Record Q2 Revenues For Ace Hardware

Ace Hardware Corporation (“Ace” or the “Company”), the largest retailer-owned hardware cooperative in the world, today reported record second quarter 2020 revenues of $2.28 billion, an increase of $591.6 million, or 35.1 percent, from the second quarter of 2019. Net income was $138.9 million for the second quarter of 2020, an increase of $85.1 million from the second quarter of 2019.

“Same-store sales growth of 35.3 percent is impressive, a 493 percent increase in our digital business is incredible, but what I’m most pleased and impressed with is the degree to which the Ace team delivered on our highest priority of protecting our people and serving our neighbors,” said John Venhuizen, President & CEO. “The second quarter of 2020 was arguably the most difficult, unusual and yet perhaps rewarding quarter in Ace’s history.”

“In order to meet this unprecedented demand, we’ve hired over 900 additional warehouse specialists compared to last year, and that pace of hiring has continued into the third quarter. We have also accelerated our plans to grow our distribution footprint in the U.S. and will add over one million square feet of warehouse space in the next twelve months.”

“There is certainly both a blessing and a burden in being essential” said Venhuizen. “My earnest thanks to our drivers, warehouse specialists, red-vested heroes and the entire Ace team. Our efforts to support our stores and serve our neighbors have been imperfect during this pandemic, but the sincerity, efficacy and compassion with which it was delivered was exceptional and appreciated.”

The 35.3 percent increase in U.S. retail same-store-sales during the second quarter of 2020 reported by the approximately 3,200 Ace retailers who share daily retail sales data was the result of a 14.4 percent increase in same-store transactions and an 18.2 percent increase in average ticket. Ace stores in the U.S. benefited from increased Do-It-Yourself (“DIY”) activities by consumers sheltering in place, a shift in discretionary spending from travel and entertainment into home improvement, and consumers moving their purchases online and consolidating their store visits in order to limit potential COVID-19 exposure.

Revenues

Consolidated revenues for the quarter ended June 27, 2020 totaled $2.28 billion. Total wholesale revenues were $2.03 billion, an increase of $501.1 million, or 32.8 percent, as compared to the prior year second quarter. Wholesale merchandise revenues to new domestic stores activated from January 2019 through June 2020 contributed $56.5 million of incremental revenues during the second quarter of 2020, while wholesale merchandise revenues decreased $9.4 million during the second quarter due to domestic stores whose memberships were cancelled. Wholesale merchandise revenues to comparable domestic stores increased $394.6 million for the quarter. Increases were seen across nearly all departments with grilling, power tools, and outdoor power equipment showing the largest gains. The Company’s Ace International Holdings, Ltd. (“AIH”) subsidiary had a $14.3 million decrease in wholesale revenue from the second quarter of 2019. While hardware and home improvement stores were considered “essential” and were allowed to remain open throughout the U.S., that was not the case across much of the world, as up to fifty percent of AIH customer stores were closed at some point during the quarter.  Ace Wholesale Holdings LLC (“AWH”), whose customer base includes a large number of paint and decorating stores that were not considered “essential”, had a $0.4 million increase of wholesale revenues from the second quarter of 2019.

Total retail revenues for the quarter were $249.2 million, an increase of $90.5 million, or 57.0 percent, as compared to the prior year second quarter. Retail revenues from Ace Retail Holdings LLC (“ARH”) were $239.3 million in the second quarter of 2020, an increase of $88.5 million, or 58.7 percent, from the second quarter of 2019. The Westlake Ace Hardware (“Westlake”) chain experienced a 34.7 percent increase in same-store-sales while the Great Lakes Ace Hardware, Inc. (“GLA”) chain grew same-store-sales by 45.5 percent. The eleven new California stores opened by Westlake in 2019 contributed $33.6 million of the increase. Westlake and GLA together operated 192 stores at the end of the second quarter of 2020 compared to 177 stores at the end of the second quarter of 2019. Retail revenues from Ace Ecommerce Holdings LLC (“AEH”) were $9.9 million in the second quarter of 2020. This was an increase of $2.0 million, or 24.0 percent, from the second quarter of 2019. New customer acquisitions drove the increase during the second quarter.

Ace added 25 new domestic stores in the second quarter of 2020 and cancelled 27 stores. The Company’s total domestic store count was 4,564 at the end of the second quarter of 2020 which was an increase of 57 stores from the second quarter of 2019. On a worldwide basis, Ace added 32 stores in the second quarter of 2020 and cancelled 27, bringing the worldwide store count to 5,386 at the end of the second quarter of 2020.

Gross Profit

Wholesale gross profit for the three months ended June 27, 2020 was $263.6 million, an increase of $85.5 million from the second quarter of 2019. The wholesale gross margin percentage was 13.0 percent of wholesale revenues in the second quarter of 2020, up from 11.6 percent in the second quarter of 2019. The increase in the wholesale gross margin percentage was due to the increased volume, which lead to higher vendor funds earned.

Retail gross profit for the three months ended June 27, 2020 was $107.0 million, an increase of $37.7 million from the second quarter of 2019. This increase was primarily the result of the eleven new California stores opened by ARH in 2019. The retail gross margin percentage was 42.9 percent of retail revenues in the second quarter of 2020, a decrease from 43.7 percent in the second quarter of 2019. 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 $31.0 million, or 22.4 percent, from the second quarter of 2019. The increase is due to higher distribution costs resulting from higher wholesale revenues and an increase in advertising expenses. As a percentage of wholesale revenues, wholesale operating expenses decreased to 8.3 percent of wholesale revenues in the second quarter of 2020 from 9.0 percent of wholesale revenues in the second quarter of 2019.

Retail operating expenses increased $11.5 million, or 22.3 percent, from the second quarter of 2019. This increase was primarily due to expenses related to the eleven new California stores and expenses incurred related to the pandemic. Retail operating expenses as a percentage of retail revenue decreased to 25.3 percent of retail revenues in the second quarter of 2020 from 32.5 percent in the second quarter of 2019.

Retail pre-opening expenses decreased $3.6 million due to expenses related to the eleven new California stores which opened in 2019.

Source : Ace Hardware

Image : Susan Montgomery / Shutterstock.com

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