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Edited Transcript of HDS earnings conference call or presentation 11-Jun-19 12:00pm GMT

Q1 2019 HD Supply Holdings Inc Earnings Call

Atlanta Jun 17, 2019 (Thomson StreetEvents) -- Edited Transcript of HD Supply Holdings Inc earnings conference call or presentation Tuesday, June 11, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Charlotte McLaughlin

HD Supply Holdings, Inc. - IR Officer

* Evan J. Levitt

HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer

* Joseph J. DeAngelo

HD Supply Holdings, Inc. - Chairman & CEO

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Conference Call Participants

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* Andrew Burris Obin

BofA Merrill Lynch, Research Division - MD

* Deane Michael Dray

RBC Capital Markets, LLC, Research Division - Analyst

* Evelyn Chow

Goldman Sachs Group Inc., Research Division - Research Analyst

* Hamzah Mazari

Macquarie Research - Senior Analyst

* John George Inch

Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials

* Keith Brian Hughes

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Luke L. Junk

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate

* Patrick Michael Baumann

JP Morgan Chase & Co, Research Division - Analyst

* Ryan James Merkel

William Blair & Company L.L.C., Research Division - Research Analyst

* Takeheiko Makishi

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the HD Supply First Quarter Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Charlotte McLaughlin, Investor Relations. Ma'am, you may begin.

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Charlotte McLaughlin, HD Supply Holdings, Inc. - IR Officer [2]

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Thank you, Shannon.

Good morning, ladies and gentlemen, and welcome to the HD Supply Holdings 2019 First Quarter Earnings Call.

As a reminder, some of our comments today may be forward-looking statements based on management's beliefs and assumptions and information currently available to management at this time. These beliefs are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those detailed in our periodic SEC filings. Please note that the company's actual results may differ materially from those anticipated, and we undertake no obligation to update these statements.

Reconciliations of certain non-GAAP financial metrics with their corresponding GAAP measures are available at the end of our slide presentation and in our 2019 first quarter earnings release, which is available on our IR website at www.hdsupply.com.

Joe DeAngelo, our CEO, will lead today's call; while Evan Levitt, our CFO, will provide additional color on our recent financial performance and our expectations for the remainder of 2019.

There will be an opportunity for Q&A. (Operator Instructions)

Thank you for your continued interest in HD Supply. And with that, I will now turn the call over to Joe DeAngelo.

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [3]

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Well, thank you, Charlotte.

Good morning, everyone. Thank you for joining us today for our first quarter 2019 earnings call. As always, it's my privilege to share our company's results with you on behalf of the over 11,000 HD Supply associates who work hard every day as one team driving customer success and value creation.

Turning to Page 3. The team delivered a strong performance in the first quarter after a particularly weak February. We delivered exactly what we predicted when we communicated to the market back in March. Sales and earnings performance were in line with our expectations. We delivered 7% sales growth for the first quarter of fiscal 2019, 6% sales growth on an organic basis and a 7% adjusted EBITDA growth in the period while continuing to generate strong free cash flow of $540 million on a trailing 12-month basis.

During the period, we faced several external events that were beyond our control. February brought significant weather disruptions, particularly to our Construction & Industrial business. As many in our industry have pointed out, this was the second wettest February on record. And as a result, much of the construction activity in California and the Pacific Northwest came to a halt. We worked diligently with our customers to ensure that we provided them with the support needed to get them back to work, but we continue to see projects pushed out as many of our customers faced a shortage of skilled labor required to recover from weather delays.

In the nonresidential construction market, which comprises the majority of our construction business, we continue to see strength across our priority districts, with our Northeast, Central and Southeast regions performing particularly well. As others have previously noted, while the pipeline of projects continues to remain strong, we are hearing increased customer concern around shortages of skilled labor. Our May numbers were weaker than expected primarily due to unfavorable weather in certain markets and weather catch-up becoming more challenging in other markets as a result of skilled labor constraints.

The residential construction market continues to underperform with weaker year-to-date activity than 1 year ago. As a reminder, residential construction comprises about 25% of our Construction & Industrial business. Overall, we have not changed our expectations for the construction market for the year, but we are seeing some choppiness.

In early May, the U.S. administration announced a further increase in Section 301 tariffs from 10% to 25% on Chinese imports. Evan will talk more about the financial impact shortly. Although we are still in the very early days of the market absorption of these costs, we continue to believe that we have the best talent in place to navigate this disruption. Our category management team will continue to execute on plans previously in place to negotiate lower prices on Chinese products by taking advantage of the strength in the U.S. dollar and incentives provided by the Chinese government to their manufacturing base. As a reminder, HD Supply does not have any permanent investment, joint ventures or buying offices in China.

Additionally, as part of our continuous global supply chain enhancement, we are always evaluating the best locations from which to source our products. We believe this elevated tariff environment is manageable where we can maintain our gross margin dollars and overall profitability, although holding gross margin rates for the year may prove difficult. We will continue to monitor the environment closely. We'll take swift actions as they become necessary.

As part of our continual effort to improve our capability, in May 2019, we opened our new, 1 million square foot Atlanta distribution center. The facility serves the Southeast region and is expected to support future growth.

Despite having a rigorous transition plan in place, the Facilities Maintenance team experienced vendor systems issues, which in certain instances created delays in the fulfillment of customer orders. Throughout the course of the transition, our teams have communicated with our customers to ensure that they are aware of their order status and have worked to remedy the situation. We believe that this disruption impacted Facilities Maintenance May sales by around 300 to 400 basis points. Our next-day delivery service is returning to normal.

Taken together and in light of ongoing uncertainties around trade and skilled labor availability, we are lowering our full year guidance. Evan will discuss in more depth later on in this call. But in summary, it's been a challenging start to the year. We are focused on helping our customers succeed throughout our selling season. I'll provide some closing comments following Q&A.

