[News Space=Reporter seungwon lee] Fashion Group Hyungji (CEO Choi Byung-oh) saw its sales decrease by 8%, operating profit decrease by 33%, and net income turn to a deficit last year, further increasing its financial risk. In addition, its debt ratio worsened by 41.6%p year-on-year to 243.5%, and its current ratio recorded 43.3%. With short-term borrowings reaching 152.5 billion won, its financial soundness is in danger.

There have even been suspicions that the company inflated its accounting performance by transferring the unsold clothing inventory to a special affiliate and recording accounts receivable, and the company is continuing to write a dark history of legal disputes by continuing with four legal lawsuits.

Fashion Group Hyungji's shareholding structure is as follows: Chairman Choi Byung-oh holds 90.39%, Chairman Choi Byung-oh's eldest daughter Choi Hye-won, CEO and President of Hyungji I&C, holds 5.84%, and his eldest son Choi Jun-ho, Executive Vice Chairman of Fashion Group Hyungji, holds 3.77%.

Fashion Group Hyungji owns fashion category brands such as women's clothing (Crocodile Lady, Chatren, Olivia Hassler, Carysnot, Stephanel, Clermont), men's clothing (Yejak, BON, Bonji Floor), golf wear (Castelbajac), school uniforms (Elite), shoes and miscellaneous goods (Esquire, Gelflex, Young Age, Portfolio, Sonobi), and uniforms (Wilby), as well as a distribution business (Art Malling, a complex shopping mall).

According to the Financial Supervisory Service's electronic disclosure system on the 14th, Fashion Group Hyungji's sales in 2024 decreased by 8% from the previous year (KRW 210.3 billion) to KRW 193.4 billion. Operating profit decreased by 33% from the previous year (KRW 20.9 billion) to KRW 14 billion, and the operating profit ratio decreased by 2.6%p from the previous year to 7.2%. Net loss for the period was calculated to be KRW 16.6 billion, turning into a deficit from the previous year's net profit of KRW 15.2 billion.

Last year, Hyungji Global (formerly Castelbajac), a subsidiary of Fashion Group Hyungji, recorded net losses of KRW 16.3 billion, Neo Fashion Hyungji KRW 11.7 billion, and Art Malling KRW 6.2 billion.

The debt ratio worsened by 41.6 percentage points year-on-year to 243.5%, and the current ratio recorded 43.3%. Short-term borrowings amounted to 152.5 billion won, accounting for about 58% of current liabilities, and cash assets amounted to 1.5 billion won, accounting for only about 1% of short-term borrowings.

Intangible assets decreased to KRW 3.4 billion year-on-year, which appears to be due to the recognition of trademark impairment losses.

Selling and administrative expenses decreased by about 5% year-on-year to KRW 82.7 billion. Major expenditure items were ▲ advertising and publicity expenses of KRW 1.36 billion ▲ salary expenses of KRW 6.3 billion ▲ commissions paid of KRW 2.49 billion. Executive salaries remained unchanged at KRW 1.26 billion, and retirement benefits were approximately KRW 100 million.

A corporate finance analysis expert analyzed, “Fashion Group Hyungji’s main risks are rising debt ratios and lack of liquidity. Its financial burden is likely to increase due to the high interest rate environment and slowing consumption.” He added, “It needs to focus on securing liquidity through continuous cost-cutting efforts and asset sales, while seeking growth strategies through increasing brand value and entering overseas markets in the future.”

Additionally, financial transactions with special related parties increased year-on-year to approximately KRW 172.1 billion, which included transactions related to the acquisition of debt of related companies. 

The increase in financial transactions with Hyungji Elite’s special related parties is noticeable. First, due to poor sales and domestic recession caused by changes in consumption patterns, polarization in the fashion industry, abnormal weather, and high prices, suspicions are being raised that the company inflated its accounting performance by passing on unsold clothing inventory to special related parties and recording accounts receivable.

In particular, Hyungji Elite showed an abnormal transaction pattern in which accounts receivable exceeded sales by 2-5 times in transactions with special affiliates. For example, in transactions with Fashion Group Hyungji, the amount of credit transactions (accounts receivable) was 28.2 billion won, about 5 times more than sales of 5.6 billion won.

This is a departure from normal business practices and may raise suspicions of 'pushing'.

A fashion industry insider pointed out, "There has also been analysis that Hyungji Elite attempted to improve its financial statements through abnormal transactions in order to appease shareholders' dissatisfaction amid falling stock prices and a worsening business environment."

In addition, it was argued that "Hyungji Elite has a close control structure with its parent company, Fashion Group Hyungji, as well as Hyungji Esquire and Hyungji Retail," and that "this structure could act as a factor that increases the possibility of circulating funds within the group or adjusting performance through internal transactions."

Another risk factor is that four lawsuits (total amount of 2.1 billion won) are ongoing.

The lawsuits in which Fashion Group Hyungji is a defendant include a claim for damages (KRW 95 million) against the Korea Music Copyright Association, a claim for transportation fees (KRW 40 million) against Kim Kyung-wook, and a confirmation of non-existence of unpaid balances (KRW 15 million) against Yoon Young-joo. In addition, Fashion Group Hyungji is currently in the process of filing a lawsuit against the Yeoksam Tax Office to cancel the imposition of corporate tax, etc. worth KRW 1.96 billion.

Previously, Fashion Group Hyungji was sued by brand designer Jean-Charles de Castelbajac for 2,964,000 euros (about 4.4 billion won) in damages and brand cancellation in a Paris court in late 2023. However, the case was settled in February.

In addition, Hyungji I&C, an affiliate of Hyungji Group, was warned by the Fair Trade Commission for non-payment of subcontracting fees and non-payment of late interest. In particular, there was a case where 27,258,000 won was not paid to a subcontractor, and after an investigation by the Fair Trade Commission, the payment was made, and the case was closed with a warning from the Fair Trade Commission examiner.