ATLANTA, Ga. — HD Supply Holdings, Inc. today reported Net sales of $1.9 billion for the first quarter of fiscal 2017 ended April 30, 2017, an increase of $92 million, or 5.2 percent, as compared to the first quarter of fiscal 2016.
“This is a significant moment in time for HD Supply as we simplify our business mix and accelerate our focus on next generation growth and innovation”, stated Joe DeAngelo, Chairman, President & CEO of HD Supply. “We continue to strategically evolve as we extend our customer-centric service differentiation.”
Gross profit increased $22 million, or 3.6 percent, to $631 million for the first quarter of fiscal 2017 as compared to $609 million for the first quarter of fiscal 2016. Gross profit was 33.7 percent of Net sales for the first quarter of fiscal 2017, down approximately 50 basis points from 34.2 percent of Net sales for first quarter of fiscal of 2016.
Operating income decreased $2 million, or 1.1 percent, to $176 million for the first quarter of fiscal 2017 as compared to $178 million for the first quarter of fiscal 2016. Operating income as a percentage of Net sales was 9.4 percent for the first quarter of fiscal 2017, decreasing approximately 60 basis points from 10.0 percent for the first quarter of fiscal 2016.
Net income increased $99 million to $85 million for the first quarter of fiscal 2017 as compared to a Net loss of $14 million for the first quarter of fiscal 2016. Net income per diluted share increased $0.49 to $0.42 for the first quarter of fiscal 2017, as compared to a Net loss per diluted share of $0.07 for the first quarter of fiscal 2016. Net loss in the first quarter of fiscal 2016 included a $115 million pre-tax loss incurred as a result of the extinguishment of outstanding debt.
Adjusted EBITDA decreased $8 million, or 3.7 percent, to $207 million for the first quarter of fiscal 2017 as compared to $215 million for the first quarter of fiscal 2016. Adjusted EBITDA as a percentage of Net sales was 11.1 percent for the first quarter of fiscal 2017, decreasing approximately 100 basis points from 12.1 percent for the first quarter of fiscal 2016.
Adjusted net income increased $24 million, or 23.3 percent, to $127 million for the first quarter of fiscal 2017 as compared to $103 million for the first quarter of fiscal 2016. Adjusted net income per diluted share was $0.63 for the first quarter of fiscal 2017, as compared to $0.51 for the first quarter of fiscal 2016.
As of April 30, 2017, HD Supply’s combined liquidity of approximately $742 million was comprised of $70 million in cash and cash equivalents and $672 million of additional available borrowings under HD Supply, Inc.’s senior asset-backed lending facility, based on qualifying inventory and receivables.
As of April 30, 2017, the ratio of Net debt to LTM Adjusted EBITDA was 4.0 times.
Business Unit Performance
Facilities Maintenance
Net sales increased $5 million, or 0.7 percent, to $682 million for the first quarter of fiscal 2017, as compared to $677 million for the first quarter of fiscal 2016. Adjusted EBITDA decreased $17 million, or 12.7 percent, to $117 million for the first quarter of fiscal 2017 as compared to $134 million for the first quarter of fiscal 2016. Adjusted EBITDA as a percentage of Net sales was 17.2 percent for the first quarter of fiscal 2017, decreasing approximately 260 basis points from 19.8 percent for the first quarter of fiscal 2016.
Waterworks
Net sales increased $52 million, or 8.6 percent, to $657 million for the first quarter of fiscal 2017, as compared to $605 million for the first quarter of fiscal 2016. Adjusted EBITDA increased $3 million, or 6.3 percent, to $51 million for the first quarter of fiscal 2017 as compared to $48 million for the first quarter of fiscal 2016. Adjusted EBITDA as a percentage of Net sales was 7.8 percent for the first quarter of fiscal 2017, down approximately 10 basis points from 7.9 percent for the first quarter of fiscal 2016.
