HD Supply Points to Tariffs in Lowering Outlook
Date: Wednesday, June 12, 2019
Source: The Wall Street Journal
Industrial distributor will seek to negotiate breaks from suppliers, pass along higher costs to buyers
Industrial distributor HD Supply Holdings Inc. lowered its 2019 outlook citing factors including uncertainty around U.S. tariffs, and plans to raise prices to offset the hit from increased levies on Chinese imports.
About three-quarters of the proprietary brands sold through the Atlanta-based company’s facilities maintenance division are sourced from China, Chief Financial Officer Evan Levitt said Tuesday on an investor call. “Somewhat less than 50% of those products” are subject to levies, he said, accounting for less than 4% of total company cost of goods sold.
Weaker-than-expected May sales and a shortage of skilled labor affecting its construction customers also contributed to the trimmed 2019 outlook, the company said.
HD Supply said it expected full-year net sales in the range of $6.25 billion to $6.35 billion, compared with the prior forecast of $6.3 billion to $6.45 billion. Adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, are expected to be in the range of $890 million to $930 million, down from the prior range of $900 million to $950 million, reflecting a 6% growth rate at the midpoint versus the previously expected 8% increase in adjusted Ebitda.
“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,” Mr. Levitt said.
He said the company would continue with plans 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.”
HD Supply is among a growing set of companies that import goods from Chinese manufacturers that say the tariffs are hitting their financial results. Japanese copier makerRicoh Co. said last month it would shift some production for the North American market away from China to avoid potential losses of tens of millions of dollars from the U.S. levies.