OAK BROOK, Ill.--(BUSINESS WIRE)--Ace Hardware Corporation (“Ace” or the “Company”), the largest retailer-owned hardware cooperative in the industry, today reported the Company’s best first quarter for both revenues and net income in its 90 year history. Total revenues were $1.1 billion for the first quarter of 2014, an increase of $155.5 million or 16.8 percent, from the first quarter of 2013. Net income was $24.4 million for the first quarter of 2014, an increase of $20.0 million or 454.5 percent from the first quarter of 2013.
“I’m so proud and appreciative of the entire Ace team for using last year’s record performance as a springboard to even greater success,” said John Venhuizen, Ace president and chief executive officer. “While the frigid winter certainly helped our Q1 business, I’m pleased to see our winter categories were less than 20 percent of our overall growth as all core hardline departments were up sharply and contributed significantly to our increase.”
Ace continues aggressive plans in 2014 to help retailers increase sales and profits through 20/20 Vision, the Company’s long-term retail growth strategy. In addition to this, Ace’s first quarter acquisition of Emery-Waterhouse serves as a catalyst to leverage wholesale purchasing power and advance the Company’s strategic plans to be a leader in the wholesale distribution industry. The 3,100 Ace retailers who transmit daily retail POS data enjoyed a strong start to the year with increased customer count and average transaction which contributed to a 5.2 percent same-store-sale increase.
“Serving well is the passion of this Company,” said Venhuizen. “And there is no one who does that more effectively than the local Ace owner; many of whom spent a good portion of Q1 serving their neighbors during record snow and cold.”
“As I reflect on the Company’s history, I believe our five founders would be extremely proud of the service, convenience and quality our retailers have provided their neighbors over the past 90 years,” continued Venhuizen. “This quarter’s results show me that the model of localized, high touch service is alive and well at Ace and continues to deliver relevance to the consumer and economic benefits to the Ace owner.”
Revenues
Consolidated revenues for the three months ended March 29, 2014 totaled $1.1 billion, an increase of $155.5 million, or 16.8 percent, as compared to the prior year quarter. Total wholesale revenues were $1.0 billion, an increase of $151.6 million, or 17.2 percent, as compared to the prior year quarter. Increases were noted in every department with paint, plumbing, and winter related categories showing the largest increases.
Wholesale merchandise revenues to comparable stores increased $105.3 million in the first quarter of 2014. Positive results were driven by our strong execution and the severe winter weather that occurred throughout most of the country during the first quarter. Wholesale merchandise revenues to new domestic stores activated in the 2013 and 2014 fiscal year periods contributed $36.8 million in incremental revenues during the quarter, while wholesale merchandise revenues decreased $7.1 million due to cancelled stores.
Retail revenues from Ace Retail Holdings (“ARH”) were $43.7 million in the first quarter of 2014. This is an increase of $3.9 million, or 9.8 percent, from the first quarter of 2013 which primarily resulted from increased sales of winter goods. During the first quarter of 2014, same store sales at ARH’s stores were up 10.1 percent versus the prior year driven by effective execution and increases in the heating and lawn and garden categories caused by extreme weather.
Ace added 84 new stores and cancelled 35 stores in the first quarter of 2014 for a net increase in store count of 49. This brought the company’s total global store count to 4,878 at the end of the first quarter 2014, an increase of 161 stores from the first quarter of 2013.
Gross Profit
Wholesale gross profit for the three months ended March 29, 2014, was $119.1 million, an increase of $19.6 million from the first three months of 2013. Gross margin percentage was 11.5 percent of wholesale revenues in the first quarter of 2014, an increase from 2013’s first quarter gross margin percentage of 11.3 percent. The increase in the gross margin percentage was primarily driven by a shift to a more favorable product mix.
Retail gross profit for the first quarter of 2014 was $20.7 million, an increase of $2.5 million from the first quarter of 2013. Gross margin percentage was 47.4 percent of retail revenues in the first quarter of 2014, up from 45.7 percent in the prior year quarter. The increase in the gross margin percentage was the result of a larger percentage of ARH’s retail sales being product that was purchased at Ace’s wholesale cost following the acquisition of Westlake Ace Hardware retail locations in December 2012.
Expenses
Wholesale operating expenses increased $1.7 million, or 1.9 percent, for the three months ended March 29, 2014 as compared to the first quarter of 2013. The increase was entirely driven by additional operating expenses from Emery-Waterhouse. However, as a percentage of wholesale revenues, wholesale operating expenses decreased from 10.1 percent of revenues in 2013 to 8.8 percent of revenues in 2014.
Retail operating expenses of $22.6 million increased $0.2 million, or 0.9 percent, in the first quarter of 2014 as compared to the first quarter of 2013. However, retail operating expenses as a percent of retail revenues decreased from 56.3 percent of revenues in the first quarter of 2013 to 51.7 percent of revenues in the first quarter of 2014.
