HD Supply Holdings, Inc. (NASDAQ: HDS), one of the largest
industrial distributors in North America, today reported Net sales
of $1.4 billion for the first quarter of fiscal 2020 ended May 3,
2020, a decrease of $98 million, or 6.6 percent, as compared to the
first quarter of fiscal 2019.
"The COVID-19 pandemic has created extraordinary challenges, but
our focus has remained clear. We have prioritized the health and
well-being of our associates and their families while continuing to
serve our customers and our communities. Our associates have
worked tirelessly to fulfill our responsibilities and I am proud of
each and every one of them," stated Joe DeAngelo, Chairman and CEO
of HD Supply. "We are encouraged by improving results in May, and
we will continue to support our customers and communities as they
work to safely resume economic activity."
Gross profit decreased $35 million, or 6.0 percent, to $550
million for the first quarter of fiscal 2020, as compared to $585
million for the first quarter of fiscal 2019. Gross profit was 39.4
percent of Net sales for the first quarter of fiscal 2020, an
increase of approximately 20 basis points from 39.2 percent for the
first quarter of fiscal 2019.
Operating income decreased $49 million, or 28.8 percent, to $121
million for the first quarter of fiscal 2020, as compared to $170
million for the first quarter of fiscal 2019. Operating income was
8.7 percent of Net sales for the first quarter of fiscal 2020, down
approximately 270 basis points from 11.4 percent for the first
quarter of fiscal 2019.
Net income decreased $35 million, or 32.7 percent, to $72
million for the first quarter of fiscal 2020, as compared to $107
million for the first quarter of fiscal 2019.
Net income per diluted share decreased $0.18, or 28.6 percent,
to $0.45 for the first quarter of fiscal 2020, as compared to $0.63
for the first quarter of fiscal 2019.
Adjusted EBITDA decreased $40 million, or 19.7 percent, to $163
million for the first quarter of fiscal 2020, as compared to $203
million for the first quarter of fiscal 2019. Adjusted EBITDA was
11.7 percent of Net sales for the first quarter of fiscal 2020,
down approximately 190 basis points from 13.6 percent for the first
quarter of fiscal 2019.
Adjusted net income decreased $35 million, or 24.5 percent, to
$108 million for the first quarter of fiscal 2020, as compared to
$143 million for the first quarter of fiscal 2019. Adjusted
net income per diluted share decreased $0.17, or 20.2 percent, to
$0.67 for the first quarter of fiscal 2020, as compared to $0.84
for the first quarter of fiscal 2019.
As of May 3, 2020, HD Supply’s combined liquidity of $797
million was comprised of $147 million in cash and cash equivalents
and $650 million of additional available borrowings (excluding $85
million of borrowings on available cash balances) under HD Supply,
Inc.'s senior asset-based lending facility, based on qualifying
inventory and receivables. HD Supply’s May 3, 2020 combined
liquidity increased by $169 million from its fiscal 2019 year-end
combined liquidity of $628 million.
Business Unit Performance
Facilities Maintenance
Net sales decreased $90 million, or 11.7 percent, to $682
million for the first quarter of fiscal 2020, as compared to $772
million for the first quarter of fiscal 2019. Adjusted EBITDA
decreased $36 million, or 26.9 percent, to $98 million for the
first quarter of fiscal 2020, as compared to $134 million for the
first quarter of fiscal 2019. Adjusted EBITDA was 14.4
percent of Net sales for the first quarter of fiscal 2020, down
approximately 300 basis points from 17.4 percent for the first
quarter of fiscal 2019.
Construction & Industrial
Net sales decreased $8 million, or 1.1 percent, to $713 million
for the first quarter of fiscal 2020, as compared to $721 million
for the first quarter of fiscal 2019. Adjusted EBITDA decreased $4
million, or 5.8 percent, to $65 million for the first quarter of
fiscal 2020, as compared to $69 million for the first quarter of
fiscal 2019. Adjusted EBITDA was 9.1 percent of Net sales for
the first quarter of fiscal 2020, down approximately 50 basis
points from 9.6 percent for the first quarter of fiscal 2019.
First-Quarter Monthly Sales Performance
Net sales for February, March and April of fiscal 2020 were $461
million, $462 million and $472 million, respectively. There
were 20 selling days in February, 20 selling days in March and 25
selling days in April of fiscal 2020 and fiscal 2019. Average
year-over-year daily sales changes for February, March and April of
fiscal 2020 as compared to fiscal 2019 were an increase of 8.8
percent, an increase of 0.5 percent and a decrease of 22.6 percent,
respectively.
