The stock is poised to open for trading later this morning on the NYSE.
Frequent travelers and commuters are probably quite familiar with Hudson (HUD), which operates concession stands in airports, commuter terminals, hotels, and landmarks. Its first concessions opened in 1987 with five stores in a single New York City airport. Today, the company owns 948 stores spanning across the continental U.S. and Canada.
The retail shops it operates include a mix of convenience stores, bookstores, duty-free stores, electronics stores, themed stores, and quick-service food outlets. These stores fall under its various brand names, which include Hudson News, Hudson Booksellers, ink by Hudson, tech on the go, Kids Works, Nuance, World Duty Free, and DUFRY. In fact, since 2008, HUD has been a wholly-owned subsidiary of Dufry, a leading travel retailer with nearly 2,200 stores in 64 countries.
HUD's concessions are typically awarded to landlords, such as airlines, airport authorities, cities, counties, developers, and states. Over the past five years, it has been pretty successful in renewing contracts with these customers, achieving a renewal rate of over 80%. And, over the past three years, the company has opened 100 stores under its new Hudson format -- modern visuals, new product layout/allocation -- and it has invested close to $200 million in new store build-outs, upgrades, and expansions.
At 95% of net sales, airports are by far HUD's largest market. Consequently, its growth and success largely hinges on the health of the air travel industry. While recent trends have been positive, growth overall has been rather mundane. For instance, between 2010-2016, total passenger traffic grew at a CAGR of 3%. Looking ahead, Airports Council International expects the same level of growth from 2017-2025.
Taking a look at its results for the nine months ended September 30, 2017, turnover (its revenue metric) increased by 6% to $1.35 billion. Net sales represented 97.7% of turnover for the 2017 period, with advertising income representing the remainder. Organic growth was +8.7% for the period as like-for-like growth was 4.6% and contributed $51.7 million of the increase in net sales.
Gross profit grew to $840.7 million from $782.6 million for the prior year. Its gross profit margin increased to 62.2% for 2017 compared to 61.5% for the same period in 2016, primarily due to sales mix shift from lower margin categories to higher margin categories, and gross margin synergies related to its implementation in 2016 of the Hudson supply chain at the acquired World Duty Free stores, most of which are duty-paid stores.
The increase in revenue combined with the improvement in gross margin led to a 38% jump in operating profit to $52.7 million.