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Ace Hardware Reports Record Second Quarter 2021 Results

  • Record second quarter revenues of $2.5 billion, an increase of 8.2 percent from last year
  • Second quarter net income of $116.0 million, a decrease of 16.5 percent from last year
  • Accrued patronage dividend to shareholders of $204.7 million, an increase of 21.1 percent from the first six months of 2020
  • Ranked “Highest in Customer Satisfaction with Home Improvement Retail Stores” according to J.D. Power, marking fourteen out of the last fifteen years

Ace Hardware Corporation (“Ace” or the “Company”) today reported record second quarter 2021 revenues of $2.5 billion, an increase of $187.8 million, or 8.2 percent, from the second quarter of 2020. Net income was $116.0 million for the second quarter of 2021, a decrease of $22.9 million from the second quarter of 2020. The decrease in net income was due to write-downs of excess personal protective equipment (“PPE”), higher warehouse labor costs and a non-recurring $6.9 million income tax benefit recorded in 2020 due to changes in tax laws.

“Our second quarter vastly exceeded our expectations. Not only did we positively comp 2020’s unprecedented surge in business, our two-year stacked growth for the quarter is up 46 percent in revenue and 116 percent in net income from 2019,” said John Venhuizen, President & CEO. “My sincere thanks to the entire Ace team for their servant hearts and exceptional performance.”

U.S. retail same-store-sales reported by the approximately 3,400 Ace retailers who share daily retail sales data rose 1.2 percent during the second quarter of 2021 and was the result of a 7.1 percent increase in average ticket partially offset by a 5.5 percent decrease in same-store transactions.

Revenues

Consolidated revenues for the quarter ended July 3, 2021 totaled $2.5 billion. Total wholesale revenues were $2.2 billion, an increase of $181.7 million, or 9.0 percent, as compared to the prior year second quarter. Wholesale merchandise revenues to new domestic stores activated from January 2020 through June 2021 contributed $64.8 million of incremental revenues during the second quarter of 2021, while wholesale merchandise revenues decreased $11.4 million during the second quarter due to domestic stores whose memberships were cancelled. Wholesale merchandise revenues to comparable domestic stores increased $103.3 million for the quarter. Increases were seen across a majority of departments with outdoor power equipment, grilling, basic electrical and hand tools showing the largest gains. The Company’s Ace International Holdings, Ltd. (“AIH”) subsidiary experienced a $24.2 million increase in wholesale revenue versus the second quarter of 2020, while Ace Wholesale Holdings LLC (“AWH”) reported an $18.3 million increase in wholesale revenues from the second quarter of 2020.

Total retail revenues for the quarter were $255.3 million, an increase of $6.1 million, or 2.4 percent, as compared to the prior year second quarter. Retail revenues from Ace Retail Holdings LLC (“ARH”) were $248.7 million in the second quarter of 2021, an increase of $9.4 million, or 3.9 percent, from the second quarter of 2020. This increase was the result of new stores added by the Westlake Ace Hardware (“Westlake”) and the Great Lakes Ace Hardware, Inc. (“GLA”) chains since the second quarter of 2020. Westlake and GLA together operated 211 stores at the end of the second quarter of 2021 compared to 192 stores at the end of the second quarter of 2020. Retail revenues from Ace Ecommerce Holdings LLC (“AEH”) were $6.6 million in the second quarter of 2021. This was a decrease of $3.3 million, or 33.3 percent, from the second quarter of 2020, primarily driven by a decrease in new customer acquisitions.

Ace added 55 new domestic stores in the second quarter of 2021 and cancelled 6 stores. The Company’s total domestic store count was 4,729 at the end of the second quarter of 2021 which was an increase of 165 stores from the second quarter of 2020. On a worldwide basis, Ace added 61 stores in the second quarter of 2021 and cancelled 9, bringing the worldwide store count to 5,550 at the end of the second quarter of 2021.

Gross Profit

Wholesale gross profit for the three months ended July 3, 2021 was $263.2 million, a decrease of $0.4 million from the second quarter of 2020. The wholesale gross margin percentage was 11.9 percent of wholesale revenues in the second quarter of 2021, down from 13.0 percent in the second quarter of 2020. The decrease in wholesale gross margin percentage was primarily due to higher receiving costs caused by lower Retail Support Center productivity and increased wages, and inventory write-downs to reduce the carrying value of certain personal protective equipment.

Retail gross profit for the three months ended July 3, 2021 was $113.7 million, an increase of $6.7 million from the second quarter of 2020. This increase was the result of the new stores opened in 2020 and 2021. The retail gross margin percentage was 44.5 percent of retail revenues in the second quarter of 2021, an increase from 42.9 percent in the second 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 increased $15.8 million, or 9.3 percent, from the second quarter of 2020. The increase is due to higher distribution costs resulting from higher wholesale revenues and higher warehouse wage rates as well as an increase in consumer advertising expenses. Wholesale operating expenses as a percent of wholesale revenues increased slightly to 8.4 percent in the second quarter of 2021 from 8.3 percent in the second quarter of 2020.

Retail operating expenses increased $6.0 million, or 9.5 percent, from the second quarter of 2020. This increase was primarily driven by expenses incurred related to the new stores opened in 2020 and 2021. Retail operating expenses as a percent of retail revenue increased to 27.0 percent in the second quarter of 2021 from 25.3 percent in the second quarter of 2020.

Balance Sheet and Cash Flow

Receivables increased $36.8 million from the second quarter of 2020 due to higher sales volumes and datings for seasonal programs.

Inventories increased $231.0 million from the second quarter of 2020 due to the intentional build-up of inventory to support increased demand and to act as a hedge against supplier shortages.

Long-term debt, including current maturities, increased $60.1 million versus the second quarter of 2020. At the end of the second quarter of 2021, long term debt consisted of $56.2 million outstanding on the revolving credit facility, and $29.6 million owed to former retailers.

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