HD Supply 2Q17 Earnings Call Notes

Joe DeAngelo – Chief Executive Officer

Change in the competitive environment

I think the competitive fit, if you look at it is one were the traditional competitors have been absorbed in some cases into larger players, right? So you have gone from specialty shops that we competed against that provided a specialty service within our markets and now they are part of a larger entity, primarily retailers and then you have e-tailers out there. E-tailers, we have seen a lot of change in terms of what’s going on there, I mean typically that’s available to the various very small customers and I think that’s an extension from consumer to people that own 10 apartment units, 50 apartment units whatever.”

Tough pricing environment

” I think as you look ahead and kind of where it is now, it is very competitive. So I wouldn’t see price increases. We’re certainly not getting gross margin accretion from going out and raising our prices. We’re getting gross margin accretion from having the right line logic, selling the right mix, and doing great cost work with our suppliers. So that’s real category management execution of being the price rise every day and price rise for the appropriate structure for the side and size of customers that we’re dealing with. So it’s going to be a tough pricing environment, it’s always been a relatively tough pricing environment and we don’t see that change and that’s why when we say executing flat gross margins is a really great execution that is a really great execution up there.”

Very little steel being imported

“in C&I, the installation or cost increases are really coming from one major product category and that’s the Rebar. So with the current administrations tough stance on imported steel there is very little steel being imported into the United States for that and so most of the available steel is now being produced by the domestic mills and the domestic mills have taken advantage of that and raised prices. Because of the competitive landscape, it is very difficult for us to pass on that increase in steel cost to our customers.”

Evan Levitt

Steel prices up but can’t pass on price because of competitive environment

” Rebar gross margins continue to be challenged. The flow of imported steel into the US has dramatically slowed due to duties and the threat of additional counter availing duties by the current administration. The result is an increase in the cost of this product with a limited ability to pass the increase onto the come customer, due to the competitive environment. We expect to reap our margins to continue to pressure construction and industrials overall margin through the remainder of the year.”

Headwind and tailwind from hurricane

“Generally what you see is the short-term headwind and then as the rebuilding efforts begin to take place we get a little bit of a tailwind on balance that hasn’t been a huge positive for us, historically. We are certainly going to lean in and make it as positive to our bottom line, as well as to help the communities in which we participate to the extent possible.”