Preliminary May Sales Results
Preliminary Net sales in May 2020 were approximately $431
million, which represents a year-over-year average daily decline of
approximately 7.3 percent. Preliminary May year-over-year
average daily Net sales decline by business segment was 13.4
percent in Facilities Maintenance and 1.4 percent in Construction
& Industrial. There were 19 selling days in both May 2020
and May 2019. May’s Net sales performance improved throughout
the month in both Facilities Maintenance and Construction &
Industrial.
2020 Outlook
The company will not be providing a second quarter 2020 or
fiscal full year 2020 outlook in light of the ongoing coronavirus
disease (“COVID-19”) outbreak. A further discussion relating to the
ongoing impact of COVID-19 will take place on our fiscal 2020
first-quarter conference call.
Fiscal 2020 First-Quarter Conference Call
As previously announced, HD Supply will hold a conference call
on Tuesday, June 9th, 2020 at 8:00 a.m. (Eastern Time) to discuss
its fiscal 2020 first-quarter results. The conference call
and presentation materials can be accessed via webcast by logging
on from the Investor Relations section of the company's Web site at
hdsupply.com. The online replay will remain available for a limited
time following the call.
Non-GAAP Financial Measures
HD Supply supplements its reporting of Net income with non-GAAP
measurements, including Adjusted EBITDA, Adjusted net income, and
Adjusted net income per diluted share. This supplemental
information should not be considered in isolation or as a
substitute for the GAAP measurements. Additional information
regarding Adjusted EBITDA, Adjusted net income, and Adjusted net
income per diluted share referred to in this press release is
included below under “Reconciliation of Non-GAAP Measures.”
About HD Supply
HD Supply (www.hdsupply.com) is one of the largest industrial
distributors in North America. The company provides a broad range
of products and value-add services to approximately 500,000
customers with leadership positions in the maintenance, repair and
operations and specialty construction sectors. Through
approximately 270 branches and 44 distribution centers in the U.S.
and Canada, the company's more than 11,000 associates provide
localized, customer-tailored products, services and expertise.
Forward-Looking Statements and Preliminary
Results
This press release includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements are based on management's beliefs and assumptions and
information currently available to management and 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 results, and that actual results may differ materially from
those made in or suggested by the forward-looking information
contained in this press release. 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, without limitation, the
impact of the coronavirus disease 2019 outbreak (“COVID-19”) on the
maintenance, repair and operations and specialty construction
sectors, in general, and the financial position and operating
results of our company, in particular, which cannot be predicted
and could change rapidly and those "Risk factors" in our annual
report on Form 10-K, for the fiscal year ended February 2, 2020,
filed on March 17, 2020 and those described from time to time in
our, and HD Supply, Inc.'s, other filings with the U.S. Securities
and Exchange Commission (the “SEC”), which can be found at the
SEC's website www.sec.gov. 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.
May 2020 estimates for Net sales are preliminary estimates and
are subject to risks and uncertainties, including, among others,
changes in connection with quarter-end adjustments. Any variation
between HD Supply’s actual results and the preliminary financial
data set forth above may be material.
