Airport retailer Hudson Group on Monday said that as of July 31, it has laid off nearly 40% of its employees, both corporate and field staff, and extended furloughs for many of those who remain. Per its most recent annual report, the company had more than 10,000 employees in 2019. The cuts come despite $4.5 million in employee retention credits from the U.S. "CARES" Act and similar subsidies from Canada designed to offset wage and benefit expenses during furloughs.
After reopening more than 200 of the 700-plus stores it had temporarily closed due to the pandemic, Hudson is running about 450 stores, according to a company press release. In North American airports, the retailer is also rolling out vending machines with proprietary health and safety items and electronics.
But travel, and therefore traffic to its airport shops, has plummeted, sending net sales down 88.4% year over year to $57.7 million, and gross profit down by $289.5 million or 88.4% to $38 million. Gross margin declined to 61.6% from 64.2% in the prior year, mostly due to higher markdowns on luxury goods. The company swung to a $88 million operating loss, from $53.9 million in profit last year.
Hudson Group usually does a tidy business in its more than 1,000 stores, found globally at "airports, commuter hubs, landmarks and tourist destinations."
But most of those are in airports, which have been bereft of travelers since the first quarter, as the pandemic cut off gatherings and events, with some countries banning travel to and from certain places. While some restrictions have been lifted, passenger volumes remain "significantly" down from last year, the company said. U.S. passenger levels rose in May and June, but in the last few weeks of July, the company said volumes were still down about 75% compared to last year.
Moreover, the company said it's bracing for a second wave of the viral infection to further impede travel, with CEO Roger Fordyce saying on a conference call with analysts Monday that he doesn't expect travel to return to normal for three years, according to a transcript from Motley Fool. The company said it's expanded self-checkout and its line of "grab and go" food and beverage items for speedier, more sanitary movement through its stores.
Hudson is also expanding somewhat. In addition to the development of its own line of PPE gear, sold in the new vending machines and in stores, the company has tied up with Luxottica Group to open as many as 250 Sunglass Hut shop-in-shops within its travel convenience stores. The first ten are opening early this month, with a phased rollout continuing into 2022, per the release.
Executives said they're negotiating with landlords on rent and leases, and have recorded $42.6 million of rent waivers. The company also recorded $8.6 million of restructuring expense related to its workforce reduction as well as non-cash impairments of $6 million to property, plant and equipment and $3.7 million to right-of-use assets.
Even when travel returns to normal, it's not clear what it will look like, according to Fordyce.
"People I've talked to are indicating that 2023 is kind of the year of the return to 2019 passenger levels," Fordyce said. "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."