Hanssem's Q3 operating profit plunges 76.5%, but 14-quarter streak holds

Hanssem's operating profit for the third quarter fell 76.5% from a year earlier, as a slowdown in housing transactions, rising raw material costs and one-time expenses from a subsidiary merger combined to squeeze margins. The company said it nonetheless maintained an operating profit for the 14th consecutive quarter.

Hanssem disclosed Monday that it posted consolidated sales of 357.61 billion won ($263 million) and operating profit of 1.61 billion won in the third quarter. Sales fell 19.0% and operating profit dropped 76.5% from the same period last year. Compared with the second quarter, sales declined 14.3% and operating profit fell 85.7%.

The operating profit margin slipped to about 0.5% in the third quarter from roughly 1.6% in the same period last year. Cumulative operating profit through the first three quarters reached 22.97 billion won, up 47.8% from a year earlier. Cumulative sales over the same period came to 1.17 trillion won, down 12.6%.

Hanssem said earnings were hurt by a drop in home sales transactions stemming from high interest rates and tightened lending regulations, as well as rising raw material costs linked to Middle East tensions. The company also noted that the Chuseok holiday at the end of September and a major discount event in October pushed some business-to-consumer sales into the fourth quarter.

In the business-to-business segment, one-time costs arose from the absorption merger of subsidiary Hanssem Nexus. Hanssem completed the merger on July 31, and expenses including taxes, legal fees and accounting advisory fees were reflected in third-quarter operating profit.

To improve earnings, Hanssem has been expanding sales of higher-margin products. In its Rehouse segment, the company launched new products including the "Euro 500" and the second-generation bathroom line "Easy Bath 7." The home furnishings segment also introduced new items such as the "Timeless" and "Knob" recliners, the "Swive" sofa and a "Kids Mattress" for infants and toddlers.

In the B2B segment, Hanssem plans to use the Hanssem Nexus merger as a springboard to strengthen its push into the mid-to-high-end interior market. The company intends to expand beyond its existing residential special-sales business into major reconstruction complexes in Seoul and the Greater Seoul area, as well as the residence and office furniture markets. The merger is also expected to cut overlapping operating costs and consolidate sales and construction teams.

Hanssem plans to pursue an earnings recovery starting in the fourth quarter. The company aims to convert consumer demand carried over from the third quarter into sales through its large-scale discount event "Ssaem Festa" and a back-to-school student room promotion, while also expecting cost savings from the Hanssem Nexus merger to take effect.

"In the third quarter, we maintained profitability for 14 consecutive quarters despite ongoing domestic and external uncertainties," a Hanssem official said. "In the fourth quarter, we will work to absorb the deferred consumer demand through major promotions and push for an improvement in earnings."