Seoul, Feb 26 - Lotte Shopping Co., South Korea's top retailer, forecast a 7 percent drop in 2007 net profit, to well below what the market had been predicting, as it flagged smaller contributions from its credit card unit.
Lotte, which is battling fragile consumer demand in Asia's third-largest economy, is expected to see earnings slow this year due to tougher regulations on household lending, higher taxes, and concerns about a property price bubble.
By 0300 GMT, Lotte shares were up 0.28 percent at 356,000 won after earlier rising to 359,500 won in a flat market. Analysts said the market had largely priced in worse-than-expected earnings guidance, and the stock's downside was limited now that the negative news was public.
"It looks like Lotte came up with a very conservative outlook after its rosy forecasts before the January IPO last year disappointed investors," said Lee Sang-koo, an analyst at Hyundai Securities.
"Consumers will find it harder to open their wallets after South Korea moved to rein in household lending in order to crack down on surging property prices. Demand could pick up in the second half if South Korea introduces measures to boost the economy ahead of the (December) presidential election."
Lotte, which runs South Korea's biggest department store chain and No.3 discount store chain, said it was targeting 689.6 billion won ($735.3 million) in 2007 net profit, down from a revised 739.8 billion won in 2006 and well short of an average 789.3 billion won profit forecast by 24 analysts surveyed by Reuters Estimates.
A Lotte spokesman said by telephone that while the firm had booked a profit of more than 100 billion won last year from its 92.5 percent holding in Lotte Card, it was expecting lower gains this year parly due to shrinking tax benefits.
Lotte also projected its 2007 sales would grow 10.5 percent to 10 trillion won, in line with forecasts for 10.6 trillion won.
Analysts expect 2007 discount store sales growth to lag last year's 8 percent, while department store sales are forecast to grow less than 2 percent.
Lotte's higher exposure to department stores than rival Shinsegae Co. Ltd. means a more vulnerable earnings structure as consumers tend to switch to low-priced outlets during an economic slowdown.
With few opportunities to invest at home, Lotte and Shinsegae are joining a global rush into new markets such as China, where mom-and-pop stores still make up 90 percent of the retail market.
Shinsegae, South Korea's biggest discount store operator, last month forecast 2007 net profit would grow 12.6 percent to 534 billion won, below a Reuters Estimates forecast for 582 billion won.