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Hudson Ltd. (HUD) Q2 2019 Earnings Call Transcript

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Hudson Ltd. (NYSE: HUD)
Q2 2019 Earnings Call
Jul 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Hudson Group 2019 Second Quarter Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Deborah Belevan, Vice President of Investor Relations. Please go ahead.

Deborah Belevan -- Vice President of Investor Relations

Thank you, operator, and good morning everyone and thanks for joining us. Earlier this morning, we released our second-quarter results. You can find a copy of our press release and the presentation on our website at investors.hudsongroup.com along with our interim report.

On this morning's call, we're going to have Roger Fordyce, our CEO and Adrian Bartella, our CFO.

Please note that management may make forward-looking statements regarding their beliefs and expectations for [Phonetic] the Company's future business prospects and results. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe these expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will be realized. We urge everyone to review the safe harbor statements provided in our earnings release as well as the risk factors contained in our 2018 Annual Report on Form 20-F, which is available on the SEC's website.

During today's call, we'll refer to both IFRS and non-IFRS financial measures of the Company's operating and financial results. For information regarding our non-IFRS financial measures and reconciliations to the most directly comparable IFRS measures, please refer to the earnings release.

And with that, I'll turn the call over to Roger

Roger Fordyce -- Chief Executive Officer and Director

Thank you, Debbie, and good morning. I'll begin this morning by providing an overview of the quarter's performance and then some key operating highlights. And then I'll turn it over to Adrian to provide some further details on our financial results.

During the second quarter, we saw a continuation of the macro headwinds we discussed on our last quarter -- last quarter's call. This impacted our organic growth, which came in at 1.8% over the second quarter of last year. Organic growth was driven by our duty-paid sales and offset by softer performance in duty-free. As you know, organic growth is comprised of like-for-like sales growth in our existing stores and net new business. [Indecipherable] Like-for-like in second quarter was 1.2% in constant currency.

The strongest driver of our business continues to be our core duty-paid stores, which delivered solid like-for-like 3.4% growth in constant currency for the second quarter. Duty-paid comprises 79% of net sales and includes our travel convenience stores, proprietary brands and food and beverage outlets. The fundamentals that drive our duty-paid concepts remain strong.

First, we are beneficiaries of constant growth in air passenger volume. In the first half of 2019, initial reports indicate that passenger traffic remains consistent with a 3% that we have seen over the past two years. Although lately, we've seen specific markets that have been negatively impacted by runway renovation shut-downs, as well as the 737 Max grounding, which as you know, continues.

Second, we're seeing solid like-for-like performance in some of our duty-paid high-growth categories, including food and beverage and electronics. In the Food and Beverage category, which includes packaged snacks, beverages, grab-and-go, and quick-serve concepts, we continue to see momentum and continued growth. Food and Beverage now comprises 40% of our total sales and continues to be one of our fastest-growing categories.

During the quarter, we were excited to welcome Tom Waldron as our Senior Vice President of Food and Beverage. Tom comes to the Hudson family with extensive experience in food and beverage operations and business development. This is a key strategic hire that will help us drive our expansion into food and service operations, which is a significant opportunity for us given the enormous white space that exists. Today, we have less than 1% of the market share in the food and beverage service market.

In regards to our Electronics category, given our scale and industry reputation, we built strong relationships with key electronic brands.

In the second quarter, our Electronics category grew 14% year-over-year, which included a 17% [Phonetic] increase in power accessories alone from our top vendors, including Apple, Belkin, and mworks!. We continue to expand our products and brands to capitalize on the growth opportunities in this category.

As we discussed on our first-quarter call, our duty-free sales continue to be impacted by a slowdown in Chinese spending both in Canada and the U.S. As such, duty-free saw a decline of 5.4% in constant currency like-for-like sales in the second quarter. There are a number of factors at play that have been impacting luxury retailers in general. Chinese traveler trends have weakened as a result of weaker Chinese currency and rising trade tensions.

China has also introduced policies to bolster domestic consumptions, including cutting VAT and import tariffs to encourage purchases within the country, rather than shopping internationally. These trends have been particularly pronounced across our Canadian duty-free business, which accounts for roughly 70% of our duty-free sales.

