sales in the product mix.
Kim added, "The efficiency gains from depreciation costs of 5 billion to 7 billion won annually are expected to continue until 2028-2029. The expansion of tax refund services in regional areas, strengthening of products for foreign customers, and the introduction of differentiated products will support profit growth even in an environment where same-store sales growth rates are between 1% and 3%."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.