Despite a decline in daigou-related sales, Hotel Shilla's profitability in the second quarter of 2023 exceeded expectations. The company saw an increase in general retail customers, who contribute to higher margins, due to a rebound in travel demand. This positive development has helped to reduce the firm's reliance on daigous, which are individuals who purchase luxury goods abroad for Chinese consumers. As a result, the company's consolidated sales have been on a continued slide. However, with the rise in sales from general retail customers and improving profitability indicators, there is little need for intense concern over daigou-related factors. Therefore, a share price rebound is anticipated for Hotel Shilla.
In the second quarter of 2023, Hotel Shilla reported consolidated sales of W866.9bn, representing a 26% year-on-year decrease, and an operating profit (OP) of W67.2bn, reflecting a significant increase of 56% year-on-year. The OP exceeded market projections. The DFS division, which includes duty-free shops, recorded sales of W708.1bn, a 30% year-on-year decrease, and an OP of W43.2bn, a remarkable 192% year-on-year increase. Although daigou-related sales declined, the company experienced growth in sales to high-margin individual customers. As a result, the operating profit margin (OPM) improved strongly to 6.1%, representing a 4.6 percentage point increase year-on-year. The overseas DFS locations saw a W15bn quarterly increase in OP due to the recovery in travel demand. With the operation of the DFS shop at Incheon International Airport starting in July, Hotel Shilla expects further earnings improvement in the second half of 2023 driven by individual customers.
The Hotels & Leisure division recorded an OP of W24bn in the second quarter of 2023, a 15% year-on-year decrease. However, considering the effects of one-off profits recorded in the second quarter of 2022, there is no need for concern. Hotel Shilla has experienced high share price volatility in recent years due to daigou sales trends and changes in Korea-China relations. Nevertheless, with the increasing share of sales from general retail customers and improving profitability, the company is on a positive trajectory, and a share price rebound is expected in the future.