While total number of passengers traveling from China to Canada has actually increased slightly this year, we are seeing a lower spend per passenger as well as a significant reduction of Chinese passengers traveling to the U.S. This can be attributable to the fact that was just discussed and the weaker Chinese currency. Although promotions have been an effective tool at driving some top-line growth in duty-free, in the second quarter, in order to balance our approach with gross margin management, we pulled back on the promotional activity that we had implemented in the prior two quarters.

Our main focus is on profitable growth. That said, we continue to partner with airports, brands, and vendors to find other avenues to drive our top-line sales.

It is very difficult to predict [Phonetic] when we may see our duty free sales.

Stabilize, given the variety of macro issues at play that are beyond our control.

That said, it's important to keep in mind that duty-free is a small piece of our business at 21%[Phonetic] of our total sales and we continue to prioritize the growth drivers of our duty-paid business as well as maintain a focus on expansion of our Food and Beverage to further diversify our portfolio.

Turning to the other segment of our organic growth, net new business came in at 1.2% this quarter and consisted primarily of operations opened in Boston, JFK, Philadelphia and San Francisco. Our new business was slightly offset by a series of closures, including in Newark, Seattle, Toronto and DFW, some of which are temporary due to terminal construction activity and will be reopened over the next six to 12 months.

One important bright spot in our second quarter results was our continued ability to enhance overall gross margins. We achieved this through vendor negotiations as part of our ongoing efforts to secure the best terms, as well as the continued benefit of our sales mix shift to higher margin categories.

On the business development front, we secured a new win at St. Pete-Clearwater Airport, where we partnered with SSP to win a master concessionaire contract covering both retail and food and beverage concessions.

We also had a number of exciting new store openings this quarter. At Boston Logan, we unveiled our first next gen Dunkin' store in Terminal C. Dunkin' store of the future features a new open and modern design that uses sustainable materials and an innovative cold beverage tap system for cold brews and iced teas. This next gen Dunkin' concept lives within our new Ink by Hudson concept store, our own indie-inspired bookstore. We also remodeled the Dunkin' at Dallas Love Field Airport with the next generation design as well.

In Toronto Pearson Airport, we continue to build upon our luxury footprints, opening a specialty Chanel boutique, the first of its kind in travel retail. We also opened a new See By Chloe and a Dunhill store, expanding our branded specialty concepts in this airport.

Finally, last quarter, as we discussed, [Indecipherable] we are implementing some new tools to improve communications across our organization to help streamline training and to continue to drive employee engagement. This quarter, we rolled out our new employee communications campaign "Together We are Travel". Inspired by our people, Together We celebrates why Hudson is such a unique place to work. We started rolling out videos on our social media channels like LinkedIn and the careers page of our website, which featured testimonials and stories that give inside look at the day-to-day lives of our people. And what makes our team so strong? The goal is to not only inspire our current team members but to also highlight to prospective employees why Hudson is such a great place to work.

In summary, despite challenging macroeconomic factors which are outside of our control, we are pleased with our ability to continue to drive organic growth and enhance margins during the second quarter. We have a number of new exciting growth opportunities ahead, including the continued expansion of our food and beverage offerings. We look forward to updating you on our progress in coming quarters.

I'll now turn it over to Adrian for our financial details.

Adrian Bartella -- Chief Financial Officer

Thank you, Roger. Before we discuss our financial results for the quarter, I want to reiterate some changes you will see in the presentation of our financial statements we began implementing in Q1.

As we mentioned on our last earnings call as of January 1st, 2019, we have applied IFRS 16 Accounting Standard related to capitalization of leases [Phonetic], which impacts our P&L. Under IFRS 16, the treatment of leases now differs from U.S. GAAP considerably. We have broken out the impact for ease of comparability, which we will continue to do for the remaining of this year. In Q1, we also revised our definitions of adjusted EBITDA and adjusted net profit. The adoption of IFRS 16, does not impact our strategy or our net cash flows and doesn't change how we run the business. Detailed information on these changes can be found in the press release and attached table.

