Leading improvement specialty retailer, The Home Depot, Inc. (HD), penned an agreement with HD Supply Holdings, Inc. (HDS) to acquire all major assets of the latter’s hardware solutions business.
The acquisition is anticipated to close by the end of fiscal 2014, with any other terms of the agreement remaining under covers.
HD Supply Hardware Solutions, which was earlier known as Crown Bolt, engages in providing builders and fasteners to American retailers. The company has been working with Home Depot for a long time now, with the latter being the former’s largest customer, as Home Depot contributes nearly 98% to HD Supply’s annual sales.
Similarly, Home Depot has also been benefiting largely from HD Supply Hardware Solutions, given the latter’s superior-quality services. In fact, HD Supply’s Hardware business was “The Home Depot's 2013 Hardware Vendor of the Year,” which highlights the mutual long-term relation between the two companies.
Hence, management believes that the official addition of HD Supply Hardware Solutions to Home Depot is most likely to improve the latter’s supply chain capacities and enhance its hardware product assortment. However, investors in the company did not react much to the news as there was negligible share price movement on the index.
Further, not only Home Depot, but HD Supply too will gain from this acquisition as the company believes this deal to be most suitable for its stockholders and other associates. In fact, shares of HD Supply jumped 3.3% since the announcement of its hardware solutions business sale to its primary customer.
This is not the first time that Home Depot has made an acquisition to augment business. The company has been focused on developing merchandising tools and increasing investment in eCommerce to boost its top line and increase market share. It recently acquired window covering retailer Blinds.com, with an aim to strengthen its presence in the rapidly growing online coverings market.
We believe that all these aforementioned initiatives will drive the company’s top- and bottom-line growth in the long run.
Home Depot currently carries a Zacks Rank #3 (Hold). Better-ranked retail stocks include PetSmart, Inc. (PETM), with a Zacks Rank #1 (Strong Buy) and Lowe's Companies Inc. (LOW), with a Zacks Rank #2 (Buy).
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