The Industry Focus cast continues its discussion of Hudson Ltd. (HUD) as they dive into the company's recent revenue and earnings results before looking at its current valuation.
To get a sense of how the market is gauging the retailer after its IPO on the New York Stock Exchange, check out the video below.
A full transcript follows the video.
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This video was recorded on March 20, 2018.
Vincent Shen: Alright, Asit, let's hit a few more quantitative parts of this company, and then we can look at some of the results, in terms of what Hudson actually reported recently for the full-year 2017. You mentioned revenue growth of about 7% to $1.8 billion. I thought it was also impressive that their same-store sales were up 4.7% in 2017. Not a lot of brick-and-mortar players can boast those kinds of numbers. Their gross and operating margins expanded as well. It helps that Hudson, especially in the North American market, the big player in this industry, could benefit from some of that scale. They have a lot of these strong relationships with airports, for example, and some of these other venues, where they can lock down these multi-year concession agreements and work with their suppliers, improve pricing, innovate with some of their store formats and the different things that they're offering to travelers in these locations.
Looking ahead, I think what was really impressive was what management guided to in terms of the numbers that investors can expect. For example, they guided toward high single-digit organic net sales growth, low double-digit adjusted EBITDA growth, and high-teens growth for net income, that's the bottom line. Those are pretty robust figures for a brick-and-mortar retail operation. Again, I think that speaks to the unique nature of operating in these high-traffic regulated environments like airports, where Hudson has these concession agreements.
Then, on the valuation side, I wanted to mention, the stock trades close to $15 per share, or was right before we came into the studio. That gives it a forward price-to-earnings multiple of close to 20x. Nothing outlandish, I think, given the high-teens earning growth that management has mentioned. Any thoughts there from you, Asit? For the valuation?
Asit Sharma: Sure. That valuation is right in line with consumer discretionary figures if you look at the aggregate. I always use the S&P 500 Consumer Discretionary Sector, which longtime listeners have heard us talk a lot about on the show, I use them as a benchmark. That forward evaluation for that group tends to run at 20x to 21x forward earnings, so right in line.
What's interesting to me is that the numbers that you mentioned, Vince -- and I was impressed by this, too. We talk about so many retailers, and they're always going the other direction with negative growth. But this high single-digit organic revenue growth, high-teens net income, the low double-digit EBITDA, those numbers are predicated on two different statistics that, in the prospectus, Hudson covered. One is that North American passenger volume is growing at a compounded annual growth rate of about 3% a year and will continue that progress through 2025. The company also says that the average passenger spend has increased at a 4% rate each year. When you take those two numbers together, increasing people coming into airport terminals and increasing spend, it's a pretty good business proposition.