Now, turning to the results for the quarter. We drove organic sales growth and continued to strengthen our gross margins during the second quarter despite continuous pressures on duty-free and luxury sales. Our turnover, defined as net sales plus advertising income, increased 2.1% to $510 million.

Adjusted EBITDA, decreased 2.2% to $70.6 million. This was due to improved vendor terms that were negotiated and recorded in Q2 2018, but retroactive to January 1st, 2018 and half of the benefit was actually attributed to Q1 2018. On a comparable basis to last year, adjusted EBITDA would have increased by open 0.4%.

Excluding the impact, of IFRS 16, pre-tax profit increased 9.4% to$35 million for the quarter. However, due to a higher annual estimated effective tax rate, which is exceptional, impacted this year by the non-deductibility of the one-off executive severance recorded in Q1, an increase in [Indecipherable] adjusted EPS attributable to equity holders of the parent. Excluding the impact of IFRS 16, was $0.22, down from $0.25 in the second quarter of 2018.

Organic sales growth was 1.8% during the second quarter. Looking at the two components of organic growth, we saw some of the headwinds of the last few quarters become more pronounced during the Q2 2019. Like-for-like sales on a constant currency basis, grew 1.2%, compared to a 3.8% in Q2 2018. This was driven by growth in duty-paid particularly within our Food and Beverage and Electronics categories, which represented roughly 40% and 5% of total net sales in Q2.

As Roger mentioned, growth in duty-paid was offset by weaker duty-free and luxury sales as a result of slowing Chinese passenger spend and currency pressures. Duty-paid like-for-like grew at[Phonetic] 3.4% constant currency while duty-free declined 5.4%. In prior quarters, softness in duty-free primarily impacted our Canada locations, which accounts for roughly 70% of our duty-free sales.

During the second quarter, we saw also the slowdown of Chinese spending spread more broadly across our U.S. duty-free footprint. This is consistent with our overall trends we are seeing across the U.S. In addition, during Q2, we reduced our promotional activity to maintain a disciplined approach to gross margin management. While we anticipate continued softness in this part of our business, it is important to keep in mind, the duty-free only represents 21% of our total sales and we actively focus on growing the duty-paid portion of our business, including Food and Beverage.

Regarding the second component of organic growth, the net new business, the total contribution of net new business was 1.2% in Q2 as compared to 3.7% in second quarter of 2018. The decline, as Roger already mentioned, was due to store closures that offset new store openings. During the second quarter, our gross profit margin improved approximately 30 basis points to 64.2%. Key drivers of this upside were improved vendor terms and continued sales mix shift to higher margin categories. As you might [Phonetic] recall, in Q2 2018, we recorded 70 basis points of margin improvement, this [Phonetic] was actually related to Q1 2018 of vendor rebates that were retroactive to January 1st, 2018. If we buck out[Phonetic] this impact, our gross margin would have expanded by 100 basis point this quarter. I will continue to evaluate our cost structure to identify opportunities, to enhance margins. We expect gross margins to remain for the remainder of the year to be flat on a year-over-year basis.

Lease expenses were $54.8 million during Q2, down from $108.9 million in the prior year due to adoption of IFRS 16, requiring the capitalization of fixed concession fees and other rent payments.

Beginning January 1st, 2019 lease expenses are only comprised of lease payments that are variable in nature. Excluding the IFRS 16 impact, we leveraged the lease expense line item by 20 basis points over the prior-year period, reducing the overall percentage of lease expenses from 21.8% in 2018 to 21.6% in Q2 2019.

Personnel expense rose 7.7% to $108.6 million during the second quarter. This increase was driven by wage increases, new hires associated with the opening of new store locations and public company related expense. Other expenses were $38.7 million during the second quarter, a 2.8% decrease as compared to last year.

We are very pleased with the flow-through this quarter and operating profit and profit before taxes results. Excluding IFRS 16 impact, both metrics grew strongly viz.[Phonetic] 6.6% and 9.4% respectively.

Turning to our balance sheet. As of June 30, 2019, our net debt position, excluding lease obligations, was $246 million, resulting in adjusted net debt leverage of 1.0 time. Compared to 1.3 times at year-end.

