Analysts have turned pessimistic on the stock prospects for South Korea’s GS Retail Co. whose mainstay hospitality and grocery businesses have shown signs of downturn.

According to the firm’s earnings guidance on Wednesday, operating profit in the April-June period fell 21.7 percent on year to 53.1 billion won ($47.2 million). Earnings in the convenience store sector, its main line of business, slid 5.7 percent from a year earlier. Its supermarket business extended losses, generating an operating loss of 4.3 billion won. The hotel sector slipped into the red with an operating loss of 800 million won versus the year-ago period.

After the earnings release, five Korean securities firms, including Hanwha Investment & Securities Co. and Meritz Securities Co., downgraded their investment opinions on the company. Nine lowered their price targets by an average of 16.5 percent, with Daeshin Securities Co. knocking off 23.3 percent to 46,000 won.

Shares of GS Retail closed Friday up 0.84 percent at 41,850 won.

The convenience store business is expected to be further weighed down by the government plan to hike minimum wage by 16.4 percent from next year that could hurt the shop employers’ bottom line.

GS Retail announced plans to set aside 75 billion won to compensate for losses of franchisees once the minimum wage goes up next year.

Analysts forecast GS Retail’s operating profit in the third quarter to be 78 billion-79 billion won, down 7 percent from a year earlier.

By Lee Yong-gun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]