Ace Hardware Corporation
11/13/2024 | Press release | Distributed by Public on 11/13/2024 08:07
ACE HARDWARE REPORTS THIRD QUARTER 2024 RESULTS
· Record third quarter revenues of $2.4 billion, an increase of 2.8 percent
· Third quarter net income of $99.0 million, a decrease of 23.8 percent
· Ace ranked fifth largest U.S. based franchise system by Franchise Times for the third consecutive year
· Ace named to the World's Best Companies of 2024 list by Time Magazine
Ace Hardware Corporation ("Ace" or the "Company") today reported third quarter 2024 revenues of $2.4 billion, an increase of $64.8 million, or 2.8 percent, from the third quarter of 2023. Net income was $99.0 million for the third quarter of 2024, a decrease of $31.0 million from the third quarter of 2023. This decrease was due entirely to higher planned expenses as the Company continues to make strategic investments in its supply chain infrastructure and digital marketing expense to support future growth.
"In this challenging environment, it's encouraging for me to report growth in new stores, growth in our digital business, and overall growth to $2.4 billion for the quarter," said John Venhuizen, Ace President & CEO. "I'm never particularly pleased to report a decline in net income, but it was almost exactly on plan and nearly $100 million for the three-month period. It's a privilege to take the field with such a talented Ace team around the world."
The approximately 3,700 Ace retailers who share daily retail sales data reported a 2.2 percent decrease in U.S. retail same-store-sales during the third quarter of 2024, which was the result of a 2.2 percent decrease in same-store transactions; partially offset by a 0.1 percent increase in average ticket.
Revenues
Consolidated revenues for the quarter ended September 28, 2024 totaled $2.4 billion. Total wholesale revenues were $2.1 billion, an increase of $56.3 million, or 2.7 percent, as compared to the prior year third quarter.Increases were seen across many departments with grilling, power tools and outdoor power equipment showing the largest gains.
Wholesale merchandise revenues to new domestic stores activated from January 2023 through September 2024 contributed $57.6 million of incremental revenues during the third quarter of 2024, while wholesale merchandise revenues decreased $7.2 million during the third quarter due to domestic stores whose memberships were cancelled. Wholesale merchandise revenues to comparable domestic stores decreased $18.9 million for the quarter. The Company's Ace International Holdings, Ltd. subsidiary experienced a $0.6 million decrease in wholesale revenue versus the third quarter of 2023, while Ace Wholesale Holdings LLC reported a $2.4 million increase in wholesale revenues from the third quarter of 2023. The Company's Ace Services Holdings LLC subsidiary, which is reported as part of the Company's wholesale business, experienced a $1.7 million decrease in revenues from the third quarter of 2023.
Total retail revenues from Ace Retail Holdings LLC ("ARH") for the quarter were $203.4 million, an increase of $8.5 million, or 4.4 percent, as compared to the prior year third quarter. The Westlake Ace Hardware ("Westlake") chain experienced a 1.9 percent decrease in same-store-sales, while the Great Lakes Ace Hardware ("GLA") chain experienced a 1.7 percent decrease in same-store-sales in the quarter. The new stores opened by Westlake and GLA since the end of the second quarter of 2023 contributed $12.1 million of incremental revenues during the third quarter of 2024. Westlake and GLA together operated 253 stores at the end of the third quarter of 2024 compared to 233 stores at the end of the third quarter of 2023.
The Company's total domestic store count was 5,093 at the end of the third quarter of 2024, which was an increase of 150 stores from the third quarter of 2023. The worldwide store count was 5,973 at the end of the third quarter of 2024.
Gross Profit
Wholesale gross profit for the three months ended September 28, 2024 was $313.1 million, a decrease of $5.8 million from the third quarter of 2023. The wholesale gross margin percentage was 14.6 percent of wholesale revenues in the third quarter of 2024, down from 15.2 percent in the third quarter of 2023. The decrease in wholesale gross margin percentage was primarily driven by unfavorable product gross profit rates and a decrease in LIFO income from the third quarter of 2023 when certain vendor prices declined.