Cash flows from operating activities for the first half of the year were $239 million compared to $122 million in the prior-year period. The sharp increase in cash flow was mainly driven by the reclassification of lease payments moving from operating to financing cash flow as a result of IFRS 16. There was also benefit due to timing of payments of payables.

Capital expenditures for the first half of the year were relatively flat at $35.2 million compared to $35.6 million in the first half of 2018.

Looking ahead, we are taking a more conservative view of the second half of the year. Given the trends impacting our duty-free and luxury sales, which we don't see abating through the end of the year, we believe we will come in at the lower end of the organic revenue growth range we provided in the first-quarter call which called for growth in the low to mid-single Digit range and we continue to expect flat adjusted EBITDA margins.

In summary, in spite of the continued softness in duty-free and specialty luxury sales, we are pleased with the strength of our duty-paid stores, which makes up the majority of our business and has attractive opportunities to drive future growth as well to expand our gross profit margins.

We are focused on driving growth in food and beverage, both in our retail stores, as well as the food and beverage service concession which will not only further diversify our business but also position us to capture significant whitespace opportunity.

Given these growth opportunities, coupled with resilience of our business, our distinct operative advantages, and industry-leading position, we are well-positioned to continue driving growth. We look forward to building on our progress in the second half of 2019.

I will now turn it back over to the operator to open it up to Q&A.

Questions and Answers:

Operator

Thank you.

We will now begin the question and answer session [Operator Instructions]. Our first question today will come from Seth Sigman with Credit Suisse. Please go ahead.

Seth Sigman -- Credit Suisse -- Analyst

Hey guys, good morning. Thanks for taking the question. I just want to follow up on that last point around your expectations for the year. Can you just clarify? It sounds like most of the issue relates to duty-free and I'll follow up on that. But, are you making any changes to your duty-paid assumptions here? Any changes to store growth, etc.?

Adrian Bartella -- Chief Financial Officer

No. Hi Seth, It's Adrian here. So most of the assumptions are driven by the duty-free performance we have seen in Q2. We don't change our assumptions to duty-paid. Within duty-paid we provided the chart, the like-for-like duty-paid over the last few quarters is -- was pretty stable, so we don't expect big changes in duty-paid. But, as we said earlier, the duty-free was volatile and Q2 was a bit under pressure. So this is a key driver of our change in expectations.

Seth Sigman -- Credit Suisse -- Analyst

Okay, that's helpful. And then, so on duty-free, I think in the first quarter you had seen some level of improvement from prior quarters. Obviously, things slowed subsequent to that. So can you just help us better understand, what is driving that volatility? I mean, I think your expectation was that it would remain volatile. But what is moving it, through the periods? What are you seeing out there? If you could help us better understand, maybe, some of the regional differences, as well within the duty-free business and how that's playing out. And then just related, what else can you do to manage that business differently? I realize it's only 21% of sales, but what are some of the other steps you may be taking? Thanks.

Roger Fordyce -- Chief Executive Officer and Director

Hi, good morning, Seth. So I think, you know, to answer the first part of your question, we have the advantage of having Chinese New Year in the first quarter, which was a huge opportunity for us to really take advantage of that Chinese spend and through a unique series of promotions that were focused on, that -- that one period of time, for that two and a half, three-week period of time, and increased Chinese travel, we took advantage of those opportunities.

We expressed caution during our first quarterly -- there in the first quarterly call that we wouldn't have that same benefit going into the second quarter and we're expressing concerns that some of the headwinds that we've been facing all along would continue. Obviously, that was the case. And that -- the impact really is around the average Chinese spend overall. But also, we saw throughout Q1 and Q2 a deterioration in the Chinese travel into the U.S. in particular, which impacted the U.S. Now, while the U.S. is only 30% of the duty-free business overall, there was a continued deterioration with the total Chinese travel into the U.S. as well as the Chinese spend in Canada.

