Ace Hardware Reports Record Q2 2022 Results

• Record second quarter revenues of $2.5 billion, an increase of 2.7 percent on top of last year’s increase of 8.2 percent
• Second quarter net income of $124.8 million, an increase of 7.6 percent from last year
• Accrued patronage dividend to shareholders of $247.3 million, an increase of 20.8 percent from the first six months of 2021
• Ranked “Highest in Customer Satisfaction with Home Improvement Retail Stores” according to J.D. Power, marking fifteen out of the last sixteen years

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.

Revenues

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.

Gross Profit

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.

 Expenses and Other

 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.

Balance Sheet and Cash Flow

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.

Source : Ace Hardware

Image : Sundry Photography / shutterstock.com (1668335116)

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