Fitch cuts Lotte Shopping's outlook to 'negative'

Fitch Ratings said Wednesday it has downgraded the outlook on Lotte Shopping Co. from "stable" to "negative", expecting slow recovery from last year's sluggish earnings due to tougher competition at home and abroad.

The key retail unit of South Korean conglomerate Lotte Group saw its operating profit fall 30 percent on-year to 688 billion won (US$541.5 million) in 2015, marking a consolidated net loss of 346 billion won.

While its 2015 earnings were hampered by the outbreak of the Middle East Respiratory Syndrome (MERS) in May, the global ratings agency expected another tough year for the company, citing sluggish domestic hypermarket segment and continuing losses in China.

"Lingering weakness in consumer sentiment, rising rental expenses and competition from other retail formats are likely to continue to put pressure on its profitability, especially its domestic hypermarket and Chinese retail operations," Pak Jeong-min, a senior analyst at Fitch Ratings Korean operation, said in the report. "As such, Fitch expects the earnings recovery to be slow."

The report came at a sensitive time as Lotte founder's two sons have locked horns to take control of the business empire that stretches from South Korea to Japan.

In late 2015, Shin Dong-joo, the former vice president of Lotte Holdings Japan, filed several legal suits against Lotte Group Chairman Shin Dong-bin, his younger brother, to nullify his dismissal from executive posts and to gain the right to see and copy ledgers of Lotte Shopping.

Dong-joo claimed Lotte is estimated to have suffered over 1 trillion won in losses from its Chinese business over the past four years, questioning his brother's management skills.

Lotte attributed the loss from its Chinese division to the toughening competition and its slowing economy, noting other global retailers also posted sluggish performances in the unfavorable business environment. (Yonhap)