In regards to the initiatives in the U.S. in particular, we're focusing on really trying to drive more duty-paid passengers into the duty-free stores. In the U.S., we do have the capability outside of the liquor and tobacco categories to sell duty-paid customers the product in our duty-free stores. It's somewhat of a change in culture because most passengers when they see duty-free, think it's only for international packs. So it is a matter of us trying to promote. We've been using our duty-paid stores to advertise travel or traffic into duty-free stores to try to enhance that. But the replacement of that Chinese spend is huge. It would take almost 10 duty-paid average spends to replace a single duty-free Chinese customer spend. So we do have uphill battles in replacing that overall Chinese spend.

Seth Sigman -- Credit Suisse -- Analyst

Okay. Thank you for that.

Operator

Our next question will come from Michael Lasser with UBS. Please go ahead.

Michael Lasser -- UBS -- Analyst

Good morning. Thanks a lot for taking my question. Roger, you just alluded to this, but can you quantify how much of the 21% of your duty-paid business, it goes to the Chinese consumer?

Adrian Bartella -- Chief Financial Officer

Hi Michael, it's Adrian. On the duty-free, 21% -- the duty-free is 21% of overall business. And it is around -- around 40% to 50% of those sales are going to Chinese customers.

Michael Lasser -- UBS -- Analyst

And are you seeing much better trends in areas where there's not a preponderance? Of Chinese travelers?

Adrian Bartella -- Chief Financial Officer

Yes. So we were monitoring it by airport and there was a big correlation between the performance of the -- of the particular airport and the exposure to Chinese travelers.

Michael Lasser -- UBS -- Analyst

And in on those airport closures, can you separate which ones are closed due to temporary factors and which ones are closed for other reasons like lost contracts?

Roger Fordyce -- Chief Executive Officer and Director

And again, there's. Well, we mentioned four -- four of the key ones. There are quite a number of others that are -- we've had closure of stores as well, too. So, for example, in Newark Airport, we mentioned that's the Terminal B contract that we lost earlier this February, that's the one that is -- was -- was permanently lost, as was the few stores that we lost in DFW that were part of a contract that ended and eventually went out to a new RFP.

In the situation of Seattle, there are opportunities, we're reopening one store toward the end of this year. The second larger, higher volume store toward the end of next year. A lot of this has to do with terminal construction.

The Toronto, is a store that's -- major store that's under renovation. We are anticipating, keeping our fingers crossed of having that store open before the end of this year.

There's other stores that we've closed. Similarly, in Vancouver, we've mentioned the partnership with Joe & The Juice. We've just closed the main Hudson News, an older cafe to renovate for the new Hudson, Joe & The Juice combo store. So it's ongoing progress or process. We've talked over the years about timing of these projects and what we're facing right now is closure of projects and preparation for delivery of new contracts.

Michael Lasser -- UBS -- Analyst

So outside of Newark and DFW, those were not -- contract locks as they were more temporary factors? And then I have one more follow-up question.

Roger Fordyce -- Chief Executive Officer and Director

No. The Newark one was it was a contract loss.

Michael Lasser -- UBS -- Analyst

Yes, outside of those -- outside of that, and what sounds like DFW?

Roger Fordyce -- Chief Executive Officer and Director

Yeah. Are you asking if there are any other additional losses that were contract loses[Phonetic]?

Michael Lasser -- UBS -- Analyst

Correct. None. None that are in this year, no. No.No Okay. And then, now that you hired someone to lead the food and beverage effort, is that a key on lock for you to move closer to gaining more scale in that business through perhaps M&A?

Roger Fordyce -- Chief Executive Officer and Director

So I think, you know, it's a combination. It was one of the focuses and goals that we had for this year as we were targeting growth in the food and beverage category overall. Part of our strategic growth initiatives were to not just grow organically, but continue to target M&A. So Tom's addition to our team will enable us to continue to look at immediate organic growth. Looking at strengthening our capabilities to bid on current RFPs, that are out there [Phonetic]and [Phonetic]within our scope. Tom's background is both in-store operations, brand development as well as business development. So we're excited about the opportunities to continue to grow our food and beverage service business organically, while we continue to target M&A. And having Tom on board to help us with any[Phonetic] M&A targets that may come to fruition.