|
HD SUPPLY
HOLDINGS, INC. |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME |
Amounts in
millions, except share and per share data, Unaudited |
|
|
Three Months Ended |
|
May 3, 2020 |
|
May 5, 2019 |
Net Sales |
|
$ 1,395 |
|
|
|
$ 1,493 |
|
Cost of sales |
|
845 |
|
|
|
908 |
|
Gross Profit |
|
550 |
|
|
|
585 |
|
Operating expenses: |
|
|
|
Selling, general and administrative |
|
396 |
|
|
|
392 |
|
Depreciation and amortization |
|
27 |
|
|
|
25 |
|
Restructuring and separation |
|
6 |
|
|
|
(2 |
) |
Total operating expenses |
|
429 |
|
|
|
415 |
|
Operating Income |
|
121 |
|
|
|
170 |
|
Interest expense |
|
25 |
|
|
|
28 |
|
Income Before Provision for Income Taxes |
|
96 |
|
|
|
142 |
|
Provision for income
taxes |
|
24 |
|
|
|
35 |
|
Net Income |
|
$ 72 |
|
|
|
$ 107 |
|
Other comprehensive income
(loss): |
|
|
|
Foreign currency translation adjustment |
|
1 |
|
|
|
— |
|
Unrealized loss on cash flow hedge, net of tax of $6 and $1 |
|
(16 |
) |
|
|
(5 |
) |
Total Comprehensive Income |
|
$ 57 |
|
|
|
$ 102 |
|
|
|
|
|
Weighted Average
Common Shares Outstanding (thousands) |
|
|
|
Basic |
|
160,830 |
|
|
|
170,000 |
|
Diluted |
|
161,190 |
|
|
|
170,712 |
|
|
|
|
|
Earnings Per
Share: |
|
|
|
Basic earnings per share |
|
$ 0.45 |
|
|
|
$ 0.63 |
|
Diluted earnings per share |
|
$ 0.45 |
|
|
|
$ 0.63 |
|
HD SUPPLY HOLDINGS, INC. |
CONSOLIDATED BALANCE SHEETS |
Amounts in millions, except per share data,
Unaudited |
|
|
May 3, 2020 |
|
February 2, 2020 |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
|
$ 147 |
|
|
|
$ 34 |
|
Receivables, less allowance for credit losses of $24 and $19 |
|
690 |
|
|
|
754 |
|
Inventories |
|
832 |
|
|
|
771 |
|
Other current assets |
|
89 |
|
|
|
104 |
|
Total current assets |
|
1,758 |
|
|
|
1,663 |
|
Property and equipment,
net |
|
387 |
|
|
|
391 |
|
Operating lease right-of-use
assets |
|
474 |
|
|
|
480 |
|
Goodwill |
|
1,991 |
|
|
|
1,991 |
|
Intangible assets, net |
|
169 |
|
|
|
175 |
|
Deferred tax asset |
|
2 |
|
|
|
2 |
|
Other assets |
|
14 |
|
|
|
13 |
|
Total assets |
|
$ 4,795 |
|
|
|
$ 4,715 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
|
$ 455 |
|
|
|
$ 414 |
|
Accrued compensation and benefits |
|
58 |
|
|
|
71 |
|
Current installments of long-term debt |
|
11 |
|
|
|
11 |
|
Current lease liabilities |
|
122 |
|
|
|
110 |
|
Other current liabilities |
|
188 |
|
|
|
208 |
|
Total current liabilities |
|
834 |
|
|
|
814 |
|
Long-term debt, excluding
current installments |
|
2,033 |
|
|
|
2,035 |
|
Deferred tax liabilities |
|
35 |
|
|
|
33 |
|
Long-term lease
liabilities |
|
365 |
|
|
|
383 |
|
Other liabilities |
|
115 |
|
|
|
98 |
|
Total liabilities |
|
3,382 |
|
|
|
3,363 |
|
Stockholders’
equity: |
|
|
|
Common stock, par value $0.01;
1 billion shares authorized; 162.0 million and 161.4 million shares
issued and outstanding at May 3, 2020, and February 2, 2020,
respectively |
|
2 |
|
|
|
2 |
|
Paid-in capital |
|
4,103 |
|
|
|
4,097 |
|
Accumulated deficit |
|
(1,050 |
) |
|
|
(1,122 |
) |
Accumulated other
comprehensive loss |
|
(67 |
) |
|
|
(52 |
) |
Treasury stock, at cost, 44.1
million shares at May 3, 2020 and February 2, 2020,
respectively |
|
(1,575 |
) |
|
|
(1,573 |
) |
Total stockholders’ equity |
|
1,413 |
|
|
|
1,352 |
|
Total liabilities and stockholders’ equity |
|
$ 4,795 |
|
|
|
$ 4,715 |
|
HD SUPPLY HOLDINGS, INC. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
Amounts in millions, Unaudited |
|
|
Three Months Ended |
|
May 3, 2020 |
|
May 5, 2019 |
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
Net income |
|
$ 72 |
|
|
|
$ 107 |
|
Reconciliation of net income
to net cash provided by operating activities: |
|
|
|
Depreciation and amortization |
|
29 |
|
|
|
27 |
|
Provision for credit losses |
|
9 |
|
|
|
2 |
|
Non-cash interest expense |
|
2 |
|
|
|
2 |
|
Stock‑based compensation expense |
