HD Supply
Dec 7, 2011

HD Supply, Inc. Announces Third Quarter Fiscal 2011 Results

  • Net sales increased 10.7 percent to $2.1 billion
  • Operating income improved $31 million to $78 million
  • Adjusted EBITDA increased 20.4 percent to $171 million
  • $1.2 billion of liquidity




  • ATLANTA--()--HD Supply, Inc. today reported net sales for the fiscal 2011 third quarter ended October 30, 2011 of $2.1 billion, an increase of $201 million, or 10.7 percent, as compared to the third quarter of fiscal 2010. Gross profit for the third quarter of fiscal 2011 increased by $58 million, or 11.1 percent, to $580 million compared to $522 million for the third quarter of fiscal 2010. Gross profit for the third quarter of fiscal 2011 was 28.0 percent of net sales versus 27.9 percent of net sales for the third quarter of fiscal 2010.

    “We are well-positioned for continued growth and improved financial performance through a sharp focus on executing our strategic plan, continuing significant investments in our leadership businesses, maximizing our operating efficiencies and making every customer experience exceptional.”



    Operating income for the third quarter of fiscal 2011 was $78 million, an improvement of $31 million compared to operating income of $47 million for the third quarter of fiscal 2010. The improvement in operating income reflects a 10.7 percent sales growth and a 110 basis point decline in operating expenses as percent of sales despite inflationary pressure, including medical costs, fuel costs and a resumption of the company’s 401(k) match. Liquidity at the end of the third quarter of fiscal 2011 was $1.2 billion.

    Loss from continuing operations before income taxes was $82 million in the third quarter of fiscal 2011, an improvement of $23 million as compared to the third quarter of fiscal 2010. Loss from continuing operations for the third quarter of fiscal 2011 was $106 million, compared to a loss from continuing operations of $90 million for the third quarter of fiscal 2010.

    Joe DeAngelo, CEO of HD Supply, stated, “The third quarter results mark the company’s sixth consecutive quarter of year-over-year sales growth. Our accelerating growth and financial strength are a reflection of the exemplary performance by HD Supply associates and their successful collaborative efforts with our customers and suppliers.”

    DeAngelo added, “We are well-positioned for continued growth and improved financial performance through a sharp focus on executing our strategic plan, continuing significant investments in our leadership businesses, maximizing our operating efficiencies and making every customer experience exceptional.”

    Business Update

    The company continues to evolve and enhance its business to meet the changing demands of its customers.

    Sale of Plumbing Business

    On September 9, 2011, the company sold its Plumbing/HVAC business to Hajoca Corporation. As a result of the sale, the company recorded a preliminary $7 million pre-tax gain in the third quarter of fiscal 2011, which is subject to a customary working capital adjustment that is expected to be finalized during the fourth quarter of fiscal 2011. The results of the Plumbing/HVAC operations are reflected as discontinued operations for all periods presented.

    Year-to-date Results

    Net sales for the nine months ended October 30, 2011 were $5.9 billion, an increase of $473 million, or 8.7 percent, compared to the nine months ended October 31, 2010. Gross profit in the year-to-date period of fiscal 2011 increased by $140 million, or 9.2 percent, to $1.7 billion compared to $1.5 billion for same period of fiscal 2010. Gross profit for the year-to-date period of fiscal 2011 was 28.0 percent of net sales versus 27.9 percent of net sales for the same period of fiscal 2010.

    Operating income for the nine months ended October 30, 2011 was $175 million, an improvement of $107 million compared to operating income of $68 million for the same period of fiscal 2010. The improvement in operating income reflects an 8.7 percent sales growth and a 160 basis point decline in operating expenses as percent of sales despite inflationary pressure, including medical costs, fuel costs and a resumption of the company’s 401(k) match.

    Loss from continuing operations before income taxes was $301 million in the nine months ended October 30, 2011, an improvement of $96 million as compared to the same period of fiscal 2010. Loss from continuing operations for the nine months ended October 30, 2011 was $360 million, compared to a loss from continuing operations of $392 million for the same period of fiscal 2010.

    Adjusted EBITDA (third quarter and year-to-date)

    Adjusted EBITDA for the third quarter of fiscal 2011 increased 20.4 percent to $171 million from $142 million in the third quarter of fiscal 2010. Adjusted EBITDA for the third quarter of fiscal 2011 was 8.2 percent of net sales versus 7.6 percent of net sales for third quarter of fiscal 2010. The increase in the Adjusted EBITDA rate reflects management’s focus on operating efficiency and the leverage of fixed costs through sales volume increases. Adjusted EBITDA for the first nine months of fiscal 2011 increased 24.4 percent to $454 million from $365 million in the same period of fiscal 2010. Adjusted EBITDA for the first nine months of fiscal 2011 was 7.7 percent of net sales versus 6.7 percent of net sales for same period of fiscal 2010. The company presents Adjusted EBITDA to provide additional information to evaluate its operating performance and its ability to service its debt. Reconciliations of GAAP measures to non-GAAP Adjusted EBITDA are included at the end of this press release.

    About HD Supply

    HD Supply (www.hdsupply.com) is one of the largest industrial distribution companies in North America. With a diverse portfolio of industry-leading businesses, the company provides a broad range of products and services to professional customers in the infrastructure and energy, maintenance, repair and improvement, and specialty construction markets.

    Forward-Looking Statements

    This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that the forward-looking information presented in this press release is not a guarantee of future events, and that actual events may differ materially from those made in or suggested by the forward-looking information contained in this press release. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “plan,” “seek,” “comfortable with,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations thereon or similar terminology. A number of important factors could cause actual events to differ materially from those contained in or implied by the forward-looking statements, including those factors discussed in our annual report on Form 10-K for the year ended January 30, 2011, filed on April 14, 2011 with the Securities & Exchange Commission (“SEC”), which can be found at the SEC’s website www.sec.gov, each of which is specifically incorporated into this press release. Any forward-looking information presented herein is made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

       

    HD SUPPLY, INC.