Michael Lasser -- UBS -- Analyst

Okay, thank you very much and good luck.

Roger Fordyce -- Chief Executive Officer and Director

Thank you.

Operator

Our next question will come from Kimberly Greenberger with Morgan Stanley. Please go ahead.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Great, thank you so much, good morning. I wanted to ask Adrian about the wage increases. And Adrian, I was wondering, was there a benefit in that line item from some of the store closures? I would assume that those wages would have -- have come out this quarter. And if you could help us sort of understand on a like-for-like basis what the wage out -- the wage growth rate is, and is that expected to continue through the rest of 2019? Thanks so much.

Adrian Bartella -- Chief Financial Officer

Hi, Kimberly. So, from the 7.7% increase in our personnel expenses, there was maybe around 1% associated public company costs, so there more like-for-like increase would be a 6.7% and the expenses from locations which close out of it -- we don't disclose a like-for-like growth, but it's difficult to talk about like-for-like because there are some states like Newark [Phonetic] areas which still has a target to increase the minimum wage to $15 by year-end. So there may be some pressures, some pressures on personnel expense line. This year, overall we still-- believe that we will see some deleverage this year as we initially announced. But then, we should see some leverage on this line in the future -- on next year and going forward.

Kimberly Greenberger -- Morgan Stanley -- Analyst

Very helpful. Thanks, Adrian.

Operator

[Operator Instructions] Our next question comes from Chris Prykull with Goldman Sachs. Please go ahead.

Christopher Prykull -- Goldman Sachs -- Analyst

Good morning, guys. Thanks for taking the questions. I just wanted to ask about the lost contracts in Newark [Phonetic] and New Orleans. How many stores did you lose in each of those airports and is there any reason to think that those stores would differ from an average store in terms of sales per square foot or sales per store?

Roger Fordyce -- Chief Executive Officer and Director

So, we normally don't comment on the number of stores. For each of those specific losses and [Indecipherable] I don't. I know Newark was probably about six or seven stories, and, you know, to say that's an average, I would say that that's a fair comparison. Just because it's taken into consideration among, a very, very broad range of stores overall -- almost a thousand stores overall. I would then think[Phonetic] the loss of each of those stores is consistent.

Christopher Prykull -- Goldman Sachs -- Analyst

Got it. And I guess what I'm trying to get at is sort of as New Orleans rolls off in the back half of the year, you know, how should we think about the impact on that new store contribution line item? I mean, six to seven stores in Newark in the quarter at half a million per store gets you to call it out, you know, 80 basis points to 100 basis point impact from that loss. You know, would New Orleans be sort of similar?

Adrian Bartella -- Chief Financial Officer

I mean, we didn't disclose the New Orleans site impact, but I believe in our year-end filing, we disclosed the number of stores we have in New Orleans airport. So you can pull the data from there. I don't remember exact number of stores, but you can do the math with this data. And we don't know exactly when New Orleans will close. It was scheduled to close in second part of the year but so far, it hasn't closed yet? And we don't know exactly when -- when this location might close. So it's difficult to -- to estimate the impact, not knowing exactly when it will close.

Christopher Prykull -- Goldman Sachs -- Analyst

Okay. Got it. And then just a clarifying comment on gross margin. I think you said flat but -- was that for the second half of the year or for the full year? I guess, why would gross margin not be up modestly in the back half just from [Phonetic] mix shift?

Adrian Bartella -- Chief Financial Officer

No, I apologize. I apologize. I meant for the back half of the year. So, for the full year, we expect a slight improvement in the gross profit margin.

Christopher Prykull -- Goldman Sachs -- Analyst

Got it. And then on. On free cash flow, I mean, how are you thinking about free cash flow this year under a sort of the new, you know, the new guidance? And, with net leverage at 1.0 times, has anything changed in terms of your capital allocation priorities?

Adrian Bartella -- Chief Financial Officer

I think it's a bit premature to change the capital allocation priorities. We're still focused on growing organically and M&A and the hiring of Tom, it's just -- it's just strengthened the focus on F&B. So the pipeline of F&B opportunities is very big, much bigger than retail and we are going to focus on those and also we are very intensively evaluating several M&A opportunities. So, we want to keep deleverage[Phonetic] to materialize on those.

