Atlanta, GA - HD Supply Holdings, Inc. reported net sales for the second quarter of fiscal 2013 ended August 4, 2013 of $2.3 billion, an increase of $198 million, or 10 percent, as compared to the second quarter of fiscal 2012. Gross profit for the second quarter of fiscal 2013 increased by $67 million, or 11 percent, to $661 million compared to $594 million for the second quarter of fiscal 2012. Gross profit for the second quarter of fiscal 2013 was 29.3 percent of net sales compared to 28.8 percent of net sales for the second quarter of fiscal 2012.
Business and Financial Highlights
- Continued net sales growth in all four of the Company’s largest businesses: Facilities Maintenance, Waterworks, Power Solutions, and White Cap.
- Achieved 14 percent Adjusted EBITDA growth while simultaneously investing in the Company’s future growth, including:
- Distribution center expansions and additional associates to support growth initiatives in the Facilities Maintenance business;
- Sales training enhancements and investments in storm drainage, meters, plant works and fusible plastics in the Waterworks business;
- Branch expansions, a new location serving oil and gas activities, and additional category management and marketing associates in the Power Solutions business; and,
- New dedicated safety catalog and additional sales associates in the White Cap business
- Completed an initial public offering of approximately 61 million shares of common stock, resulting in proceeds of approximately $1.0 billion, net of underwriters’ discounts and offering expenses; net proceeds were used to redeem all $950 million of HD Supply, Inc.’s outstanding 10.50% Senior Subordinated Notes due 2021.
“We continue to deliver above market revenue growth in all of our primary business units,” stated Joe DeAngelo, CEO of HD Supply. “The fiscal 2013 second quarter was another strong performance for HD Supply despite limited non-residential and municipal end market growth in addition to unusually cooler and wetter weather affecting outdoor construction and HVAC product sales in various parts of the country. We continue to deliver on our controllable execution and growth initiatives to drive growth regardless of the market environment.”
Operating income increased $47 million, or 46 percent, during the second quarter of fiscal 2013 as compared to the second quarter of fiscal 2012. The improvement was due to higher net sales and gross profit and a reduction in depreciation and amortization expense. Operating income as a percentage of net sales increased approximately 160 basis points during the second quarter of fiscal 2013 as compared to the second quarter of fiscal 2012. The improvement was driven by the reduction in depreciation and amortization expense and improvements in gross margins.
Adjusted EBITDA increased $26 million, or 14 percent, during the second quarter of fiscal 2013 as compared to the second quarter of fiscal 2012. The increase in Adjusted EBITDA was driven by Facilities Maintenance, Waterworks, and White Cap, and reflects our continued focus on operating efficiency and leveraging of fixed costs through sales volume increases. This increase was partially offset by a $6 million reduction in Adjusted EBITDA as a result of the 2012 amendment and extension of the strategic purchase agreement between our Crown Bolt business and The Home Depot. Adjusted EBITDA as a percentage of net sales increased approximately 40 basis points to 9.7 percent in the second quarter of fiscal 2013 as compared to the second quarter of fiscal 2012, primarily due to gross margin improvements.
Net loss for the second quarter was $72 million, which included a $46 million loss on the extinguishment and modification of debt. Net loss for the second quarter of fiscal 2012 was $56 million. Excluding the loss on extinguishment and modification of debt, net loss in the second quarter of fiscal 2013 improved $30 million as compared to the second quarter of fiscal 2012.
Adjusted net income increased $33 million in the second quarter of fiscal 2013 to $36 million as compared to $3 million in the second quarter of 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 the second quarter of fiscal 2013 was $0.23 per share, as compared to $0.02 in the second quarter of fiscal 2012.
As of August 4, 2013, our combined liquidity of approximately $946 million was comprised of $109 million in cash and cash equivalents and $837 million of additional available borrowings under HD Supply, Inc.’s senior asset-backed lending facility, based on qualifying inventory and receivables.
