NORTH AMERICA. Dufry company Hudson has reopened 100 of the 700 North American stores that closed due to the pandemic, with a plan to accelerate openings in coming weeks.
Announcing its first-quarter results, Hudson said that it continues to seek rent relief from airports and other landlord for both current and future periods. Rent relief waivers related to Q2 are expected to “increase significantly”, it said.
Like controlling shareholder Dufry, the company has reduced operating expenses and capital spend to minimal levels, and said it is tightly managing inventory to reduce working capital needs.
Hudson noted that its actions, along with Dufry’s long-term financing arrangements, mean that it has “adequate funds to support its revised operating plan, make necessary capital expenditures and fulfil debt service requirements for the foreseeable future”.
In Q1, the financial impact of COVID-19 included the following:
- US$3.3 million of rent waivers for March as a result of agreements with landlords.
- US$4.7 million of additional inventory allowance for slow-moving and obsolete items.
- A goodwill impairment of US$52.3 million.
Hudson CEO Roger Fordyce said: “The COVID-19 pandemic has had an unprecedented impact on world travel, and our thoughts go out to our team members, customers, partners, vendors and landlords that have been impacted around the globe.
“As the severity of the pandemic became evident, we immediately responded with actions that put the health and safety of our teams at the forefront and preserved our financial position. We armed our frontline team members with personal protection equipment (PPE), developed enhanced store cleaning protocols, expanded ‘Tap to Pay’ capabilities, installed Plexiglas shields, and implemented standardised social distancing decals and guidelines. Additionally, we made the difficult decisions to adjust our store operations and temporarily reduce our workforce, while implementing significant cost reductions across the organisation.”
Beginning in mid-May, as stay-at-home restrictions were lifted in certain areas, airlines added additional flights, and passenger travel started to increase, Hudson slowly began reopening stores and bringing back furloughed employees. Reopenings will occur each week “at an accelerated pace,” it said.
Fordyce added: “While we are pleased to see that passenger volume is gradually increasing from the record low levels experienced in April, we are still witnessing passenger volumes through the second week of June that are approximately -85% below last year, and business conditions remain extremely challenging. Our ongoing actions to reduce expenses and manage cash flow are critical in navigating this crisis and positioning Hudson for a full recovery and successful long-term growth.”
Fordyce said that Hudson strategy will continue to revolve around four pillars: travel convenience, speciality retail, duty free, and food & beverage. “To adapt to new traveller expectations, we are further evolving our digital footprint with contactless shopping environments, and providing 24×7 access to health and safety supplies through the roll-out of PPE vending machines. We have also signed an agreement with Luxottica to introduce Sunglass Hut shop-in-shops in our travel convenience stores.”
In Q1 (to 31 March), Hudson turnover fell by -23.3% to US$341.5 million, due to the impact of COVID-19 and the resulting reduction in travel.
Gross profit decreased by -24.8% to US$213.3 million, reflecting the reduction in sales and an additional inventory allowance of US$4.7 million due to the extended period of store closures. Gross margin was 62.5% compared to 63.8% in the prior year period, reflecting 140 basis points of adverse impact from the increased inventory allowance.
Lease expenses decreased by -51.3% to US$13.5 million, reflecting lower variable rent based on the decline in sales, and rent waivers of US$3.3 million received from airports and commuter terminals (primarily due for March). As a percentage of turnover, lease expenses were 4% compared to 6.2% in the previous year.
Personnel expenses decreased by -15.9% to US$96.7 million. As a percentage of turnover, personnel expenses increased to 28.3% from 25.8%, due to lower sales levels late in the first quarter.
Adjusted EBITDA fell by US$43.1 million for a negative US$5.4 million. Reported net loss to equity holders of the parent increased by US$71.4 million to US$77.2 million.
In 2020 to date, the company secured the following new business:
- LaGuardia Airport Terminal B –two travel convenience stores in the new Arrivals and Departures Hall (NYC Aglow by Hudson and Mad Ave Market by Hudson)
- Los Angeles International Airport Midfield Satellite Concourse – two travel convenience stores and two speciality retail stores (All Saints and NewBeauty) in the new concourse
- Atlantic City International Airport – adding four travel convenience stores, including a new combination Hudson/Dunkin store, representing Hudson’s first food & beverage concept at the airport
Additionally, Hudson extended existing contracts as follows:
- Charleston International Airport – five-year extension
- Des Moines International Airport – four-year extension
- Myrtle Beach International Airport – five-year extension
- Atlantic City International Airport – ten-year extension