Retail gross profit for the three months ended September 28, 2024 was $94.8 million, an increase of $5.0 million from the third quarter of 2023. The retail gross margin percentage was 46.6 percent of retail revenues in the third quarter of 2024, up from 46.1 percent in the third quarter of 2023. 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.
Expenses and Other
Wholesale operating expenses increased $30.5 million, or 15.5 percent, from the third quarter of 2023. The increase is due to a $21.7 million increase in marketing and advertising spending and a $9.1 million increase in Retail Support Center related costs. Wholesale operating expenses as a percent of wholesale revenue was 10.6 percent, up from 9.4 percent in the third quarter of 2023.
Retail operating expenses increased $4.1 million, or 5.8 percent, from the third quarter of 2023. This increase was primarily driven by expenses incurred related to the new stores added since the end of the second quarter of 2023. Retail operating expenses as a percent of retail revenue increased to 36.5 percent in the third quarter of 2024 from 36.0 percent in the third quarter of 2023.
Balance Sheet and Cash Flow
Receivables increased $55.8 million from the third quarter of 2023 due to higher sales volumes.
Inventories decreased $57.0 million from the third quarter of 2023 primarily as a result of ongoing efforts to reduce overstock inventory.
Long-term debt, including current maturities, increased $91.0 million versus the third quarter of 2023. At the end of the third quarter of 2024, long-term debt consisted of $400.0 million outstanding on the revolving credit facility, $43.7 million outstanding on the Westlake credit facility, and $52.7 million owed to former retailers.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in millions)
|
Three Months Ended |
Nine Months Ended |
|||||||
|
September 28, |
September 30, |
September 28, |
September 30, |
|||||
|
2024 |
2023 |
2024 |
2023 |
|||||
|
(13 Weeks) |
(13 Weeks) |
(39 Weeks) |
(39 Weeks) |
|||||
| Revenues: | ||||||||
| Wholesale revenues |
$ 2,149.0 |
$ 2,092.7 |
$ 6,581.5 |
$ 6,402.6 |
||||
| Retail revenues |
203.4 |
194.9 |
623.0 |
603.8 |
||||
| Total revenues |
2,352.4 |
2,287.6 |
7,204.5 |
7,006.4 |
||||
| Cost of revenues: | ||||||||
| Wholesale cost of revenues |
1,835.9 |
1,773.8 |
5,678.5 |
5,507.5 |
||||
| Retail cost of revenues |
108.6 |
105.1 |
340.7 |
331.4 |
||||
| Total cost of revenues |
1,944.5 |
1,878.9 |
6,019.2 |
5,838.9 |
||||
| Gross profit: | ||||||||
| Wholesale gross profit |
313.1 |
318.9 |
903.0 |
895.1 |
||||
| Retail gross profit |
94.8 |
89.8 |
282.3 |
272.4 |
||||
| Total gross profit |
407.9 |
408.7 |
1,185.3 |
1,167.5 |
||||
| Wholesale operating expenses: | ||||||||
| Distribution operations expenses |
71.8 |
69.0 |
212.2 |
206.1 |
||||
| Selling, general and administrative expenses |
84.6 |
78.6 |
252.4 |
218.2 |
||||
| Retailer success and development expenses |
71.2 |
49.5 |
217.3 |
174.2 |
||||
| Retail operating expenses |
74.2 |
70.1 |
220.9 |
211.0 |
||||
| Retail pre-opening expenses |
