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HD Supply Announces Fiscal 2013 Full-Year and Q4 Results

Reports net sales of $8.5 billion, a 9.4 percent increase year-over year.


Fiscal 2013 Results Summary

  • Net sales of $8.5 billion an increase of 7 percent, or 9 percent when adjusting fiscal 2012 to eliminate the impact of the 53rd week and the Crown Bolt contract amendment
  • Operating income of $488 million
  • Adjusted EBITDA of $764 million an increase of 12 percent, or 21 percent as compared to fiscal 2012 As Adjusted
  • Adjusted Net Income per diluted share of $0.58 (Net Loss per diluted share of $1.31)
  • Results, adjusted to include the impact of Litemor, a recently identified discontinued operation, compared with previous guidance:
  • Net Sales, adjusted to include Litemor, of $8,569 million compared to guidance of $8,500 million to $8,575 million
  • Adjusted EBITDA, adjusted to include Litemor, of $760 million compared to guidance of $750 million to $760 million
  • Adjusted Net Income per diluted share, adjusted to include Litemor, of $0.56 compared to guidance of $0.52 to $0.58

HD Supply Holdings, Inc. (NASDAQ: HDS) today reported Net sales of $8.5 billion, for the full-year fiscal 2013 ended February 2, 2014, an increase of $732 million or 9.4 percent, as compared to fiscal 2012 when adjusting fiscal 2012 to eliminate the impact of the 53rd week and the Crown Bolt contract amendment.

Organic sales growth was 8.1 percent in fiscal 2013 versus fiscal 2012 As Adjusted. The company believes its organic sales performance represents growth of approximately 600 basis points in excess of its estimate of annual market growth.

“I am very pleased with our 2013 performance,” stated Joe DeAngelo, CEO of HD Supply. “We delivered 9 percent sales growth and 21 percent Adjusted EBITDA growth, as adjusted for unusual items, despite a challenging and uncertain market environment. Our focused growth strategies and investments coupled with our differentiated customer-centric business model continue to deliver profitable growth in excess of our estimate of market growth.”

Several items impact the comparability of the results of fiscal 2013 and fiscal 2012.
Fiscal 2012 includes:

  • 53rd week of operations, which represents $147 million in Net sales, $41 million in Gross profit, $14 million in Operating income, and $14 million in Adjusted EBITDA
  • Crown Bolt and Home Depot amended agreement, which represents $41 million in Net sales, Gross profit, Operating income and Adjusted EBITDA
  • Crown Bolt goodwill and other intangible asset impairment, which represents $152 million Operating loss

Fiscal 2013 includes:

  • Restructuring charges, which represent $3 million in Cost of sales, $9 million in Operating expenses, for a total $12 million Operating loss

Full-Year Results
The following are results for the full-year of fiscal 2013 compared to the full-year of fiscal 2012, including adjusted results where it aids in comparability. A reconciliation of adjusted results to GAAP is provided in the Non-GAAP Financial Measures section of the release.

Net sales for fiscal 2013 of $8.5 billion, increased $732 million or 9.4 percent, as compared to fiscal 2012 As Adjusted. Organic sales growth was 8.1 percent in fiscal 2013 as compared to fiscal 2012 As Adjusted.

The Net sales increase was primarily due to growth initiatives at each of our businesses and, to a lesser extent, increases in market volume and recent acquisitions, partially offset by unfavorable weather conditions, particularly the severe winter weather experienced during the fourth quarter of fiscal 2013 and the unusually cooler weather in the summer months, impacting HVAC-related sales.

Gross profit increased $258 million, or 11.6 percent, to $2,475 million for fiscal 2013 As Adjusted. Gross profit increased to 29.2 percent of Net sales in fiscal 2013 As Adjusted, up 60 basis points from 28.6 percent in fiscal 2012 As Adjusted.

Operating income increased $229 million, or 84.5 percent, during fiscal 2013 As Adjusted, as compared to fiscal 2012 As Adjusted. Operating income as a percentage of

Net sales increased approximately 240 basis points during fiscal 2013 As Adjusted as compared to fiscal 2012 As Adjusted. The improvement was driven by the reduction in depreciation and amortization expense and improvements in gross margins.

Adjusted EBITDA of $764 million increased $134 million, or 21.3 percent, in fiscal 2013 as compared to fiscal 2012 As Adjusted. The improvement reflects the company’s focus on margin expansion and operational excellence while at the same time investing for future growth.

Net loss for fiscal 2013 was $218 million, which included an $87 million loss on extinguishment and modification of debt and a $12 million restructuring charge. Net loss for fiscal 2012 was $1,179 million, which included a $709 million loss on extinguishment of debt and a $152 million impairment charge.

Adjusted net income for fiscal 2013 was $99 million, an improvement of $228 million as compared to an Adjusted net loss of $129 million in fiscal 2012. The increase in Adjusted net income is attributable to sales growth, improving gross margins, and a reduction in interest expense.

