Hudson Group Reports First Quarter 2019 Results

5/14/19

EAST RUTHERFORD, N.J.--(BUSINESS WIRE)--Hudson Ltd. (NYSE: HUD), a leader in North American travel retail, announced today its results for the quarter ended March 31, 2019.

Highlights of the Quarter:

  • Turnover of $445.0 million, a year-over-year increase of 4.3%;
  • Organic sales growth of 4.7%;
  • Gross margin increased 100 bps to 63.8% for the quarter;
  • Adjusted EBITDA of $37.7 million, a 2.4% year-over-year increase;
  • Concessions wins / expansions in Philadelphia and Indianapolis

“Performance started out strong in the first quarter of 2019 as demonstrated by our progress in driving growth in both turnover and profitability. We are particularly pleased with our solid organic sales growth, the increase in net new business, and the improvement in gross margin,” stated Roger Fordyce, CEO of Hudson Group. “We continue to be successful growing our footprint and partnerships with new brands and remain excited about the opportunities with our landlord partners. We have a robust pipeline of projects that we are working on as well as future opportunities in both retail and food & beverage. Finally, our strong reputation of offering a best-in-class merchandising product selection, unique store formats and digital enhancements position us well to drive long-term growth and profitability.”

Accounting and Financial Presentation Changes

In the first quarter the following accounting and financial presentation changes have been made:

  • IFRS 16 Leases was adopted as of January 1, 2019 which requires the capitalization of certain fixed lease payments. Please see Table 1 for results pre IFRS 16 impacts.
  • In conjunction with the new lease standard (IFRS 16) and its impact on the statement of consolidated income, the company took the opportunity to restructure the chart of accounts which is more representative of the company’s operating activities. Please see Table 6 for reclassifications.
  • The definitions of Adjusted EBITDA and Adjusted Net Profit Attributable to Equity holders of the parent have been revised. Please see Tables 4 and 5 for non-IFRS reconciliations.

Management Discussion of First Quarter 2019

Income Statement

  • Turnover increased $18.2 million or 4.3% to $445.0 million for the first quarter compared to $426.8 million in the first quarter 2018.
    • First quarter net sales increased $19.6 million to $434.6 million or 4.7% from the year-ago period.
    • First quarter organic sales growth was 4.7%, compared to 9.4% in the year-ago period.
    • First quarter like-for-like sales growth was 2.2% (3.2% in constant currency), compared to 5.5% (4.5% in constant currency) in the year-ago period.
  • Gross profit increased $15.8 million or 5.9% to $283.8 million in the first quarter compared to $268.0 million in the year-ago period. Gross margin increased 100 bps to 63.8% during the quarter due to improved vendor terms, as well as continued sales mix shift to higher margin categories.
  • Leases expenses (formerly included in Selling expenses) decreased $51.5 million or 53.1% to $45.4 million in the first quarter as compared to the year-ago period due to the adoption of IFRS 16 Leases, which requires the capitalization of the fixed portion of rent payments. Beginning January 1, 2019, lease expenses are only comprised of lease payments that are variable in nature.
  • Personnel expenses increased $17.4 million or 17.8% to $115.0 million in the first quarter as compared to the year-ago period primarily due to $7.6 million of executive separation expenses, 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 22.9% to 25.8%.
  • Other expenses (formerly General expenses) decreased $1.9 million or 4.8% to $37.4 million in the first quarter as compared to the year-ago period. As a percentage of turnover, other expenses decreased from 9.2% to 8.4%.
  • Adjusted EBITDA increased $0.9 million or 2.4% to $37.7 million in the first quarter as compared to the prior year quarter. We have revised the calculation of Adjusted EBITDA to add back the charge related to capitalized right of use assets which was adopted on January 1, 2019 for comparability to the prior year period.
  • Depreciation, amortization and impairment increased $48.7 million or 169.1% in the first quarter as compared to the year-ago quarter due to the adoption of IFRS 16 Leases which requires the capitalization and depreciation of right of use assets, which are primarily comprised of our leases and concessions.
  • Reported net profit attributable to equity holders of the parent was a loss of $6.7 million in the first quarter compared to a loss of $5.7 million in the year ago quarter, while reported basic and diluted earnings per share increased to a loss per share of $0.07 compared to a loss per share of $0.06 in the prior year quarter.
  • Adjusted net profit attributable to equity holders of the parent increased $4.3 million to $7.8 million in the first quarter ($11.1 million ex IFRS 16 impact), while adjusted diluted earnings per share increased to $0.08 ($0.12 ex IFRS 16 impact) from $0.04 in the prior year quarter. Beginning this quarter, the calculation of this item has been revised to include impairment of assets, one-off income tax items, and income tax adjustment on amortization related to acquisitions. The prior year quarters have been recalculated in the accompanying tables for comparability purposes.

Balance Sheet and Cash Flow

  • Cash flows from operating activities for the quarter were $93.5 million compared to $50.5 million in the prior year quarter. The improvement in operating cash flows was due to the adoption of IFRS 16, which reclassifies capitalized lease payments from operating activities to financing activities.
  • At March 31, 2019, the Company’s adjusted net debt (total borrowings excluding lease obligations, minus cash) was $304.3 million resulting in adjusted net debt to adjusted EBITDA leverage of 1.3 times, compared to 1.3 times at December 31, 2018.
  • Capital expenditures in the first quarter totaled $20.1 million compared to $15.3 million in the prior year quarter as the result of the timing of new projects.

Operational Update

As of March 31, 2019, Hudson Group operated 1,012 stores, across 88 locations, totaling 1.1 million square feet of retail space.

During the first quarter, the Company retained and expanded business through an RFP win in Philadelphia International Airport, bringing the total footprint in this airport to approximately 17,000 square feet.

Additionally, the Company successfully won an RFP at Indianapolis International, a new market for the Company, which includes approximately 9,000 incremental square feet.

Hudson also successfully extended a lease at San Francisco International Airport during the quarter.

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.