Interest expense declined $1.0 million, or 24.4 percent, in the first quarter of 2014 as compared to the first quarter of 2013. The decline resulted from lower average balances outstanding and lower interest rates.
Income tax expense increased $1.3 million in the first quarter of 2014 primarily as a result of an increase in the annual effective tax rate caused by the acquisition of Emery-Waterhouse.
Balance Sheet
Cash generated from operating activities over the previous 12 months, net of capital spending and the funds used for the acquisition of Emery-Waterhouse, was used to decrease debt. Total debt was down $46.8 million from $343.3 million at March 30, 2013 to $296.5 million at March 29, 2014.
About Ace Hardware
For 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. With over 4,875 hardware stores locally owned and operated across the globe, Ace is the largest hardware cooperative in the industry. Headquartered in Oak Brook, Ill., Ace and its subsidiaries currently operate 14 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.
| ACE HARDWARE CORPORATION | ||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||||
| (Unaudited, in millions) | ||||||||||
| Three Months Ended | ||||||||||
| March 29, | March 30, | |||||||||
| 2014 | 2013 | |||||||||
| (13 Weeks) | (13 Weeks) | |||||||||
| Revenues: | ||||||||||
| Wholesale revenues | $ | 1,035.0 | $ | 883.4 | ||||||
| Retail revenues | 43.7 | 39.8 | ||||||||
| Total revenues | 1,078.7 | 923.2 | ||||||||
| Cost of revenues: | ||||||||||
| Wholesale cost of revenues | 915.9 | 783.9 | ||||||||
| Retail cost of revenues | 23.0 | 21.6 | ||||||||
| Total cost of revenues | 938.9 | 805.5 | ||||||||
| Gross profit: | ||||||||||
| Wholesale gross profit | 119.1 | 99.5 | ||||||||
| Retail gross profit | 20.7 | 18.2 | ||||||||
| Total gross profit | 139.8 | 117.7 | ||||||||
| Distribution operations expenses | 26.9 | 24.1 | ||||||||
| Selling, general and administrative expenses | 36.9 | 35.6 | ||||||||
| Retailer success and development expenses | 26.9 | 29.3 | ||||||||
| Retail operating expenses | 22.6 | 22.4 | ||||||||
| Total operating expenses | 113.3 | 111.4 | ||||||||
| Operating income | 26.5 | 6.3 | ||||||||
| Interest expense | (3.1 | ) | (4.1 | ) | ||||||
| Interest income | 0.8 | 0.9 | ||||||||
| Other income, net | 1.8 | 1.7 | ||||||||
| Income tax expense | (1.6 | ) | (0.3 | ) | ||||||
| Net income | 24.4 | 4.5 | ||||||||
| Less: net income attributable to noncontrolling interests | - | 0.1 | ||||||||
| Net income attributable to Ace Hardware Corporation | $ | 24.4 | $ | 4.4 | ||||||
| Accrued patronage distributions | $ | 28.9 | $ | 10.2 | ||||||
| Accrued patronage distributions to third party retailers | $ | 28.3 | $ | 9.7 | ||||||
| ACE HARDWARE CORPORATION | |||||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| (In millions, except share data) | |||||||||||
| March 29, | December 28, | March 30, | |||||||||
| 2014 | 2013 | 2013 | |||||||||
| Assets | (Unaudited) | (Audited) | (Unaudited) | ||||||||
| Cash and cash equivalents | $ | 30.2 | $ | 17.9 | $ | 20.5 | |||||
| Marketable securities | 54.3 | 53.8 | 54.9 | ||||||||
| Receivables, net of allowance for doubtful accounts of $10.5, $9.3 and $8.3, respectively | 482.6 | 335.9 | 393.8 | ||||||||
| Inventories | 709.7 | 505.5 | 606.8 | ||||||||
| Prepaid expenses and other current assets | 55.5 | 41.8 | 37.5 | ||||||||
| Total current assets | 1,332.3 | 954.9 | 1,113.5 | ||||||||
| Property and equipment, net | 324.1 | 324.7 | 317.4 | ||||||||
| Notes receivable, net of allowance for doubtful accounts of $10.0, $11.4 and $13.3, respectively | 20.7 | 21.2 | 39.4 | ||||||||
| Goodwill and other intangible assets | 32.2 | 24.1 | 24.1 | ||||||||
| Other assets | 69.8 | 63.6 | 64.9 | ||||||||
| Total assets | $ | 1,779.1 | $ | 1,388.5 | $ | 1,559.3 | |||||
| Liabilities and Equity | |||||||||||
| Current maturities of long-term debt | $ | 58.7 | $ | 23.4 | $ | 54.9 | |||||
| Accounts payable | 790.6 | 491.7 | 611.7 | ||||||||
