Record second quarter revenues of $2.7 billion, an increase of 3.1 percent
· Online sales increased 16 percent
· Second quarter net income of $114.4 million, a decrease of 9.7 percent
· Delivered twelfth consecutive month of cost reductions to Ace store owners
· Accrued patronage dividend to shareholders of $109.3 million, a decrease of 6.3 percent from the second quarter of 2023
· Ace reaches 5,000 U.S. locations; will add 200 new stores in 2024
Ace Hardware Corporation reported second-quarter 2024 revenues of $2.7 billion, an increase of $81.7 million, or 3.1 percent, from the second quarter of 2023. Net income was $114.4 million for the second quarter of 2024, a decrease of $12.3 million from the second quarter of 2023. This decrease was due to planned increases in marketing expenses and retail store expenses. The increased spending was expected to be offset by an improved gross margin rate. However, product cost deflation and higher transportation costs prevented the margin expansion.
“I’m pleased to report record second-quarter revenue, a 16% increase in our digital business, and 110 new stores year-to-date,” said John Venhuizen, Ace President & CEO. “During the quarter, we added our 5,000th store and are on track to add 200 new stores in 2024. I’m so appreciative of the Ace team, particularly our red-vested heroes who grace our neighborhood stores.”
The approximately 3,800 Ace retailers who share daily retail sales data reported a 1.7 percent decrease in U.S. retail same-store sales during the second quarter of 2024, which was the result of a 2.6 percent decrease in same-store transactions; partially offset by a 0.9 percent increase in average ticket.
Revenues
Consolidated revenues for the quarter ended June 29, 2024 totaled $2.7 billion. Total wholesale revenues were $2.5 billion, an increase of $83.7 million, or 3.5 percent, as compared to the prior year’s second quarter. Increases were seen across many departments with outdoor power equipment, power tools, lawn and garden, and grilling showing the largest gains.
Wholesale merchandise revenues to new domestic stores activated from January 2023 through June 2024 contributed $68.9 million of incremental revenues during the second quarter of 2024, while wholesale merchandise revenues decreased by $7.4 million during the second quarter due to domestic stores whose memberships were canceled. Wholesale merchandise revenues to comparable domestic stores decreased by $41.8 million for the quarter. The Company’s Ace International Holdings, Ltd. subsidiary experienced a $7.1 million increase in wholesale revenue versus the second quarter of 2023, while Ace Wholesale Holdings LLC reported a $2.7 million increase in wholesale revenues from the second quarter of 2023. The Company’s Ace Services Holdings LLC (“ASH”) subsidiary, which is reported as part of the Company’s wholesale business, experienced a $22.8 million increase in wholesale revenues from the second quarter of 2023. This is due to the inclusion of revenues of Unique Indoor Comfort Holdings, LLC (“UICH”) for the full second quarter of 2024. UICH was acquired on April 12, 2023, so the prior year did not include a full quarter of revenue.
Total retail revenues from Ace Retail Holdings LLC (“ARH”) for the quarter were $258.7 million, a decrease of $2.0 million, or 0.8 percent, as compared to the prior year’s second quarter. The Westlake Ace Hardware (“Westlake”) chain experienced a 4.6 percent decrease in same-store sales, while the Great Lakes Ace Hardware (“GLA”) chain experienced a 0.4 percent decrease in same-store sales in the quarter. The new stores opened by Westlake and GLA since the end of the first quarter of 2023 contributed $7.5 million of incremental revenues during the second quarter of 2024. Westlake and GLA together operated 240 stores at the end of the second quarter of 2024 compared to 231 stores at the end of the second quarter of 2023.
The Company’s total domestic store count was 5,084 at the end of the second quarter of 2024, which was an increase of 160 stores from the second quarter of 2023. The worldwide store count was 5,965 at the end of the second quarter of 2024.
Gross Profit
Wholesale gross profit for the three months ended June 29, 2024, was $335.6 million, an increase of $12.0 million from the second quarter of 2023. The wholesale gross margin percentage was 13.7 percent of wholesale revenues in the second quarter of 2024, up slightly from 13.6 percent in the second quarter of 2023.
Retail gross profit for the three months ended June 29, 2024, was $111.8 million, a decrease of $0.8 million from the second quarter of 2023. The retail gross margin percentage was unchanged at 43.2 percent of retail revenues in both the second quarter of 2024 and 2023. For ARH, retail gross profit is based on the Company’s wholesale acquisition cost of the product, not ARH’s acquisition cost, which includes a markup from the Company.
Expenses and Other
Wholesale operating expenses increased $28.2 million, or 12.6 percent, from the second quarter of 2023. The increase is primarily due to increased advertising expenses and the acquisition of UICH, which added $8.3 million of incremental operating expenses. Wholesale operating expenses as a percent of wholesale revenue were 10.3 percent, up from 9.4 percent in the second quarter of 2023.
Retail operating expenses increased $4.3 million, or 6.1 percent, from the second quarter of 2023. This increase was primarily driven by expenses incurred related to the new stores added since the end of the first quarter of 2023. Retail operating expenses as a percent of retail revenue increased to 29.0 percent in the second quarter of 2024 from 27.1 percent in the second quarter of 2023.
Other income (expense), net increased $9.3 million primarily due to the absence of UICH acquisition fees recognized in the second quarter of 2023, coupled with a partial insurance recovery related to the cybersecurity incident that took place during the fourth quarter of 2023.
Balance Sheet and Cash Flow
Receivables increased $67.6 million from the second quarter of 2023 due to higher sales volumes and increased vendor rebates receivable.
Inventories decreased $63.3 million from the second quarter of 2023 primarily as a result of efforts to reduce overstock inventory.
Long-term debt, including current maturities, increased $7.9 million versus the second quarter of 2023. At the end of the second quarter of 2024, long-term debt consisted of $260.9 million outstanding on the revolving credit facility, $30.2 million outstanding on the Westlake credit facility, and $46.7 million owed to former retailers.
About Ace Hardware
Ace Hardware is the largest retailer-owned hardware cooperative in the world with over 5,900 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 Cuautitlán Izcalli, Mexico. Since 1924, Ace has been 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.
