Q2 2020 Hudson Ltd Earnings Call
Good day, everyone and welcome to the second quarter 2020 earnings call all participants will be in listen only mode. Since you need assistance. Please take note copper, especially.
Okay.
After today's presentation, there will be an opportunity to ask questions to ask your question.
Understood.
Your question. Please press Star then too.
Please also note that today's event is being recorded.
This time I'd like to turn the call ever choose Cindy Walter Vice President Investor Relations Corporate communications.
Walter you may be.
Thank you operator, and good day, everyone. Thank you all for joining us.
Good morning, released our second quarter results you can find a copy of a press release and the presentation on our website at investors that have to pay dot com along with our Q2 financial statement.
On today's call, we will have Raj report ice, our CEO and Adrian Barcelo, our CFO.
Please note that management may make forward looking statements regarding your beliefs and expectations as to the company's future business prospects and resolved.
These statements are subject to risks and uncertainties they could cause actual results to differ materially from these statements. Although we believe the expectations reflected in our forward looking statements are reasonable we can give no assurance that such expectations will be realized.
We urge everyone to review the Safe Harbor statements provided in our earnings release and financial statements as well as the risk factors contained in our 2019 annual report on form 20-F, which is available on our website.
During today's call will refer to the IRS and non <unk> financial measures of the company's operating and financial results for information regarding our non I have for us financial measures and reconciliation to the most directly comparable I as far as measures. Please refer to our earnings release.
And with that I'll turn the call over to Roger.
Thank you Sandy and good morning, everyone.
Thank you for joining us to review our second quarter 2020 results.
Well, we spoke with you in late June.
We have laid forth our plans for rebuilding our business, which I put a gradually reopening a number of our stores and instituting numerous measures to ensure team members and customers felt safe when they return back to our stores.
At the same time, we detailed the many initiatives we have undertaken to significantly reduce expenses across the company to preserve liquidity and ensure the fiscal health of our business.
I'm pleased to share today that we're making progress and all of these areas.
We've been working close close partnership with our airports and other landlords to determine when and where to open stores to best serve the needs of travelers employees and daily commuters.
We have now reopened over 200 stores to date, bringing our total open store count were approximately 450 with additional store openings each week.
We expect the traveling trends will be different at every location. So we will continue to open stores were economically feasible using a pilot test type of approach to ensure productivity.
We have received tremendous support from our airport partners in this regard.
Our ability to reopen new stores, each week would not be possible without the support of our field in corporate team members as well as our business partners.
Secondly, this team has been instrumental in working hand in hand in partnership with our airports and landlords are appropriate rent relief and other efficiencies. So that we can keep our stores operational.
We especially appreciate the efforts of our frontline team members. We have continued to be the travel is best friend for travelers any central personnel.
Oh, let's make sure health and safety remains the top priority for Hudson.
Well travel volume increased sequentially in the months, if it may and June.
We're still witnessing passenger volumes significantly below your below last year.
With T S. A passenger throughput data, reflecting a volume reduction of about 75% in the last few weeks in July.
Well this is an improvement over the 81% reduction in the month of June.
These numbers still show a very low level of travel as reflected in our sales volume.
What we would hope to see passenger traffic at higher levels by this point in July.
The extended closure of the U.S. Canadian border and the recent increases in coal with 19 cases across the various parts of the U.S. have led to new travel restrictions in quarantines.
The result has been a slight reduction in traffic recently.
Decreased demand.
Significant variability in day to day traveler volume.
Given the extremely challenging environment and the uncertainty about one travel will fully rebound.
Last month, we determined that was necessary to implement the more permanent reduction in workforce.
As part of this reduction we have reduced our workforce by approximately 40% across both our corporate and field staff.
In addition to the reduction in force we've extended the furlough period for several hundred members of our team.
I hope that some or all of these individuals leap will be called back as business recovers.
Hey, Bill will provide further details about the financial impact of this action later on in the call.
Well this reduction in workforce was a very difficult decision. We believe it was necessary to ensure the long term success of our business.
I personally want to extend my heartfelt appreciation on behalf of the entire company. So the team members, who will be leaving Hudson.
The company, we are today would not be possible without the contributions and dedication of these individuals and they will always be part of Hudson's history.
The reduction in force alongside our ongoing actions to reduce expenses and manage cash flow are critical and navigating this crisis and positioning Hudson for a full recovery.
