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HD Supply Announces Fiscal 2020 Third-Quarter Results

HD Supply Announces Fiscal 2020 Third-Quarter Results

ATLANTA — HD Supply Holdings, Inc. reported Net sales of $827.5 million for the third quarter of fiscal 2020 ended November 1, 2020, an increase of $2.3 million, or 0.3 percent, as compared to the third quarter of fiscal 2019.

“I am very proud of the team as their focused execution continued to deliver improved results, in the face of turbulent end markets and organizational change,” stated Joe DeAngelo, Chairman and CEO of HD Supply. “It is a testament to their dedication to our customers and their commitment to safely delivering best-in-class service.”

Gross profit decreased $3.7 million, or 1.1 percent, to $348.3 million for the third quarter of fiscal 2020, as compared to $352.0 million for the third quarter of fiscal 2019. Gross profit was 42.1 percent of Net sales for the third quarter of fiscal 2020, a decrease of approximately 60 basis points from 42.7 percent for the third quarter of fiscal 2019.

Operating income decreased $4.9 million, or 3.9 percent, to $121.0 million for the third quarter of fiscal 2020, as compared to $125.9 million for the third quarter of fiscal 2019. Operating income was 14.6 percent of Net sales for the third quarter of fiscal 2020, down approximately 70 basis points from 15.3 percent for the third quarter of fiscal 2019.

Net income increased $1,476.3 million to $1,608.2 million for the third quarter of fiscal 2020, as compared to $131.9 million for the third quarter of fiscal 2019. The increase in Net income was primarily due to the gain on the sale of the Construction & Industrial business. Net income per diluted share increased $9.26 to $10.06 for the third quarter of fiscal 2020, as compared to $0.80 for the third quarter of fiscal 2019.

Adjusted EBITDA increased $0.5 million, or 0.3 percent, to $148.0 million for the third quarter of fiscal 2020, as compared to $147.5 million for the third quarter of fiscal 2019. Adjusted EBITDA was 17.9 percent of Net sales for the third quarter of fiscal 2020, flat as compared to the third quarter of fiscal 2019.

Adjusted net income decreased $0.5 million, or 0.7 percent, to $74.8 million for the third quarter of fiscal 2020, as compared to $75.3 million for the third quarter of fiscal 2019. Adjusted net income per diluted share increased $0.01, or 2.2 percent, to $0.47 for the third quarter of fiscal 2020, as compared to $0.46 for the third quarter of fiscal 2019.

As of November 1, 2020, our combined liquidity of $2,751.7 million was comprised of $2,315.0 million in cash and cash equivalents and $436.7 million of additional available borrowings (excluding $139.4 million of permitted borrowings on available cash balances) under HD Supply, Inc.’s senior asset-based lending facility, based on qualifying inventory and receivables. Our combined liquidity as of November 1, 2020 increased by $1,756.2 million from the end of second-quarter fiscal 2020 and by $2,123.3 million from the end of fiscal year 2019.

Third-Quarter Monthly Sales Performance

Net sales for August, September and October of fiscal 2020 were $268.4 million, $247.3 million and $311.8 million, respectively. There were 20 selling days in August, 19 selling days in September, and 25 selling days in October of fiscal 2020 and fiscal 2019. Average year-over-year daily sales changes for August, September and October of fiscal 2020 as compared to fiscal 2019 were an increase of 1.1 percent, a decrease of 0.7 percent and an increase of 0.3 percent, respectively.

Preliminary November Sales Results

Preliminary Net sales in November 2020 were approximately $222.0 million, which represents a year-over-year average daily increase of approximately 2.9 percent. There were 18 selling days in both November 2020 and November 2019.

Sale of Construction and Industrial

On October 19, 2020, HD Supply completed the sale of its Construction & Industrial business and received cash proceeds of approximately $2.8 billion, net of transaction cost payments of approximately $34.9 million. In the three and nine months ended November 1, 2020, the Company recognized a gain on sale of the Construction & Industrial business of approximately $1.5 billion, net of tax of $257.1 million. The sale is subject to a post-closing working capital adjustment which the Company expects to settle by early 2021.

Debt Transactions and Termination of Cash Flow Hedge

On October 20, 2020, HD Supply used a portion of the net proceeds from the sale of the Construction & Industrial business to repay $524.3 million aggregate principal of its Term B-5 Loans which included $10.4 million of original issue discount. As a result, the Company incurred a $4.7 million loss on extinguishment of debt, which includes write-offs of $1.2 million and $3.5 million of unamortized original issue discount and unamortized deferred financing costs, respectively.

Additionally, the Company initiated a voluntary partial termination for $500.0 million of the notional amount of the outstanding interest rate swap agreement. The Company paid $44.4 million to the counterparty to settle the liability and accrued interest as of the termination date. The Company recognized a $43.6 million loss on the termination.

Acquisition by The Home Depot

On November 15, 2020, The Home Depot, Inc. entered into a definitive agreement to acquire HD Supply (the “Merger Agreement”). Under the terms of the Merger Agreement, The Home Depot, Inc. has agreed to commence a tender offer (the “Offer”), through a wholly-owned subsidiary, to acquire all of the outstanding shares of HD Supply common stock for $56 per share (“Share”) in cash. The Boards of Directors of both The Home Depot, Inc. and HD Supply have unanimously approved the terms of the Merger Agreement, and the Board of Directors of HD Supply has resolved to recommend that shareholders accept the offer, once it is commenced. The acquisition is structured as an all-cash Offer for all outstanding issued common stock of HD Supply followed by a merger (“Merger”) in which the remaining shares of HD Supply would be converted into the same U.S. dollar per share consideration as the Offer. The acquisition is expected to be completed during The Home Depot, Inc.’s fiscal fourth quarter, which ends on January 31, 2021, and is subject to applicable regulatory approval and customary closing conditions.

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