People are seen near the headquarters of HYBE, the agency of K-pop supergroup BTS, in Yongsan District, Seoul, April 23. Yonhap

HYBE, the K-pop powerhouse behind BTS, Seventeen and NewJeans, reported a sharp decline in its earnings for the first quarter of this year, with operating profit plummeting 72.6 percent from a year ago.

The downturn comes as all members of BTS are performing in their mandatory military service, creating a significant gap in the company's artist lineup.

According to HYBE, the company's operating profit for the first quarter totaled 14.4 billion won ($10.4 million), a drop that was slightly steeper than the market estimate of 15.1 billion won by Yonhap Infomax, the financial data firm of Yonhap News Agency.

The K-pop company, which typically sees a seasonal slowdown in the first quarter, attributed the steep decline not only to the absence of activities from key artists like BTS but also to the cost associated with launching new groups.

Despite these challenges, HYBE emphasized that it had managed to maintain a profitable quarter due to what it described as "improved fundamental earnings strength."

Revenue also fell by 12.1 percent on-year to 360.9 billion won, while net income took a drastic hit, dropping 87.4 percent to just 2.9 billion won.

However, HYBE noted some positive developments, particularly from newer acts.

The company highlighted the successful debuts of TWS and ILLIT, whose album sales each topped 500,000 copies.

"This success helped mitigate some of the financial impacts from the hiatus taken by senior artists," it explained.

"While there were fewer releases of new albums in the first quarter, the company laid the foundation for a stable performance thanks to digital music sales that generate consistent revenue. As a result, the proportion of digital music sales in HYBE's overall music and album sales for the first quarter rose to around 50 percent," the company added in a release.

By sector, digital music and albums, concerts and appearance fees accounted for about 60 percent of the first-quarter sales, totaling 217 billion won.

Merchandising, licensing, content and fan community platforms generated the remaining 40 percent, bringing in 143.9 billion won.

HYBE anticipates a rise in both revenue and operating profit for the second quarter, when many of its artists are set to drop new albums and launch world tours.

Its boy groups — Seventeen, Tomorrow X Together and Boynextdoor — released new albums last month, with another boy group, Enhypen, and girl group NewJeans set to return soon with new releases.

Fans wait to pay for items of merchandise as they visit a pop-up store that will be open until May 12 of Korean K-pop sensation BTS entitled "Monochrome" in Seoul, April 26. AFP-Yonhap

BTS members, in particular, will begin being discharged from the military, starting with the oldest member, Jin, next month.

"We expect the company's new album releases to increase by more than 30 percent from the previous year, thanks to the returns of existing artists and debuts of new ones," the company said. "We also anticipate expanding fan engagement opportunities, with 10 teams set to hold 160 concerts and fan meetings this year, compared with 128 events by eight teams last year."

The announcement of the quarter earnings comes amid an intensifying conflict between the company and Min Hee-jin, head of its subsidiary that manages NewJeans, over allegations that she plotted to seize control of her company from the parent company. Min denies the allegations as "groundless."

During the earnings call for the January-March period, HYBE CEO Park Ji-won apologized for troubling shareholders with the recent conflict and vowed to resolve it smoothly.

"We're sorry for causing concerns to our shareholders," Park said. "The company confirmed details of the issue through an audit and will take additional, necessary measures."

He also pledged to continue devising ways to refine the company's multi-label system, acknowledging mounting concerns about its stability following the incident.

HYBE filed a complaint against Min on breach of trust charges last Thursday following the audit into the current management of the sublabel Ador. It also seeks to convene a shareholders' meeting to formally dismiss her from the CEO position. (Yonhap)