As we discussed last quarter, we have been working closely with our landlords and the discrete partners to secure a rent waivers and deferrals in order to better align our cash outflow with our significantly reduced sales levels.
We truly appreciate the partnership that most of our airports and landlords have demonstrated to date.
I look forward to continuing to find ways together to help each other weather the storm.
Adrian will provide further details on the impacts of the rent waivers in a short while.
Despite the many challenges the industry is facing.
We continue to work with a number of our airport partners, a new store development, where it makes fiscal sense.
For example, we had a recent store opening in Nashville International Airport.
The Tennessee trading post, which is a tribute to all things Nashville.
This locally inspired travel essential store features a variety of products made in and around Nashville, including food and beverage offerings from local vendors as well as an assortment of local spirits.
We're very proud of our teams who brought this store to life during a challenging environment.
In regards to other recent initiatives, we entered the world of automated retail and with the introduction of our personal protection equipment vending machines in airports across North America beginning in July.
We successfully completed phase one of this project.
Now our entering the second phase of this project with plans to roll out to 27 airports in total.
The vending machines or stock with a proprietary line of essential PE products, providing a 24 seven retail experience.
We're also beginning to roll out our sunglass hut shop in shops in our travel convenience stores in partnership with Luxottica, a leader in premium eyewear.
Shops feature the Ray ban and Oakley brands and will provide a convenient way for travel is to purchase this classic eyewear.
The first 10 shops will open in the next two weeks with a phased opening approach continuing into 2022 for up to 250 shops.
This new initiative of integrating branded merchandise into our travel convenience stores offers additional growth opportunities for Hudson, particularly in the current environment, where low travel volumes make it less economical to open standalone specialty retail shops.
You can expect to see more of these branded partnerships moving forward.
Lastly, we continue to adapt our business model to the heightened expectation for a contact list shopping environment.
In addition to enhancing our tap to pay capabilities and all of our stores. We've added self scanning options and continue to expand our self checkout capabilities.
In a time when so much is uncertain.
We want to thank our team members for their continued passion and service to our company.
And for their ability to adapt in stride to are changing and evolving business.
Our responsibility as an organization.
Just to ensure that we are supporting our team members and customers.
And in that regard health and safety remains a priority for Hudson.
And there is our commitment to our team is as we traverse this new normal.
Equally important other concerted actions, we've taken to solidify our financial position.
We will help us to emerge a more focused business on the other side of this crisis.
Thanks in part to the efforts of our business partners and landlords aiding in our recovery.
Well the near term remains unpredictable.
As we have seen time and time again, the travel industry will return.
And we're confident that Hudson will emerge as a leader and innovator and the ever evolving travel concessions industry.
I'll now turn it over to Adrian to review, our second quarter results in more detail.
Thank you Roger.
Now turning to the results for the quarter and northern alter our second quarter results were significantly impacted by copied 19 and the reduction in traveler.
There are number in the second quarter decreased by 87.9% to 61.7 mid.
You get paid 83% of that.
Representing a higher percentage of top outside the historical levels.
I would probably convenient stores have been the first or open and the fossil to recover.
It's important to point out our monkeys site and evolution during the quarter.
Okay, you on the lower left.
Now, let's say bottomed out at 94.6% below prior year levels.
And from there so trend improved slightly year over year decline.
The 9.9% in May and further improve slightly declined 81.5 person June.
You can see similar positive monkey evolution in the phase three duty paid and duty free on the lower right on to slide.
This positive trend continued into July where I thought on that said today, we're trending down approximately 75% from the prior year levels.
Gross margin was 61.6% compared to 64.2% in the prior year second quarter.
Due to higher promotional activity I'm not sure much on that.
<unk> expenses decreased by 69.1 million, resulting in lease income for the quarter of 32 point told me.
That's correct.
On decline fade and the Mandalay personal 42.6 million received from number and then comment on time enough associated with laughter in Spain.
We realized some of you might be interested in more detail accounting treatment for end labor. So we have included additional information in the appendix.
And does it also note that we continue to have ongoing discussion do landlords and the rent labor than deferments expected to continue as long as probably volumes remained.
Personal expenses decreased by 61.3 person.
42 million.
Hi, Mark driven by our expense reduction actions in response to copied 19.
