Update on HD Supply's Restructuring - Modern Distribution Management

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Update on HD Supply’s Restructuring

HD Supply also breaks out 2Q performance by market sector.
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With its announcement this month of its second quarter 2010 earnings, HD Supply, Atlanta, GA, No. 2 on MDM’s list of the top 40 industrial distributors,also provided an update in its 10-Q SEC filing on a restructuring plan initiated in the third quarter of fiscal 2009.

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HD Supply planned to close or consolidate around 25 branches and reduce its work force by 475 employees, as well as reduce other costs and more efficiently employ working capital. HD Supply expects its restructuring will be finished by the end of fiscal 2010. (It just completed its second quarter 2010 on Aug. 1.) As of Aug. 1, the company has closed or consolidated all 25 branches and cut its work force by 425 employees.

In fiscal 2009, HD Supply said it recognized $30 million in charges for liquidation of excess inventory and branch closure and consolidation charges.

Before this latest restructuring effort – starting in the fourth quarter fiscal 2008 – management closed or consolidated 210 branches and cut the work force by 4,500 employees.

In its 10-Q filing, HD Supply also broke out second-quarter and first-half performance by market sector, highlighting trends:

Infrastructure & Energy – Sales were down 0.5 percent in this sector in the second quarter, and 5.5% in the first half compared with the same periods a year ago. The decline in the second quarter was driven by IPVF and Utilities, with 15.4 percent and 4.3 percent decrease in sales respectively. IPVF declines were driven by a reduction in large project work in the oil and gas industry. The Utilities sales decline was driven by weakness in residential and commercial construction, as well as a decrease in transmission and distribution volumes in municipal and cooperative utility markets. Electrical benefited from positive impacts from commodity prices; Waterworks was hurt by prices for polyvinyl chloride (PVC).

Maintenance, Repair and Improvement – Sales were up 3.1 percent in this sector in the second quarter, and up 3.3 percent in the first half of fiscal 2010. Growth was driven by Facilities Maintenance, which was up 4.7 percent. Repair & Remodel were also up in the second quarter. Crown Bolt's sales were down by $8 million in the second quarter. Sales growth in Facilities Maintenance was driven by initiatives in hospitality, multi-family, and health care markets.

Specialty Construction – Sales were down 3.6 percent in this sector, and down 6 percent in the first half of fiscal 2010. The decline in the second quarter was driven by White Cap and Plumbing, with declines of 3.3 percent and 9.1 percent respectively. CTI saw an increase in sales of 7.1 percent in the second quarter. The continued weakening of the commercial construction market hurt both White Cap and Plumbing in the second quarter. On the other hand, the improvement in residential construction volume boosted sales for CTI, in part due to tax incentives.

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