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HD Supply Poised for Growth after Divestiture, Solid 3Q Showing

Company looks to reinvest proceeds from sale of HD Supply Hardware Solutions.

HD Supply Holdings Inc. (NYSE: HDS) followed its most recent divestiture by posting impressive third quarter earnings that beat Wall Street estimates and shed further light on its recent sale, as well as its plan moving forward.

Entering the final quarter of the fiscal year, the Atlanta, GA, company is on solid financial ground, aided in part by the recent announcement of its plan to sell HD Supply Hardware Solutions to The Home Depot, a transaction expected to close by the end of fiscal year .

On an earnings call with analysts this week, HD Supply President and CEO Joe DeAngelo outlined the company's reasons for selling HD Hardware Solutions, formerly known as Crown Bolt, a distributor of fasteners and builders hardware to retailers throughout the U.S.

DeAngelo, who said the divestiture would "simplify and focus (HD Supply's) portfolio mix," added that about 98 percent of Hardware Solutions' 2013 sales were attributable to The Home Depot, creating nice symmetry between the two entities.

"We believe the transaction represents a logical and exciting growth opportunity for Hardware Solutions and its associates to formally become a part of The Home Depot," DeAngelo said. "We believe The Home Depot is the natural owner for the business. The transaction aligns well with HD Supply’s strategic imperative to focus where we can establish distant number one market positions."

HD Supply CFO Evan Levitt said selling Hardware Solutions frees up capital for existing business, which already has benefited from a strong fiscal performance this year. HD Supply registered a profit through the first nine months of $96 million, up from a net loss of $152 million for the same period a year ago.

"We believe that it’s a transaction that makes solid strategic and financial sense for both parties," Levitt said. "We intend to use the gross proceeds from the sale of approximately $200 million to invest in the business and/or reduce our current borrowings on our asset backed lending facility given the set flexibility provides us to redraw the funds if needed."

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