Ace Hardware Reports Second Quarter Results

Ace Hardware Corp. reported second quarter 2023 revenues of $2.6 billion, an increase of $99.6 million, or 3.9 percent, from the second quarter of 2022. Net income was $126.7 million for the second quarter of 2023, an increase of $1.9 million from the second quarter of 2022.

“A 45 percent increase in visits to Acehardware.com drove an 18 percent increase in our digital business, a 3 percent increase in store visits, and an encouraging 1.1 percent increase in same-store transactions during the quarter,” said John Venhuizen, president and CEO. “I’m very proud of the Ace team for delivering a 3.9 percent increase in revenue and a 6.6 percent increase in operating income within a difficult environment for retailers of durable goods.”

The approximately 3,600 Ace retailers who share daily retail sales data reported a 0.4 percent increase in U.S. retail same-store-sales during the second quarter of 2023, which was the result of a 1.1 percent increase in same-store transactions; partially offset by a 0.8 percent decrease in average ticket.  

Revenues

Consolidated revenues for the quarter ended July 1, 2023 totaled $2.6 billion. Total wholesale revenues were $2.4 billion, an increase of $96.9 million, or 4.3 percent, as compared to the prior year second quarter.  Increases were seen across a majority of departments with lawn and garden, paint, and grilling showing the largest gains. 

Wholesale merchandise revenues to comparable domestic stores increased $11.7 million for the quarter. The company’s Ace International Holdings, Ltd. subsidiary experienced a $3.7 million decrease in wholesale revenue versus the second quarter of 2022, while Ace Wholesale Holdings LLC reported a $0.2 million decrease in wholesale revenues from the second quarter of 2022.

Total retail revenues for the quarter were $260.7 million, an increase of $2.7 million, or 1.0 percent, as compared to the prior year second quarter.  Retail revenues were negatively impacted by the closure of The Grommet during the third quarter of 2022, resulting in the absence of any revenues from Ace Ecommerce Holdings in the second quarter of 2023 compared with $5.6 million in the second quarter of 2022. 

Retail revenues from Ace Retail Holdings were $260.7 million in the second quarter of 2023, an increase of $8.3 million, or 3.3 percent, from the second quarter of 2022.  This increase was primarily driven by new stores added by the Westlake Ace Hardware and Great Lakes Ace Hardware (GLA) chains since the end of the first quarter of 2022, which contributed $6.7 million of incremental revenues. Westlake experienced a 2.4 percent increase in same-store-sales while GLA experienced a 1.5 percent decrease in same-store-sales in the quarter.  Westlake and GLA together operated 231 stores at the end of the second quarter of 2023 compared to 215 stores at the end of the second quarter of 2022. 

Ace added 36 new domestic stores in the second quarter of 2023 and cancelled 13 stores. The company’s total domestic store count was 4,924 at the end of the second quarter of 2023 which was an increase of 108 stores from the second quarter of 2022. On a worldwide basis, Ace added 46 stores in the second quarter of 2023 and cancelled 14, bringing the worldwide store count to 5,811 at the end of the second quarter of 2023.

Gross Profit

Wholesale gross profit for the three months ended July 1, 2023 was $323.6 million, an increase of $36.3 million from the second quarter of 2022.  The wholesale gross margin percentage was 13.6 percent of wholesale revenues in the second quarter of 2023, up from 12.6 percent in the second quarter of 2022.  The increase in wholesale gross margin percentage was primarily due to a decrease in LIFO expense driven by moderating vendor prices.  

Retail gross profit for the three months ended July 1, 2023 was $112.6 million, a decrease of $1.9 million from the second quarter of 2022. The retail gross margin percentage was 43.2 percent of retail revenues in the second quarter of 2023, down from 44.4 percent in the second quarter of 2022. The decrease in retail gross margin percentage primarily resulted from product mix and increased shrink expense.

Expenses and Other

Wholesale operating expenses increased $35.6 million, or 18.9 percent, from the second quarter of 2022. The increase is due to increased advertising expenses, greater lease expense driven by the opening of additional Retail Support Centers and higher compensation expense.  

Wholesale operating expenses as a percent of wholesale revenues increased to 9.4 percent in the second quarter of 2023 from 8.3 percent in the second quarter of 2022. 

Retail operating expenses decreased $10.4 million, or 12.8 percent, from the second quarter of 2022.  This decrease was driven by the closure of The Grommet during the third quarter of 2022.  Retail operating expenses as a percent of retail revenue decreased to 27.1 percent in the second quarter of 2023 from 31.4 percent in the second quarter of 2022.

Interest expense increased $6.4 million from the second quarter of 2022 due to higher interest rates and increased borrowings.

Balance Sheet and Cash Flow

Receivables increased $18.3 million from the second quarter of 2022 driven by an increase in past due trade balances and an increase in notes receivable from Ace retailers.

Inventories decreased $156.9 million from the second quarter of 2022 primarily as a result of a $68.6 million increase in the LIFO reserve recorded in the second half of 2022 and a reduction in overstock inventory. 

Long-term debt, including current maturities, increased $101.4 million versus the second quarter of 2022. At the end of the second quarter of 2023, long-term debt consisted of $280.0 million outstanding on the revolving credit facility, and $49.9 million owed to former retailers.