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Kate Kirkpatrick
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Oak Brook, Ill.,
16
August
2016
|
12:00 AM
Europe/Amsterdam

Ace Hardware reports second quarter 2016 revenues and profits

Q2 2016 Infographic
infographic
  • Record second quarter revenues of $1.4 billion, an increase of 0.6 percent from last year
  • Second quarter net income of $63.4 million, an increase of 5.8 percent from last year
  • Debt reduced by $119.9 million from last year
  • Consumers ranked Ace “Highest in Customer Satisfaction with Home Improvement Retail Stores” for the tenth consecutive year according to J.D. Power*

Ace Hardware Corporation (“Ace” or the “Company”), the largest retailer-owned hardware cooperative in the world, today reported second quarter 2016 revenues of $1.4 billion, an increase of $8.7 million or 0.6 percent from the second quarter of 2015. Net income was $63.4 million for the second quarter of 2016, an increase of $3.5 million from the second quarter of 2015 and the second highest in Company history.

“New store growth was the primary driver of our record revenue,” said John Venhuizen, President and CEO. “While records are nice, we are not satisfied with the growth as the enterprise and our retailers are working far too hard to settle for modest increases. Given their collective and effective execution year-to-date, I remain optimistic about accelerating both our growth and earnings going forward.”

For the first six months of 2016, the 2.4 percent increase in retail same-store-sales reported by the approximately 3,000 Ace retailers who share daily retail sales data was primarily the result of a 2.2 percent increase in average transaction size.

Revenues

Consolidated revenues for the quarter ended July 2, 2016 totaled $1.4 billion. Total wholesale revenues were $1.3 billion, an increase of $6.7 million, or 0.5 percent, as compared to the prior year second quarter. Increases were noted across many departments with outdoor living, paint and lawn and garden showing the largest gains.

Wholesale merchandise revenues to new domestic stores activated from January 2015 through June 2016 contributed $29.1 million in incremental revenues during the quarter, while wholesale merchandise revenues decreased $14.1 million due to stores that cancelled their membership. Wholesale merchandise revenues to comparable stores decreased $3.0 million in the second quarter of 2016. The Company’s Ace Wholesale Holdings LLC (“AWH”) subsidiary contributed $4.1 million of incremental revenue in the second quarter of 2016, which was an increase of 4.4 percent from the prior year second quarter.

Retail revenues from Ace Retail Holdings (“ARH”) were $87.4 million in the second quarter of 2016. This was an increase of $2.0 million, or 2.3 percent, from the second quarter of 2015. Same-store-sales increased 1.6 percent compared to the prior year with the largest increases in outdoor living and lawn and garden.

Ace added 42 new domestic stores in the second quarter of 2016 and cancelled 29 stores. This brought the Company’s total domestic store count to 4,315 at the end of the second quarter of 2016, an increase of 59 stores from the second quarter of 2015.

Gross Profit

Wholesale gross profit for the three months ended July 2, 2016 was $172.5 million, an increase of $9.0 million from the second quarter of 2015. The wholesale gross margin percentage was 12.9 percent of wholesale revenues in the second quarter of 2016, an increase from the 2015 second quarter gross margin percentage of 12.3 percent. The increase in the wholesale gross margin percentage was primarily driven by the timing of income from vendors.

Retail gross profit for the second quarter of 2016 was $38.3 million, an increase of $1.2 million from the second quarter of 2015. The retail gross margin percentage was 43.8 percent of retail revenues in the second quarter of 2016, up from 43.4 percent in the prior year second quarter. The increase in the retail gross margin percentage was primarily the result of less clearance merchandise sold in the second 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 $12.1 million, or 11.5 percent, for the second quarter of 2016 as compared to the second quarter of 2015. The increase was primarily due to a one-time gain of $10.0 million that reduced operating expenses in the second quarter of 2015. As a percentage of wholesale revenues, wholesale operating expenses increased from 7.9 percent of wholesale revenues in the second quarter of 2015 to 8.8 percent of wholesale revenues in the second quarter of 2016. Excluding the one-time gain in 2015, wholesale operating expenses increased slightly from 8.7 percent of wholesale revenues in 2015 to 8.8 percent in 2016.

Retail operating expenses of $25.9 million increased $0.2 million, or 0.8 percent, in the second quarter of 2016 as compared to the second quarter of 2015. The increase was primarily driven by higher expenses from new retail stores added in the third quarter of 2015 and the second quarter of 2016. Retail operating expenses as a percentage of retail revenues decreased to 29.6 percent of retail revenues in the second quarter of 2016 from 30.1 percent in second quarter of 2015.3

Balance Sheet

Receivables decreased $29.0 million from the second quarter of 2015 as a result of lower past due balances on trade receivables.

Inventories decreased $32.4 million from the second quarter of 2015 primarily due to a decrease in LED lighting and seasonal merchandise.

Debt decreased $119.9 million versus the second quarter of 2015 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.

# # #

* Ace Hardware received the highest numerical score among retail stores in the proprietary J.D. Power 2016 Home Improvement Retail Store StudySM. Study based on responses from 2,995 consumers measuring six stores and opinions of consumers who purchased a home improvement product or service within the previous 12 months. Proprietary study results are based on experiences and perceptions of consumers surveyed January-February 2016. Your experiences may vary. Visit jdpower.com
About Ace Hardware

For more than 90 years, Ace Hardware has been known as the place with the helpful hardware folks in thousands of neighborhoods across America, providing customers with a more personal kind of helpful. In 2015, Ace ranked “Highest in Customer Satisfaction with Home Improvement Retail Stores, Nine Years in a Row,” according to J.D. Power. With more than 4,800 hardware stores locally owned and operated across the globe, Ace is the largest retailer-owned hardware cooperative in the world. Headquartered in Oak Brook, Ill., Ace and its subsidiaries currently operate 17 distribution centers in the U.S. and also have distribution capabilities in Shanghai, China; Panama City, Panama; and Dubai, United Arab Emirates. Its retailers' stores are located in all 50 states, the District of Columbia and approximately 60 countries. For more information on Ace, visit www.acehardware.com.