Hyundai Department Store, Hanwha Galleria stocks struggle due to uncertainty

Hyundai Department Store Apgujeong main store in Seoul [Photo provided by Hyundai Department Store]

Stocks of South Korean department store operators Hyundai Department Store Co. and Hanwha Galleria Corp. remain weak due to uncertainties surrounding corporate governance and sluggish consumption.

According to the Korea Exchange on Tuesday, shares of Hyundai Department Store lost 11 percent this year. Shares of Hanwha Galleria also plunged 38 percent from the peak on the first day of trade.

The downfall in the price of the two stocks comes as foreigners and institutional investors have been dumping their holdings.

Offshore investors have net sold 28.2 billion won ($21.3 million) in Hyundai Department Store shares this year and institutions 31.2 billion won. They also offloaded 45.4 billion won and 46.1 billion won, respectively, in Hanwha Galleria shares since the company’s listing.

Hyundai Department Store is considered a department store stock as sales from its department stores account for 44.5 percent of its entire sales. Other businesses include duty free stores and furniture production.

Hanwha Galleria focuses mainly on department stores.

Stock prices are heading south as department store business is affected by weak consumption. There are also corporate structure issues at Hyundai Department Store and Hanwha Galleria.

Hyundai Department Store Group is managed by two intermediate holding companies - Hyundai Department Store and Hyundai G.F. Holdings Co. - that are led by Chairman Chung Ji-sun and Vice Chairman Chung Kyo-sun, respectively.

The affiliates are not strictly separated but the overall organizational structure revolves within the group.

As part of streamlining, Hyundai Department Store and Hyundai Green Food Co. each sought a spinoff but only Hyundai Green Food was able to carry out the plan.

The proposed spinoff at Hyundai Department Store was rejected by shareholders during an extraordinary meeting and thus was cancelled. The market, however, believes that uncertainty still remains concerning corporate restructuring.

Galleria department store in Gwanggyo [Courtesy of Hanwha Galleria]

Hanwha Galleria was listed on the stock market on March 31 when it was separated from Hanwha Solutions Co. The former parent company Hanwha Solutions has been doing well in the market with growth momentum coming from green energy but the department store business, which lacks such high growth potential, has been losing upward momentum.

There is still no established consensus concerning an appropriate valuation for the company as there are no brokerage houses that are analyzing Hanwha Galleria stock.

Hanwha Galleria posted 37.3 billion won in operating profit last year on sales of 532.7 billion won. Hyundai Department Store’s department store business posted 380.3 billion won in operating profit last year on sales of 2.3 trillion won, which is about four times higher in sales and 10 times higher in operating profits compared to the figures of Hanwha Galleria.

Some analysts note that the current Hanwha Galleria stock price is about fair, given the sales figure and considering its market capitalization of about 300 billion won, which is about one-fourth of that of Hyundai Department Store at 1.2 trillion won.

“The key for Hanwha Galleria to survive alone will be how to enhance its shareholder value in the future,” one financial industry insider said.

On Tuesday, Hyundai Department Store posted 44.9 billion won in first-quarter operating profit, down 12.4 percent from a year ago, according to its regulatory filing. Sales increased 17.5 percent to 1.98 trillion won during the same period.

Earnings of its furniture and mattress company Zinus Inc. in which the company took over in May were reflected in the first-quarter figures. Excluding Zinus, the company posted 868.6 billion won in sales, down 7 percent on year in the first quarter.

Hyundai Department Store’s department store business enjoyed a 5.4 percent jump in sales that stood at 572.7 billion won. Operating profit, however, fell by 7.4 percent to 95.2 billion won.

“Sales in the department store business rose on year in the first quarter thanks to strong sales of fashion and cosmetics, but operating profit fell slightly due to increased fixed costs and payments for remodeling of some key stores,” said a company source.