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Hudson Group: Reports Third Quarter 2019 Results

East Rutherford / NJ. (hud) Hudson Group, a leader in North American travel retail, announced its results for the quarter ended September 30, 2019.

Highlights of the Quarter

  • Turnover of USD 523.0 million, a year-over-year decline of 0.7 percent;
  • Organic net sales declined by 1.0 percent;
  • Gross margin increased 80 bps to 64.5 percent for the quarter;
  • Adjusted Ebitda of USD 75.1 million; adjusted Ebitda margin of 14.4 percent
  • Key win for duty-free concessions at Newark Terminal B

Recent Highlights

  • Entered into agreement to acquire food and beverage concessions operator OHM Concession Group on October 31, 2019
  • Entered into agreement to acquire 34 Brookstone airport stores and signed agreement to be the exclusive airport retailer for Brookstone on October 10, 2019

«During the third quarter, we continued to face macroeconomic pressures to our duty-free operations. In addition, we experienced travel disruptions due to Hurricane Dorian and the continued 737 MAX groundings that temporarily impacted our duty-paid business,» stated Roger Fordyce, CEO of Hudson Group. «Despite these short-term disruptions, our industry continues to exhibit extremely attractive long-term growth fundamentals. We also continued to drive efficiencies in the business with another quarter of strong gross margin performance.»

Fordyce continued, «Subsequent to quarter end, we announced our agreement to acquire food and beverage concession operator, OHM Concession Group. We also agreed to acquire Brookstone’s U.S. airport locations and serve as Brookstone’s exclusive airport retailer. These strategic acquisitions further strengthen our already diverse portfolio of concepts and enhance our ability to expand our food and beverage category, which will help drive the long-term growth of our business.»

Income Statement

  • Turnover decreased USD 3.6 million or 0.7 percent to USD 523.0 million for the third quarter compared to USD 526.6 million in the third quarter 2018.
    • Third quarter net sales decreased USD 5.1 million to USD 511.7 million or 1.0 percent from the year-ago period.
    • Third quarter organic net sales declined by 1.0 percent, compared to an increase of 6.5 percent in the year-ago period, primarily due to continued macroeconomic pressures around Chinese spending that impacted our duty-free and luxury business, as well as Hurricane Dorian and the 737 MAX jet groundings.
    • Third quarter like-for-like net sales declined by 1.1 percent (down 0.9 percent in constant currency), compared to 3.3 percent growth (up 4.2 percent in constant currency) in the year-ago period due to the factors described above.
  • Gross profit increased USD 1.9 million or 0.6 percent to USD 337.4 million in the third quarter compared to USD 335.5 million in the year-ago period. Gross margin increased 80 bps to 64.5 percent during the quarter due to improved vendor pricing, as well as continued sales mix shift to higher margin categories.
  • Leases expenses (formerly included in Selling expenses) decreased USD 75.4 million or 65.3 percent to USD 40.1 million in the third 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 USD 3.8 million or 3.6 percent to USD 109.2 million in the third quarter as compared to the year-ago period primarily due to wage increases as well as opening new store locations. As a percentage of turnover, personnel expenses increased to 20.9 percent from 20.0 percent.
  • Other expenses (formerly General expenses) increased USD 0.3 million or 0.8 percent to USD 40.3 million in the third quarter as compared to the year-ago period. As a percentage of turnover, other expenses were 7.7 percent, compared to 7.6 percent in the prior year period.
  • Adjusted Ebitda decreased USD 1.1 million or 1.4 percent to USD 75.1 million in the third quarter as compared to the prior year quarter.
  • Depreciation, amortization and impairment increased USD 60.9 million or 201.7 percent in the third 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 comprised of our concessions and other leases.
  • Reported net profit attributable to equity holders of the parent decreased USD 12.1 million to USD 14.5 million in the third quarter compared to USD 26.6 million in the year ago quarter, while reported basic and diluted earnings per share decreased to USD 0.16 per share compared to USD 0.29 in the prior year quarter.
  • Adjusted net profit attributable to equity holders of the parent decreased USD 4.2 million to USD 23.7 million in the third quarter (USD 24.6 million excluding IFRS 16 impact), while adjusted diluted earnings per share decreased to USD 0.26 (USD 0.26 excluding IFRS 16 impact) from USD 0.30 in the prior year quarter. Beginning in the first quarter of 2019, 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.

Balance Sheet and Cash Flow

  • Cash flows from operating activities for the nine months ended September 30, 2019 were USD 409.1 million compared to USD 197.1 million in the prior year period. The improvement in operating cash flows was primarily due to the adoption of IFRS 16, which reclassifies capitalized lease payments from operating activities to financing activities.
  • At September 30, 2019, the Company’s adjusted net debt (total borrowings excluding lease obligations, minus cash) was USD 216.0 million resulting in adjusted net debt to adjusted Ebitda leverage of 0.9 times, compared to 1.3 times at December 31, 2018.
  • Capital expenditures in the first nine months of 2019 totaled USD 52.7 million compared to USD 55.1 million in the prior year period as the result of the timing of new projects.

Operational Update

As of September 30, 2019, Hudson Group operated 1,011 stores, across 89 locations, totaling 1.1 million square feet of retail space.

During the third quarter, the Company added new business through an RFP win at Newark Liberty International Airport which includes over 7,500 square feet of expanded retail space in Terminal B and includes six new duty-free stores.

Board of Director Changes

Heekyung Jo Min resigned from the Company’s board of directors effective October 29, 2019 in order to increase her independence as the lead independent director on Dufry’s board. In addition, Joaquin Moya-Angeler Cabrera, an independent director, has joined the Company’s Audit Committee, which is now comprised of four independent board members.