|
7 |
|
|
|
7 |
|
Deferred income taxes |
|
— |
|
|
|
32 |
|
Other |
|
— |
|
|
|
1 |
|
Changes in assets and liabilities, net of the effects of
acquisitions & dispositions: |
|
|
|
(Increase) decrease in receivables |
|
54 |
|
|
|
(51 |
) |
(Increase) decrease in inventories |
|
(62 |
) |
|
|
(43 |
) |
(Increase) decrease in other current assets |
|
1 |
|
|
|
(5 |
) |
Increase (decrease) in accounts payable and accrued
liabilities |
|
20 |
|
|
|
49 |
|
Increase (decrease) in other long-term liabilities |
|
5 |
|
|
|
— |
|
Net cash provided by operating activities |
|
137 |
|
|
|
128 |
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
Capital expenditures |
|
(21 |
) |
|
|
(26 |
) |
Proceeds from sales of
property and equipment |
|
— |
|
|
|
2 |
|
Net cash provided by (used in) investing activities |
|
(21 |
) |
|
|
(24 |
) |
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
Purchase of treasury
shares |
|
(1 |
) |
|
|
(12 |
) |
Repayments of long-term
debt |
|
(3 |
) |
|
|
(3 |
) |
Repayments of financing
liabilities |
|
— |
|
|
|
(88 |
) |
Borrowings on long-term
revolver debt |
|
339 |
|
|
|
327 |
|
Repayments on long-term
revolver debt |
|
(337 |
) |
|
|
(325 |
) |
Proceeds from issuance of
common stock under employee benefit plans |
|
3 |
|
|
|
4 |
|
Tax withholdings on
stock-based awards |
|
(4 |
) |
|
|
(5 |
) |
Net cash provided by (used in) financing activities |
|
(3 |
) |
|
|
(102 |
) |
Effect of exchange rates on
cash and cash equivalents |
|
— |
|
|
|
— |
|
Increase (decrease) in cash
and cash equivalents |
|
$ 113 |
|
|
|
$ 2 |
|
Cash and cash equivalents at
beginning of period |
|
34 |
|
|
|
38 |
|
Cash and cash equivalents at
end of period |
|
$ 147 |
|
|
|
$ 40 |
|
HD SUPPLY
HOLDINGS, INC. |
SEGMENT
REPORTING |
Amounts
in millions, Unaudited |
|
|
Facilities Maintenance |
|
Construction & Industrial |
|
Eliminations |
|
Total Operations |
Three Months Ended May
3, 2020 |
|
|
|
|
|
|
|
Net sales |
|
$ 682 |
|
|
$ 713 |
|
|
$ — |
|
|
$ 1,395 |
Adjusted EBITDA |
|
98 |
|
|
65 |
|
|
— |
|
|
163 |
Depreciation(1) & Software
Amortization |
|
13 |
|
|
10 |
|
|
— |
|
|
23 |
Other Intangible
Amortization |
|
2 |
|
|
4 |
|
|
— |
|
|
6 |
|
|
|
|
|
|
|
|
Three Months Ended May 5, 2019 |
|
|
|
|
|
|
|
Net sales |
|
$ 772 |
|
|
$ 721 |
|
|
$ — |
|
|
$ 1,493 |
Adjusted EBITDA |
|
134 |
|
|
69 |
|
|
— |
|
|
203 |
Depreciation(1) & Software
Amortization |
|
10 |
|
|
11 |
|
|
— |
|
|
21 |
Other Intangible
Amortization |
|
2 |
|
|
4 |
|
|
— |
|
|
6 |
(1) Depreciation includes amounts recorded within
Cost of sales in the Consolidated Statements of Operations.
Reconciliation of Non-GAAP Measures
Adjusted EBITDA and Adjusted net income are not recognized terms
under GAAP and do not purport to be alternatives to Net income as a
measure of operating performance. We present Adjusted EBITDA and
Adjusted net income because each is a primary measure used by
management to evaluate operating performance. In addition, we
present Adjusted net income to measure our overall profitability as
we believe it is an important measure of our performance. We
believe the presentation of Adjusted EBITDA and Adjusted net income
enhances investors' overall understanding of the financial
performance of our business.
Adjusted EBITDA is based on "Consolidated EBITDA," a measure
which is defined in our senior credit facilities and used in
calculating financial ratios in several material debt covenants.
Adjusted EBITDA is defined as Net income less Income from
discontinued operations, net of tax, plus (i) Interest expense and
Interest income, net, (ii) Provision for income taxes, (iii)
Depreciation and amortization and further adjusted to exclude loss
on extinguishment of debt, non-cash items and certain other
adjustments to Consolidated Net Income permitted in calculating
Consolidated EBITDA under our senior credit facilities.