We'll now turn the call over to Evan, who'll provide an update on the key areas of investor interest.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [4]

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Thank you, Joe, and good morning, everyone.

On Page 4, we highlight areas of recent investor focus. First is the Section 301 tariffs on Chinese imports. The increase in Section 301 tariffs from 10% to 25% was imposed on Chinese imports shipped on or after May 10, 2019. We have yet to see a substantial impact from the increase in Section 301 tariffs as it takes some time for these costs to work their way through the supply chain. As a result, we are in the very early stages of any potential impact.

As we did with previous tariffs, we began working to offset the increased cost through vendor negotiations and productivity as soon as the tariffs were announced, although there was a shorter period between announcement and implementation than in previous rollouts. As a reminder, around 3/4 of our Facilities Maintenance proprietary brands are sourced from China with somewhat less than 50% of those products included in the Section 301 tariffs. This accounts for less than 4% of total company cost of goods sold. As market conditions allow, we intend to pass on the unavoidable cost increase from the rise in tariffs through price increases but may be unable to pass along enough of the price increase to maintain prior year gross margin rates. The anticipated impact will be that we earn the same or slightly more gross margin dollars than prior year for each unit sold and our overall profitability is maintained, but there may be some gross margin rate compression on an annualized basis.

As for Mexico, it looks like the Mexican tariffs have been suspended for now. However, it's been a question on investors' minds. But we can share that we have limited direct exposure to imports from Mexico.

Next is weather. As we highlighted on the March earnings call, February 2019 saw significant parts of the country experience unusually harsh winter weather, including considerable rain throughout California and cold and wintry weather with snow and ice in areas such as the Pacific Northwest, the Midwest and the Northeast. The weather lasted into the early part of March, and our Construction & Industrial business was particularly impacted. The team spent much of March and April helping our customers recover from the slow start to the year. We did incur additional expenses ensuring our facilities and associates were available to support our customers with extended hours.

Despite a return to a more normal weather pattern by the end of the first quarter, we subsequently saw a return to colder, wetter weather in May, particularly in the Northeast and the West. We also saw flooding throughout the Midwest. This late start to spring impacted our May HVAC sales in Facilities Maintenance, which were weaker than expected, and wet and cool weather also continued to delay the recovery in our Construction & Industrial business.

The construction end markets. Nonresidential construction markets continue to be productive with many existing large, multibillion-dollar, multiyear projects continuing and several large new projects either in the planning stage or recently announced. As Joe shared, while the pipeline of projects remained strong, we have seen an increase in skilled labor shortages that has resulted in some projects progressing slower than our customers would like. Although a smaller part of our business, we continue to see the pace of residential construction growth slowing. As Joe said, residential construction comprises about 25% of the Construction & Industrial business and is focused on the West Coast and Southeast portions of the United States.

Capital allocation. Since the fourth quarter of 2018, we have reduced our financial leverage from 2.6x to 2.4x net debt-to-adjusted EBITDA, well within our 2 to 3x targeted range. We continue to generate substantial free cash flow and remain committed to allocating capital towards the highest-return investments. Those investments include organic investments in our business, selective M&A opportunities and returning cash to shareholders currently through our share repurchase program. We have significant flexibility around our capital structure and intend to take full advantage of any market disruptions that may occur.

Turning to Page 5. Before I get to the results, I'd like to begin by reminding everyone that we have adopted the new accounting standard for leases under the cumulative adjustment transition method, which resulted in a new right-of-use asset and a new lease obligation on our balance sheet. This adoption had no meaningful impact on our statement of operations or cash flows.

Now I will review our first quarter results. In terms of highlights, we delivered sales of $1.5 billion, an increase of $104 million or 7.5% over the first quarter of 2018. Our organic sales in that period increased 5.8% over the first quarter of 2018. Our gross margin rate of 39.2% was down 50 basis points from the first quarter of 2018. I will discuss our gross margin breakdown shortly. Adjusted EBITDA for the first quarter of 2019 was $203 million, up $13 million or 6.8%.

On Page 6, I'll discuss the specific performance of our individual business units in more detail. Net sales for our Facilities Maintenance business were $772 million during the first quarter of 2019, up $49 million or 6.8% from the first quarter of 2018. We estimate that the MRO market grew approximately 2% in the first quarter of 2019.

Facilities Maintenance gross margins declined 50 basis points from the first quarter of 2018. Strong first quarter performance in appliances and HVAC, which are both higher-ticket, lower-margin categories, created a mix headwind to gross margin. As a reminder, we were also faced with a difficult comparison against the first quarter of 2018, where we saw our gross margins expand by 110 basis points year-over-year as a result of a late-breaking spring that negatively impacted HVAC sales, leading to a favorable first quarter 2018 product mix.

We have previously indicated that the Facilities Maintenance gross margin rate would be flattish to slightly up for the full year 2019. As we shared, we now expect to hold gross margin dollars but may see some rate compression as we work through the impact of the increase in Section 301 tariffs from 10% to 25%.

Facilities Maintenance adjusted EBITDA for the first quarter of 2019 was $134 million, an increase of $11 million or 8.9% from the first quarter of 2018.

Net sales for our Construction & Industrial business were $721 million during the first quarter of 2019, up $55 million or 8.3%. On an organic basis, our Construction & Industrial business grew 4.7% with the overall market growing approximately 3% for the quarter. We estimate that first quarter 2019 weather unfavorably impacted sales by approximately $18 million or 300 basis points.

Construction & Industrial gross margins decreased approximately 40 basis points. Rebar margins drove 30 basis points of this decline, while the mix associated with the acquisition of A.H. Harris contributed an additional 10 basis points of this decline. March 2019 marks the 1-year anniversary of the A.H. Harris acquisition, and that business is substantially integrated into the Construction & Industrial business. The rebar market continues to stabilize, and we expect the unfavorable gross margin impact to lessen in the second quarter of 2019. Excluding A.H. Harris and rebar impacts, the gross margin rate at Construction & Industrial was essentially flat as the team continues to focus on category management initiatives.