| Patronage distributions payable in cash | 51.4 | 39.9 | 33.9 | ||||||||
| Accrued expenses | 144.5 | 165.9 | 131.1 | ||||||||
| Total current liabilities | 1,045.2 | 720.9 | 831.6 | ||||||||
| Long-term debt | 237.8 | 178.6 | 288.4 | ||||||||
| Patronage refund certificates payable | 30.1 | 28.4 | 23.6 | ||||||||
| Other long-term liabilities | 65.6 | 66.3 | 64.2 | ||||||||
| Total liabilities | 1,378.7 | 994.2 | 1,207.8 | ||||||||
| Member Retailers’ Equity: | |||||||||||
| Class A voting common stock, $1,000 par value, 10,000 shares authorized, 2,757; 2,764 and 2,754 issued and outstanding, respectively | 2.8 | 2.8 | 2.8 | ||||||||
| Class C nonvoting common stock, $100 par value, 4,000,000 shares authorized, 3,124,085; 3,156,908 and 2,982,598 issued and outstanding, respectively | 312.4 | 315.7 | 298.2 | ||||||||
| Class C nonvoting common stock, $100 par value, issuable to retailers for patronage distributions, 526,471; 408,684 and 290,405 shares issuable, respectively | 52.6 | 40.9 | 29.0 | ||||||||
| Contributed capital | 20.0 | 20.0 | 19.7 | ||||||||
| Retained earnings (accumulated deficit) | 2.5 | 6.3 | (5.3 | ) | |||||||
| Accumulated other comprehensive income (loss) | 0.7 | 0.3 | (0.6 | ) | |||||||
| Equity attributable to Ace member retailers | 391.0 | 386.0 | 343.8 | ||||||||
| Equity attributable to noncontrolling interests | 9.4 | 8.3 | 7.7 | ||||||||
| Total equity | 400.4 | 394.3 | 351.5 | ||||||||
| Total liabilities and equity | $ | 1,779.1 | $ | 1,388.5 | $ | 1,559.3 | |||||
| ACE HARDWARE CORPORATION | ||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
| (Unaudited, in millions) | ||||||||||
| Three Months Ended | ||||||||||
| March 29, | March 30, | |||||||||
| 2014 | 2013 | |||||||||
| (13 Weeks) | (13 Weeks) | |||||||||
| Operating Activities | ||||||||||
| Net income | $ | 24.4 | $ | 4.5 | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||
| Depreciation and amortization | 12.3 | 11.1 | ||||||||
| Amortization of deferred gain on sale leaseback | (0.3 | ) | (0.3 | ) | ||||||
| Amortization of deferred financing costs | 0.3 | 0.3 | ||||||||
| Gain on the disposal of assets, net | (0.1 | ) | - | |||||||
| Provision for doubtful accounts | 2.1 | 0.7 | ||||||||
| Other, net | 0.2 | 0.2 | ||||||||
| Changes in operating assets and liabilities, exclusive of effect of acquisition: | ||||||||||
| Receivables | (142.8 | ) | (108.7 | ) | ||||||
| Inventories | (176.6 | ) | (49.1 | ) | ||||||
| Other current assets | (8.8 | ) | 9.6 | |||||||
| Other long-term assets | (8.9 | ) | 3.3 | |||||||
| Accounts payable and accrued expenses | 257.9 | 92.6 | ||||||||
| Other long-term liabilities | (0.3 | ) | 0.4 | |||||||
| Deferred taxes | (2.2 | ) | (1.4 | ) | ||||||
| Net cash used in operating activities | (42.8 | ) | (36.8 | ) | ||||||
| Investing Activities | ||||||||||
| Purchases of marketable securities | (3.5 | ) | (3.4 | ) | ||||||
| Proceeds from sale of marketable securities | 3.4 | 3.0 | ||||||||
| Purchases of property and equipment | (7.0 | ) | (8.4 | ) | ||||||
| Cash paid for acquired business, net of cash acquired | (32.9 | ) | - | |||||||
| Decrease in notes receivable, net | 1.0 | 0.9 | ||||||||
| Other | 0.1 | 0.1 | ||||||||
| Net cash used in investing activities | (38.9 | ) | (7.8 | ) | ||||||
| Financing Activities | ||||||||||
| Net borrowings under revolving lines of credit | 96.8 | 58.2 | ||||||||
| Principal payments on long-term debt | (3.9 | ) | (6.5 | ) | ||||||
| Payments of patronage refund certificates | (0.1 | ) | - | |||||||
| Proceeds from sale of noncontrolling interests | 0.9 | 0.1 | ||||||||
| Other | 0.3 | 0.2 | ||||||||
| Net cash provided by financing activities | 94.0 | 52.0 | ||||||||
| Increase in cash and cash equivalents | 12.3 | 7.4 | ||||||||
| Cash and cash equivalents at beginning of period | 17.9 | 13.1 | ||||||||
| Cash and cash equivalents at end of period | $ | 30.2 | $ | 20.5 | ||||||
| Supplemental disclosure of cash flow information: | ||||||||||
| Interest paid | $ | 3.0 | $ | 4.4 | ||||||
| Income taxes paid | $ | 1.9 | $ | 0.6 | ||||||