Construction & Industrial
Net sales increased $35 million, or 7.0 percent, to $536 million for the first quarter of fiscal 2017, as compared to $501 million for the first quarter of fiscal 2016. Adjusted EBITDA increased $6 million, or 12.2 percent, to $55 million for the first quarter of fiscal 2017 as compared to $49 million for the first quarter of fiscal 2016. Adjusted EBITDA as a percentage of Net sales was 10.3 percent for the first quarter of fiscal 2017, up approximately 50 basis points from 9.8 percent for the first quarter of fiscal 2016.
First-Quarter Monthly Sales Performance
Net sales for February, March and April of fiscal 2017 were $535 million, $579 million and $759 million, respectively. There were 20 selling days in February, 20 selling days in March and 25 selling days in April. Average year-over-year daily sales growth for February, March and April of fiscal 2017 was 6.4 percent, 5.3 percent and 4.2 percent, respectively.
Preliminary May Sales Results
Preliminary Net sales in May were approximately $641 million, which represents year-over-year average daily sales growth of approximately 5.1 percent. Excluding Waterworks, preliminary Net sales in May were approximately $411 million, which represents year-over-year average daily sales growth of approximately 6.9%. Preliminary May year-over-year average daily sales growth by business was Facilities Maintenance approximately 5.2 percent, Waterworks approximately 2.1 percent and Construction & Industrial approximately 9.3 percent. There were 20 selling days in May 2017 and 20 selling days in May 2016.
Waterworks Sale Transaction
Today, HD Supply announced it has entered into a definitive agreement to sell HD Supply Waterworks, the nation’s largest distributor of water, sewer, storm and fire protection products, to Clayton, Dubilier & Rice. The purchase price is approximately $2.5 billion payable in cash at closing. The transaction is expected to close in HD Supply’s third quarter of fiscal 2017 subject to customary closing conditions, including applicable regulatory approvals.
Share Repurchase Program Authorization
On June 3, 2017, the Board of Directors of HD Supply Holdings, Inc. (the “company”) authorized the company to enter into a share repurchase program for the repurchase of up to an aggregate amount of $500 million of the company’s common stock in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The company will conduct repurchases under the program in the open market and through broker negotiated purchases in compliance with Rule 10b-18 of the Exchange Act, and subject to market conditions, applicable legal requirements, and other relevant factors. The share repurchases will be funded from the company’s available cash balances. This share repurchase program does not obligate the company to acquire any particular amount of common stock, and it may be terminated at any time at the company’s discretion. The company had 202,659,525 shares of common stock outstanding as of June 2, 2017.
Facilities Maintenance Leadership
Effective immediately, Will Stengel will assume the role of President & CEO of HD Supply Facilities Maintenance. Will most recently served as Senior Vice President, Chief Operating Officer of Facilities Maintenance and has been with the company for over 10 years in various commercial, operations and strategy roles. He will continue to report to Joe DeAngelo, who will maintain his position as Chairman, President & CEO of HD Supply.
Capital Structure Activities
On April 5, 2017, HD Supply, Inc. amended its existing ABL Credit Agreement, which, among other things, reduced the applicable margin for borrowings by 25 basis points, reduced commitment fees, and extended the maturity date of the Senior ABL Facility until April 5, 2022. As a result, the company incurred a $1 million loss on extinguishment of debt for write-offs of unamortized deferred financing costs.
On April 18, 2017, the company used cash flow from operations to repay $100 million aggregate principal of HD Supply, Inc.’s Term B-1 Loans. As a result, the company incurred a $2 million loss on extinguishment of debt, which includes write-offs of unamortized original issue discount and unamortized deferred financing costs for $1 million each.
Second-Quarter 2017 Outlook
The second quarter 2017 outlook excludes Waterworks. For the second quarter 2017, Net sales are anticipated to be in the range of $1,325 million and $1,365 million, Adjusted EBITDA2 in the range of $200 million and $210 million and Adjusted net income per diluted share2 in the range of $0.60 and $0.65. Adjusted net income per diluted share range assumes a fully diluted weighted average share count of approximately 203 million. The company will provide further specifics on its outlook during the first-quarter fiscal 2017 earnings conference call and in the earnings call presentation materials.
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