Hudson Group Reports Fourth Quarter and Full Year 2018 Results

3/14/19

EAST RUTHERFORD, N.J.--(BUSINESS WIRE)--Hudson Ltd. (NYSE: HUD), a leader in North American travel retail, announced today its results for the fourth quarter and full year ended December 31, 2018.

Highlights of Fourth Quarter and Full Year 2018:

  • Fourth quarter turnover of $471.4 million, a year-over-year increase of 4.7%; record full year turnover of $1.9 billion, a 6.8% year-over-year increase1;
  • Full year organic sales growth of 7.0%; like-for-like sales growth of 3.7%;
  • Gross margin increased 140 bps to 63.7% for the full year 2018;
  • Full year adjusted EBITDA of $238.0 million, a 38.0% year-over-year increase (13.9% assuming the reduced franchise fee rates currently paid to Dufry2 had been in effect in 2017);
  • Surpassed the 1,000 store milestone and will expand total footprint by over 50,000 square feet by successfully winning, extending or expanding several key concession contracts during 2018.

“2018, our first fiscal year as a public company, proved to be an exciting and transformative year for Hudson Group with solid organic sales growth, a number of significant new business wins and the aggressive expansion of our food & beverage retail offering,” stated Roger Fordyce, CEO of Hudson Group. “Our strong reputation as a multi faceted operator and our deep relationships with landlord partners enabled us to successfully win a number of new RFPs and extensions with expansions that will add over 50,000 square feet to our existing footprint. Looking ahead, we have multiple opportunities to continue growing market share in existing airports and capturing new whitespace as airports continue to invest in infrastructure projects to support growing passenger volumes.”

Management Discussion of Fourth Quarter and Full Year 2018

Income Statement

  • Turnover increased $21.0 million or 4.7% to $471.4 million for the fourth quarter compared to $450.4 million in the fourth quarter 2017. Full year turnover increased $121.7 million or 6.8% to $1,924.2 million compared to $1,802.5 million in the prior year.
    • Fourth quarter net sales increased $17.7 million to $457.7 million or 4.0% from the year-ago period. Full year net sales increased $119.1 million or 6.8% to $1,879.9 million compared to $1,760.8 million in 2017.
    • Fourth quarter organic sales growth was 4.1%, compared to 9.4% in the year-ago period. Full year organic sales growth was 7.0% during the year compared to 8.8% in 2017.
    • Fourth quarter like-for-like sales growth was 1.6% (2.5% in constant currency), compared to 5.6% (4.5% in constant currency) in the year-ago period. Full year like-for-like sales growth was 3.7% (3.7% in constant currency) compared to 4.8% (4.4% in constant currency) in 2017.
  • Gross profit increased $21.4 million or 7.6% to $302.9 million in the fourth quarter compared to $281.5 million in the year-ago period. For the full year, gross profit increased $103.5 million or 9.2% to $1,225.7 million versus $1,122.2 million in the year-ago period. Gross margin increased 140 bps to 63.7% in 2018 due to improved vendor terms, as well as continued sales mix shift to higher margin categories.
  • Selling expenses increased $2.8 million or 2.6% to $108.6 million in the fourth quarter as compared to the year-ago period. For the full year, selling expenses increased $24.1 million or 5.7% over the prior year to $445.3 million. Concession fees, which comprise the majority of this line item, is a variable expense driven by net sales. For 2018, selling expenses as a percentage of turnover totaled 23.1% compared to 23.4% in 2017 due to a rent reduction in one of our concession contracts.
  • Personnel expenses increased $11.7 million or 12.2% to $107.3 million in the fourth quarter as compared to the year-ago period. For the full year, personnel expenses increased $39.8 million or 10.7% over the prior year to $411.1 million primarily due to opening new store locations as well as wage increases and additional personnel expense upon becoming a public company. As a percentage of turnover, personnel expenses increased from 20.6% in 2017 to 21.4% in 2018.
  • General and administrative expenses decreased $4.5 million or 11.6% to $34.2 million in the fourth quarter as compared to the year-ago period. For the full year, general and administrative expenses decreased $25.5 million or 16.3% to $131.4 million. As a percentage of turnover, 2018 expenses decreased from 8.7% to 6.8% primarily due to the reduction of franchise fees paid to Dufry starting January 1, 2018, offset by higher costs associated with becoming a public company.
  • Depreciation, amortization and impairment increased $9.9 million or 33.7% in the fourth quarter as compared to the year-ago quarter, and increased $20.2 million or 18.6% for the full year. The majority of the increase in both periods was the result of recording an impairment charge of $10.4 million relating to a non-core hotel location that was performing below expectations.
  • Adjusted EBITDA increased $11.4 million or 27.5% to $52.8 million in the fourth quarter as compared to the prior year quarter. For the full year, adjusted EBITDA increased $65.5 million or 38.0% to $238.0 million. Assuming the reduced franchise fee rates currently paid to Dufry had been in effect in 2017, adjusted EBITDA increased $2.2 million or 4.4% in the fourth quarter, and $29.0 million or 13.9% for the full year.
  • Reported net profit attributable to equity holders of the parent was a loss of $5.7 million in the fourth quarter compared to a loss of $41.4 million in the year ago quarter, primarily due to a one-time net loss recorded in the prior year period of $40.2 million on our deferred tax assets and liabilities related to recent tax reform legislation, while reported diluted earnings per share increased to a loss per share of $0.06 compared to a loss per share of $0.45 in the prior year quarter. For the full year, reported net profit to equity holders of the parent increased $69.9 million to $29.5 million due to the one-time write down in 2017 of our tax assets described above, and a $10.3 million benefit in 2018 due to the release of valuation allowance. Reported diluted earnings per share increased from a loss of $0.44 to earnings per share of $0.32.
  • Adjusted net profit attributable to equity holders of the parent increased $35.5 million to $7.3 million in the fourth quarter, while adjusted diluted earnings per share increased to $0.08 from a loss per share of $0.30 in the prior year quarter. Adjusted net profit increased $75.8 million to $76.9 million for the full year, while adjusted diluted earnings per share increased from $0.01 to $0.83 in 2018.