Construction & Industrial's adjusted EBITDA for the first quarter of 2019 was $69 million, up $2 million or 3%. We estimate that first quarter 2019 weather unfavorably impacted Construction & Industrial EBITDA by around $4 million.

Turning to Page 7. In the last 12 months, we generated $540 million of free cash flow. We expect full year 2019 cash flow generation of around $525 million to $550 million, inclusive of an increase in cash taxes later in the year as we exhaust our net operating loss carryforwards and become a regular taxpayer.

We invested $26 million in capital expenditures in the first quarter of 2019, in line with our ongoing annual capital expenditures of approximately 2% of annual sales.

In the first quarter of 2019, we paid cash taxes of approximately $4 million. We expect to pay around $7 million of cash taxes in the second quarter of 2019, while we continue to benefit from our federal net operating loss carryforwards. We currently expect the net operating loss carryforwards and other federal income tax credits to be fully utilized midyear, at which time we will become a regular federal income taxpayer. Our current forecasts estimate income tax payments of approximately $60 million to $70 million during fiscal year 2019. Again, fiscal year 2020 will be the first year in which we are a regular taxpayer for the full year. We expect our ongoing GAAP tax rate will be approximately 26%.

During the first quarter of 2019, we repurchased 170,000 shares of common stock for a total of $7 million at an average price of $42.24. We had approximately $367 million remaining under our most recent authorization at the end of the first quarter of 2019.

Including the completion of our 2 previous $500 million share repurchase authorizations, we reduced our outstanding share count by over 16% since the beginning of 2017. We will continue to opportunistically repurchase shares.

As of the end of the first quarter of 2019, our net debt-to-adjusted EBITDA leverage was 2.4x, comfortably within our target range of 2 to 3x.

Our capital allocation strategy remains the same. We will opportunistically deploy capital to the most attractive return opportunities available. These include organic investments in the business, selective bolt-on or tuck-in acquisitions and return of cash to shareholders currently through our existing share repurchase authorization.

On Page 8, we provide first quarter 2019 monthly sales trend performance as well as the 2018 comparable. In February 2019, we delivered sales of $423 million, an increase in average daily sales of approximately 8.1% versus February 2018. Organic sales growth in the same period was 2.2%. In March 2019, we delivered sales of $460 million, an increase in average daily sales of approximately 8.8% versus March 2018. Organic sales growth in the same period was 8.6%. In April 2019, we delivered sales of $610 million, an increase in average daily sales of approximately 6.1% versus April 2018. There were no inorganic sales in April. In both years, there were 27 days in February and March and 25 selling days in April.

Now we experienced a calendar shift in fiscal 2019 due to the 53rd week reported in fiscal 2018. This calendar shift resulted in 2 firsts of the calendar month included in our fiscal April 2019. This is significant because many of our Facilities Maintenance customers work off of a maintenance budget that resets on the 1st of each calendar month. And therefore, sales during the first few days of a calendar month are particularly strong. We believe the calendar shift benefited our Facilities Maintenance business' April sales by approximately 170 basis points and our total company April sales by approximately 90 basis points. This benefit reversed in fiscal May, where we do not benefit from a 1st of the calendar month.

May of 2019, the first month of our fiscal second quarter 2019, ended Sunday, June 2, and we have provided our preliminary sales results. We will not provide information on May results beyond sales.

May sales were approximately $464 million, which represents average daily sales growth of approximately 0.2% versus 2018. Average sales growth versus prior year by business was approximately 2.8% for Construction & Industrial and approximately minus 2.4% for Facilities Maintenance.

Facilities Maintenance May sales were unfavorably impacted by approximately 300 to 400 basis points from the order fulfillment delays in our Atlanta distribution center, 300 to 400 basis points by a weak HVAC sales month in May due to unusually cool weather and a difficult comparison with May of 2018 and by 170 basis points from the calendar shift caused by 2018's 53rd week.

On Page 9, we reiterate our end market outlook for 2019. We believe the MRO market will continue to grow approximately 1% to 2%. We view the nonresidential construction end market estimate as up low to mid-single digits, and the residential construction market will remain flat or grow approximately low single digits. These specific end market estimates imply an approximate 2% to 3% end market growth estimate for HD Supply's markets in 2019.

Turning to Page 10. I want to first draw your attention to our enhanced guidance disclosure. As we have previously indicated, we expect to become a full cash taxpayer in the second half of 2019. And as such, our GAAP performance metrics are becoming more comparable to our peers'. In order to aid in this transition, we will be providing additional guidance for net income and net income per diluted share. You will find reconciliations between our GAAP and our non-GAAP metrics in the appendix of the presentation and the press release.

We begin by updating our full year fiscal 2019 guidance, which has been revised to take into account a weaker-than-expected May and an increasingly unpredictable tariff environment.

We now believe net sales will be in the range of $6.250 billion to $6.350 billion. This translates to a 6% growth at the midpoint, adjusted for the impact of the 53rd week in fiscal 2018.

We expect adjusted EBITDA to be in the range of $890 million to $930 million. This reflects a 6% growth rate at the midpoint, adjusted for the impact of the 53rd week in fiscal 2018.

We expect full year 2019 net income per diluted share calculated in accordance with GAAP to be in the range of $2.77 and $2.95. We also expect full year 2019 adjusted net income per diluted share to be in the range of $3.52 and $3.70. Our net income per diluted share range and our adjusted net income per diluted share range assumes a fully diluted weighted average share count of 171 million and do not contemplate additional share repurchases.

