“I was very pleased with our solid performance this quarter driven by the execution of our growth initiatives,” stated Joe DeAngelo, CEO of HD Supply. “We delivered this performance despite continued sluggishness in non-residential, moderated growth in residential and increased uncertainty in our infrastructure markets. We continue our strategy of investing for growth while, at the same time, ensuring that our cost structure is appropriately aligned for uncertain markets.”
Gross profit for the third quarter of fiscal 2013 increased by $52 million, or 8 percent, to $668 million compared to $616 million for the third quarter of fiscal 2012. Gross profit for the third quarter of fiscal
2013 was 29.1 percent of net sales, up 40 basis points, from 28.7 percent of net sales for the third quarter of fiscal 2012. Gross profit improvement was driven by execution of our category management initiatives offset by the mix impact of lower gross margin businesses growing faster as well as the Crown Bolt year- over-year headwind which is estimated at approximately 20 basis points.
Operating income for the third quarter of fiscal 2013 increased by $46 million, or 40 percent, to $160 million compared to $114 million for the third 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 170 basis points during the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012. The improvement was driven by the reduction in depreciation and amortization expense and improvements in gross margins.
Adjusted EBITDA increased $22 million, or 11 percent, during the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012. The increase in Adjusted EBITDA was driven by Facilities Maintenance, Waterworks, and White Cap, and reflects our continued focus to deliver on our execution and growth initiatives to drive growth in excess of the market. 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 30 basis points to 9.8 percent in the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012, primarily due to gross margin improvements.
Net income for the third quarter of fiscal 2013 improved $101 million to $51 million compared to a Net loss of $50 million for the third quarter of fiscal 2012.
Adjusted net income increased $65 million in the third quarter of fiscal 2013 to $75 million as compared to $10 million in the third 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 third quarter of fiscal 2013 was $0.38 per share, as compared to $0.07 in the third quarter of fiscal 2012.
As of November 3, 2013, our combined liquidity of approximately $993 million was comprised of $120 million in cash and cash equivalents and $873 million of additional available borrowings under HD Supply, Inc.’s senior asset-backed lending facility, based on qualifying inventory and receivables.
Business Unit Performance
Facilities Maintenance
Net sales increased $23 million, or 4 percent, to $610 million in the third quarter of fiscal 2013 as compared to $587 million in the third quarter of fiscal 2012. Adjusted EBITDA increased $7 million, or 6 percent, to $119 million during the third quarter of fiscal 2013 as compared to $112 million in the third quarter of fiscal 2012. Adjusted EBITDA as a percentage of net sales increased approximately 40 basis points in the third quarter of fiscal 2013 as compared to third quarter of fiscal 2012.
Waterworks
Net sales increased $80 million, or 14 percent, to $633 million in the third quarter of fiscal 2013 as compared to $553 million in the third quarter of fiscal 2012. Organic sales growth was almost 11 percent in the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012. Adjusted EBITDA increased $13 million, or 31 percent, to $55 million during the third quarter of fiscal 2013 as compared to $42 million in the third quarter of fiscal 2012. Adjusted EBITDA as a percentage of net sales increased approximately 110 basis points in the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012.
Power Solutions
Net sales increased $4 million, or 1 percent, to $472 million in the third quarter of fiscal 2013 as compared to $468 million in the third quarter of fiscal 2012. Adjusted EBITDA was flat at $21 million during the third quarter of fiscal 2013 and the third quarter of fiscal 2012. Adjusted EBITDA as a percentage of net sales decreased approximately 10 basis points in the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012.
White Cap
Net sales increased $34 million, or 11 percent, to $352 million in the third quarter of fiscal 2013 as compared to $318 million in the third quarter of fiscal 2013. Adjusted EBITDA increased $5 million, or 23 percent, to $27 million during the third quarter of fiscal 2013 as compared to $22 million in the third quarter of fiscal 2012. Adjusted EBITDA as a percentage of net sales increased approximately 80 basis points during the third quarter of fiscal 2013 as compared to the third quarter of fiscal 2012.
Year-to-Date Results
Net sales for the first nine months of fiscal 2013 increased $581 million, or 10 percent to $6.6 billion, as compared to $6.0 billion the first nine months of fiscal 2012. Gross profit for the first nine months of fiscal 2013 increased by $194 million, or 11 percent, to $1.9 billion compared to $1.7 billion for the first nine months of fiscal 2012. Gross profit for the first nine months of fiscal 2013 was 29.1 percent of net sales versus 28.7 percent of net sales for the first nine months of fiscal 2012.
Operating income for the first nine months of fiscal 2013 was $410 million, an improvement of $150 million compared to operating income of $260 million for the first nine months of fiscal 2012. The improvement in operating income reflects sales growth of 10 percent and an approximately 150 basis point decline in operating expenses as a percent of net sales.
Net loss for the first nine months of fiscal 2013 was $152 million, which included an $87 million loss on extinguishment and modification of debt. Net loss for the first nine months of fiscal 2012 was $466 million, which included a $220 million loss on extinguishment and modification of debt. Excluding the loss on extinguishment and modification of debt in both years and the $19 million of income from discontinued operations in the first nine months of fiscal 2012, the net loss in the first nine months of fiscal 2013 improved $200 million as compared to the prior period.
Adjusted EBITDA for the first nine months of fiscal 2013 increased 15 percent to $608 million from $529 million in the first nine months of fiscal 2012. This increase includes an unfavorable impact of $18 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 nine months of fiscal 2013 increased to 9.2 percent of net sales versus 8.8 percent of net sales for the first nine months of fiscal 2012.
Cash flow from operating activities in the first nine months of fiscal 2013 was a use of $510 million compared with cash used by operating activities of $327 million in the first nine months of fiscal 2012. The use of cash in the first nine 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 percent Senior Subordinated Notes and a portion of the term loans under HD Supply Inc.’s senior term facility.
Third-Quarter Monthly Sales Performance
Net sales for August, September and October were $720 million, $690 million, and $887 million, respectively. There were 20 selling days in August, 19 selling days in September, and 25 selling days in October. Average daily sales growth for August, September and October were 6.5 percent, 8.1 percent and 6.6 percent, respectively.
Preliminary November Sales
Preliminary net sales in November were $633 million which represents 9.2 percent growth versus prior year (8.5 percent on an organic basis). There were 18 selling days in November and average daily sales were up 9.2 percent versus prior year. Preliminary November year-over-year average daily sales growth by business is Facilities Maintenance 8.1 percent, Waterworks 13.7 percent (9.7 percent on an organic basis), White Cap 9.2 percent and Power Solutions 7.4 percent.
2013 Outlook
The Company anticipates fiscal 2013 revenue to be in the range of $8,500 million to $8,575 million, Adjusted EBITDA in the range of $750 million and $760 million, and Adjusted net income per diluted share in the range of $0.52 and $0.58. Our fiscal 2013 Adjusted net income per share range assumes a fully diluted weighted average share count of 172 million.
