Vietnam And Indonesia Urbanization And Omnichannel Integration Will Reshape Retail

Key Takeaways

• Overseas expansion and omnichannel retail strategies are driving revenue growth, tapping into urbanization and rising consumer spending in Southeast Asia.
  
• Portfolio transformation, cost optimization, and diversification into premium and digital segments are strengthening profitability and earnings resilience.
  
• Structural decline in domestic retail, digital underperformance, high fixed costs, and non-core volatility challenge profitability, while overseas expansion poses risks around sustainability and capital allocation.

Catalysts

Engages in the retail operations through department stores, outlet stores, discount stores, supermarkets, electronics specialty stores, home shopping, cultural stores, and E-commerce channels.

• Robust growth and expanding profitability in Lotte Shopping's overseas retail operations, particularly in Vietnam and Indonesia, position the company to capitalize on urbanization and rising disposable incomes in Southeast Asia, expected to drive sustained revenue and earnings growth as new malls and hypermarkets are rolled out.
  
• The convergence of online and offline retail channels is accelerating through Lotte Shopping's omnichannel strategy (new Zeta app, automation via Ocado, expanded fulfillment centers), supporting enhanced customer experience, increased market share, and higher revenues in digital segments.
  
• Strategic renovation of domestic core department stores and targeted pop-up events are driving improved same-store sales and greater operational efficiency, contributing to higher net margins and supporting earnings stability as consumer preferences shift toward premium and lifestyle offerings.
  
• Aggressive cost optimization, portfolio transformation (e.g., scaling down low-margin e-commerce services), and asset impairment measures have structurally reduced depreciation and SG&A expenses, which should bolster long-term net margins and cash flows.
  
• Ongoing expansion of higher-margin business segments (premium brands, advertising revenue from digital platforms, private brands in hypermarkets) and diversification into adjacent growth verticals (entertainment, logistics) will reduce reliance on legacy retail and provide more resilient earnings streams over time.

Lotte Shopping Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lotte Shopping's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -7.5% today to 3.7% in 3 years time.
• Analysts expect earnings to reach ₩544.0 billion (and earnings per share of ₩10589.04) by about August 2028, up from ₩-1038.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.4x on those 2028 earnings, up from -2.0x today. This future PE is lower than the current PE for the KR Multiline Retail industry at 9.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.76%, as per the Simply Wall St company report.

Lotte Shopping Future Earnings Per Share Growth

Risks

• Lotte Shopping faces structurally declining revenues in its core domestic retail business, as evidenced by a 1.6% year-over-year revenue decline and ongoing weakness in the domestic grocery division (down 4.3% Y-o-Y), indicating persistent challenges from demographic aging, population decline, and shifting consumer preferences away from traditional department stores and hypermarkets-risking prolonged revenue stagnation or decline.
  
• The company's online (e-commerce) segment, while showing cost improvements, continues to underperform-recording a 5% Y-o-Y revenue decrease and ongoing operating losses-suggesting Lotte Shopping is losing market share to dominant e-commerce competitors like Coupang and Naver, which threatens long-term digital revenue growth and digital market share gains.
  
• High fixed costs from maintaining a large physical footprint, including department stores and hypermarkets, remain a critical risk amid declining domestic footfall and persistent promotional activity to counter competitors, undermining operating leverage and compressing net margins, as seen in the 73.4% drop in grocery operating profit and asset disposal activity to reduce expenses.
  
• The Cultureworks cinema segment posted a 24.9% drop in revenue and sustained operating losses, underscoring risks that changing consumer habits, competition from streaming, and unpredictable blockbuster releases may drive continued earnings volatility and asset impairment risks for non-core business lines-putting pressure on consolidated profits.
  
• While overseas operations (particularly in Vietnam and Indonesia) are currently growing, the sustainability and scalability of profit margins are not guaranteed given the company's focus on aggressive physical expansion in still-maturing markets-raising risks around capital allocation, potential overextension, and exposure to emerging market volatility impacting future returns and asset values.

Valuation

• The analysts have a consensus price target of ₩87200.0 for Lotte Shopping based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩110000.0, and the most bearish reporting a price target of just ₩59000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩14690.2 billion, earnings will come to ₩544.0 billion, and it would be trading on a PE ratio of 6.4x, assuming you use a discount rate of 12.8%.
• Given the current share price of ₩73100.0, the analyst price target of ₩87200.0 is 16.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.