For the second quarter of fiscal 2019, we anticipate sales to be in the range of $1.620 billion and $1.670 billion, adjusted EBITDA to be in the range of $240 million and $255 million, net income per diluted share calculated in accordance with GAAP to be in the range of $0.77 and $0.83 and adjusted net income per diluted share to be in the range of $1.04 and $1.12. Our net income per diluted share range and our adjusted net income per diluted share range assume a weighted average diluted share count of 171 million and do not contemplate additional share repurchases.

In summary, we believe that we delivered solid performance in the first quarter of 2019. We consider ourselves well positioned to deal with the current demand of an unpredictable environment, and we remain focused on delivering our full year numbers.

Thank you for your continued interest in HD Supply, and I'd now like to turn the call back over to Shannon for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Deane Dray with RBC Capital Markets.

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Deane Michael Dray, RBC Capital Markets, LLC, Research Division - Analyst [2]

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I'm not sure you're going to be able to comment, but at least we can address it right up front. Is there any color you can provide regarding the news of the SEC subpoena on Facilities Maintenance?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [3]

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Yes. Like you had indicated, Deane, there's not a lot we can say about that beyond what we included in our disclosure. It is related to our Facilities Maintenance business, including the items that were included in the shareholder [derivative].

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Deane Michael Dray, RBC Capital Markets, LLC, Research Division - Analyst [4]

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Got it. All right. And then with regard to the guidance cut, could you give us -- can you calibrate how much was of you -- of the impact from May that you carried into 2019?

And then tariffs. Because your earlier discussion of tariffs is that it's still early, we're still working through this, but now you're blaming tariffs on part of your guidance cut. So obviously, you're baking some impact in. And if you could calibrate that, that would be helpful, too.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [5]

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Yes. So Deane, the big change or impact that we currently see from tariffs is the potential for a compression in gross margin rate from the tariffs. We do still fully -- we still do expect to pass on all of the unavoidable cost increases through price to the extent that the market allows. That would enable us to maintain profitability but would impact gross margin rate. The guidance for the second quarter and the full year included our best thinking on all the parts that we discussed earlier: a weak May; the distribution center software issue that we're working through and returning to normal; and uncertainty related to tariffs, but the profitability from that, again assuming that we can pass on the unavoidable price increase, should be intact.

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Deane Michael Dray, RBC Capital Markets, LLC, Research Division - Analyst [6]

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Got it. And just as a follow-up. And first, a comment on the non-res pushouts because of labor shortages. We've been hearing this from multiple sources. So you are not the first to be saying it. It is an issue, and it's industry-wide. And I certainly understand how you're citing it as impacting your business. The -- with regard to weather, and I recall I asked this question last quarter, but now we're also dealing with the HVAC side of this. And this is not -- this does happen in the spring. You know this. We've been through this before. But can you just remind us how the recovery process -- assuming weather normalizes on the HVAC side, is any of that demand lost? Or is this really just a catch-up on the HVAC side? What's your experience been there?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [7]

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Yes. So Deane, we do ordinarily see a spike in demand, particularly market by market, when the weather heats up for the first time of the year. That has not happened in all markets across the country. So to the extent that, that occurs, we will catch up that portion of the HVAC sales. However, as a general theme, the hotter the summer, the hotter the season, the better the HVAC season. The cooler the season, the weaker the season. So it's being able to forecast the weather over the upcoming summer months. We are off to a cooler start for the spring and just getting into the summer season now than we had last year.

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Operator [8]

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Our next question comes from Julian Mitchell with Barclays.

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Takeheiko Makishi, Barclays Bank PLC, Research Division - Research Analyst [9]

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This is Jason Makishi on for Julian. Maybe just starting off with the Facilities Maintenance May numbers. You gave a lot of helpful detail as to how to think about the various headwinds that affected the business. I was just wondering, out of those 3 aspects, it appears it is the sort of vendor software is the one that has the most risk to carry on into the June quarter. I was just wondering, out of those -- that 300 and 400 bps impact that you saw in May, what is the possibility that some of that sort of headwind could also carry on into June and perhaps July?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [10]

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So our guidance does anticipate that, that impact improves over time. So we are -- as Joe said, we are in the process of returning our next days rate to normal. But we will -- we want to see that consistently for a period of time before we conclude that, that has fully corrected. And then it's the recovery process of bringing the customers back onboard. So we do have expectation that, that slowly improves through the quarter.

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Takeheiko Makishi, Barclays Bank PLC, Research Division - Research Analyst [11]

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Understood. And then maybe a little bit on just taking a step back on the top line. I would imagine that sort of the tariff impact uncertainty that you guys are talking about in response to Deane's question as well as your prepared remarks has something to do with sort of the top line uncertainty related to tariffs, trade wars, et cetera. I was just wondering, because you did keep your end market guidance, how much of that is sort of baked into top line uncertainty, whether this ate away at the contingency in that estimate or whether there was some sort of offset that you -- in demand dynamics that you saw in the quarter.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [12]

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It certainly increases the uncertainty because we don't know yet how the market is going to react. Our expectation in what's included in the guide is that, as I've said, we can pass along all of the cost increase through price. And so it does not impact profitability, but it certainly does increase uncertainty.

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Takeheiko Makishi, Barclays Bank PLC, Research Division - Research Analyst [13]

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Understood. And then if I could just have one last quick one around the C&I business. Maybe just talk about dynamics around that plus 2.8% number that you saw in May. And what could possibly improve or maybe even decelerate heading into June and July?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [14]

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Yes. So weather, while not nearly as bad as we saw early in the first quarter, was not conducive across the country. We did see still quite a bit of rain, flooding in the central part of the country. And then the labor shortages are delaying the recovery from that slow start to the year. So we're hearing from many customers that they would do more, either bid on more projects or accelerate the pace of their existing projects if they had the additional labor. So that is slowing us down. But we do expect that 2.8% sales growth rate to pick up as we go through the year as the weather normalizes and as folks get back on track on their schedule.

