Korea Investment Cuts E-mart Target 15% on Starbucks Losses

Korea Investment & Securities has cut its target price for E-mart to 115,000 won from 135,000 won, a reduction of about 14.8 percent, pointing to deepening trouble at the retailer's coffee chain affiliate and its online shopping arm. The brokerage's report, released on July 10, said E-mart's upcoming quarterly results are likely to fall well short of what the broader market currently expects.

According to the forecast, E-mart's consolidated operating profit for the second quarter is projected at 17.7 billion won, down 18.4 percent from a year earlier and roughly 74 percent below the average analyst estimate. The steepest drag comes from SCK Company, the joint venture that runs Starbucks in Korea, which the brokerage expects to swing into an operating loss of about 22.9 billion won. SSG.com, E-mart's e-commerce platform, is forecast to post its own operating loss of roughly 25.7 billion won for the quarter.

Analysts tied Starbucks Korea's reversal in part to sustained consumer backlash and boycott sentiment linked to marketing controversies at the chain, which they said has weighed on store traffic even as the brand keeps its long-held lead in coffee spending nationwide. The report added that persistent difficulty improving profitability at the online business has compounded pressure on E-mart shares in recent months.

Not all of the outlook was negative. Korea Investment & Securities said E-mart continues to benefit from the retreat of rival Homeplus, which has shuttered 54 stores amid its own financial troubles, with some suppliers reportedly suspending shipments to the struggling chain. That shift in market share, combined with steady demand at E-mart's core supermarket business, is expected to lift consolidated revenue to roughly 6.77 trillion won for the quarter, up 3.9 percent from a year earlier.

"It is hard to predict exactly how the Homeplus situation will play out, but the tailwind it gives E-mart is very likely to keep building," said Kim Myung-joo, the Korea Investment & Securities analyst who authored the report. Kim also pointed to a rebound in Korea's birth rate over the past year as a positive signal for a domestic retailer like E-mart, which relies heavily on household grocery spending.

The target price cut underscores how much E-mart's investment case now hinges on non-core businesses rather than its traditional discount-store operations. With Starbucks Korea and SSG.com both expected to weigh on group earnings this quarter, investors are likely to watch closely whether management can stabilize the coffee chain's sales momentum and narrow losses at the online unit before the drag deepens further.