    CONSOLIDATED STATEMENTS OF OPERATIONS

    Amounts in millions, unaudited

     
    Three Months Ended Nine Months Ended

    October 30,
    2011

     

     

    October 31,
    2010

     

    October 30,
    2011

     

     

    October 31,
    2010

     

    Net Sales $ 2,075 $ 1,874 $ 5,898   $ 5,425
    Cost of sales   1,495     1,352     4,244     3,911  
    Gross Profit 580 522 1,654 1,514
    Operating expenses:
    Selling, general and administrative 417 386 1,221 1,167
    Depreciation and amortization 85 89 258 271
    Restructuring               8  
    Total operating expenses 502 475 1,479 1,446
    Operating Income (Loss) 78 47 175 68
    Interest expense 160 153 477 464
    Other (income) expense, net       (1 )   (1 )   1  

    Income (Loss) from Continuing
    Operations Before Income Taxes

    (82 ) (105 ) (301 ) (397 )
    Provision (benefit) for income taxes   24     (15 )   59     (5 )

    Income (Loss) from Continuing
    Operations

    (106 ) (90 ) (360 ) (392 )

    Income (loss) from discontinued operations,
    net of tax

      1     (9 )   (10 )   (24 )
    Net Income (Loss) $ (105 ) $ (99 ) $ (370 ) $ (416 )
     
       

    HD SUPPLY, INC.

    CONSOLIDATED BALANCE SHEETS

    Amounts in millions, except share data, unaudited

    October 30,
    2011

    January 30,
    2011

    ASSETS
    Current assets:
    Cash and cash equivalents $ 139 $ 292
    Receivables, less allowance for doubtful accounts of $33 and $36 1,129 907
    Inventories 1,089 1,035
    Deferred tax asset 77 102
    Other current assets   50     45  
    Total current assets   2,484     2,381  
     
    Property and equipment, net 363 390
    Goodwill 3,151 3,150
    Intangible assets, net 799 992
    Other assets   163     176  
    Total assets $ 6,960   $ 7,089  
     
    LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
    Current liabilities:
    Accounts payable $ 775 $ 805
    Accrued compensation and benefits 136 118
    Current installments of long-term debt 99 10
    Other current liabilities   255     272  
    Total current liabilities   1,265     1,205  
     
    Long-term debt, excluding current installments 5,484 5,239
    Deferred tax liabilities 114 101
    Other liabilities   354     448  
    Total liabilities   7,217     6,993  
     
    Stockholders’ equity (deficit):

    Common stock, par value $0.01; authorized 1,000 shares; issued 1,000
    shares at October 30, 2011 and January 30, 2011

    Paid-in capital 2,676 2,660
    Accumulated deficit (2,933 ) (2,563 )
    Accumulated other comprehensive income (loss)       (1 )
    Total stockholders’ equity (deficit)   (257 )   96  
    Total liabilities and stockholders’ equity (deficit) $ 6,960   $ 7,089  
     

    Non-GAAP Financial Measures

    To provide clarity, internally and externally, about HD Supply’s operating performance for the recently completed fiscal quarter, HD Supply supplemented its reporting of loss from continuing operations with the non-GAAP measurements, including Adjusted EBITDA. This supplemental information should not be considered in isolation or as a substitute for the GAAP measurements. Additional information regarding the Adjusted EBITDA referred to in this press release is included in our filings with the SEC, including a Current Report on Form 8-K filed concurrently with the issuance of this press release.

    The following table presents a reconciliation of net income (loss), the most directly comparable financial measure under U.S. GAAP, to EBITDA and Adjusted EBITDA for the periods presented (amounts in millions).

      Three Months Ended   Nine Months Ended

     

    October 30,
    2011

     

    October 31,
    2010

    October 30,
    2011

     

    October 31,
    2010

    Net income (loss) $ (105 ) $ (99 ) $ (370 ) $ (416 )

    Less income from discontinued
    operations, net of tax

      1     9     10     24  

    Income (loss) from continuing operations

    (106 ) (90 ) (360 ) (392 )
    Interest expense, net 160 153 477 464
    Provision (benefit) from income taxes 24 (15 ) 59 (5 )
    Depreciation and amortization   86     90     260     273  
    EBITDA $ 164 $ 138 $ 436 $ 340
     
    Adjustments to EBITDA:
    Other (income) expense, net(i) (1 ) (1 ) 1
    Restructuring charge(ii) 8
    Stock-based compensation(iii) 7 5 16 13

    Management fee & related expenses paid
    to Equity Sponsors(iv)

    1 1 4 4
    Other   (1 )   (1 )   (1 )   (1 )

    Adjusted EBITDA

    $ 171   $ 142   $ 454   $ 365  

    (i) Represents the loss on extinguishment of debt, the gains/losses associated with the changes in fair value of interest rate swap contracts not accounted for under hedge accounting, and other non-operating income/expense.

    (ii) Represents the costs incurred for employee reductions and branch closures or consolidations. These costs include occupancy costs, severance, and other costs incurred to exit a location.

    (iii) Represents the non-cash costs for employee stock options.

    (iv) The company entered into a management agreement whereby the company pays the Equity Sponsors a $5 million annual aggregate management fee. In addition, the company reimburses certain Equity Sponsor expenses.

    HD Supply Public Relations
    Quiana Pinckney, 770-852-9057
    Quiana.Pinckney@hdsupply.com