Top-line growth continued to decelerate within a recent trend at airport retail operator Hudson Ltd. (NYSE:HUD), as revealed by its fiscal fourth-quarter 2018 earnings report. However, the company was able to wring higher profits from each revenue dollar, a point investors appeared to appreciate, as shares rose as much as 3% in the trading session following Hudson's earnings release Thursday morning. Note that all comparative numbers in the discussion that follows refer to the prior-year comparable quarter (the fourth quarter of fiscal 2017):

Hudson Ltd.: the raw numbers

Metric Q4 2018 Q4 2017 Growth (YOY)
Revenue $471.4 million $450.4 million 4.7%
Net income (loss) $2.8 million ($34.8 million) N/A
Diluted EPS ($0.06) ($0.45) N/A

Data source: Hudson Ltd. EPS = earnings per share. YOY = Year over year. N/A = Not applicable.

What happened with Hudson Ltd. this quarter?

Close-up of coffee cups in an airport departure lounge.

Image source: Getty Images.

  • Hudson achieved organic revenue growth of 4.1%, continuing a trend of curbed organic sales growth over the last few quarters. Total organic revenue growth of 7% in fiscal 2018 represented a slowdown from the 8.8% rate booked in fiscal 2017.

  • Comparable sales, which management terms "like-for-like" sales, improved 1.6%. Full-year like-for-like sales growth of 3.7% trailed the 4.8% expansion chalked up in the prior year.

  • Hudson's gross margin edged up 170 basis points to 64.2%. For the year, gross margin improved by 140 basis points to 63.7%, as the company enjoyed better vendor terms and the benefit of a sales shift to higher-margin categories.

  • The healthier gross profit offset higher operating expenses, as Hudson generated $9.2 million in operating profit, compared to $7.4 million in the fourth quarter of fiscal 2017.

  • During the quarter, the company won contract extensions for retail space at Dallas Love Field Airport, Vancouver International Airport, and Dallas/Fort Worth International Airport.

  • Hudson expanded its business at Salt Lake City International Airport, winning a competitively bid request for proposal (RFP). As a result, the company will nearly double its space at the airport to 12,000 feet.

  • The organization ended the quarter with 1,028 retail units spread across 88 locations, totaling 1.1 million square feet of retail selling space.

Check out the latest earnings call transcript for Hudson Ltd.

Management's perspective

In Hudson's earnings press release, CEO Roger Fordyce recapped the company's first year since its initial public offering on Feb. 1, 2018 and discussed new opportunities, which are expected to create value for shareholders:

2018, our first fiscal year as a public company, proved to be an exciting and transformative year for Hudson Group with solid organic sales growth, a number of significant new business wins and the aggressive expansion of our food & beverage retail offering. Our strong reputation as a multifaceted operator and our deep relationships with landlord partners enabled us to successfully win a number of new RFPs and extensions with expansions that will add over 50,000 square feet to our existing footprint. Looking ahead, we have multiple opportunities to continue growing market share in existing airports and capturing new whitespace as airports continue to invest in infrastructure projects to support growing passenger volumes.

Looking forward

Hudson, Ltd. doesn't issue forward earnings guidance. However, several factors are contributing to rising earnings power, which will continue to benefit the company. Following its IPO, Hudson's general and administrative expenses have decreased due to a reduction in franchise fees paid to parent Dufry AG. This fee reduction was responsible for $36.5 million of a $65.5 million increase in adjusted EBITDA, to $238 million, in fiscal 2018.

In addition, Hudson reduced its net debt by 33% in fiscal 2018 to $308.9 million, which provides more balance sheet flexibility and should result in lower interest expense in fiscal 2019. In the new reporting year, if Hudson continues to improve gross profit while holding overhead expenses in check, its slated square-foot expansion should result in a more robust bottom line.