Dufry turnover remains depressed in Q1; duty paid sales resilient in challenging market; retailer aims to reopen two-thirds of stores by this month

Julián Díaz: “Customer behaviour indicates continued demand for travel and travel retail”

INTERNATIONAL. Dufry Group today reported turnover of CHF460.3 million (US$509 million) for the first three months of 2021, down by -68% year-on-year and -75.5% compared to Q1 2019. In organic terms, turnover fell by -66.7% compared to last year and by -73.9% versus Q1 2019.

Like-for-like performance came in at -68.3% compared to 2020 due to continued reduced passenger traffic across most airports and channels globally.

The category mix reflected the latest patterns of reopening with domestic flights recovering earlier than international, leading to stronger demand for duty paid than duty free goods. Food & confectionery and convenience product offerings have shown increased sales compared to the same period in 2019.

In line with the easing of travel restrictions by governments and the resumption of operations by airports and other landlords, by the end of April, more than 1,400 shops were open across the Dufry network, representing around 70% of sales capacity compared to full-year 2019.

Newly reopened locations include shops in Australia, Greece, Italy, UK and in the US, including Chicago, Dallas Fort Worth, New York JFK, Los Angeles, Oakland, San Diego, San Francisco and San Jose among others. At the end of May, Dufry expects to operate around 65% of shops, representing close to 75% of sales capacity.

For April, Dufry estimates organic growth (based on net sales) to have reached -70.5% compared to the same month in 2019. By region, estimates for Europe, Middle East and Africa are -84.3%, for Asia Pacific -81.6%, and for The Americas -56.2%.

The month by month picture in 2021 and how Q1 shapes up compared to 2020 and 2019; below, the regional picture; click to enlarge

Dufry said it is on track to achieve CHF530-670 million (US$586-741 million) in savings compared to 2019 in personnel and other expenses for financial year 2021, with Minimum Annual Guarantee relief for 2021 of around CHF300 million (US$332 million) signed as of April 2021.

CEO Julián Díaz said: “We are seeing encouraging signs for resuming travel trends and shop reopenings in the regions that have most progressed with vaccination campaigns and have established cross-border travel protocols accompanied by clear procedures and necessary documentation for travellers. Customer behaviour indicates continued demand for travel and travel retail, and we are well positioned to accelerate sales with further reopenings. The close relationship with our landlords, suppliers, employees and shareholders continues to be a valuable support during the recovery. We are confirming the scenarios we have laid out for 2021, and are confident that we can achieve the targeted cost savings for the year.

“As part of the re-organisation and the streamlining of our processes, we have now merged our North, Central and South America businesses into one reporting segment to reflect the decision-making process for the region. This step has been facilitated by the completed Hudson re-integration as well as the alignment of our operations and logistic platforms.

“Over the last weeks, we have successfully executed the refinancing of all relevant maturities until 2024 at attractive terms by applying a diversified product mix of convertible bonds, senior notes and bank debt. This allowed us to reduce our net debt position while securing additional liquidity, which currently stands at CHF2,213.7 million. In addition, we achieved an extension of the covenant holiday by another 12 months with the next testing now due in September 2022, and an increased threshold for both September and December 2022.

Dufry says that its customers are reacting positively to vaccination roll-outs with increased demand for travel and their appetite to spend; click to enlarge

“The further strengthened financial profile adds to the significant achievements realised in 2020 with respect to the implementation of recurring cost savings of CHF400 million, tight cash flow management and several financial initiatives to safeguard liquidity. We currently see progress on the reopenings in the US and Central America, and on plans communicated by authorities globally for collaboration on cross-border travel. The new organisational setup and strong liquidity position allows us to drive the recovery, while also engaging in strategic partnerships and opportunities to accelerate growth.”

Regional performance

Dufry combined its North America and Central & South America operations from 1 January 2021 into the new reporting segment, The Americas. The integration includes the reintegration (after delisting) of Hudson into the Dufry Group. The new segment reports to Eugenio Andrades, Chief Executive Officer Operations and member of the Global Executive Committee, From now Dufry will report across its three regions Europe, Middle East & Africa, Asia Pacific and the Americas as well as its distribution Centers.

