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Still the most attractive retail play even after recent rally

4Q25 results likely to comfortably beat consensus

For 4Q25, we expect Shinsegae to report above-consensus results, with net revenue of W1.94tr (+6% YoY) and operating profit of W173.6bn (+68% YoY). At department stores, we expect gross revenue growth to rebound sharply to 9% YoY. Previously, management stated that even after accounting for higher depreciation expenses stemming from store renovations, gross revenue growth of roughly 5% would be sufficient to ensure profit growth. With 4Q25 growth likely to far exceed that level, we expect the department store business to deliver profit growth for the first time in six quarters.

Recent large-scale renovations appear to be yielding meaningful results. Gross merchandise sales (GMS) growth (YoY) at the Gangnam branch reached +8% in July, +9% in August, +13% in September, and +17% in October, while the flagship store in Myeongdong saw gains of +2%, +3%, +4%, and +6% over the same months. At the flagship store (which recently completed renovations following a phased reopening throughout 2H25), a full-fledged sales rebound likely materialized in 4Q25.

The rebound at the flagship store is particularly meaningful given its status as a key destination for foreign shoppers. Historically, foreign shoppers accounted for around 20% of sales at the flagship store; this figure fell to approximately 10% during renovations but recovered to 16% in 3Q25. Renovations at the flagship store were focused primarily on luxury brand stores, and given its location in Myeongdong, we estimate that Chinese shoppers are making a significant contribution. Notably, the store is also well-positioned to benefit from diverted tourism flows arising from heightened China?Japan tensions.

Still not expensive

Following a recent rally, the stock has quickly approached a 12-month forward P/E of 10x (based on consensus). However, valuation pressure should ease as earnings forecasts continue to be revised upward, and a further re-rating is possible based on improving fundamentals. Based on our upward earnings forecast revisions (assuming 2026 department store gross revenue growth at +5%) and Shinsegae’s treasury shareholding (9%), the stock is still trading at a 12-month forward P/E of around 7x.

Looking ahead, an additional re-rating will likely hinge on the extent of inbound tourist demand. In Japan, department stores saw their 12-month forward P/Es re-rate to 10?20x or higher during periods when the sales mix of foreign shoppers expanded from the high single digits to the mid-teens. In Korea, foreign shoppers still account for only 5?6% of department store sales, leaving ample room for growth. Shinsegae is likely to stand out in this regard, driven by low base effects and its portfolio of large stores in prime locations. We maintain our Buy rating on the stock and raise our target price to W350,000 (from W280,000), reflecting our upward earnings forecast revisions.