HD Supply 2Q16 Earnings Call Notes

HD Supply’s (HDS) CEO Joe DeAngelo on Q2 2016 Results

Tough to deliver on our 2016 expectations

“Our slower than expected first half performance and elevated investment in costs have created the second half challenge for us to deliver on our previous fiscal year 2016 expectations, especially with challenging comparables, timing considerations associated with our supply chain improvements and typically low sales volume contribution in the fourth quarter. I have challenged the teams to claw back into increased focus on what we can control. However, we really believe it as appropriate to update our fiscal year 2016 performance expectations. ”

Problems with transition from manual to automated systems

“Yes. The systems are different, so we operate SAP in FM and we operate [indiscernible] in Waterworks and Oracle in our Construction & Industrial business. The system is capable of doing everything we needed to do. We did not have the processes and people in place to be able to execute and utilize the full strength of the best-in-class enterprise tools. So we are in the process of making sure that happens. So we retooled these teams and we are aligning these systems, so it’s fully utilized versus utilizing manual processes. Ultimately, you grow yourself out of manual processes and that’s the point that we came to and that’s a point that we needed to address.”

Will Stengel

Remain cautiously optimistic on construction momentum

“Construction markets. As Joe mentioned, we remain cautiously optimistic about the residential and nonresidential construction momentum. We observed the same mixed signals as others, including starts, commercial lending data and third-party data such as Dodge as examples. Our teams are focused on the project and customer activity that we see in the majority of our local markets. The teams across the company are working hard to simultaneously transform and deliver performance”

Evan Levitt

We need to get inventory profile low because we misread demand

“Yes, I think the areas we need to address most aggressively are clearly getting the inventory profile of low. I mean really what we got in trouble with this year is we realized too late that our demand signals were too weak, so we weren’t acquiring enough product. And by the time we figured that out and recorrected, we had too much product available to consume. So, pretty simple, too much going through the pipe in a short period of time.”

Taking longer than expected to right the supply chain

“it’s simply taking longer to right the supply chain, to work the inventory flow through the entire supply chain, including much of this is import merchandise. So, it’s coming from overseas, takes time to bring it over from Asia, receive it into the country, bring it to the distribution centers, receive it into our large distribution centers, and then distribute throughout our network. That does take time. It’s taking more time than we thought. And so we are spending some incremental cost on freight to expedite that to the extent possible, to deliver across the country regardless of where the inventory in the network to meet the customer demand and to invest in surge resources to right-size the supply chain as quickly as possible.”