Adjusted net income is defined as Net income less Income from
discontinued operations, net of tax, further adjusted for loss on
extinguishment of debt, certain non-cash, non-recurring or unusual
items, net of tax.
We compensate for the limitations of using non-GAAP financial
measures by using them to supplement GAAP results to provide a more
complete understanding of the factors and trends affecting the
business than GAAP results alone. Because not all companies use
identical calculations, our presentation of Adjusted EBITDA and
Adjusted net income may not be comparable to other similarly titled
measures of other companies.
Adjusted EBITDA and Adjusted net income have limitations as
analytical tools and should not be considered in isolation or as
substitutes for analyzing our results as reported under GAAP. Some
of these limitations are:
- Adjusted EBITDA and Adjusted net income do not reflect changes
in, or cash requirements for, our working capital needs;
- Adjusted EBITDA does not reflect our interest expense, or the
requirements necessary to service interest or principal payments on
our debt;
- Adjusted EBITDA does not reflect our income tax expenses or the
cash requirements to pay our taxes;
- Adjusted EBITDA and Adjusted net income do not reflect
historical cash expenditures or future requirements for capital
expenditures or contractual commitments; and
- although depreciation and amortization charges are non-cash
charges, the assets being depreciated and amortized will often have
to be replaced in the future, and Adjusted EBITDA does not reflect
any cash requirements for such replacements.
Adjusted EBITDA
The following table presents a reconciliation of Net income, the
most directly comparable financial measure under GAAP, to Adjusted
EBITDA for the periods presented (amounts in millions):
|
Three Months Ended |
|
May 3, 2020 |
|
May 5, 2019 |
Net income |
|
$ 72 |
|
|
|
$ 107 |
|
Interest expense, net |
|
25 |
|
|
|
28 |
|
Provision for income
taxes |
|
24 |
|
|
|
35 |
|
Depreciation and amortization
(1) |
|
29 |
|
|
|
27 |
|
Restructuring and separation
charges (2) |
|
6 |
|
|
|
(2 |
) |
Stock-based compensation |
|
7 |
|
|
|
7 |
|
Acquisition and integration
costs (3) |
|
— |
|
|
|
1 |
|
Adjusted EBITDA |
|
$ 163 |
|
|
|
$ 203 |
|
(1) Depreciation and amortization includes amounts
recorded within Cost of sales in the Consolidated Statements of
Operations.(2) Represents the costs related to separation
activities and personnel changes, primarily severance and other
employee-related costs. For the three months ended May 5, 2019, the
Company recognized a favorable termination of the lease for its
former corporate headquarters.(3) Represents the costs
incurred in the acquisition and integration of business
acquisitions, including A.H. Harris Construction Supplies.
Adjusted Net Income
The following table presents a reconciliation of Net income, the
most directly comparable financial measure under U.S. GAAP, to
Adjusted net income for the periods presented (amounts in
millions):
|
Three Months Ended |
|
May 3, 2020 |
|
May 5, 2019 |
Net income |
|
$ 72 |
|
|
|
$ 107 |
|
Plus: Provision for income
taxes |
|
24 |
|
|
|
35 |
|
Less: Cash income taxes |
|
— |
|
|
|
(4 |
) |
Plus: Amortization of
acquisition-related intangible assets (other than software) |
|
6 |
|
|
|
6 |
|
Plus: Restructuring and
separation charges (1) |
|
6 |
|
|
|
(2 |
) |
Plus: Acquisition and
integration costs (2) |
|
— |
|
|
|
1 |
|
Adjusted Net
Income |
|
$ 108 |
|
|
|
$ 143 |
|
|
|
|
|
|
Diluted weighted average
common shares outstanding |
|
161,190 |
|
|
|
170,712 |
|
Adjusted net income per share
– diluted |
|
$ 0.67 |
|
|
|
$ 0.84 |
|
(1) Represents the costs related to separation activities
and personnel changes, primarily severance and other
employee-related costs. For the three months ended May 5, 2019, the
Company recognized a favorable termination of the lease for its
former corporate headquarters.(2) Represents the costs
incurred in the acquisition and integration of business
acquisitions, including A.H. Harris Construction Supplies.
Investor and Media Contact:Charlotte
McLaughlinHD Supply Investor
Relations770-852-9100InvestorRelations@hdsupply.comCharlotte.McLaughlin@hdsupply.com
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