Newsroom: Ace Hardware reports first quarter 2017 results

March 17, 2017

– Revenues of $1.2 billion, up slightly from the prior year
– Net income of $28.3 million, an increase of 8.4 percent from last year
– Accrued patronage of $34.7 million, an increase of 18.4 percent from last year
– Ace global store count surpasses 5,000

Ace Hardware Corporation (“Ace” or the “Company”), the largest retailer-owned hardware cooperative in the world, today reported first quarter 2017 revenues of $1.2 billion, an increase of $1.4 million or 0.1 percent from the first quarter of 2016. Net income was $28.3 million for the first quarter 2017, an increase of $2.2 million or 8.4 percent from the first quarter of 2016.

“I’m delighted to report an 8.4 percent increase in net income, a double digit jump in accrued patronage dividends for our owners and surpassing a global store count of 5,000 stores in the quarter,” said John Venhuizen, President and CEO. “While revenue improved, our increase fell short of our expectations. And despite the obvious temptation, I’ll resist pinning the blame on the less than favorable weather.”

The 0.2 percent decrease in retail same-store-sales during the first quarter of 2017 reported by the approximately 3,000 Ace retailers who share daily retail sales data was the result of decreased customer traffic.

Revenues

Consolidated revenues for the quarter ended April 1, 2017 totaled $1.2 billion. Total wholesale revenues were $1.19 billion, which were flat compared to the prior year first quarter. Wholesale merchandise revenues to new domestic stores activated from January 2016 through March 2017 contributed $25.2 million in incremental revenues during the first quarter of 2017, while wholesale merchandise revenues decreased $9.2 million due to domestic stores that cancelled their membership. Wholesale merchandise revenues to comparable domestic stores decreased $27.1 million for the quarter. The Company’s Ace Wholesale Holdings LLC (“AWH”) subsidiary, Ace Hardware International Holdings, Ltd. (“AIH”) and service revenues each contributed $3.7 million of incremental revenue in the first quarter of 2017.

Retail revenues from Ace Retail Holdings (“ARH”) were $52.0 million in the first quarter of 2017. This was an increase of $1.4 million, or 2.8 percent, from the first quarter of 2016. The increase was the result of new retail stores added since the first quarter of 2016. Same-store-sales decreased 3.0 percent compared to the first quarter of 2016 primarily due to decreased customer traffic.

Ace added 16 new domestic stores in first quarter of 2017 and cancelled 21 stores. This brought the Company’s total domestic store count to 4,358 at the end of the first quarter of 2017, an increase of 56 stores from the first quarter of 2016. On a worldwide basis, Ace added 30 stores in the first quarter of 2017 and cancelled 21, bringing the worldwide store count to 5,003 at the end of the first quarter of 2017.

Gross Profit

Wholesale gross profit for the three months ended April 1, 2017 was $146.2 million, an increase of $12.9 million from the first quarter of 2016. The wholesale gross margin percentage was 12.3 percent of wholesale revenues in the first quarter of 2017, an increase from the first quarter of 2016 gross margin percentage of 11.2 percent. The increase in the wholesale gross margin percentage was primarily driven by an increase in vendor funds earned.

Retail gross profit for the three months ended April 1, 2017 was $25.1 million, an increase of $1.1 million from the first quarter of 2016. The retail gross margin percentage was 48.3 percent of retail revenues in the first quarter of 2017, up from 47.4 percent in the first quarter of 2016. The increase in the retail gross margin percentage was primarily the result of higher margin rates at new retail stores added since the first quarter of 2016. Retail gross profit is determined based on the Company’s wholesale acquisition cost of product, not ARH’s acquisition cost which includes a markup from the Company.

Expenses

Wholesale operating expenses increased $9.2 million, or 8.7 percent, for the first quarter of 2017 as compared to the first quarter of 2016. The increase was primarily due to increased advertising expenses and higher payroll expense due to changes in Company benefit policies in the prior year. As a percentage of wholesale revenues, wholesale operating expenses increased to 9.7 percent of wholesale revenues in the first quarter of 2017 from 8.9 percent of wholesale revenues in the first quarter of 2016.

Retail operating expenses of $25.6 million increased $2.4 million, or 10.3 percent, from the first quarter of 2016. The increase was primarily due to expenses from new retail stores added since the first quarter of 2016. Retail operating expenses increased to 49.2 percent of retail revenues in the first quarter of 2017 from 45.8 percent in the first quarter of 2016, primarily due to increases in payroll and benefits and rent expense.

Balance Sheet

Receivables increased $25.7 million from the first quarter of 2016 primarily as a result of higher trade receivables driven by an increase in bulletin and dropship sales with future dating.

Inventories increased $28.7 million from the first quarter of 2016 primarily due to increased seasonal inventory build for higher anticipated sales, increased stores at ARH and seasonal carryover from slow winter sales.

Debt decreased $17.2 million versus the first quarter of 2016 as a result of cash provided by the Company’s operating activities during the past twelve months.

View Ace’s consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows.

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