In a show devoted to following up on some of the big consumer goods stories over the last year, the Industry Focus crew revisits airport retailer Hudson Ltd (NYSE:HUD) to understand why the stock is up double-digits since its early 2018 IPO.

A full transcript follows the video.

This video was recorded on Sept. 25, 2018.

Vincent Shen: The first is Hudson, let's start with them. Ticker is HUD. Asit, you and I first discussed this company on Industry Focus back in March. To that point, Hudson had been trading publicly for just over a month. The stock was down from its IPO debut price of $19 per share. Now, the shares have recovered. They're in positive territory, around $23.

On the last show, we talked about the unique position that Hudson is in as a big operator of storefronts specifically in places like airports, train stations, and tourist attractions. In essence, you have this brick and mortar retailer that doesn't have to grapple as much with the usual industry concerns of attracting customer traffic, or even the same level of competition, because they operate in these very regulated spaces, like airports, which make up 95% of their business. So, foot traffic's much more consistent barring any major events that impact air travel. There are also only so many other restaurants and newsstands within each terminal that they have to compete with.

I'll turn it over to you. The company reported second quarter results in early August. Most of the stock's gains came in the wake of that news. Can you walk us through some of the highlights from that report, and also, some other key developments listeners should be following?

Asit Sharma: Absolutely. I was impressed that Hudson was able to grow its top line. Reported revenue increased by 7.4% against the comparable prior year quarter. Organic growth was up over 8%. We had talked about the long-term growth trend that Hudson had managed when we first discussed this stock. Listeners may remember that it has a European parent, which owns a chunk of stock called DuFry, which is one of the largest airport retailers globally. DuFry's total footprint in the U.S. is mostly made up by Hudson's holdings.

This long-term trend 9% organic growth, the company reported pretty much in line with that. That caught my eye. We've seen this year, for some reason, so many IPOs, after they have their big splashy debut, the very next quarter, bam, there's a disappointing earnings report. I don't know if we'll get to this, maybe in a few weeks from now, but this happened to Sonos, the manufacturer of smart speakers that we also covered after its first report. It went south. So, I like the simple fact that earnings were in line. Growth was there on the top line.

Something else that caught my eye which wasn't as apparent when we discussed the prospectus of this stock, it actually got a concession from the parent company DuFry on the amount of royalty fees it has to pay. That helped, along with some rental concessions it won during the quarter, to improve its gross margin. Now, this company has a very high gross margin. As we discussed, and Vince, you just alluded to, once it gets into an airport, those are long-term leases, so it's pretty static margin structure from that perspective. The company increased gross margin by about 2% to almost 64%. Very nice, healthy profits there.

I also liked the fact that the company has increased its EBITDA. Listeners, we talk about EBITDA and its relationship to debt all the time on this show. EBITDA -- earnings before interest, taxes, depreciation, and amortization -- and its relation to how much borrowings the company has on its books. I noticed that when we first talked about Hudson, the company's debt to EBITDA ratio was a moderate 3.5X. That means that debt was about 3.5X annual earnings after you strip away the taxes and depreciation, interest expense, etc. Now, through this higher gross margin and also some cost cutting that the company has been able to implement, as of this most recent period, the debt to EBITDA ratio has dipped all the way down, my rough calculation is about 1.5X. This is evidence of higher cash flow that the company has. It still has a big debt load. It's got about $600 million worth of debt to its parent company. That's at an average rate of 5%. But given that the cash flow has rapidly increased in a couple of quarters this year, something for investors to watch.

Finally, two more quick things. I want to open up the discussion, and let's dig in a little bit more. The company won a new expansion award at Boston Logan Airport, which will increase its space at that airport from 25,000 square feet to 34,000 square feet. That's a big win. Also, it won and other RFP, Request for Proposal, award at LaGuardia International, as well as a number of smaller international airports in North America. Just a reminder, all of its operations are based in the U.S. and Canada.

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