South Korea Department-Store Stocks Surge as Lotte Shopping Hits 52-Week High on Tourist Boom Bets

Department-store stocks in South Korea rose sharply on June 16 as investors bet a surge in foreign tourists will lift earnings. Analysts expect the momentum to extend into next year, keeping optimism around the sector intact.

According to the Korea Exchange, Lotte Shopping, the parent of Lotte Department Store, closed 13.31% higher at 121,700 won on June 16. The stock climbed to 122,000 won during the session, marking a fresh 52-week high. Shinsegae and Hyundai Department Store also gained 8.68% and 6.29%, respectively. So far this month, Shinsegae has advanced 24.96% and Hyundai Department Store 15.15%.

Retail investors welcomed the rebound. On Lotte Shopping's online stock message board, users posted comments including, "Suddenly all I see is good news" and "The sleeping giant has woken up."

Expectations for stronger sales have risen as foreign tourists flock to South Korea. The Ministry of Culture, Sports and Tourism said 4.76 million foreign visitors came to the country in the first quarter, up 23% from a year earlier and a record for any first quarter.

In the past month alone, 2.06 million foreign tourists visited South Korea, the highest monthly figure on record. The jump was driven by a surge in overseas visitors traveling to Korea for BTS's performance at Gwanghwamun last month.

Analysts say the weak won has also boosted foreigners' purchasing power, adding to buying interest in the shares. Spending on high-priced items such as luxury goods is expected to bolster earnings at department-store operators. Lee Jin-hyup, an analyst at Hanwha Investment & Securities, said the recent weakness in the won is positive from the standpoint of foreigner sales. He said that trend would not change even if the exchange rate declines.

Annual earnings for the country's three major department-store operators are also set to improve. FnGuide estimates combined operating profit this year for Lotte Shopping, Hyundai Department Store and Shinsegae at 1.7036 trillion won, up 21.26% from 1.4049 trillion won a year earlier.

Brokerages expect department-store shares to benefit through next year as more foreigners visit South Korea. Bae Song-i, an analyst at Mirae Asset Securities, said department stores are cementing their status as the biggest beneficiaries of expanding inbound tourism. Their category mix, including competitively priced luxury goods, K-fashion and K-beauty, should continue to drive earnings.

She said managed sales at department stores are projected to grow 8% to 9% this year, supported by a surge in foreign consumer spending.

Lee said the department-store cycle could keep expanding through at least next year, as the profile of Chinese tourists changed after China imposed restrictions on relations with Japan. After that shift, more travelers began visiting primarily to shop, bringing department stores into focus. Over the medium to long term, the share of foreigner sales at South Korean department stores could exceed Japan's peak level of 15%, he said.

Ko Jung-sam, Hankyung.com reporter jsk@hankyung.com