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The Shilla Duty Free hits all-time first quarter high as surge in Chinese ...

Shilla hits all-time first quarter high as Chinese spend boosts market


Published: 28/04/14


Source: ©The Moodie Report


By Martin Moodie


SOUTH KOREA. The country’s two leading travel retailers, The Shilla Duty Free and Lotte Duty Free, both appear to have hit all-time sales highs in the first quarter, as Chinese visitor numbers and spending continues to soar.


Chinese arrivals to South Korea rose by +44.9% in the first quarter to 1,046,771, representing 36.6% of all visitors, according to new Korea Tourism Organization figures. Japanese visitor numbers continued to slump, falling -14.5% year-on-year to 609,061, a 21.3% share. The Chinese figures maintain the dramatic momentum of 2013, when numbers surged by +52.5% compared with a -21.9% decline in Japanese arrivals.


Departures by Korean nationals rose +5.6% to 3,932,545 in the quarter.


Parent company Hotel Shilla posted its results after close of trading on Friday. Lotte is yet to officially announce its figures but local newspaper Yonhap News, citing a company source, said that preliminary figures for the first quarter show a +15% year-on-year revenue increase to KRW880 billion won (US$847 million), an all-time record. The Moodie Report emphasises that these figures, though seemingly credible, are unofficial at this stage. Hotel Lotte is due to publish its quarterly report in late May.


[UPDATE: We can confirm that Lotte actually generated sales of KW886 billion (US$ 844 million), an all-time high, and +15% year-on-year.]



Shilla’s revenues from its downtown duty free shops surged by +32.7% year-on-year in local currency (+33.4% in US Dollars) to KW348.7 billion. Airport sales, hit by the rapid decline in Japanese visitors and a slowing of growth in Korean spending, rose just +2.3% (+2.9% in US Dollars) to KW227.9 billion. Taking out the foreign exchange impact, sales in Korea (only) rose +17.9% overall for the quarter in US$ terms.

[Note: Shilla’s consolidated results, reported by Yonhap News include shops operating at Changi Airport, giving a slightly negative impact on OP numbers (non-consolidated duty free OP of KW30.4 billion vs consolidated KWW29.5 billion)


Regina Hahm, Equity Analyst (Textile Apparel, Hotel Leisure) at KDB Daewoo Securities told The Moodie Report: “The duty free business results were impressive; in line with my estimate yet beating the consensus numbers.”


Commenting on the disparity between the downtown and airport performance, she noted: “The revenue contribution of Chinese at airport duty free shops is estimated to be around 30% (expanded a lot from below 20% in 2012), while their contribution at downtown duty-free shops is over 60%.”



In a note KDB Daewoo Securities said: “The duty free shop unit posted revenue of KWW514.9 billion (+17.3% YoY) and operating profit of KW30.4bn (+126.9% YoY), which were broadly in line with our expectations (-0.4% below our revenue forecast and +5.8% above our OP forecast). The hotel and leisure divisions posted a combined operating loss of KWW8.5 billion, larger than our projection of W4 billion. Still, the negative impact on overall earnings was limited, due to the company’s high exposure to duty free shop earnings.”

It continued: “The strong top-line growth was driven by the duty free shop and leisure segments. In particular, duty free shop OP margin recovered to 5.9% (from 2.2% in 4Q13), nearing the normalised level of 6-7% and exceeding our projection by 0.3%p. This was because the US$/KW rate quickly stabilised this year, after the Won sharply strengthened in 4Q13.”


NOTE: We’ll examine Shilla’s results in more detail in this week’s edition of The Moodie Report e-Zine. The May issue of The Moodie Report Print Edition features an extensive feature on The Shilla Duty Free, including an examination of the significance of its recently won perfumes cosmetics concession at Singapore Changi Airport.



The Shilla Duty Free hits all-time first quarter high as surge in Chinese ...

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