Ace Hardware Reports Record Third Quarter Results

• Record third quarter revenues of $2.0 billion, an increase of 1.4 percent on top of last year’s increase of 30.7 percent
• Record third quarter net income of $99.3 million, an increase of 0.6 percent on top of last year’s increase of 63.1 percent
• Accrued patronage dividend to shareholders of $296.3 million, an increase of 12.3 percent from the first nine months of 2020
• Improved from 5th to 4th largest franchise system in Franchise Times Top 400

Ace Hardware Corporation (“Ace” or the “Company”) today reported record third quarter 2021 revenues of $2.0 billion, an increase of $28.1 million, or 1.4 percent, from the third quarter of 2020. Net income was $99.3 million for the third quarter of 2021, an increase of $0.6 million from the third quarter of 2020.

“In light of last year’s extraordinary growth, and despite significant headwinds from global supply chain disruption, I’m pleased to see increases in both the top and bottom line for the quarter,” said John Venhuizen, President & CEO. “We added to 2020’s unprecedented surge in business, and our two-year stacked growth for the third quarter is up 32 percent in revenue and 64 percent in net income from 2019. The Ace team continues to serve and support in a difficult environment.”

U.S. retail same-store-sales reported by the approximately 3,400 Ace retailers who share daily retail sales data rose 0.3 percent during the third quarter of 2021 and was the result of a 7.5 percent increase in average ticket, offset by a 6.7 percent decrease in same-store transactions.

Revenues

Consolidated revenues for the quarter ended October 2, 2021 totaled $2.0 billion. Total wholesale revenues were $1.8 billion, an increase of $25.3 million, or 1.4 percent, as compared to the prior year third quarter. Increases were seen across several departments with outdoor power equipment, basic electrical and power tools showing the largest gains. Wholesale merchandise revenues to new domestic stores activated from January 2020 through September 2021 contributed $53.9 million of incremental revenues during the third quarter of 2021, while wholesale merchandise revenues decreased $7.4 million during the third quarter due to domestic stores whose memberships were cancelled. Wholesale merchandise revenues to comparable domestic stores decreased $44.4 million for the quarter. This follows an increase in wholesale merchandise revenues to comparable domestic stores of $365.1 million in the prior year third quarter. The Company’s Ace International Holdings, Ltd. (“AIH”) subsidiary experienced a $20.5 million increase in wholesale revenue versus the third quarter of 2020. This increase was primarily the result of a $17.5 million decline in sales to AIH’s two largest customers in the third quarter of 2020, both of which experienced extensive store closures in the prior year due to the pandemic. Ace Wholesale Holdings LLC (“AWH”) reported a $4.6 million decrease in wholesale revenues from the third quarter of 2020 which was primarily due to lower sales in the hardware and pro channels.

Total retail revenues for the quarter were $189.1 million, an increase of $2.8 million, or 1.5 percent, as compared to the prior year third quarter. Retail revenues from Ace Retail Holdings LLC (“ARH”) were $185.0 million in the third quarter of 2021, an increase of $5.2 million, or 2.9 percent, from the third quarter of 2020. This increase was the result of new stores added by the Westlake Ace Hardware (“Westlake”) and Great Lakes Ace Hardware, Inc. (“GLA”) chains since the third quarter of 2020. Westlake and GLA together operated 209 stores at the end of the third quarter of 2021 compared to 194 stores at the end of the third quarter of 2020. Retail revenues from Ace Ecommerce Holdings LLC (“AEH”) were $4.1 million in the third quarter of 2021. This was a decrease of $2.4 million, or 36.9 percent, from the third quarter of 2020, reversing the 22.6 percent pandemic related surge in the prior year.

Ace added 48 new domestic stores in the third quarter of 2021 and cancelled 18 stores. The Company’s total domestic store count was 4,759 at the end of the third quarter of 2021 which was an increase of 174 stores from the third quarter of 2020. On a worldwide basis, Ace added 49 stores in the third quarter of 2021 and cancelled 18, bringing the worldwide store count to 5,581 at the end of the third quarter of 2021.

Gross Profit

Wholesale gross profit for the three months ended October 2, 2021 was $238.1 million, a decrease of $4.1 million from the third quarter of 2020. The wholesale gross margin percentage was 12.9 percent of wholesale revenues in the third quarter of 2021, down from 13.4 percent in the third quarter of 2020. The decrease in wholesale gross margin percentage was due to higher LIFO expense which was driven by increased vendor prices, and higher receiving costs in our Retail Support Centers.

Retail gross profit for the three months ended October 2, 2021 was $88.7 million, an increase of $2.0 million from the third quarter of 2020. This increase was the result of the new stores opened in 2020 and 2021. The retail gross margin percentage was 46.9 percent of retail revenues in the third quarter of 2021, an increase from 46.5 percent in the third quarter of 2020. The increase in retail gross margin percentage was primarily due to vendor funds earned related to new store openings. 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 decreased $0.2 million, or 0.1 percent, from the third quarter of 2020, as higher distribution operations expenses were offset by lower selling, general and administrative and retailer success and development expenses. Wholesale operating expenses as a percent of wholesale revenues decreased slightly to 8.6 percent in the third quarter of 2021 from 8.7 percent in the third quarter of 2020.

Retail operating expenses increased $3.2 million, or 5.2 percent, from the third quarter of 2020. This increase was primarily driven by expenses related to the new stores opened in 2020 and 2021. Retail operating expenses as a percent of retail revenue increased to 34.4 percent in the third quarter of 2021 from 33.2 percent in the third quarter of 2020.

Balance Sheet and Cash Flow

Inventories increased $165.0 million from the third quarter of 2020 due to the intentional build-up of inventory to support increased demand and to act as a hedge against supplier shortages.

The Company generated $180.6 million of cash flow from operating activities during the first nine months of 2021. This cash was used to pay record cash patronage of $113.8 million and to invest $75.4 million into the Company’s infrastructure including new warehouse space, equipment and computer systems.

Long-term debt, including current maturities, increased $105.1 million versus the third quarter of 2020. At the end of the third quarter of 2021, long term debt consisted of $101.8 million outstanding on the revolving credit facility, $5.8 million outstanding on the Westlake credit facility, and $30.4 million owed to former retailers.

Franchise Times Ranking

Annually, the Franchise Times publishes a listing of the largest U.S.-based franchise systems based on systemwide worldwide revenues. Because of the significant revenue growth in 2020, Ace moved from the number 5 position to the number 4 position, slightly beating Burger King. Only McDonald’s, 7-Eleven and KFC are larger than Ace.

Source : Ace Hardware

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