We also received 12.5 major medical your attention of credit from the U.S. cars luck and subsidies from a similar employ support program in Canada.
The Oscars Dr. Craig.
Partially offset by animal health benefit we offered to Fearnow templates.
First on expenses also included 8.6 million of restructuring expense due to the reduction in cars Roger discussed earlier.
As a percentage of turnover personnel expenses increased to 68, when one person from 21.3% last year.
It just significantly lower state though.
Although expenses.
By 52.5% to 20 minutes.
I was driven by a reduction in whatever selling expenses due to the sales decline.
Our expense management initiative.
As a percentage of turnover, although expenses were 32.4% compared to 8.3% in last year again due to the much lower think volume this year.
Depreciation amortization impairment increased by 8.8 million to 98.2 million.
This was primarily due to non cash charge of 9.7 million related to impairment of property plant and equipment that right WCS. It.
Reflecting a reduction <unk> cash flows through to the impact to the Cobiz 19.
Adjusted EBITDA decreased by 832.3 million year over year, too and I got to six to 1.7 million.
Representing a flow true on the 30%, which once on the low end of the 30% to 50% flow to ranch, we have discussed in previous calls.
We're able to achieve that primarily due to lower cost savings initiatives and the rent waiver.
Adjusted EBITDA attributable to equity holders of the parent well the loss of 63 cents well the second quarter.
Turning to order Ashland balance sheet.
The cash flow from operating activities for the quarter, what's a negative 11.
Compared to a positive hundred 63.4 meet on last year.
The decrease in cash, though was driven by declines operating performance just like copies 19.
Capital expenditure decreased to 6 million in the second quarter compared to 15 made on last year.
It's capitala Ben has been reduced the minimum 11 to preserve liquidity.
I was just not bad.
These represent without borrowing the lease obligations mines cash was 340 million, including 200 Foreign talk me off as labor cash.
Notably our cash usage was only 21 million in the second quarter compared to 92 point formula in the first quarter.
Driven by our significant cost reductions I called the company along with their end labor. So.
What's your comfort talking with the current definitely liquidity position, given our strict financial discipline and ongoing expense management.
Including the reduction in force the stuff they combine their friends neighbors and abatements, we're receiving from many ludlum's.
Looking ahead, we can count the estimate the duration or extend kols traveler disruption.
Well, we're not providing guidance at this time.
However, we have significantly adjusted our cost structure to align with the recent sites right and the conditions will probably industry today.
So we can provide some comments on expected expense levels for the year.
The reduction in force as Roger discussed earlier, it's expected to reduce our personnel expenses.
By approximately hundred 4200 60 million on annualized basis.
Additionally, we expect to receive approximately 60 to 90 million in my waivers and all the contractual arrangements in the second half of 2020.
Moving to other expenses, which went purpose to set a roughly 50% shakes and 50% or whatever.
Back to reduce fixed costs by approximately 10 million in the balance of the year.
If I have with component would be based lets say never which allows you to do them by passenger volume.
Yes, I do think cash sponsor expects its operating cash flow and long term financing arrangements. We believe we have other quit sponsor support I would comment the pricing.
Make no sort of capital expenditure and fulfill dep service requirements for the far as number of future.
In summary, why we continued to experience lower say never due to copied 19 pandemic and its impact on trial, but we have reduced our cost structure. Accordingly, we stand this challenging period.
We are continuing to advance I'm a stupid you can you shut them.
I remain confident in the long term potential of our business model.
And then instead of the troubling that's true.
I'll now turn back over to the operator, we'll open it up to you on that.
[noise] and we will now begin the question and answer session. If he would like to ask your question. Please press Star then one.
I'd like to withdraw your question. Please press Star then too.
And our first question today will come from Seth Sigman with credit Suisse.
Ahead.
Hi, This is leverage your money on [laughter] no question.
So just to start in school, if I mean organic sales down do you have like for like 82% Kinda give some color on the desktop between Dokic that takes on a basis point negative impact coming from offered as part of the net.
But you can collect them additional color.
Hi, guys if anyone here so.
Yes, the reason.
It looks so we provided additional color on the contribution of organic and time and the like for like so in the normal enormous circumstances like for like this would represent their own to them.
92 night in excess of 90% of our over assays in the in this quarter because we have close so many stores like for like it's actually on the calculated under still due to open which is less than house. So this is why did that you cannot really are those pieces together you have to look on the contribution from like for like.
