The Home Depot reported sales for HD Supply grew by 159% to $3.5 billion for the third quarter ended Oct. 29, accounting for about 15% of the company’s consolidated sales. Company-wide sales of $23.1 billion were up 11.3% from the same period last year, and sales in the retail segment grew 1.1% to $19.7 billion. Home Depot’s third quarter net earnings of $1.49 million were down 3.1% vs. $1.54 million last year.

HD Supply’s sales growth was driven mainly by acquisitions, although the company also cited some organic growth. Three more acquisitions will be integrated into HD Supply:
  • Burrus Contractors Supply, a distributor of concrete accessories, forming systems and fabricated rebar with three locations in Texas and Louisiana;
  • Edson Electric Supply, an Arizona-based electrical distributor that operates 11 locations throughout the state; and
  • Grafton Utility Supply, a leading electrical utility distributor in Canada.
Excluding 2006 acquired sales, total revenues at HD Supply grew by 33% in the third quarter, and for the businesses the company owned as of the end of the third quarter last year, the year-over-year organic growth rate was about 7%, according to Carol Tome, executive vice president and CFO at The Home Depot.

“The Supply organic growth rate, while very good, has decelerated from the first two quarters in the year due primarily to negative growth in residential construction,” she said in a statement.

The Home Depot is experiencing a higher penetration of lower Supply gross margin dollars. In the third quarter, 12% of its gross margin dollars came from Supply vs. 6% last year, she noted.

The Supply segment leveraged expenses, but its operating margin decreased by 136 basis points to 6.9%, consistent with the company’s expectations given the change in mix of businesses owned and the integration of Hughes.
Consolidated operating margin for the third quarter was 10.7%, down 122 basis points from the same period last year, reflecting both the sales environment and the company’s evolving business model.

“Our sales performance was softer than we anticipated, but I believe we are making the right decisions to strengthen our core retail business and build our HD Supply platform to ensure that we emerge even stronger when the housing cycle rebounds,” said Bob Nardelli, chairman, president & CEO, in a statement.