East Rutherford, NJ – November 5, 2018 – ̨ɫ Ltd. (NYSE: HUD) (“̨ɫ Group”) a leader in North American travel retail, announced today its results for the quarter ended September 30, 2018.
Highlights for the Quarter:
Turnover of $526.6 million, a year-over-year increase of 6.0%;
Organic net sales growth of 6.5%, which includes 90 basis point currency headwind;
Like-for-like net sales growth of 3.3% (4.2% constant currency);
Gross margin of 63.7%, a year-over-year expansion of 160 basis points;
Adjusted EBITDA of $76.2 million, a year-over-year increase of 27.6% (or 9.3% assuming the reduced franchise fee rates currently paid to Dufry1 had been in effect in the third quarter of 2017);
“Our solid third quarter results are highlighted by like-for-like sales growth of 4.2% in constant currency and the continued execution of key productivity initiatives and product launches,” stated Joe DiDomizio, President and CEO of ̨ɫ Group. “We had a number of notable, productive new store openings during the quarter, including specialty retail locations in Dallas/Fort Worth International and Hartsfield–Jackson Atlanta International airports, which demonstrated our ability to maximize productivity in any given footprint by leveraging our diverse portfolio of retail concepts and product lines. Looking ahead, we are excited by the pipeline of opportunities to expand our strong footprint of leading travel retail concepts to drive top line growth and enhance profitability.”
Third Quarter 2018 Summary
Turnover increased $30.0 million or 6.0% to $526.6 million for the third quarter 2018 compared to $496.6 million in the third quarter of 2017.
Net sales increased $31.2 million or 6.4% to $516.8 million from the year-ago period;
Organic net sales growth, which is a combination of like-for-like net sales growth and net new business and expansions, was 6.5%, compared to 8.3% in the year-ago period;
Like-for-like growth was 3.3% (4.2% in constant currency), compared to 3.7% (2.8% in constant currency) in the year-ago period primarily due to negative currency movements as the Canadian dollar weakened versus the U.S. dollar as compared to the prior year quarter, partially offset by a higher number of transactions in the current period due to the impact of last year’s hurricanes on air travel in the year-ago period.
- Gross profit increased $27.0 million or 8.8% to $335.5 million in the third quarter compared to $308.5 million in the year-ago period. Gross margin increased 160 bps to 63.7% in the quarter due to improved vendor terms as well as continued sales mix shift to higher margin categories.
- Selling expenses increased $8.2 million or 7.2% to $121.7 million in the third quarter as compared to the year-ago period, driven primarily by concession fees, which comprise the majority of this item and is mostly a variable expense driven by net sales. For the quarter, selling expenses as a percentage of turnover totaled 23.1% compared to 22.9% in the prior year quarter primarily due to higher credit card transaction fees.
- Personnel expenses increased $9.7 million or 10.1% to $105.4 million in the third quarter as compared to the year-ago period. As a percentage of turnover, personnel expenses increased from 19.3% to 20.0% this quarter. The increase in personnel expenses was primarily driven by new hires associated with opening new store locations, wage increases and additional personnel expense upon becoming a public company.
- General and administrative expenses decreased $7.2 million or 18.2% to $32.3 million in the third quarter as compared to the year ago period due to the reduction of franchise fees paid to Dufry starting January 1, 2018, partially offset by higher professional fees upon becoming a public company. As a percentage of turnover, this item decreased from 8.0% to 6.1%.
- Adjusted EBITDA increased $16.5 million or 27.6% to $76.2 million in the third quarter as compared to the prior year quarter, and adjusted EBITDA margin increased from 12.0% to 14.5%. Assuming the reduced franchise fee rates we currently pay Dufry had been in effect in the third quarter of 2017, adjusted EBITDA for the quarter would have increased $6.5 million or 9.3% instead of 27.6%, as compared to the year ago period.
- Reported net earnings attributable to equity holders of the parent increased $13.1 million to $26.6 million in the third quarter compared to $13.5 million in the year ago quarter while reported diluted earnings per share increased to $0.29 per share compared to $0.15 in the prior year quarter.
- Adjusted net earnings attributable to equity holders of the parent increased $20.4 million to $37.5 million in the third quarter compared to $17.1 million in the year ago quarter, while adjusted earnings per share increased from $0.18 to $0.41.
Balance Sheet and Cash Flow Highlights
Cash flows from operating activities for the quarter decreased to $75.2 million compared to $88.0 million in the prior year quarter due to timing of working capital changes, partially offset by an improvement in operating performance.
Capital expenditures in the quarter totaled $18.2 million compared to $15.6 million in the prior year quarter.
At September 30, 2018, the Company’s net debt was $303.6 million resulting in net debt leverage of 1.3 times, compared to net debt of $375.6 million and net debt leverage of 2.4 times at September 30, 2017.
Operational Update
As of September 30, 2018, ̨ɫ Group operated 1,016 stores, across 87 locations, totaling 1.1 million square feet of retail space.
During the third quarter, ̨ɫ expanded its footprint in existing markets though an RFP win at Philadelphia International Airport.
The Company also successfully extended an existing contract at the Chicago Citigroup Center.
Earnings Conference Call Information
̨ɫ Group will host a conference call to review its third quarter financial performance today, November 5, at 10:00 a.m. ET. Participants can pre-register for the conference by navigating to . The conference call also will be available in listen-only mode via our investor relations website: . To participate in the live call, interested parties may dial 1-833-255-2832 (toll free) or 1-412-902-6725. A web replay will be available at 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 net sales growth represents the combination of growth in aggregate monthly sales from (i) like-for-like net sales growth and (ii) net new business and expansions. Like-for-like 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 growth excludes growth attributable to (i) net new business 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 business 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 business 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 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 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 September 30, 2018 divided by adjusted EBITDA for the trailing twelve months ended September 30, 2018.
1 Dufry AG (SIX: DUFN) is the ultimate parent and controlling shareholder of ̨ɫ Ltd.