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Operator [15]

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Our next question comes from Evelyn Chow with Goldman Sachs.

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Evelyn Chow, Goldman Sachs Group Inc., Research Division - Research Analyst [16]

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Maybe let's just start on C&I. I know rebar was a significant portion of the gross margin and EBITDA margin pressure in 1Q. Sounds like maybe that's beginning to alleviate in 2Q. I guess as growth also recouples and starts to potentially improve off of that 2.8% May sales, what are -- is it reasonable to expect that at least EBITDA margin should expand in this business in 2Q?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [17]

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We'll see, Evelyn. Certainly, that would be our goal. However, with the start to May at a 2.8% growth rate, that makes it difficult. But as you said, we do get a little bit of a benefit from a decreasing headwind of rebar margins. We've now anniversary-ed the A.H. Harris acquisition. So certainly, there will be less, I'll call it, systemic gross margin pressure as far as expanding EBITDA margins in the second quarter. The second quarter is off to a tough start at 2.8% for the Construction & Industrial business, but we do expect it to improve.

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Evelyn Chow, Goldman Sachs Group Inc., Research Division - Research Analyst [18]

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Great, Evan. And then just returning to FM, I don't want to focus too much on just 1 month's result, but thank you for quantifying the 300 to 400 bp impact from the software issues in May. I guess when I think about that, I don't know how much the other buckets contributed to May's results. But I guess what that implies is you're not really necessarily seeing outgrowth versus the market in this business even adjusted for the software issues. So maybe, Joe or Evan, you could address, I guess, what you're seeing as it relates to outgrowth and how you think about that for the rest of the year.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [19]

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So the software issue we quantified as 300 to 400 basis points. For the month of May, we quantified HVAC as a headwind of 300 to 400 basis points. HVAC during this time of year is a very large category for us. And so it can shift quite a bit year-over-year depending on weather and the prior year comp. And then the calendar shift simply from the 53rd week last year cost us about 170 basis points. So adjusting for those items, May was beyond the -- a consistent rate of about a 6% sales growth that we saw in February and March. April, you'll notice the sales growth for Facilities Maintenance actually kicked up a little bit. Again, that -- in April, we benefited from that calendar shift. So if you normalize April and May, you get about a 6% growth rate for each.

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Evelyn Chow, Goldman Sachs Group Inc., Research Division - Research Analyst [20]

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Perhaps I missed that earlier. And then last question from me. Property improvement services in fiscal 1Q, I think that was down a fair amount year-over-year. What are you seeing in that business? And is that sort of something that was planned? Or can you give any more color on that?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [21]

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Yes. So that business is always going to be a little more uneven than the core MRO business because it is project based and we are anniversary-ing a very big property improvement here from last year where we had a couple of customers do some very extensive renovations. And so we do expect to see that business year-over-year under a little bit of pressure. Now I will also point out that, that business is a lower-margin business. So from a profitability standpoint, it isn't as big a drag as the top line would indicate. And in fact, that business -- and we like that business most importantly because it's an additional service we can provide to the customer and gets us closer to the customer more so than the profitability of that business.

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Operator [22]

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Our next question comes from Ryan Merkel with William Blair.

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Ryan James Merkel, William Blair & Company L.L.C., Research Division - Research Analyst [23]

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So first of all, on the 2Q FM guidance, should we be sort of assuming you're thinking about mid-single-digit growth in June and July?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [24]

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Ryan, we're not going to provide monthly guidance for our businesses. But certainly, we are planning for it to improve off of the minus 2% that we reported in the month of May.

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Ryan James Merkel, William Blair & Company L.L.C., Research Division - Research Analyst [25]

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Okay. Yes. I know there's a range around that. I was just trying to figure out if that's kind of reasonable based on what you know today. But that's helpful.

Secondly, based on the new EBITDA guidance for 2019, it looks to me like you really haven't changed the second half expectations. Do I have this right? And I'm wondering why this is the case.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [26]

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Yes. So the second half hasn't changed meaningfully. The issues that we talked about on the call, the distribution center issues, we expect to work our way through and for those to lessen over the course of the year, certainly by the second half. And then weather, we do expect weather to normalize. We're not going to forecast a particularly good weather period or a bad weather period. We're going to forecast right down the middle. And then we feel good about the market. The construction market remains strong, a lot of activity. The -- our customers are -- have a lot of work to do. They just need to get some weather so they can get out on to the job sites and build. And on the MRO side, the MRO business is a healthy business. It's a stable grower. And so we feel good about the year and the back half.

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Ryan James Merkel, William Blair & Company L.L.C., Research Division - Research Analyst [27]

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All right. And then just lastly, you mentioned that HVAC is a bigger part of the FM business, right, in the May month and, I guess, maybe in spring. Roughly what percent is HVAC in May? And how much were the sales down? It's a little surprising to me that's impacting things by 300 to 400 basis points, but maybe you can help us with some of the numbers.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [28]

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Yes. So we don't disclose specifically the volume of each of our categories, but it is a top category, the top 2 or 3 category this time of year. And in the month of May, it was down a healthy, double-digit amount. So it was significant and impacted 300 to 400 basis points. Now in April, we actually had a good HVAC month. And some of that's the comparison to 2018. In 2018, spring broke late; it broke in May. This year, we had some warmer weather in April, particularly in the South, but then it cooled off in May. And so we had a tougher comparison in May. In the Northern markets, the New York, Boston, Chicago, we still really haven't seen the heat hit in those markets that would stimulate HVAC sales.

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Operator [29]

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Our next question comes from Luke Junk with Baird.

