Retail Industry: Economy Starts to Re-open in 1Q22 


The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. — Ed.

Despite a recent jump in new Covid-19 cases, the impact on retail sales has been less significant than over the past two years. Expectations for easing Covid-19 regulations and deregulation should rise going forward.

1Q22 investment appeal: CVSs > department stores > discount stores > DFS > home shopping

– We maintain a Positive rating on the retail industry. For the past two years, earnings volatility had increased due to new Covid-19 cases and adjustments to social distancing levels, but the negative impact declined in 1Q22, as people have become less sensitive to Covid-19 case numbers. Currently, the Covid vaccine sign-in system is temporarily suspended, but as president-elect Yoon Suk-yeol plans to completely abolish the system, it seems unlikely that it will be introduced again.

– SSSG levels at major offline distribution channels seem to have exceeded expectations. In particular, it is meaningful that in March, when the Covid sign-in system was suspended, CVS sales expanded compared to January and February. As CVS sales are highly related to outdoor activities, we view this as a sign that re-opening is underway. 

Retail industry: Upcoming positives outweigh negatives

– In 1Q22, share price returns for major retail players outpaced that of the Kospi, helped by expectations for industry deregulation alongside earnings growth in line with economic reopening. Considering that business conditions have yet to fully normalize since the outbreak of Covid-19, and that major players continue to trade below 2022E P/Es of 10x, we see plenty of upside potential.   

– We present a Positive outlook for both the CVS industry, where SSSG is rising, and the department store sector, where margins are to improve on increasing apparel sales. Discount stores are also worthy of attention, amid expectations for an easing in business regulations.


Leave a Reply