Adjusted net income per diluted share in fiscal 2013 was $0.58 per share, as compared to an Adjusted net loss per diluted share of $0.99 in fiscal 2012.

As of February 2, 2014, HD Supply’s combined liquidity of approximately $994 million was comprised of $115 million in cash and cash equivalents and $879 million of additional available borrowings under HD Supply, Inc.’s senior asset-backed lending facility, based on qualifying inventory and receivables.

“HD Supply’s fiscal 2013 fourth-quarter represents the fifteenth consecutive quarter of year-over-year average daily sales growth despite the impact of severe winter weather and continued sluggishness in our end markets,” added DeAngelo. “Our seasoned teams are focused on executing our controllable growth initiatives that deliver growth despite the uncontrollable environment. We took proactive actions to align our costs to market uncertainties as well as streamlined areas of the business to increase our focus on value enhancing activities.”

Fourth-Quarter Results
The following are results for the fourth-quarter of fiscal 2013 compared to the fourth-quarter of fiscal 2012, including adjusted results where it aids in the comparability of the results. A reconciliation of adjusted results to GAAP is provided in the Non-GAAP Financial Measures section of the release.

Net sales for the fourth-quarter of fiscal 2013 were $1.9 billion, an increase of $125 million, or 6.9 percent, as compared to fourth-quarter fiscal 2012 As Adjusted. Organic sales growth was 6.7 percent in the fourth-quarter of fiscal 2013, as compared to fourth-quarter fiscal 2012 As Adjusted.

Net sales for November, December and January of fiscal 2013 were $627 million, $571 million, and $731 million, respectively. There were 18 selling days in November, 19 selling days in December, and 24 selling days in January. On an organic basis and adjusted for the Crown Bolt / THD amendment impact, average daily sales growth for November,

December and January of fiscal 2013 were 8.6 percent, (2.0) percent and 11.5 percent, respectively. In fiscal 2012, Christmas week fell in fiscal January, while in fiscal 2013 Christmas week fell in fiscal December.

Gross profit for the fourth-quarter of fiscal 2013 As Adjusted increased by $45 million, or 8.7 percent compared to the fourth-quarter of fiscal 2012 As Adjusted. Gross profit for the fourth-quarter of fiscal 2013 As Adjusted was 29.2 percent of Net sales, an increase of 50 basis points, as compared to the fourth-quarter of fiscal 2012 As Adjusted.

Operating income for the fourth-quarter of fiscal 2013 As Adjusted was $87 million, an increase of $59 million as compared to the fourth-quarter of fiscal 2012 As Adjusted. The improvement was driven by the reduction in depreciation and amortization expense and, to a lesser extent, a reduction in selling, general and administrative expenses as a percentage of sales, and improvements in gross margins.

Adjusted EBITDA increased $36 million, or 30.5 percent, in the fourth-quarter of fiscal 2013 as compared to the fourth-quarter fiscal 2012 As Adjusted. Adjusted EBITDA as a percentage of Net sales increased approximately 150 basis points to 8.0 percent in the fourth-quarter of fiscal 2013 as compared to the fourth-quarter fiscal 2012 As Adjusted.

Net loss for the fourth-quarter of fiscal 2013 was $66 million, which included a $12 million restructuring charge. Net loss for the fourth-quarter of fiscal 2012 was $713 million, which included a $489 million loss on extinguishment and modification of debt and a $152 million impairment charge.

Adjusted net income for the fourth-quarter of fiscal 2013 was zero, an improvement of $80 million as compared to an Adjusted net loss of $80 million in fiscal 2012. Adjusted net income per diluted share in fiscal 2013 was zero, as compared to an Adjusted net loss per diluted share of $0.61 in fiscal 2012.

Business Unit Performance
The following are HD Supply business unit results for the full year and fourth quarter of fiscal 2013 compared to the full year and fourth quarter of fiscal 2012, on a 52-week basis. A reconciliation of adjusted results to GAAP is provided in the Non-GAAP Financial Measures section of the release.

White Cap
Full-Year Results
Net sales increased $136 million, or 11.8 percent, to $1.3 billion in fiscal 2013 as compared to $1.2 billion in fiscal 2012 on a 52-week basis.
Adjusted EBITDA increased $24 million, or 43.6 percent, to $79 million in fiscal 2013 as compared to $55 million in fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 130 basis points in fiscal 2013 as compared to fiscal 2012.

Fourth-Quarter Results
Net sales increased $29 million, or 10.9 percent, to $295 million in fourth-quarter fiscal 2013 as compared to $266 million in fourth-quarter fiscal 2012 on a 52-week basis.
Adjusted EBITDA increased $7 million, or 100 percent, to $14 million during fourth-quarter fiscal 2013 as compared to $7 million in fourth-quarter fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 210 basis points in fourth-quarter fiscal 2013 on a 52-week basis.

