ACE HARDWARE REPORTS RECORD SECOND QUARTER 2022 RESULTS

2022-09-03 08:24:30 By : Ms. kelly liao

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OAK BROOK, Ill. , Aug. 24, 2022 /PRNewswire/ -- Ace Hardware Corporation ("Ace" or the "Company") today reported record second quarter 2022 revenues of $2.5 billion , an increase of $66.1 million , or 2.7 percent, from the second quarter of 2021.  Net income was $124.8 million for the second quarter of 2022, an increase of $8.8 million from the second quarter of 2021.  Included in the results for the second quarter are $10.8 million in non-recurring charges related to the closure of The Grommet. 

"Nominal growth continues to be solid," said John Venhuizen , President & CEO.  "The primary fuel has come from last year's 182 new domestic stores, this year's 88, and the aberrant and stubborn impact of inflation."

The approximately 3,600 Ace retailers who share daily retail sales data reported a 0.6 percent increase in U.S. retail same-store-sales during the second quarter of 2022. Estimated retail price inflation of 11.4 percent helped drive a 8.0 percent increase in average ticket. Same-store transactions were down 6.9 percent.

Consolidated revenues for the quarter ended July 2, 2022 totaled $2.5 billion .  Total wholesale revenues were $2.3 billion , an increase of $63.4 million , or 2.9 percent, as compared to the prior year second quarter.  Increases were seen across a majority of departments with outdoor power equipment, plumbing, paint and outdoor living showing the largest gains.  New stores are defined as stores that were activated from January 2021 through June 2022.  The Company had an increase in wholesale merchandise revenues from new domestic stores of $68.6 million during the second quarter of 2022.  This increase was partially offset by a decrease in wholesale merchandise revenues due to domestic store cancellations of $14.2 million .  Wholesale merchandise revenues to comparable domestic stores increased $0.3 million for the quarter.  All of this increase was the result of estimated wholesale price inflation of 12.0 percent.  The Company's Ace International Holdings, Ltd. subsidiary experienced a $19.4 million decrease in wholesale revenue versus the second quarter of 2021, while Ace Wholesale Holdings LLC reported a $8.7 million increase in wholesale revenues from the second quarter of 2021.

Total retail revenues for the quarter were $258.0 million , an increase of $2.7 million , or 1.1 percent, as compared to the prior year second quarter.  Retail revenues from Ace Retail Holdings LLC ("ARH") were $252.4 million in the second quarter of 2022, an increase of $3.7 million , or 1.5 percent, from the second quarter of 2021.  This increase was driven by new stores added by the Westlake Ace Hardware ("Westlake") and the Great Lakes Ace Hardware ("GLA") chains since the second quarter of 2021.  Westlake and GLA together operated 215 stores at the end of the second quarter of 2022 compared to 211 stores at the end of the second quarter of 2021.  Inflation drove same-store-sales increases of 0.2 percent at Westlake and 0.4 percent at GLA during the quarter.  Retail revenues from Ace Ecommerce Holdings LLC were $5.6 million in the second quarter of 2022, a decrease of $1.0 million , or 15.2 percent, from the second quarter of 2021, which was due to the announcement of the closure of the Grommet.

Ace added 38 new domestic stores in the second quarter of 2022 and cancelled 12 stores.  The Company's total domestic store count was 4,816 at the end of the second quarter of 2022 which was an increase of 87 stores from the second quarter of 2021.  On a worldwide basis, Ace added 46 stores in the second quarter of 2022 and cancelled 12, bringing the worldwide store count to 5,660 at the end of the second quarter of 2022.

Wholesale gross profit for the three months ended July 2, 2022 was $287.3 million , an increase of $24.1 million from the second quarter of 2021.  The wholesale gross margin percentage was 12.6 percent of wholesale revenues in the second quarter of 2022, up from 11.9 percent in the second quarter of 2021.  The increase in wholesale gross margin percentage was primarily due to an increase in vendor funds earned, and the absence of personal protective equipment inventory write-downs recorded in the second quarter of 2021.  These improvements were partially offset by an increase in LIFO expense which was driven by increased vendor prices due to inflation. 

Retail gross profit for the three months ended July 2, 2022 was $114.5 million , an increase of $0.8 million from the second quarter of 2021.  The retail gross margin percentage was 44.4 percent of retail revenues in the second quarter of 2022, down slightly from 44.5 percent in the second quarter of 2021.  Retail gross margin includes a $0.9 million charge for inventory write-downs at The Grommet.  Excluding this charge, the retail gross margin percentage is 44.7 percent.  For ARH, retail gross profit is based on the Company's wholesale acquisition cost of product, not ARH's acquisition cost which includes a markup from the Company.