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Luke L. Junk, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate [30]

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Evan, just wondering, first, if you can help us understand where the FM software issue and the transition to the new Atlanta DC intersect. Is this a new vendor or process for you? I'm just wondering why you weren't able to backfill with the legacy facilities in this transition.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [31]

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Yes. So our new distribution center opened in early May. We've got some additional automated equipment in that facility that is run by a -- some vendor software that automates the order process and then the picking within the facility itself. And so we had some issues with that software that is integrated with the conveyor equipment in the facility itself. We do have the ability to fall back to our old software, and we've got that ready to go. And we're able to manually work around the software issue. It does incur some additional labor cost to do so. And so we're working with the vendor. We're looking at those manual workarounds as well as falling back to our old system in terms of doing what makes the most sense to: one, make sure we deliver on our customer promise; and then two, set ourselves up in the best way going forward to improve efficiencies through our distribution network.

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Luke L. Junk, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate [32]

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Okay. That's helpful. And then second, Joe, a question for you, just thinking of the portfolio here. So you had the 1-year anniversary of the A.H. Harris acquisition during the quarter, which is really the first major addition in over a decade following a period where you slimmed down from 7 businesses to 2. Sitting here a year later, what's gone as expected with A.H. Harris? What surprised you? And looking forward, how has it impacted your thinking about future M&A in terms of bigger deals versus smaller deals, C&I versus FM or any other considerations?

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [33]

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Yes. Well, certainly, I'm very, very pleased with the A.H. Harris acquisition. It's a 102-year-old company, well established, had real estate positions that would have taken us years and years to establish. And I'd say from the start to where we are now, things have gone as planned, and I couldn't be more excited about the quality of the A.H. Harris associates and what they bring. Also very pleased with the introduction of the additional elements of our processes, particularly the in-store environment and the ability to have next-day delivery and all the equipments to be able to do that very effectively. I think that's been a great marriage, great integration. So feel really good about that. I think if you look at the go-forward, there isn't another A.H. Harris out there for C&I. So, I mean, certainly, as we go forward with C&I, there'd be more bolt-on acquisitions that would give us something specific in a priority market that we were looking for. And as you look at the FM, certainly very much interested in having FM bolt-ons that would give us both either a geographic density, something that would be unique for us, or, more importantly, some category-specific strength that we could roll out across the entire network. So I think active in both areas. We look at a ton of deals as we sort through. And we really make sure that, most importantly, we have a cultural fit and something that we can extend across our network to be able to get value. So you'll see smaller deals going forward, I guess, would be the short story on that, but we're very, very pleased with the team integration. And certainly, the A.H. Harris folks that I've had the opportunity to interact with are just terrific. So looking forward to a great future with them.

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Operator [34]

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Our next question comes from Andrew Obin with Bank of America.

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Andrew Burris Obin, BofA Merrill Lynch, Research Division - MD [35]

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Just a question. How should we think about the Facility Maintenance growth rate relative to multifamily vacancy rates that's been going up over the past several quarters? What's the connection?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [36]

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Certainly, the multifamily business is -- like we said, it's a pretty steady business, 1% to 2%. We generate a significant amount of work as units turn over, which is why the summer months are the high season for Facilities Maintenance. So if units remain vacant, that's not good for Facilities Maintenance. If they're vacant temporarily and turning over, that is good. Also, keep in mind some of the trends of the additional stock that's in place, the number of -- the increase in the number of units over the years from new construction contributes to that vacancy rate as well. And then the other metric -- important metric here is rents, average rents. Average rents were still going up about 3% year-over-year. It is -- has slowed down from where it was a few years ago, but that's important as well because the more cash that our customers have from rents, the more they're willing to reinvest into their properties.

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Andrew Burris Obin, BofA Merrill Lynch, Research Division - MD [37]

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Got you. And just a follow-up question just thinking about the business model for Facilities Maintenance. And I do appreciate that a number of onetime events sort of coincided to drive the negative growth rate, but looking at my model, I think it is the first time that Facilities Maintenance has had negative growth rate since you guys have gone public. So just what have been the big changes in business model for Facilities Maintenance in the past half a decade that maybe we should think about the volatility of the business differently or it's truly really just this confluence of onetime events?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [38]

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Yes. So look, we tried to bridge the May results as best we could. So a couple thoughts on that. First, it's 1 month of activity. We always caution folks not to draw out too many conclusions based on 1 month of activity, be it positive or negative. And then two, we did have a number of items that proved to be pretty significant headwinds in this particular month. We've called out HVAC, called out the distribution center here in Atlanta and then the calendar shift. The calendar shift is -- it is nothing more than shifting sales between April and May. So -- but we don't think there's anything fundamentally different about the market or about Facilities Maintenance business, and our expectation is to grow that a minimum of 300 basis points in excess of that 1% to 2% market, so it gives us that mid-single-digit growth expectation.

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Andrew Burris Obin, BofA Merrill Lynch, Research Division - MD [39]

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So as I think about business today versus 5 years ago, very similar business model. Is that a fair statement?

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [40]

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I think it's a fair statement. I think if you look at the investments that we've put in recently, they were to temporize that business model. So it's always been about delivering perfectly next day exactly what our customers need. It's a great fit. I think the investments that we've put in have allowed us to move from a catalog-based business to a much more digitally integrated business. And certainly, we've put in a lot of emphasis around how do we enable our salespeople to be in front of the customer with the most relevant information for driving value for them and then take the load of transactions and have the machine do it. So it's a more highly digitized, integrated business model but also the same objective: How do we make that maintenance professional every day be able to go in through an occupied unit where they have an appointment to get in there and get out after doing everything that was required?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [41]

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And Andrew, 5 years ago, if we were in this dynamic environment of changing costs as a result of tariffs, it would have been much more difficult for us to respond to a, as Joe talked about, printed catalog versus the digital tools that we've got in front of our customers today and the pricing analytics that we've put in place to ensure that we're with the -- we are still providing compelling value to the customer but also being responsive to changing -- the changes in input costs.

