Korean Department Stores: Getting wealthier faster than they can spend; initiate on Shinsegae/HDS at OW, Lotte at N

Research evidence excerpt

Korean Department Stores: Getting wealthier faster than they can spend; initiate on Shinsegae/HDS at OW, Lotte at N

DS Kim AC Asia Pacific Equity Research

(852) 2800-8597 14 July 2026 J P M O R G A N

ds.kim@jpmorgan.com

Subsidiary earnings drags set to ease

Key subsidiaries have weighed on department store players’ consolidated earnings for

the past several years. However, we expect to see an improving operating backdrop and

loss reductions at major underperforming subsidiaries this year.

Figure 62: Korean department stores: OP by segment

Wbn

1,200

-300

2024 2025 2026E 2027E 2028E 2024 2025 2026E 2027E 2028E 2024 2025 2026E 2027E 2028E

Shinsegae HDS Lotte Shopping

Department store Other subsidiaries

Source: Company data, J.P. Morgan estimates.

Shinsegae: Duty free restructuring & broader subsidiaries turning up

The key subsidiary that has dragged on Shinsegae’s consolidated results has been

Shinsegae DF. In 2024/2025, Shinsegae DF posted an operating loss of W36B/W7B

amid a post-COVID decline in daigou demand and an airport lease costs burden.

We expect a more stable earnings structure following the closure of Incheon Airport’s

DF2 store. Shinsegae won the DF2 operating license in 2023 with an aggressive bid, but

the store turned loss-making amid weak duty-free demand despite recovering inbound

tourism. After paying W190bn in penalties to exit early, DF2 ceased operations in April

2026. We estimate the closure will reduce operating losses by W5B per month.

Separately, the non-department-store portfolio is showing improving momentum on the

back of domestic consumption uplift. Shinsegae International 1Q OP increased to W15B

from W3B in 1Q25, thanks to overseas fashion and imported cosmetics sales

momentum. Central City also posted strong revenue/OP growth of 11%/17% y/y,