Europe, Middle East and Africa

Turnover amounted to CHF134.5 million (US$148.8 million) in Q1 2021, down by -78.9% versus Q1 2020 and -83.5% versus Q1 2019. Performance remained relatively unchanged compared to Q4 2020 due to ongoing restrictive measures on travel. The UK, Central and Southern Europe remained heavily affected but Eastern Europe and Russia as well as Middle East and Africa performed ahead of the regional average. Dufry said: “Demand is picking up as soon as travel can resume, which became visible in January and since end of March across several locations in the region, where authorities allowed cross-border travel temporarily.”

Asia Pacific

Turnover amounted to CHF24.3 million (US$26.9 million) in Q1 2021, Organic growth reached -75.5% compared to 2020 and -86.2% compared to 2019. At the end of the quarter some cross-border travel started to resume, for example between Australia and New Zealand, however, the majority of Dufry’s shops in Asia Pacific locations were still closed. Dufry said: “China is recovering more strongly, and Dufry’s collaboration with Alibaba Group and Hainan Development Holding in Hainan benefited with its first 3,000sq m store opening on the Island. The full retail space of the new shop at the Mova Mall covering around 39,000sq m will open at the beginning of 2022.”

The Americas

Turnover was CHF 241.2 million (US$266.9 million) in Q1 2021, Organic growth came in at -59.9% versus 2020 and at -67.9% versus 2019. North America performed at the same level as Q4 2020, but since the end of March the US has seen a pickup in domestic and intra-regional travel activity thanks to progress on vaccination and an easing of restrictions.

Turnover was strongly driven by duty paid sales during Q1 2021 with above regional and group-average organic growth of -61.4% compared to Q1 2019. Central America and the Caribbean, including Mexico, Dominican Republic and the Caribbean Islands, continue to perform more robustly compared to all other regions, driven by intra-regional travel from the US as well as a more flexible international travel regime. South America’s performance was hit by the pandemic and related new lockdowns in Brazil, but partly mitigated by an easing of restrictions in other countries like Peru.

The regional net sales split saw Europe, Middle East and Africa contributing with 29.8%, Asia Pacific with 5.4% and the Americas with 53.4%. Global distribution Centers accounted for 11.4% of Q1 2021 net sales, which was mostly related to the Hong Kong operations temporarily providing supply to the Mova Mall shop in Hainan.

How Dufry says its collaboration with HDH and Alibaba is driving the business in Hainan

Business development

Gross retail space opened during Q1 2021 accounted for 1,848sq. Highlights included the opening of Dufry’s first duty free store in Odessa, Ukraine, in addition to the duty paid shops opened at the end of 2020.

In Brazil, the Porto Alegre duty paid shops added 700sq m of retail space in early March while at St. Petersburg Pulkovo, a new last minute shop added to the existing stores operated by Dufry. In the US, Dufry started to roll out its Hudson Nonstop concept, powered by Amazon’s Just Walk Out technology, with the first store opening at Dallas Love Field, and another announced for Chicago Midway Airport. In addition, Hudson opened six new stores at Virgin Hotels Las Vegas, diversifying its channel mix in line with Dufry’s overall strategy.

Dufry announced a cooperation agreement with Hainan Development Holdings (HDH) to collaborate at the Global Duty Free Plaza at Mova Mall in Hainan’s capital Haikou, which opened with a first store on 31 January. “The collaboration represents an important development in the attractive Hainan market and adds to Dufry’s strategic partnership with Alibaba Group to operate offline and online travel retail in China,” said Dufry.

A total of 2,100sq m was refurbished during Q1 with the main project at Rio Galeão Dufry Shopping Megastore, with additional work completed for the Express shop and the Hudson convenience stores. During Q1 Dufry also reported several concession wins, which will start operations throughout 2021. Dufry has been awarded a new concession at Sangster International Airport in Montego Bay, Jamaica, for duty free and duty paid operations, increasing its current retail space to 2,260sq m.

Dufry won a new concession contract to operate the duty free walk-through store at Teesside Airport, consolidating its footprint in the UK, where it currently operates duty-free shops at 25 airports. The current pipeline of opportunities stands at approximately 32,500sq m as at the end of March 2021.

Dufry reiterated its scenarios for business recovery in 2021; click to enlarge
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