Balance Sheet and Cash Flow

  • Cash flows from operating activities for the year were $232.7 million compared to $130.8 million in 2017. Current year cash flows were impacted by improved operating performance and timing of franchise fee payments to Dufry.
  • At December 31, 2018, the Company’s net debt was $309.8 million resulting in net debt to adjusted EBITDA leverageof 1.3 times, compared to net debt of $463.7 million and net debt to adjusted EBITDA leverage of 2.7 times at December 31, 2017.
  • Capital expenditures in 2018 totaled $69.3 million compared to $87.8 million in 2017 as the result of the timing of new projects.

Operational Update

As of December 31, 2018, Hudson Group operated 1,028 stores, across 88 locations, totaling 1.1 million square feet of retail space.

During the fourth quarter, the Company retained and expanded business through RFP wins in Salt Lake City International Airport, nearly doubling its existing footprint in this airport to approximately 12,000 square feet.

Additionally, the Company successfully extended existing contracts at Dallas Love Field Airport, Dallas/Fort Worth International Airport and Vancouver International Airport.

Hudson’s successful RFP wins and extensions/expansions in various markets during 2018 will add over 50,000 square feet to its existing footprint.

About Hudson Group

Hudson Group (NYSE: HUD), a Dufry Company and one of the largest travel retailers in North America, is committed to enhancing the travel experience for over 300,000 travelers every day in the continental United States and Canada. The Company is anchored by its iconic Hudson, Hudson News and Hudson Bookseller brands and operates over 1,000 duty-paid and duty-free stores in 88 locations, including airports, commuter terminals, hotels and some of the most visited landmarks and tourist destinations in the world. Our wide range of store concepts include travel essentials and convenience stores, bookstores, duty-free shops, branded specialty stores, electronics stores, and quick-service food and beverage outlets. For more information, visit www.hudsongroup.com and www.dufry.com.