ATLANTA, Ga. — HD Supply Holdings, Inc. reported Net sales of $2.0 billion for the third quarter of fiscal 2016 ended October 30, 2016, an increase of $66 million, or 3.4 percent, as compared to the third quarter of fiscal 2015.
“We delivered growth and solid cash conversion in the third quarter and are focused on building momentum for the 2017 selling season,” stated Joe DeAngelo, Chairman and CEO of HD Supply.
Gross profit increased $35 million, or 5.4 percent, to $683 million for the third quarter of fiscal 2016 as compared to $648 million for the third quarter of fiscal 2015. Gross profit was 34.0 percent of Net sales for the third quarter of fiscal 2016, up approximately 60 basis points from 33.4 percent of Net sales for third quarter of fiscal of 2015.
Operating income increased $4 million, or 1.8 percent, to $231 million for the third quarter of fiscal 2016 as compared to $227 million for the third quarter of fiscal 2015. Operating income as a percentage of Net sales was 11.5 percent for the third quarter of fiscal 2016, decreasing approximately 20 basis points from 11.7 percent for the third quarter of fiscal 2015. Net income decreased $190 million, or 76.0 percent, to $60 million for the third quarter of fiscal 2016 as compared to $250 million for the third quarter of fiscal 2015.
Net income per diluted share decreased $0.94 or 75.8 percent to $0.30 for the third quarter of fiscal 2016, as compared to $1.24 for the third quarter of fiscal 2015. Net income in the third quarter of fiscal 2016 included a $59 million loss incurred as a result of the extinguishment of debt. Net income in the third quarter of fiscal 2015 included a $186 million pre-tax gain from the sale of the Power Solutions business and an $100 million loss incurred as a result of the extinguishment of debt.
Adjusted EBITDA increased $1 million, or 0.4 percent, to $264 million for the third quarter of fiscal 2016 as compared to $263 million for the third quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 13.1 percent for the third quarter of fiscal 2016, decreasing approximately 40 basis points from 13.5 percent for the third quarter of fiscal 2015.
Adjusted net income increased $37 million, or 28.2 percent, to $168 million for the third quarter of fiscal 2016 as compared to $131 million for the third quarter of fiscal 2015. Adjusted net income per diluted share was $0.83 for the third quarter of fiscal 2016, as compared to $0.65 for the third quarter of fiscal 2015.
As of October 30, 2016, HD Supply’s combined liquidity of approximately $873 million was comprised of $146 million in cash and cash equivalents and $727 million of additional available borrowings under HD Supply, Inc.’s senior asset-backed lending facility, based on qualifying inventory and receivables. 2 For the third quarter of fiscal 2016, the ratio of Net debt1 to Adjusted EBITDA was 4.3 times.
Business Unit Performance
Facilities Maintenance
Net sales increased $8 million, or 1.1 percent, to $724 million for the third quarter of fiscal 2016, as compared to $716 million for the third quarter of fiscal 2015. Adjusted EBITDA decreased $9 million, or 6.0 percent, to $140 million for the third quarter of fiscal 2016 as compared to $149 million for the third quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 19.3 percent for the third quarter of fiscal 2016, decreasing approximately 150 basis points from 20.8 percent for the third quarter of fiscal 2015.
Waterworks
Net sales increased $28 million, or 4.0 percent, to $733 million for the third quarter of fiscal 2016, as compared to $705 million for the third quarter of fiscal 2015. Adjusted EBITDA increased $4 million, or 5.7 percent, to $74 million for the third quarter of fiscal 2016 as compared to $70 million for the third quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 10.1 percent for the third quarter of fiscal 2016, up approximately 20 basis points from 9.9 percent for the third quarter of fiscal 2015.
Construction & Industrial – White Cap
Net sales increased $27 million, or 5.7 percent, to $499 million for the third quarter of fiscal 2016, as compared to $472 million for the third quarter of fiscal 2015. Adjusted EBITDA increased $9 million, or 17.6 percent, to $60 million for the third quarter of fiscal 2016 as compared to $51 million for the third quarter of fiscal 2015. Adjusted EBITDA as a percentage of Net sales was 12.0 percent for the third quarter of fiscal 2016, up approximately 120 basis points from 10.8 percent for the third quarter of fiscal 2015.
Third-Quarter Monthly Sales Performance
Net sales for August, September and October of fiscal 2016 were $639 million, $603 million and $766 million, respectively. There were 20 selling days in August, 19 selling days in September and 25 selling days in October. Average year-over-year daily sales growth for August, September and October of fiscal 2016 was 2.3 percent, 3.7 percent and 4.1 percent, respectively.
Capital Structure Activities
On October 17, 2016, the company redeemed all of its outstanding $1,275 million 7.50% Senior Notes due 2020 using proceeds from the completion of an amendment to the Senior Secured Term Loan Facility which included the issuance of a new tranche of term loans in the aggregate principal amount of $550 million together with $263 million of cash on hand and $510 million of borrowings under the Senior Asset Based Lending Facility. The redemption amount included approximately $48 million of call premium. The reduction in future cash interest is expected to be approximately $65 million annually.
Preliminary November Sales Results
Preliminary Net sales in November were approximately $526 million, which represents year-over-year average daily sales growth of approximately 2.3 percent. Preliminary November year-over-year average daily sales growth by business was Facilities Maintenance approximately 0.9 percent, Waterworks approximately 2.9 percent and Construction & Industrial approximately 3.8 percent. There were 18 selling days in November 2016 and 18 selling days in November 2015.
Fourth-Quarter 2016 Outlook
For our fourth quarter 2016, we anticipate Net sales to be in the range of $1,605 million and $1,665 million, Adjusted EBITDA2 in the range of $160 million and $175 million and Adjusted net income per diluted share2 in the range of $0.38 and $0.46. Our Adjusted net income per diluted share range assumes a fully diluted weighted average share count of approximately 202 million. At the mid-point of the ranges, our fourth-quarter Net sales and Adjusted EBITDA translate into approximately 3 percent growth and 1 percent growth respectively, versus prior year.
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