Facilities Maintenance
Full-Year Results
Net sales increased $190 million, or 8.9 percent, to $2.3 billion in fiscal 2013 as compared to $2.1 billion in fiscal 2012 on a 52-week basis. Organic sales growth on a 52-week basis was 7.5 percent in fiscal 2013 as compared to fiscal 2012.
Adjusted EBITDA increased $53 million, or 13.9 percent, to $434 million during fiscal 2013 as compared to $381 million in fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 80 basis points in fiscal 2013 as compared to fiscal 2012.

Fourth-Quarter Results
Net sales increased $36 million, or 7.4 percent, to $522 million in fourth-quarter fiscal 2013 as compared to $486 million in fourth-quarter fiscal 2012 on a 52-week basis.
Adjusted EBITDA increased $15 million, or 20.0 percent, to $90 million during fourth-quarter fiscal 2013 as compared to $75 million in fourth-quarter fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 180 basis points in fiscal 2013 as compared to fiscal 2012 on a 52-week basis.

Waterworks
Full-Year Results
Net sales increased $235 million, or 11.8 percent, to $2.2 billion in fiscal 2013 as compared to $2.0 billion in fiscal 2012 on a 52-week basis. Organic sales growth on a 52-week basis was 8.1 percent in fiscal 2013 as compared to fiscal 2012.
Adjusted EBITDA increased $38 million, or 28.1 percent, to $173 million during fiscal 2013 as compared to $135 million in fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 100 basis points in fiscal 2013 as compared to fiscal 2012.

Fourth-Quarter Results
Net sales increased $19 million, or 4.2 percent, to $470 million in fourth-quarter fiscal 2013 as compared to $451 million in fourth-quarter fiscal 2012 on a 52-week basis. Organic sales growth on a 52-week basis was 3.0 percent in fourth-quarter fiscal 2013 as compared to fourth-quarter fiscal 2012.
Adjusted EBITDA increased $4 million, or 15.4 percent, to $30 million during the fourth-quarter fiscal 2013 as compared to $26 million in fourth-quarter fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 60 basis points in fourth-quarter fiscal 2013 as compared to fourth-quarter fiscal 2012 on a 52-week basis.

Power Solutions
Full-Year Results
Net sales increased $92 million, or 5.3 percent, to $1.8 billion in fiscal 2013 as compared to fiscal 2012 on a 52-week basis.
Adjusted EBITDA increased $6 million, or 8.6 percent, to $76 million in fiscal 2013 as compared to $70 million in fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 10 basis points in fiscal 2013 as compared to the fiscal 2012.

Fourth-Quarter Results
Net sales increased $25 million, or 5.8 percent, to $453 million in fourth-quarter fiscal 2013 as compared to $428 million in fourth-quarter fiscal 2012 on a 52-week basis.
Adjusted EBITDA increased $4 million, or 26.7 percent, to $19 million during the fourth-quarter fiscal 2013 as compared to $15 million in fourth-quarter fiscal 2012 on a 52-week basis. Adjusted EBITDA as a percentage of Net sales increased approximately 70 basis points in fourth-quarter fiscal 2013 as compared to fourth-quarter fiscal 2012 on a 52-week basis.

Restructuring and Discontinued Operations
As a result of the structural cost analysis and footprint optimization undertaken in the fourth quarter of fiscal 2013, the company has taken a $12 million charge in the fourth-quarter of fiscal 2013 and expects to take an additional $3 million to $5 million charge in fiscal 2014. This charge reflects the costs related to the reduction of approximately 150 associates, the consolidation and relocation of operational locations, and liquidation of inventory.

The $12 million charge consists of $3 million in inventory liquidation cost which is reflected in Cost of Sales, while the remaining $9 million charge is reflected within the Restructuring line of the Income Statement. All of which is added back to Adjusted EBITDA.

Additionally, the company has decided to dispose of its Litemor business, a specialty lighting distributor included within the HD Supply Canada business. Litemor’s fiscal 2013 operating results reflect $82 million of Net sales and a loss of $4 million in Adjusted EBITDA. As a result of the intent to dispose of the business, Litemor is being reflected as a discontinued operation for all periods presented. The company expects to incur a charge within discontinued operations of between $10 million and $25 million during fiscal 2014 for the disposition of the Litemor business.

The remaining HD Supply Canada business, Brafasco, an industrial MRO distributor specializing in fasteners, power tools and safety products throughout Canada, will be integrated with HD Supply White Cap.

Preliminary February Sales
Preliminary Net sales in February were $609 million, which represents 4 percent average daily sales growth versus prior year. Preliminary February year-over-year average daily sales growth by business is: Facilities Maintenance 10 percent, Waterworks 2 percent, Power Solutions (4) percent and White Cap 9 percent.

“The February results were impacted by adverse winter weather experienced through much of the country,” added DeAngelo. “We are staying focused on controllable execution and building momentum for our spring selling season.”

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