HD Supply Holdings, Inc. kept its earnings streak alive in the second quarter of fiscal 2020 (ended Aug 2, 2020), with earnings surpassing estimates by 13.7%. This was the company’s 4th consecutive quarter of better-than-expected earnings results. Also, the quarter’s sales beat the Zacks Consensus Estimate by 0.4%.

The industrial distributor’s adjusted earnings in the reported quarter were 83 cents per share, surpassing the consensus estimate of 73 cents. Also, the bottom line increased 5.1% from the year-ago figure of 79 cents. Despite top-line weakness, the bottom line gained from a 5.2% fall in shares outstanding.

Revenue Details

In the quarter under review, HD Supply’s net sales were $1,552 million, reflecting a year-over-year decline of 4.4%. The results suffered weakness in the segmental performances due to the pandemic.

However, the company’s revenues surpassed the Zacks Consensus Estimate of $1,546 million.

Notably, average daily sales changes on a year-over-year basis were a decline of 7.3% for May, a 4.8% fall for June and a 2% decrease for July. The same metric was down 0.7% year over year in August.

It currently reports under two business segments — Facilities Maintenance, and Construction & Industrial. The segmental information is briefly discussed below:

Revenues from Facilities Maintenance totaled $761 million, declining 8.3% year over year.
 
Revenues from Construction & Industrial totaled $793 million, reflecting a year-over-year decline of 0.3%.

The company agreed to divest Construction & Industrial by selling it to an associate of Clayton, Dubilier & Rice. The transaction, valued at $2.9 billion in cash, is anticipated to be completed in October 2020.

Margin Profile

In the quarter under review, HD Supply’s cost of sales declined 3.5% year over year to $956 million. It represented 61.6% of the quarter’s net sales in the quarter. Gross profit fell 5.8% year over year to $596 million and margin decreased 60 basis points (bps) to 38.4%.

Selling, general and administrative expenses decreased 23.5% year over year to $366 million. It represented 23.6% of the quarter’s net sales. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the quarter under review declined 2.5% year over year to $238 million. However, the adjusted EBITDA margin increased 30 bps year over year to 15.3%.

Operating income in the quarter decreased 6.2% year over year to $198 million, while the margin declined 20 bps to 12.8%. Interest expenses in the quarter declined 14.3% year over year to $24 million.

Balance Sheet and Cash Flow

Exiting the fiscal second quarter, HD Supply’s cash and cash equivalents decreased 51.7% sequentially to $71 million. Further, long-term debt balance was down 12.8% sequentially to $1,772 million.

Notably, the company repaid borrowings of $669 million under its revolving credit facilities in the first half of fiscal 2020 (ended Aug 2, 2020). Further, it raised $409 million in cash through the same means.

In the first half of fiscal 2020, HD Supply generated net cash of $339 million from operating activities as compared with $286 million in the year-ago period. Capital expenditure was $33 million, reflecting a year-over-year decline of 38.9%.

In the first half, the company used $3 million to purchase treasury shares, down from $78 million used in the year-ago comparable period.

Outlook

The company is wary about the uncertainties related to the pandemic and so refrains from providing financial projections for third-quarter fiscal 2020 (ending November 2020) and fiscal 2020 (ending February 2021).