Hudson Group Reports Fourth Quarter and Full Year 2017 Results

“Our strong performance in 2017, highlighted by increased like-for-like and organic sales growth, underscores our ability to drive value and productivity from our existing portfolio of stores, while simultaneously executing new business opportunities,” stated Joe DiDomizio, President and CEO of Hudson Group. “During the year, we expanded our breadth and scale by winning RFP processes in five new locations, extending or expanding operations in eight existing airports and increasing our overall footprint. As a newly public company, I am energized by the prospect for continued growth and believe we are well-positioned to drive long-term shareholder value through our core purpose of being the Traveler’s Best Friend.”

Fourth Quarter & Full Year 2017 Summary

• Turnover increased $35.3 million or 8.5% to $450.4 million for the fourth quarter compared to $415.1 million in the fourth quarter 2016. Full year turnover increased $115.3 million or 6.8% to $1,802.5 million compared to $1,687.2 million in the prior year. 
  • Fourth quarter net sales increased $34.9 million or 8.6% from the year-ago period. Full year net sales increased $110.7 million or 6.7% to $1,760.8 million compared to $1,650.1 million in 2016.
  • Fourth quarter organic sales growth was 9.4%, compared to 10.1% in the year-ago period. Full year organic sales growth was 8.8% during the year compared to 5.4% in 2016.
  • Fourth quarter like-for-like sales growth was 5.6% (4.5% in constant currency), compared to 6.5% (6.5% in constant currency) in the year-ago period. Full year like-for-like sales growth was 4.8% (4.4% in constant currency) compared to 3.9% (4.3% in constant currency) in 2016.
• Gross profit increased $22.2 million or 8.6% to $281.5 million in the fourth quarter compared to $259.3 million in the year-ago period. For the full year, gross profit increased $80.3 million or 7.7% to $1,122.2 million versus $1,041.9 million in the year-ago period.  Gross margin increased 50 bps to 62.3% in 2017 due to sales mix shift to higher margin categories, as well as improved supply chain synergies related to the integration of acquired World Duty Free stores.
• Selling expenses increased $8.3 million or 8.5% to $105.8 million in the fourth quarter as compared to the year-ago period. For the full year, selling expenses increased $25.5 million or 6.4% over the prior year to $421.2 million.  Concession fees, which comprise the majority of this item, is a variable expense driven by net sales.  For 2017, selling expenses as a percentage of turnover totaled 23.4% compared to 23.5% in 2016.
• Personnel expenses increased $10.1 million or 11.8% to $95.6 million in the fourth quarter as compared to the year-ago period. For the full year, personnel expenses increased $33.9 million or 10.0% over the prior year to $371.3 million primarily due to opening new store locations.  As a percentage of turnover, personnel expenses increased from 20.0% in 2016 to 20.6% in 2017.
• General and administrative expenses increased $1.0 million or 2.7% to $38.7 million in the fourth quarter as compared to the year-ago period. For the full year, general and administrative expenses increased $5.0 million or 3.3% to $156.9 million.  As a percentage of turnover, this item decreased from 9.0% to 8.7% due to lower franchise fees resulting from the integration of acquired World Duty Free stores into Dufry’s[1] franchise fee structure.
• Adjusted EBITDA increased $3.5 million or 9.2% to $41.4 million in the fourth quarter as compared to the prior year quarter.  For the full year, adjusted EBITDA increased $16.3 million or 10.4% to $172.5 million. 
• Reported net earnings decreased $68.9 million to a loss of $34.8 million in the fourth quarter primarily due to a one-time net loss of $40.2 million on our deferred tax assets and liabilities related to recent tax reform legislation, while reported diluted earnings per share decreased from $0.31 to a loss per share of $0.45.  For the full year, reported net earnings decreased $60.4 million to a loss of $10.6 million due to the one-time write down of our tax assets described above, while reported diluted earnings per share decreased from $0.25 to a loss per share of $0.44.
• Adjusted net earnings decreased $68.0 million to a loss of $28.2 million in the fourth quarter due to the one-time write down of our tax assets described above, while adjusted earnings per share decreased from $0.43 to a loss per share of $0.30.  Adjusted net earnings decreased $66.5 million to $1.1 million for the full year due to the one-time write down of our tax assets described above, while adjusted earnings per share decreased from $0.73 to a loss per share of $0.01.

Balance Sheet and Cash Flow Highlights

• Cash flows from operating activities for the year were $130.8 million compared to $169.8 million in 2016.  Current year cash flows were impacted by the timing of franchise fee payments to Dufry in order to optimize the Company’s tax expense.
• At December 31, 2017, the Company’s net debt was $463.7 million resulting in net debt leverage of 2.7 times, compared to net debt of $289.1 million and net debt leverage of 1.9 times at December 31, 2016.   The increase over the prior year was due to the timing of certain payments to Dufry as described above.
• Capital expenditures in 2017 totaled $84.5 million compared to $98.1 million in 2016.

Operational Update

As of December 31, 2017, Hudson Group operated 996 stores, across 88 locations, totaling 1.1 million square feet of retail space.

During 2017, the Company retained and expanded business through RFP wins in Jackson, Raleigh, Chicago Midway, Ontario (CA), Phoenix, Grand Rapids, LAX and Dallas Ft. Worth. 

Additionally, the Company won concession contracts in two new airports in Tulsa and Des Moines.

The Company also successfully extended existing contracts in Norfolk, Las Vegas and San Jose.