1.1 |
1.5 |
3.8 |
3.9 |
||||
| Total operating expenses |
302.9 |
268.7 |
906.6 |
813.4 |
||||
| Operating income |
105.0 |
140.0 |
278.7 |
354.1 |
||||
| Interest expense |
(11.8) |
(9.9) |
(36.1) |
(27.0) |
||||
| Interest income |
1.7 |
1.3 |
5.0 |
3.6 |
||||
| Other income (expense), net |
2.8 |
1.1 |
11.1 |
(1.4) |
||||
| Income tax benefit (expense) |
1.3 |
(2.5) |
1.6 |
(6.4) |
||||
| Net income |
99.0 |
130.0 |
260.3 |
322.9 |
||||
| Less: net loss attributable to noncontrolling interests |
(0.2) |
(0.5) |
(0.9) |
(1.1) |
||||
| Net income attributable to Ace Hardware Corporation |
$ 99.2 |
$ 130.5 |
$ 261.2 |
$ 324.0 |
||||
| Patronage distributions accrued |
$ 105.4 |
$ 133.1 |
$ 291.2 |
$ 338.2 |
||||
| Patronage distributions accrued for third party Retailers |
$ 100.1 |
$ 128.2 |
$ 276.0 |
$ 323.4 |
ACE HARDWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
|
September 28, |
December 30, |
September 30, |
|||
|
2024 |
2023 |
2023 |
|||
| Assets |
(Unaudited) |
(Audited) |
(Unaudited) |
||
| Cash and cash equivalents |
$ 38.9 |
$ 31.9 |
$ 42.5 |
||
| Marketable securities |
48.6 |
49.4 |
50.8 |
||
| Receivables, net of allowance for doubtful accounts of $11.1, $12.1 and $7.8, respectively |
772.3 |
674.4 |
716.5 |
||
| Inventories |
1,299.5 |
1,235.1 |
1,356.5 |
||
| Prepaid expenses and other current assets |
93.3 |
69.9 |
70.0 |
||
| Total current assets |
2,252.6 |
2,060.7 |
2,236.3 |
||
| Property and equipment, net |
589.0 |
541.0 |
524.3 |
||
| Operating lease right-of-use assets, net |
814.4 |
668.0 |
673.0 |
||
| Finance lease right-of-use assets, net |
127.6 |
123.9 |
127.0 |
||
| Goodwill and other intangible assets, net |
445.6 |
410.9 |
408.2 |
||
| Other assets |
165.7 |
153.1 |
152.4 |
||
| Total assets |
$ 4,394.9 |
$ 3,957.6 |
$ 4,121.2 |
||
| Liabilities and Equity | |||||
| Current maturities of long-term debt |
$ 64.3 |
$ 49.1 |
$ 32.3 |
||
| Accounts payable |
1,231.4 |
1,081.5 |
1,268.1 |
||
| Patronage distributions payable in cash |
112.9 |
137.1 |
133.1 |
||
| Patronage refund certificates payable |
29.0 |
29.1 |
23.0 |
||
| Current operating lease liabilities |
91.3 |
88.5 |
83.3 |
||
| Current finance lease liabilities |
29.5 |
25.6 |
25.2 |
||
| Accrued expenses |
284.9 |
292.0 |
233.3 |
||
| Total current liabilities |
1,843.3 |
1,702.9 |
1,798.3 |
||
| Long-term debt |
432.1 |
359.2 |
373.1 |
||
| Patronage refund certificates payable |
202.5 |
149.6 |
150.5 |
||
| Long-term operating lease liabilities |
742.1 |
603.2 |
613.5 |
||
| Long-term finance lease liabilities |
100.3 |
100.4 |
103.5 |
||
| Other long-term liabilities |
143.6 |
120.9 |
113.5 |
||
| Total liabilities |
3,463.9 |
3,036.2 |
3,152.4 |
||
| Member Retailers' Equity: | |||||
| Class A voting common stock, $1,000 par value, 10,000 shares authorized, 2,586, 2,615 and 2,636 issued and outstanding, respectively |
2.6 |
2.6 |
2.7 |
||
| Class C nonvoting common stock, $100 par value, 20,000,000 shares authorized, 7,641,370, 7,226,176 and 7,330,493 issued and outstanding, respectively |
764.1 |
722.6 |
733.0 |
