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HD Supply (HDS) Down 8.3% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for HD Supply (HDS). Shares have lost about 8.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is HD Supply due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

HD Supply Q1 Earnings Surpass Estimates, Revenues Miss

HD Supply reported mixed first-quarter fiscal 2020 results (ended April 2020), wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

The company’s adjusted earnings were 67 cents per share, surpassing the Zacks Consensus Estimate of 56 cents. However, the bottom line compared unfavorably with the year-ago quarter figure of 84 cents.

Top-Line Details

Net sales in the fiscal first quarter were $1,395 million, down compared with $1,493 million in the year-ago quarter. The decline was primarily attributable to lower demand for its products and services from the second week of March till the quarter-end period due to the government restrictions imposed in response to the coronavirus outbreak.

Segmental Information

The Facilities Maintenance segment generated revenues of $682 million, down 11.7% year over year.  The Construction & Industrial segment’s revenues decreased 1.1% to $713 million on a year-over-year basis. Both the segment’s top-line performances were adversely impacted by the weakness across all of its business verticals.

Margin Details

In the quarter, HD Supply's cost of sales was $845 million, down 6.9% on a year-over-year basis. It represented 60.6% of net sales. Total operating expenses increased 3.4% year over year to $429 million. It represented 30.8% of net sales in the fiscal first quarter.

Gross profit decreased 6% year over year to $550 million. Notably, gross margin came in at 39.4%, compared with 39.2% in the year-ago quarter. Interest expenses fell 10.7% year over year to $25 million.

Balance Sheet and Cash Flow

As of May 3, 2020, HD Supply had $147 million in cash and cash equivalents compared with $34 million in the previous quarter. Also, the company’s long-term debt (excluding current installment) was $2,033 million, down from $2,035 million in the previous quarter.

In the fiscal first quarter, HD Supply did not repurchase any shares. Net cash provided by operating activities was $137 million, higher than $128 million in the year-ago quarter. Capital expenditure totaled $21 million compared with $26 million in the year-ago quarter.

Outlook

On uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, the company has not provided any financial guidance for the second quarter and fiscal 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 11.63% due to these changes.

VGM Scores

Currently, HD Supply has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, HD Supply has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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