And that new business, which we disclosed in our presentation on page 14 I believe.
Okay.
Oh, just following up on the margin outlook I mean, I'm probably helpful color on <unk> morning pieces, especially in the second half, but then concerts and believe me was cost reduction announcements and you know the fixed cost reduction not expensive you said, we'd think about <unk> no to margin for the back haul fan and probably in the next year.
I think you guys mentioned popular where people can prior so just trying to think about how that couldn't look we had.
So we don't want to provide any guidance, a which we feel comfortable <unk> ranch is still a still valid we will that we'll do our best efforts to keep keep and stay as them as close as possible to the lower end of the marriage or ranch, but we don't Wanna, we'd want to providing a guy does we have provided some guidance on a cost.
Being so the first one expense savings or the big Big waiver savings expected.
And the those savings should help us to Ah to achieve our goal.
Also a one there's not a piece of color the Meg right, whereas we were.
Recorded in the quarter.
Actually represent only part of the waiver for second quarter or their traditional waivers, so which we expect to received for the second quarter, but we didn't the received a proper documentation. The on time when we close our book So we could not record them, but there's additional upside for waivers cominco for the second quarter.
So if we wouldn't be council all the waivers we would technically be even below the 30% the bottom end of the <unk>, 30% right.
On desktop Oh, I'm, just talking about merchandising actions for the second half I mean in Q2 with the Portland beverage penetration expanded considerably I know some up this quarter with initiate this I'm crab uncool offerings, but I mean looking at that and looking at the end when people issue in Q1, which was down just about <unk> given the big sales decline how do we think of.
With what the merchandising planning for the second half.
So I I think the big aspect for us is going to be continuing to focus on a the food and beverage aspect of it we've added grab and go uses to just about most of our our contracts to date. So we would expect that to continue to be a major driver of of the convenience business.
But we're also continuing to look at intestine and pilot the reopening of specialty stores as well too, particularly in the uses of electronics sunglasses bookstores et cetera and are finding some successes.
So I would say that we would expect to have some continued improvement on some of the world.
Question every categories as the quarter trend continues.
Providing however that the passenger trends continue to grow and that the specialty stores remain productive.
Got it thank you for that.
Your next question will come from Michael Lasser with yes. Please go ahead.
Good morning, Thank all particular question.
Number one.
With that 21 million dollar cash burn rate in the quarter is that the right number that we should think about as a thing annabelle moving forward. This level of overall passenger traffic it persists for at least the near term.
Or was there something unique in this quarter that temporarily reduce the cash burn rate.
Oh, Hi, Michael So I think.
So for the balance of the year. We think this is probably something we Oh, we we would think it's sustainable for the balance for.
July I want to catch but I was 200 million. So they applied burn for the month of July was or was it on to 4 million dollar.
Would you submit the which is more or less calls we've just seen in June but there's so few moving parts or would you need to consider and when you consider a the deferral. So oh, we have received around 30 minute of deferrals rent deferrals in the second quarter and most of them I do in Q3 in Q4 this year.
We're still working on the on a further postponements and good and the extension of the do payment dates for those deferrals. We also working on converting those deferrals into waivers.
We were successful in late in the in many cases.
So so there are many moving parts, but we don't anticipate this will see from I would say it's a.
Trend, we anticipate Howard higher sales or let's say, it's on the revenue a inflows, which we thinking the worst case and I would more than offset the.
The deferral us should they should they become due in the Q3, okay. So.
Okay. So the net effective that should be that $20 million the quarter, it's still a decent one way to think about.
Yes, I think stiff Mike I agree I think thats, a good number yep yep, Okay and based on.
Having an additional few months Oh no operating in this environment, how work power passenger traffic behaviour passenger behaving differently from what they're buying how they're buying it how much that spending more importantly that can help inform what.
You know a more normalized environment might look like as we get into next year are there other stark differences Roger.
So with much of our specialty stores remaining closed its difficult to understand how that I referred to that is our discretionary spend categories. What we've seen in the core convenience is you know a slight rise in the food and beverage because of the fact that we have added so much of it and because airlines had.
Stop serving in many cases some of the food and beverage locations were limited in their openings. So we benefited in many cases from the expansions that category, how long that will be sustained remains to be seen.
