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Posted September 8, 2016

HD Supply releases Q2 2016 results

Sales rise 4.1 percent in quarter; projects 3 to 6 percent growth for year.


White Cap sales grow 7.5 percent in quarter.

HD Supply Holdings, Inc. has reported Net sales of $2.0 billion for the second quarter of fiscal 2016 ended July 31, 2016, an increase of $79 million, or 4.1 percent, as compared to the second quarter of fiscal 2015. The company believes its sales performance represents growth of approximately 100 basis points in excess of its market growth estimate.

“We delivered solid growth, operating leverage and cash conversion in the quarter while simultaneously investing in long-term productivity and growth,” stated Joe DeAngelo, Chairman and CEO of HD Supply. “We intend to continuously invest to ensure our customer experience is exceptional and to extend and evolve our leading market positions.”

Gross profit increased $32 million, or 4.9 percent, to $680 million for the second quarter of fiscal 2016 as compared to $648 million for the second quarter of fiscal 2015. Gross profit was 33.7 percent of Net sales for the second quarter of fiscal 2016, up approximately 20 basis points from 33.5 percent of Net sales for the second quarter of fiscal 2015.

Operating income increased $14 million, or 6.3 percent, to $237 million for the second quarter of fiscal 2016 as compared to $223 million for the second quarter of fiscal 2015. Operating income as a percentage of Net sales was 11.8 percent for the second quarter of fiscal 2016, up approximately 30 basis points from 11.5 percent for the second quarter of fiscal 2015.

Income from Continuing Operations declined $2 million to $102 million for the second quarter of fiscal 2016 as compared to $104 million for the second quarter of fiscal 2015, reflecting the normalization of the company’s effective tax rate following the reversal of the deferred tax asset valuation allowance in the fourth quarter of fiscal 2015. Income from Continuing Operations per diluted share decreased $0.01 to $0.51 for the second quarter of fiscal 2016, as compared to $0.52 for the second quarter of fiscal 2015.

Net Income declined $11 million to $98 million for the second quarter of fiscal 2016 as compared to $109 million for the second quarter of fiscal 2015. Net Income per diluted share decreased $0.05 to $0.49 for the second quarter of fiscal 2016, as compared to $0.54 for the second quarter of fiscal 2015.

Adjusted EBITDA increased $16 million, or 6.2 percent, to $273 million for the second quarter of fiscal 2016 as compared to $257 million for the second quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 13.5 percent for the second quarter of fiscal 2016, up approximately 20 basis points from 13.3 percent for the second quarter of fiscal 2015.

Adjusted net income increased $57 million to $171 million for the second quarter of fiscal 2016 as compared to $114 million for the second quarter of fiscal 2015. Adjusted net income per diluted share was $0.85 for the second quarter of fiscal 2016, as compared to $0.56 for the second quarter of fiscal 2015.

As of July 31, 2016, HD Supply’s combined liquidity of approximately $1,513 million was comprised of $313 million in cash and cash equivalents and $1,200 million of additional available borrowings under HD Supply, Inc.’s senior asset-backed lending facility, based on qualifying inventory and receivables.

For the second quarter of fiscal 2016, the ratio of Net debt1 to Adjusted EBITDA was 4.4 times.

Business Unit Performance

Construction & Industrial – White Cap

Net sales increased $34 million, or 7.5 percent, to $489 million for the second quarter of fiscal 2016, as compared to $455 million for the second quarter of fiscal 2015. Adjusted EBITDA increased $15 million, or 33.3 percent, to $60 million for the second quarter of fiscal 2016 as compared to $45 million for the second quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 12.3 percent for the second quarter of fiscal 2016, up approximately 240 basis points from 9.9 percent for the second quarter of fiscal 2015.

Facilities Maintenance

Net sales increased $8 million, or 1.1 percent, to $741 million for the second quarter of fiscal 2016, as compared to $733 million for the second quarter of fiscal 2015. Adjusted EBITDA decreased $5 million, or (3.2) percent, to $151 million for the second quarter of fiscal 2016 as compared to $156 million for the second quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 20.4 percent for the second quarter of fiscal 2016, down approximately 90 basis points from 21.3 percent for the second quarter of fiscal 2015.

Waterworks

Net sales increased $31 million, or 4.4 percent, to $733 million for the second quarter of fiscal 2016, as compared to $702 million for the second quarter of fiscal 2015. Adjusted EBITDA increased $4 million, or 6.1 percent, to $70 million for the second quarter of fiscal 2016 as compared to $66 million for the second quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 9.5 percent for the second quarter of fiscal 2016, up approximately 10 basis points from 9.4 percent for the second quarter of fiscal 2015.

Second-Quarter Monthly Sales Performance

Net sales for May, June and July of fiscal 2016 were $609 million, $622 million and $785 million, respectively. There were 20 selling days in May, 19 selling days in June and 24 selling days in July. Average year-over-year daily sales growth for May, June and July of fiscal 2016 was 3.6 percent, 6.2 percent and 3.0 percent, respectively.

Sale of Interior Solutions

On May 31, 2016 we sold our Interior Solutions business unit, formerly known as Creative Touch Interiors. In accordance with Accounting Standards Codification 205-20, “Discontinued Operations,” the results of Interior Solutions are classified as discontinued operations for all periods presented.

Preliminary August Sales Results

Preliminary Net sales in August were approximately $639 million, which represents year-over-year average daily sales growth of approximately 2 percent. Preliminary August year-over-year average daily sales growth by business was Waterworks approximately 2 percent, Construction & Industrial approximately 6 percent and Facilities Maintenance flat. There were 20 selling days in both August 2016 and August 2015.

Third-Quarter 2016 Outlook

For our third-quarter 2016, we anticipate revenue to be in the range of $1,985 million and $2,035 million, Adjusted EBITDA in the range of $258 million and $268 million and Adjusted Net Income per diluted share in the range of $0.77 and $0.82. Our Adjusted Net Income per diluted share range assumes a fully diluted weighted average share count of approximately 202 million. At the mid-point of the ranges, our third-quarter sales and Adjusted EBITDA translate into approximately +4 percent growth and flat, respectively, versus prior year.

Based on year-to-date progress and the current third quarter outlook, we now estimate that we will achieve between flat and 300 basis points of sales growth in excess of market for the fiscal year 2016. This equates to approximately 3 to 6 percent annual year over year sales growth.

Additionally, based on year-to-date progress and the current third quarter outlook, we estimate that we will achieve an operating leverage range for the fiscal year 2016 of between 1.0 and 1.5 times. We continue to believe that 300 basis points of growth in excess of market growth and 1.5 to 2.0 times operating leverage in 2017 and beyond is the appropriate target.

 

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