Wholesale operating expenses increased $3.0 million , or 1.6 percent, from the second quarter of 2021.  The increase is due to greater lease expense driven by the expansion of our warehouse space and increased advertising expenses.  Wholesale operating expenses as a percent of wholesale revenues decreased slightly to 8.3 percent in the second quarter of 2022 from 8.4 percent in the second quarter of 2021. 

Retail operating expenses increased $12.1 million , or 17.5 percent, from the second quarter of 2021.  Included in this increase is a non-recurring charge of $9.9 million related to the closure of The Grommet, for the impairment of assets and severance related costs.  The remaining increase was driven by an increase in store payroll along with expenses incurred related to the new stores opened since the second quarter of 2021.  Retail operating expenses as a percent of retail revenue increased to 31.4 percent in the second quarter of 2022 from 27.0 percent in the second quarter of 2021. Without the non-recurring charge, retail operating expenses as a percent of retail revenue were 27.6 percent.

Receivables increased $81.5 million from the second quarter of 2021 due to higher sales volumes and datings for seasonal programs.

Inventories increased $329.7 million from the second quarter of 2021 due to the intentional build-up of inventory as a hedge against supplier shortages and to increase fill rates to our Ace owners.  In addition, the late arrival of spring weather in 2022 has resulted in an overstock of patio and lawn and garden inventory that will be carried over into the 2023 spring selling season.  

Long-term debt, including current maturities, increased $142.7 million versus the second quarter of 2021.  At the end of the second quarter of 2022, long term debt consisted of $191.8 million outstanding on the revolving credit facility, and $36.7 million owed to former retailers.

Ace Hardware is the largest retailer-owned hardware cooperative in the world with over 5,600 locally owned and operated hardware stores in approximately 65 countries.  Headquartered in Oak Brook, Ill. , Ace and its subsidiaries operate an expansive network of distribution centers in the U.S. and have distribution capabilities in Ningbo, China ; and Santa Catarina, Mexico.  Since 1924, Ace has become a part of local communities around the world and known as the place with the helpful hardware folks. For more information, visit acehardware.com or newsroom.acehardware.com.

In 2022, Ace ranked "Highest in Customer Satisfaction with Home Improvement Retail Stores" according to J.D. Power, fifteen out of the last sixteen years.

Shareholders'/Investors' Inquiries: William Guzik , Executive Vice President, Chief Financial Officer & Chief Risk Officer 630-990-3325, [email protected]

Media Inquiries: Jeff Gooding , Vice President, Consumer Marketing 630-990-3600, [email protected]

Selling, general and administrative expenses

Retailer success and development expenses

Less: net loss attributable to noncontrolling interests

Net income attributable to Ace Hardware Corporation

Patronage distributions accrued for third party retailers

(In millions, except share data)

Receivables, net of allowance for doubtful accounts of $5.8, $4.3 and $6.4, respectively

Prepaid expenses and other current assets

Operating lease right-of-use assets, net

Finance lease right-of-use assets, net

Goodwill and other intangible assets, net

Current maturities of long-term debt

Patronage distributions payable in cash

Class A voting common stock, $1,000 par value, 10,000 shares authorized, 2,675, 2,681 and 2,697 issued and outstanding, respectively

Class C nonvoting common stock, $100 par value, 10,000,000 shares authorized, 6,753,381, 5,838,265 and 6,007,367 issued and outstanding, respectively

Class C nonvoting common stock, $100 par value, issuable to Retailers for patronage distributions, 981,230, 1,209,075 and 848,949 shares issuable, respectively

Accumulated other comprehensive (loss) income

Equity attributable to Ace member Retailers

Equity attributable to noncontrolling interests

CONSOLIDATED STATEMENTS OF CASH FLOWS

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of deferred financing costs

Gain on the disposal of assets, net

Changes in operating assets and liabilities, exclusive of effects of acquisitions:

Accounts payable and accrued expenses

Net cash provided by operating activities

Proceeds from sale of investment securities

Purchases of property and equipment

Cash paid for acquired businesses, net of cash received

Increase in notes receivable, net

Proceeds from sale of assets

Net cash used in investing activities

         Net borrowings under revolving lines of credit

Principal payments on long-term debt

Principal portion of finance lease payment

Payments of cash portion of patronage distribution

Payments of patronage refund certificates

Net cash provided by (used in) financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

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