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Andrew Burris Obin, BofA Merrill Lynch, Research Division - MD [42]

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And not to put you guys on the spot, I'll squeeze one more in. I think Ferguson announced a buyback today post yesterday's share price action. What are your thoughts about ability to do sort of onetime buyback of some sorts here?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [43]

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Yes. So Andrew, we've got our ongoing share repurchase program. We've completed 2 $500 million share repurchase programs over the last couple years. We've got $367 million left under our existing share repurchase program. We've been very consistent in sharing with folks that we are opportunistic buyers. So if the stock price trades down, we'll be more aggressive. When the stock is trading well, we're a little less aggressive. And so depending on the movement of the stock price, yes, you may see us get more active.

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Operator [44]

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Our next question comes from Hamzah Mazari with Macquarie Capital.

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Hamzah Mazari, Macquarie Research - Senior Analyst [45]

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My question is basically, if you look back, maybe it was 2 years ago or maybe it was a little over a year ago, we had an issue in FM around inventory management. I guess you explained the vendor software issue. Maybe if you could just talk about lessons learned from that prior issue and if this issue is consistent with what happened last time. Just any thoughts on execution risk going forward in FM broadly.

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [46]

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Yes. I would say, Hamzah, the issue that we had several years ago was when we were transitioning our headquarters location from Facilities -- in San Diego over to Atlanta. And so we had multiple personnel kind of pressing the buttons at one time, and we ended up with a overheated ordering that came in, in the selling piece and basically just physically clogged us up. This is a completely different issue. I mean we've been working for years on what the DC of the future is, and that was Atlanta and it was highly integrated. And certainly, we missed some steps in that integration execution relative to specific vendor software issues. So it's a very small, isolated portion both in terms of geography and in terms of incident. So if you look at our recovery from this, it's demonstrating that consistency to promise, making sure we go back and though a full forensic review, make the appropriate process and organizational changes and then have a recovery back to our investment case. But this is a very isolated incident relative to a specific set of plans that we've been working on for several years. And I would say the other one previously was a transition that is a 1 in every 4 years, so we won't have that again.

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Hamzah Mazari, Macquarie Research - Senior Analyst [47]

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Got it. Very helpful. And then just the follow-up question is just on tariffs. And you talked about maintaining gross margin dollars, but I guess the question is if your competitors do not raise pricing with the tariff increase, does that mean you still do. Or do you move with the market?

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [48]

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We will move as the market allows. So I think the advantage of the investments that we've put in over the last several years is our pricing specification is very strong. And so we can see where everybody's pricing. We can price, and we can make sure that we're always delivering compelling value and we can do that in a specific SKU-by-SKU basis. So our intent is to make sure that we bring the best value to our customers on an ongoing basis and we have appropriate cost recovery where there's unavoidable costs. But as Evan stated, we're working our tails off to make sure we have as little unavoidable cost that we need to pass as possible. So that's a process. We've always been the most compelling value in the market with a great service offering and great pricing associated with that service offer.

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Operator [49]

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Our next question comes from John Inch with Gordon Haskett.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [50]

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So we've mentioned weather probably a record number of times. And it is what it is. I think, Evan, you even called this out, right, that last year, we had cool weather in the first quarter and then better in the second quarter. So I'm curious. On HVAC, you called out the percentage point deficiencies just based on this. But how much of this was a function of, do you think, of comparisons? So if you're to just kind of look at normal volumes versus expectations and then adjust for the difficult and easier comparisons, how much of the kind of first quarter, second quarter impact did that provide, do you think?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [51]

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Yes. The question there is if there is an impact on comparisons, and it impacts not just top line sales for HVAC but gross margin. As I shared, if you look at our gross margins from the first quarter last year, they expanded by 110 basis points. That was in large part because of weak HVAC sales, particularly in April, which is traditionally the start of the HVAC season. In May of -- in second quarter of last year, our Facilities Maintenance gross margins dropped by 50 basis points. That was in large part because of a strong HVAC period, particularly in May when it didn't warm up. So it's no question, there's impact year-over-year. I will say that on a year-to-date basis, at this point this year has been cooler than last year, which, as I said on -- to a previous question, that the hotter the overall season, the better the HVAC season. The cooler the overall year, the weaker the HVAC season. So no, I'm not here telling you that it's going to be a weak HVAC season. I don't know if the weather's going to hold. But to this point, it's been a little cooler.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [52]

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Right. So just so to be clear, though, does the second quarter guide assume sort of no change in this? Are you assuming the weather gets better? Because I know you had said you didn't want to give a specific number, right, on the core growth number.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [53]

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Yes. We assume a normal summer. So we do assume it's going to get warm and we are going to get those HVAC sales in New York, in Chicago and Boston.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [54]

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Yes, right. So that makes -- so in other words, if the weather continued at that rate, that would -- that might be impactful to the negative. But that's not what you're assuming?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [55]

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Yes. Absolutely. But if we don't have the summer in the North, that would be a negative for our business.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [56]

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Evan, this 53-week-year issue, I mean, I'll take it offline in terms of sort of the April, May impact of it. Have any other monthly impact for any of the other months for the rest of the year that you would call out?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [57]

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The third quarter will be a little more challenging because of the way, again, the first of the calendar months break versus earlier in the year. Not overly significant but could cause 100 basis points, call it, for Facilities Maintenance.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [58]

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And the month of December, does it have any impact there? I assume the thought this was a year-end thing. But obviously, that's not necessarily true like a calendar year-end.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [59]

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Yes. It's not necessarily a calendar year-end. Because of that extra week in 2018, every month in 2019 now starts a week later than the comparable month from last year.