For this year, the capex expenditure will be a bit lighter, primarily because of the net new business contribution, this year is a bit lighter, so this usually is correlated to the capex. So I mean, we don't know, we think it's too premature to change the capital allocation. We still believe there is a lot of room to grow organically and M&A should also enhance this growth.

Christopher Prykull -- Goldman Sachs -- Analyst

Got it, and then just one last one, if I could sneak it in. I mean. How confident are you in returning to something closer to your long term EBITDA growth algorithm, you know, in future years, in 2020 and beyond? How much of that depends on the Chinese tourists vs. just lapping, you know the Newark and New Orleans contract losses? Maybe just some color as to how you're thinking about sort of the right growth algorithm for this business going forward.

Roger Fordyce -- Chief Executive Officer and Director

So I think we mentioned, obviously the key headwinds and challenges we have going forward into the next few quarters as far as overall growth. Obviously, the -- whatever happens with the Chinese and the negotiations going on and the moderation of those headwinds could have a significant impact on us, you know, returning a little bit more quickly. But the unknown factor of that -- we do know that we have, you know, quite a number of stores opening up later on this year, some new businesses opening this year, Indianapolis, going into the second quarter of next year, Salt Lake City, so there are some positive signs[Phonetic] happening on the duty-paid. The headwinds of which could be offset by the duty-free and the loss of New Orleans. So I think, it could be a few quarters of you know lighter than what we would consider normal growth. But that along with us continuing to focus on the food and beverage and the regular organic retail growth, we think we can slowly but surely start to -- toward the back end of 2020 start to get back toward that stronger growth model.

Christopher Prykull -- Goldman Sachs -- Analyst

Got it. Thanks so much and good luck the rest of the year.

Operator

Our next question is a follow up from Michael Lasser with UBS. Please go ahead.

Michael Lasser -- UBS -- Analyst

Thanks a lot for taking my follow up. Recognizing that we're still only midway through this year. But can you give us some quantification, some indication of the pipeline of new business for 2020? Is it larger than, less than, you know, what the pipeline has been in the recent past?

Roger Fordyce -- Chief Executive Officer and Director

So I think from a retail perspective I would say that it's relatively consistent to what the past few years have been. Our outlook for the balance of this year and through 2020 appears to be, I would say, consistent with the volume of what has come out in the previous few years. We are -- just continuing to work on a number of contracts that we're trying to bring to conclusion as well before the end of this year. What's most exciting for us is that huge, wide-open pipeline of food and beverage, it's actually even larger than the retail aspect of it that -- we're getting more and more excited about and our team is really starting to get focused on.

Michael Lasser -- UBS -- Analyst

And then one last follow up question, you called out a couple categories within the duty-paid business that are driving particular strength. Does that mean the other categories have weakened a bit?

Roger Fordyce -- Chief Executive Officer and Director

I think the main category that We've seen -- continued showing weakness has been the category that we've seen showing weakness over the past few years and that's basically the print or the literature categories of the newspapers, magazines, and books. While books had somewhat stabilized a lot of the book category is driven by the release of key or hot titles, which we've seen, you know, only a few of this year so far. But those -- that's really the main category that we're started -- that we continue to see declines in.

Michael Lasser -- UBS -- Analyst

Okay, thank you very much.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to Deborah Belevan for any closing remarks

Deborah Belevan -- Vice President of Investor Relations

Thanks, operator, and we appreciate everybody's time today. And you can find a replay of this webcast on our website. Thanks and have a great day.

Operator

.[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Deborah Belevan -- Vice President of Investor Relations

Roger Fordyce -- Chief Executive Officer and Director

Adrian Bartella -- Chief Financial Officer

Seth Sigman -- Credit Suisse -- Analyst

Michael Lasser -- UBS -- Analyst

Michael Lasser -- UBS -- Analyst

Kimberly Greenberger -- Morgan Stanley -- Analyst

Christopher Prykull -- Goldman Sachs -- Analyst

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