Facilities Maintenance
Net sales increased $67 million, or 12 percent, to $638 million in the second quarter of fiscal 2013 as compared to $571 million in the second quarter of fiscal 2012. Organic sales growth was 9 percent in the second quarter of fiscal 2013 as compared to the second quarter of fiscal 2012. Adjusted EBITDA increased $16 million, or 15 percent, to $125 million during the second quarter of fiscal 2013 as compared to $109 million in the second quarter of fiscal 2012. Adjusted EBITDA as a percentage of net sales increased approximately 50 basis points in the second quarter of fiscal 2013 as compared to second quarter of fiscal 2012.
Waterworks
Net sales increased $74 million, or 14 percent, to $601 million in the second quarter of fiscal 2013 as compared to $527 million in the second quarter of fiscal 2012. Organic sales growth was almost 10 percent in the second quarter of fiscal 2013 as compared to the second quarter of fiscal 2012. Adjusted EBITDA increased $11 million, or 28 percent, to $50 million during the second quarter of fiscal 2013 as compared to $39 million in the second quarter of fiscal 2012. Adjusted EBITDA as a percentage of net sales increased approximately 90 basis points in the second quarter of fiscal 2013 as compared to the second quarter of fiscal 2012.
Power Solutions
Net sales increased $16 million, or 4 percent, to $456 million in the second quarter of fiscal 2013 as compared to $440 million in the second quarter of fiscal 2012. Adjusted EBITDA decreased $2 million, or 10 percent, to $18 million during the second quarter of fiscal 2013 as compared to $20 million in the second quarter of fiscal 2012.
White Cap
Net sales increased $29 million, or 9 percent, to $336 million in the second quarter of fiscal 2013 as compared to $307 million in the second quarter of fiscal 2013. Adjusted EBITDA increased $6 million, or 33 percent, to $24 million during the second quarter of fiscal 2013 as compared to $18 million in the second quarter of fiscal 2012. Adjusted EBITDA as a percentage of net sales increased approximately 120 basis points during the second quarter of fiscal 2013 as compared to the second quarter of 2012.
Year-to-Date Results
Net sales for the first half of fiscal 2013 increased $430 million, or 11 percent to $4.3 billion, as compared to $3.9 billion the first half of fiscal 2012. Gross profit for the first half of fiscal 2013 increased by $142 million, or 13 percent, to $1.3 billion compared to $1.1 billion for the first half of fiscal 2012. Gross profit for the first half of fiscal 2013 was 29.1 percent of net sales versus 28.7 percent of net sales for the first half of fiscal 2012.
Operating income for the first half of fiscal 2013 was $250 million, an improvement of $104 million compared to operating income of $146 million for the first half of fiscal 2012. The improvement in operating income reflects sales growth of 11 percent and an approximately 170 basis point decline in operating expenses as a percent of net sales.
Net loss for the first half of fiscal 2013 was $203 million, which included an $87 million loss on extinguishment and modification of debt. Excluding the loss on extinguishment and modification of debt in both years and the income from discontinued operations in the first half of fiscal 2012, the net loss in the first half of fiscal 2013 improved $96 million as compared to the prior period.
Adjusted EBITDA for the first half of fiscal 2013 increased 18 percent to $382 million from $325 million in the first half of fiscal 2012. This increase includes an unfavorable impact of $12 million resulting from the 2012 amendment and extension of the strategic purchase agreement between our Crown Bolt business and The Home Depot. Adjusted EBITDA for the first half of fiscal 2013 increased to 8.8 percent of net sales versus 8.3 percent of net sales for the first half of fiscal 2012.
Cash flow from operating activities in the first six months of fiscal 2013 was a use of $577 million compared with cash used by operating activities of $324 million in the first six months of fiscal 2012. The use of cash in the first six months of fiscal 2013 was driven by the payment of $364 million of original issue discounts and PIK interest related to the extinguishment of HD Supply Inc.’s 13.50% Senior Subordinated Notes and a portion of the term loans under HD Supply Inc.’s senior term facility.
2013 Outlook
The Company anticipates fiscal 2013 revenue to be in the range of $8,550 million and $8,750 million, Adjusted EBITDA in the range of $755 million and $775 million, and Adjusted net income per diluted share in the range of $0.52 and $0.64. Our fiscal 2013 Adjusted net income per share range assumes a fully diluted weighted average share count of 172 million.