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John George Inch, Gordon Haskett Research Advisors - MD & Senior Analyst of Multi-Industrials [60]

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Okay. Just lastly, if you take out the sort of verticals that HD Supply serves that are somewhat unique to you, multifamily, et cetera, did your -- I mean, really, a question in FM. Did your FM business, do you believe, or the markets have any kind of associated disruption or impact from the broader economy? Because obviously, the economy has been a -- certainly, the industrial manufacturing economy has been softer, right? And I'm just wondering if you had seen any of that impact sequentially as the quarter progressed.

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [61]

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I would say the one thing, John, as you look at this -- and so this is a comment on what occurred in May. But from past experience, any time you have a period of uncertainty, typically what people are going to do is they're going to make sure they sit on their larger investments a little bit, and they're going to make sure that they maximize the usage of the assets they have. So you will see future-wise if we have an extended period of uncertainty or softness, people will move more towards repair versus replace. And so that would be a general trend. That -- it doesn't have anything to do with kind of what we had dissected within May, but you can say that, that will be an experience. If people have more uncertainty, the big-ticket items will be more repaired than replaced.

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Operator [62]

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Our next question comes from Patrick Baumann with JPMorgan.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [63]

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Of the -- a few here, just -- of the $75 million lower revenues at the midpoint of your guidance, could you quantify like how much of that is weather versus stubbing your toe on some of these things, FM or -- versus kind of other?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [64]

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Well, look, the weather impacts, we quantified what we saw through May. And as we shared, we don't assume unfavorable weather going forward. So that would just be what we've already seen in the month of May. And then the adjustment in the guide is the best thinking that we have around the recovery in our Atlanta distribution center, uncertainty around tariffs and just the general trend that we're currently seeing.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [65]

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Okay. And what was the amount for weather in May that you said? I forget what that was.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [66]

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We -- well, we said for HVAC, it was 300 to 400 basis points for Facilities Maintenance. And we said it was 8 -- for Construction & Industrial in the first -- well, in the first quarter, we said it was $18 million. We didn't call out the specific dollar drag in Construction & Industrial for May. There was a bit of a drag, but it wasn't overly significant.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [67]

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Okay. And maybe on the second quarter, I mean, it sounds like you expect FM to grow below the 3% company average. Is that right? And I guess it kind of implies what you just said, some lingering issues from May through the end of the quarter relative to that -- the 6% in revenue growth that you were seeing adjusted for those items. (inaudible)

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [68]

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Yes. Well, the quarter will certainly be impacted by the negative 2% from the month of May, and then it'll -- we do expect it to slowly recover. But obviously, starting the whole -- the negative 2% is a pretty tough start.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [69]

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Yes. I mean so would you expect that business to grow below the 3% average for the company in the second quarter?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [70]

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Again, we don't provide monthly sales guidance by business, but we do expect that -- those sales results to slowly improve through the quarter into the back half there.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [71]

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Maybe to say this a -- what kind of headwind are you embedding there for this software issue at the DC? Maybe that's a different way to ask it. So 300 to 400 in May. What about for the entire quarter?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [72]

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For June and July, it will be less than that, recovering towards normal over the course of the quarter into the back half of the year.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [73]

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Got it. And maybe switching gears to C&I margins. So you called out some weather numbers. I think you said $18 million on revenue, $4 million on profit. If I make those adjustments, it's like a 9.9% EBITDA margin versus 10.1% last year. I think that's the math. Can you just discuss what drove the decline then adjusted for weather and kind of how to think about margins for the year and assuming normalized weather?

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [74]

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Yes. We still did have the drag, the 30 basis points of drag from our rebar, which compresses gross margin rate. That'll lessen in the second half, in the back half of the year.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [75]

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Yes. No, I understood. But, I mean, last year, you had those issues and you were able to expand margins. I'm just curious if there's something that's kind of different besides that.

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Evan J. Levitt, HD Supply Holdings, Inc. - Senior VP, CFO & Chief Administrative Officer [76]

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No. It's the sales volume and being able to leverage mix/cost.

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Patrick Michael Baumann, JP Morgan Chase & Co, Research Division - Analyst [77]

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Okay. So it's a top line kind of volume dynamic. Got it.

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Operator [78]

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Our last question comes from Keith Hughes with SunTrust.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [79]

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Just to finish off on the problems in the Facilities Maintenance. You talked about some more manual processes being used while you fixed the software issue. Is that something you're going to see for the -- well, let me ask it this way: When do you think you'll be able to switch over to the originally designed automated functioning?

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [80]

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Yes. I think it's a 3-phase process for us. So first and foremost, we have to have the demonstrated consistency to promise, which is we're in the zone of that now. Then, we're going to do a full forensic review to make sure that we understand what needs to change, process and organization-wise, and then we'll be on the path to recovery to the investment case. But for right now, we're not in a position to share specific dates on that because I've got to get the full forensic review done to be able to be predictive on that. But the most important, the singular thing we're working on is demonstrated consistency to promise. Once we get that, we'll be able to take the next few phases on.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [81]

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Are you now back to shipping to end customers kind of as expected with the workarounds you've been doing?

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [82]

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Yes. We will be able to -- we need to see that -- see demonstrated performance, as I've said. And so for the next several days and weeks, we want to make sure that we have that completely locked down and it's happening, but we believe we've turned the corner on that.

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Operator [83]

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Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to the Joe DeAngelo for closing remarks.

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Joseph J. DeAngelo, HD Supply Holdings, Inc. - Chairman & CEO [84]

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Well, thank you.

During the first quarter, we delivered on our commitments, and the entire team is focused on delivering profitable growth through a very dynamic environment. Thanks for your continued support and interest in HD Supply.

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Operator [85]

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Ladies and gentlemen, this concludes today's conference. Thanks for joining, and have a wonderful day.