Ace Hardware Reports First Quarter 2023 Results

Ace Hardware Corporation (“Ace” or the “Company”) reported first quarter 2023 revenues of $2.1 billion, a decrease of $127.4 million, or 5.8 percent, from the first quarter of 2022.  Net income was $66.2 million for the first quarter of 2023, a decrease of $53.6 million from the first quarter of 2022.  Excluding the $21.4 million, gain on sale of the former Gainesville, Georgia retail support center (“RSC”) from the first quarter of 2022, net income decreased $32.2 million. The revenue decline was primarily the result of the mild winter across most of the U.S., combined with the late arrival of spring-like weather, which led to declines in the sale of winter and spring goods. Net income was also negatively affected by incremental expenses related to the expansion of warehouse space, higher payroll wage rates and higher health insurance costs.          

“We believe an unusually cold, wet winter in California, a particularly warm, mild winter in the Midwest and Northeast, and the significant reduction in direct stimulus payments to individuals by the government were the primary drivers of our first sales and profit decline in nearly six and a half years,” said John Venhuizen, President & CEO. “Despite those headwinds, we continue to invest for future growth as evidenced by our two newest Retail Support Centers in Georgia and California.”

The approximately 3,600 Ace retailers who share daily retail sales data reported a 4.4 percent decrease in U.S. retail same-store-sales during the first quarter of 2023, which was the result of a 3.0 percent decrease in same-store transactions and a 1.4 percent decrease in average ticket. 

Revenues

Consolidated revenues for the quarter ended April 1, 2023 totaled $2.1 billion. Total wholesale revenues were $1.9 billion, a decrease of $119.0 million, or 5.8 percent, as compared to the prior year first quarter. Decreases were seen across many departments with outdoor power equipment, outdoor living and lawn and garden showing the largest losses. Wholesale merchandise revenues to new domestic stores activated from January 2022 through March 2023 contributed $54.7 million of incremental revenues during the first quarter of 2023, while wholesale merchandise revenues decreased $10.0 million during the first quarter due to domestic stores whose memberships were cancelled. Wholesale merchandise revenues to comparable domestic stores decreased $182.4 million for the quarter. The Company’s Ace International Holdings, Ltd. subsidiary experienced a $1.4 million decrease in wholesale revenue versus the first quarter of 2022, while Ace Wholesale Holdings LLC reported a $13.4 million decrease in wholesale revenues from the first quarter of 2022.

Total retail revenues for the quarter were $148.2 million, a decrease of $8.4 million, or 5.4 percent, as compared to the prior year first quarter. This decrease is partially due to the closure of The Grommet during the third quarter of 2022, resulting in the absence of any revenues from Ace Ecommerce Holdings LLC (“AEH”) in the first quarter of 2023 compared with $3.6 million in the first quarter of 2022. Retail revenues from Ace Retail Holdings LLC (“ARH”) were $148.2 million in the first quarter of 2023, a decrease of $4.8 million, or 3.1 percent, from the first quarter of 2022. The Westlake Ace Hardware (“Westlake”) chain experienced a 3.8 percent decrease in same-store-sales while the Great Lakes Ace Hardware (“GLA”) chain experienced a 6.8 percent decrease in same-store-sales in the quarter. The new stores opened by Westlake and GLA since the first quarter of 2022 contributed $3.6 million of incremental revenues during the first quarter of 2023. Westlake and GLA together operated 230 stores at the end of the first quarter of 2023 compared to 210 stores at the end of the first quarter of 2022.  

Ace added 50 new domestic stores in the first quarter of 2023 and cancelled 16 stores. The Company’s total domestic store count was 4,901 at the end of the first quarter of 2023 which was an increase of 111 stores from the first quarter of 2022. On a worldwide basis, Ace added 52 stores in the first quarter of 2023 and cancelled 19, bringing the worldwide store count to 5,779 at the end of the first quarter of 2023.

Gross Profit

Wholesale gross profit for the three months ended April 1, 2023 was $252.6 million, a decrease of $9.4 million from the first quarter of 2022. The wholesale gross margin percentage was 13.0 percent of wholesale revenues in the first quarter of 2023, up from 12.7 percent in the first quarter of 2022. The increase in wholesale gross margin percentage was primarily due to a decrease in LIFO expense driven by lower vendor prices.

Retail gross profit for the three months ended April 1, 2023 was $70.0 million, a decrease of $3.0 million from the first quarter of 2022. The retail gross margin percentage was 47.2 percent of retail revenues in the first quarter of 2023, up from 46.6 percent in the first quarter of 2022. The increase in retail gross margin percentage primarily resulted from the exclusion of The Grommet in 2023.  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 $16.5 million, or 10.2 percent, from the first quarter of 2022. The increase is due to greater lease expense driven by the expansion of our warehouse space, higher health insurance expenses and higher bad debt expense. Wholesale operating expenses as a percent of wholesale revenue was 9.2 percent, up from 7.8 percent in first quarter of 2022. 

Retail operating expenses increased $2.4 million, or 3.5 percent, from the first quarter of 2022. This increase was primarily driven by an increase in store payroll and expenses incurred related to the new stores added since the first quarter of 2022; partially offset by the closure of The Grommet during the third quarter of 2022. Retail operating expenses as a percent of retail revenue increased to 47.4 percent in the first quarter of 2023 from 43.3 percent in the first quarter of 2022.

Other income, net decreased $22.0 million, as a result of the $21.7 million gain on sale of the Company’s RSC located in Gainesville, Georgia during the first quarter of 2022. 

Balance Sheet and Cash Flow

Receivables decreased $34.3 million from the first quarter of 2022 due to lower sales volumes.

Inventories decreased $68.6 million from the first quarter of 2022 due to an increase in the LIFO reserve caused by inflation.

Long-term debt, including current maturities, decreased $13.4 million versus the first quarter of 2022. At the end of the first quarter of 2023, long-term debt consisted of $96.2 million outstanding on the revolving credit facility, $39.4 million outstanding on the Westlake credit facility, and $43.4 million owed to former retailers.

For the full first quarter results, click here.

About Ace Hardware

Ace Hardware is the largest retailer-owned hardware cooperative in the world with over 5,700 locally owned and operated hardware stores in approximately 60 countries. Headquartered in Oak Brook, Ill., Ace and its subsidiaries operate an expansive network of distribution centers in the U.S. and have distribution capabilities in Ningbo, China; and Santa Catarina, Mexico.  Since 1924, Ace has become a part of local communities around the world and known as the place with the helpful hardware folks. For more information, visit acehardware.com or newsroom.acehardware.com.

Contact:

William Guzik – Executive Vice President, CRO & CFO – guzik@acehardware.com – (630) 990-3325

Source: Ace Hardware Corporation