Recent Developments

On February 5, 2018, the Company completed its initial public offering of common stock (“IPO”) on the New York Stock Exchange in which its parent company, Dufry International AG, sold 39,417,765 shares of common stock.  The shares of the Company’s common stock were sold at an IPO price of $19.00 per share, which generated net proceeds of approximately $714.4 million after deducting underwriting discounts and commissions and other offering expenses for Dufry International AG, the selling shareholder.  Hudson Group did not receive any of the proceeds from the offering.

Earnings Conference Call Information

Hudson Group will host a conference call to review its 2017 financial performance today, March 15, at 11 a.m. ET. Participants can pre-register for the conference by navigating to http://dpregister.com/10117342. The conference call also will be available in listen-only mode via our investor relations website: https://investors.hudsongroup.com/. To participate in the live call, interested parties may dial 1-866-777-2509 (toll free) or 1-412-317-5413.   A web replay will be available at https://services.choruscall.com/links/hson180315.html for three months following the call.

Website Information:

We routinely post important information for investors on the Investor Relations section of our website, investors.hudsongroup.com.  We intend to use this website as a means of disclosing material information. Accordingly, investors should monitor the Investor Relations section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this document.

Non-IFRS and Other Measures:

Adjusted EBITDA is a non-IFRS measure and is not a uniformly or legally defined financial measure.  Adjusted EBITDA is not a substitute for IFRS measures in assessing our overall financial performance. Because Adjusted EBITDA is not determined in accordance with IFRS, and is susceptible to varying calculations, Adjusted EBITDA may not be comparable to other similarly titled measures presented by other companies. We believe that Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. We also believe Adjusted EBITDA is useful to investors as a measure of comparative operating performance from period to period as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance, and it removes the effect of our capital structure (primarily interest expense), asset base (depreciation and amortization) and non-recurring transactions, impairments of financial assets and changes in provisions (primarily relating to costs associated with the closing or restructuring of our operations). Our management also uses Adjusted EBITDA for planning purposes, including financial projections. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for an analysis of our results as reported under IFRS as issued by IASB.  A reconciliation of Adjusted EBITDA to net earnings is provided in the attached schedules.

Adjusted net earnings attributable to equity holders of parent is a non-IFRS measure.  We define Adjusted net earnings attributable to equity holders of parent as net earnings attributable to equity holders of parent adjusted for the items set forth in the table below. Adjusted net earnings attributable to equity holders of parent is a non-IFRS measure and is not a uniformly or legally defined financial measure. Adjusted net earnings attributable to equity holders of parent is not a substitute for IFRS measures in assessing our overall operating performance. Because Adjusted net earnings attributable to equity holders of parent is not determined in accordance with IFRS, and is susceptible to varying calculations, Adjusted net earnings attributable to equity holders of parent may not be comparable to other similarly titled measures presented by other companies. Adjusted net earnings attributable to equity holders of parent is included in this prospectus because it is a measure of our operating performance and we believe that Adjusted net earnings attributable to equity holders of parent is useful to investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. We also believe Adjusted net earnings attributable to equity holders of parent is useful to investors as a measure of comparative operating performance from period to period as it removes the effects of purchase accounting for acquired intangible assets (primarily concessions), non-recurring transactions, impairments of financial assets and changes in provisions (primarily relating to costs associated with the closing or restructuring of our operations). Management does not consider such costs for the purpose of evaluating the performance of the business and as a result uses Adjusted net earnings attributable to equity holders of parent for planning purposes. Adjusted net earnings attributable to equity holders of parent has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for an analysis of our results as reported under IFRS as issued by IASB.  A reconciliation of Adjusted net earnings attributable to equity holders of parent to net earnings attributable to equity holders of parent is provided in the attached schedules.

Organic sales growth represents the combination of growth in aggregate monthly sales from (i) like-for-like sales growth and (ii) net new stores and expansions. Like-for-like sales growth represents the growth in aggregate monthly net sales in the applicable period at stores that have been operating for at least 12 months. Like-for-like sales growth excludes growth attributable to (i) net new stores and expansions until such stores have been part of our business for at least 12 months, (ii) acquired stores until such stores have been part of our business for at least 12 months and (iii) acquired wind-down stores, consisting of eight stores acquired in the 2014 acquisition of The Nuance Group AG (“Nuance”) and 46 stores acquired in the 2015 acquisition of World Duty Free S.p.A. (“World Duty Free Group”) that management expected, at the time of the applicable acquisition, to wind down. Net new stores and expansions consists of growth from (i) changes in the total number of our stores (other than acquired stores), (ii) changes in the retail space of our existing stores and (iii) modification of store retail concepts through rebranding. Net new stores and expansions excludes growth attributable to (i) acquired stores until such stores have been part of our business for at least 12 months and (ii) acquired wind-down stores. Like-for-like sales growth in constant currency is calculated by keeping exchange rates constant for each month being compared from period to period. We believe that the presentation of like-for-like sales growth in constant currency basis assists investors in comparing period to period operating results as it removes the effect of fluctuations in foreign exchange rates.

Net debt leverage represents total debt less cash at December 31, 2017 divided by Adjusted EBITDA for the twelve months ended December 31, 2017.

FOR FINANCIAL TABLES PLEASE DOWNLOAD PDF USING LINK BELOW

[1] Dufry International AG (SIX: DUFN) is the global parent and controlling shareholder of Hudson, Ltd.