||
| Class C nonvoting common stock, $100 par value, issuable to Retailers for patronage distributions, 730,428, 897,317 and 1,172,429 shares issuable, respectively |
73.0 |
89.7 |
117.2 |
||
| Contributed capital |
19.2 |
19.2 |
19.2 |
||
| Retained earnings |
64.1 |
78.2 |
88.3 |
||
| Accumulated other comprehensive (loss) income |
(0.3) |
0.3 |
(1.8) |
||
| Equity attributable to Ace member Retailers |
922.7 |
912.6 |
958.6 |
||
| Equity attributable to noncontrolling interests |
8.3 |
8.8 |
10.2 |
||
| Total equity |
931.0 |
921.4 |
968.8 |
||
| Total liabilities and equity |
$ 4,394.9 |
$ 3,957.6 |
$ 4,121.2 |
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
|
Nine Months Ended |
|||
|
September 28, |
September 30, |
||
|
2024 |
2023 |
||
|
(39 Weeks) |
(39 Weeks) |
||
| Operating Activities | |||
| Net income |
$ 260.3 |
$ 322.9 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization |
73.7 |
65.9 |
|
| Non cash lease expense |
22.8 |
19.9 |
|
| Amortization of deferred financing costs |
0.7 |
1.0 |
|
| Loss on the disposal of assets, net |
0.8 |
3.2 |
|
| Provision for doubtful accounts |
0.6 |
2.2 |
|
| Other, net |
(6.8) |
1.8 |
|
| Changes in operating assets and liabilities, exclusive of effects of acquisitions: | |||
| Receivables |
(127.8) |
(94.0) |
|
| Inventories |
(51.1) |
(46.0) |
|
| Other current assets |
(23.4) |
(8.5) |
|
| Other long-term assets |
(9.9) |
(11.0) |
|
| Accounts payable and accrued expenses |
167.6 |
50.2 |
|
| Other long-term liabilities |
18.3 |
7.0 |
|
| Deferred taxes |
(2.0) |
(0.4) |
|
| Net cash provided by operating activities |
323.8 |
314.2 |
|
| Investing Activities | |||
| Purchases of investment securities |
(20.8) |
(33.5) |
|
| Proceeds from sale of investment securities |
22.4 |
33.8 |
|
| Purchases of property and equipment |
(121.1) |
(123.4) |
|
| Cash paid for acquired businesses, net of cash received |
(45.1) |
(306.6) |
|
| Increase in notes receivable, net |
(26.7) |
(22.4) |
|
| Proceeds from sale of assets |
0.6 |
0.1 |
|
| Other, net |
0.9 |
(0.7) |
|
| Net cash used in investing activities |
(189.8) |
(452.7) |
|
| Financing Activities | |||
| Net borrowings under revolving lines of credit |
81.8 |
357.7 |
|
| Principal payments on long-term debt |
(13.9) |
(11.3) |
|
| Payments of debt issuance costs |
- |
(4.4) |
|
| Principal portion of finance lease payments |
(25.2) |
(20.9) |
|
| Payments of cash portion of patronage distribution |
(137.1) |
(133.1) |
|
| Payments of patronage refund certificates |
(22.9) |
(26.7) |
|
| Repurchase of stock |
(10.4) |
(9.3) |
|
| Purchase of noncontrolling interests |
(0.5) |
(0.3) |
|
| Other, net |
1.2 |
0.8 |
|
| Net cash (used in) provided by financing activities |
(127.0) |
152.5 |
|
| Increase in cash and cash equivalents |
7.0 |
14.0 |
|
| Cash and cash equivalents at beginning of period |
31.9 |
28.5 |
|
| Cash and cash equivalents at end of period |
$ 38.9 |
$ 42.5 |
|
| Supplemental disclosure of cash flow information: | |||
| Interest paid |
$ 29.7 |
$ 21.2 |
|
| Income taxes paid |
$ 3.3 |
$ 4.3 |