But we also have seen some improvement in what we referred to is the health and beauty category as well too as our health and beauty care category as the P.E. or the personal protection equipment became a stronger part of our sales. Once again, we anticipate that to be sustained for quite awhile, but at some point is starting to Wayne. So I think in the short term what we saw in the second.
Quarter at least on the convenience side of the business will remain the same.
And as we move further into the year, we do hopefully to start to anticipate opening some more of our specialty stores and more of those category starting to balance out but for most of the convenience business outside of the two kept those two categories. We are still seeing.
You know a fairly good balance of product sales across all the categories within the convenience business.
So if you just look at a convenient business it's been per passenger.
And how much by how much.
Yeah. So on the into convenience stores you know it's up it's up a few percentage points now one thing I want to talk about that because this is an interesting dynamic.
Remember that when I say duty paid that is not just convenience now the duty paid business includes all of our specialty duty paid specialty as well too and that specialty business carries with it a very very high spend per ticket per transaction. So the fact that we're driving a higher spend right now slightly higher spend right now and in our duty.
Pay business overall is really good sign that means our convenience business is performing very very well.
In Roger like My last question is as you go out to talk to airport operators.
And even airline what do you can be consensus is on the number of your will take overall passenger traffic to get back to pre corporate level.
I mean, most of the indications right now are pushing towards the consensus between what I've seen what I've read people I've talked to are indicating that 2023 is kind of the year of the return to 2019 passenger levels now I say 2019 passenger levels, because it's going to be an interesting dynamic to see.
How much of a shift there is in domestic versus international business versus leisure, but I think the overall consensus is that the total passenger numbers here in North America or targeting more like 2023.
To me the return of the 2018 levels.
Okay. Thank you very much a good book.
And our next question will come from Kimberly Greenberger with Morgan Stanley. Please go ahead.
Great. Thank you so much I just wanted to confirm Adrian your comments on the month of July I saw in the press release, you talked about passenger volumes in the second half of July down.
Around 75%, but I thought you said also that Hudson's revenue in July was down 75% did I hear that correctly.
That's correct, yes, so do like today too well so it wasn't a food month of July by July today to we were 75% down to prior year levels.
Okay, So running maybe similar to I guess lately.
Better it's a it's the first half in July I didn't know if you have the first half of July passenger volumes, where they meaningfully different from the 75% decline or was July relatively consistent through out.
I can't really I think the first half of July on the passenger counts was was boosted by the July 4th travel. We saw our you know quite a boost in both sales and passenger levels during that first week or two and then things kind of leveled out so it right now the the overall month trend as I said with to your point, we are trending slightly up.
Well due to you as a throughput on a regular basis.
Okay, great. So we could use that if we sort of watch that data come out regularly we could use that as a kind of rough proxy it sounds like.
Yeah, as we mentioned last quarter. It has been a very very good benchmarking and weather vane for for our business yes.
Great. Okay wonderful and then I wanted to ask about the 140 to 160 million dollar rats savings that you've got a is it can we just sort of take that divided by four and apply and even amount to each of the next four quarters in order to get to that annualized.
Savings number.
Or did you experience any savings from the reduction in force in the second quarter that we should keep in mind for the second quarter next year.
I think you can use it for this year for the next two quarters or next year would depend on the recovery level of the say so should just say sponsored by could dramatically then.
We may we may need to.
Hi, or some on additional employees, so a the savings maybe a bit different but a the revenue loss will be higher but I think for the balance of the year. You can you can you do it this way.
Okay fantastic.
And I apologize if I Miss desk in your in your follow up did you mention the core quantify what you received from the U.S. Carers Act. So far here in the third quarter. I know you gave the second quarter benefits do you have that maybe a july number for the third quarter.
We can think about.
No. We Didnt mentioned to July number in that we have received 4.5 million on the for June So as we as we go move forward with our with our reduction in force program to subsidies will obviously go down because many of them a reimbursement indirectly for their benefits we offered to the follow them.
Yes, so I think a the number for a Q3 would be much much lower but our expense base also will be lower.
Okay, Great Oh.
Okay Fantastic that takes care of my question. Thanks, so much.
And this will conclude the question and answer session I'll turn the call back over to me Spark Walter.
Thank you Paul Thanks, everyone for joining US today. This concludes our Paul just remind or you can find a replay of our call on the Investor Relations part of our website. Thanks for joining us and enjoy the rest of your dad.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.