Shinsegae Duty Free is expected to see a profit spurt in Q2.

South Korea’s Shinsegae Duty Free is expecting an improvement in duty-free profitability following its exit from the DF2 concession at Incheon International Airport (ICN) on 28 April.

The travel retailer – part of the larger nationwide department-store group of the same name – pulled out, citing the rent burden as the decisive factor. The concession, covering cosmetics/perfumes and liquor/tobacco, is now with Hyundai Duty Free, which says it is targeting annual airport-wide sales of KRW1tr/$680m now that DF2 is also in its ICN portfolio.

Shinsegae DF still has other concessions at ICN, and its parent company offered a Q2 outlook stating it expected the current improvement in duty-free profitability to “gain traction” now that it has completed adjustments to its concessions and offer at Incheon International.

In its Q1 earnings release, Shinsegae noted a healthy rise of +5% in its duty-free business, reaching KRW590bn / $391m and accounting for 18.3% of company-wide revenue (see chart below). This is the second-largest contribution after the department store division’s 63% share. Another four business units – Central, SI, Casa, and Live Shopping – made up the rest of the company’s revenue.

Shinsegae’s Q1 results for its two core businesses.

Shinsegae DF profits make steady progress

Shinsegae DF also turned a small operating profit in the quarter of KRW11bn / $7.3m. At the group level this amounts to a 5.4% contribution, well below the department store division’s 71.3% share, and the reason the company is pushing for better profitability in Q2.

In Q1, Shinsegae DF suffered from cost pressures due to higher passenger traffic and the expiry of rent reductions on 14 January. However, earnings improved, driven mainly by lower discount rates.

The duty-free business performance was easily outshone by strong department-store sales momentum of +13% in Q1. Operating profit jumped from KRW108bn to KRW141bn / $93.5m year-on-year. Shinsegae noted, too, that April sales to foreign customers soared by +132% YOY and said, in its Q2 outlook, that department-store sales would be “sustained on continued inbound growth”.

For the company’s group-level results, see the chart below:

[*FX conversions at today’s rate.]

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