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Ace Hardware Reports First-Quarter results

Published on 2010-05-19. Author : SpecialChem

OAK BROOK, Ill. -- Ace Hardware Corporation, the largest retailer-owned cooperative in the hardware industry, reported net income of $11.8 million for the quarter ended April 3, 2010, a decrease of $2.6 million or 18.0 percent, compared to $14.4 million for 2009.

Ace reported EBITDA (earnings before interest, taxes, depreciation and amortization expenses) of $29.7 million for the first quarter of 2010, a decrease of $2.3 million or 7.3 percent, as compared to $32.0 million in the prior year quarter. "While our overall sales and profit are down slightly from last year, I'm pleased with our first quarter performance," said Ray Griffith, Ace president and CEO. "Both sales and profit are ahead of plan and, although our operating expenses are slightly above plan, we continue to significantly invest in our business and improve core business processes. During the quarter, we successfully completed the second phase of the Business Transformation Project and replaced many of our legacy systems with new supply chain technology."

Revenues

Total revenues for the quarter ended April 3, 2010 were $830.7 million, a decrease of $20.6 million or 2.4 percent from 2009. Merchandise sales to comparable domestic stores for the first quarter of 2010 decreased $36.0 million primarily due to consumer spending in a soft economy. On a category basis, domestic sales were most negatively impacted by declines in the paint, hardware and plumbing categories. These declines were partially offset by a sales increase in the lawn and garden category. Merchandise sales to new domestic stores activated since January 2009 contributed $18.7 million in incremental sales in the quarter. Ace added 20 new stores and cancelled 47 stores in the first quarter and ended the quarter with a total store count of 4,464.

Merchandise sales from Ace's international business increased $12.8 million, or 36.4 percent, in the first quarter of 2010 as compared to the prior year quarter primarily due to strong sales to retailers in the Middle East.

"While our overall sales results are reflective of the continued challenging sales environment, we have several initiatives underway to ensure we are well positioned to drive results throughout the recovery," Griffith said. "Ace kicked off the year with the announcement of two powerful brand partnerships. We signed an agreement with Sears that paves the way for Craftsman, America's most trusted tool brand, to be sold at Ace stores. We also expanded our strategic alliance with Benjamin Moore, opening the door for more Ace stores to sell Benjamin Moore paint. The execution of these and other proven retail initiatives will position Ace stores to take advantage of early spring business and drive sales in both the short and long term."

Gross profit

Gross profit for the quarter ended April 3, 2010 was $97.0 million, a decrease of $2.0 million from 2009, and the gross profit percentage was 11.7 percent, relatively flat to the prior year quarter.

Expenses

Operating expenses increased $1.3 million, or 1.7 percent, to $78.5 million in the first quarter of 2010 as compared to 2009. The increase in operating expenses reflects higher selling, general and administrative expenses of $1.8 million primarily driven by higher information technology expenses of $2.5 million and depreciation expense of $1.0 million related to the company's Business Transformation Project, partially offset by lower bad debt expense of $1.2 million.

Balance sheet

The company had working capital of $259.3 million, $265.4 million and $249.0 million at April 3, 2010, January 2, 2010 and April 4, 2009, respectively.

The company had cash and cash equivalents totaling $31.6 million, $105.7 million and $47.4 million at April 3, 2010, January 2, 2010, and April 4, 2009, respectively.

Inventories at the end of the first quarter of 2010 were $536.2 million, an increase of $97.2 million and $10.0 million as compared to the end of fiscal year 2009 and the first quarter of 2009, respectively. The incremental inventory investment in 2010 is to support warehouse service levels during the spring selling season.

Trade accounts receivable at the end of the first quarter of 2010 were $296.2 million, an increase of $105.2 million as compared to the end of fiscal year 2009 primarily due to normal extended seasonal datings at this time of the year. As compared to the first quarter of 2009, trade accounts receivable decreased $31.6 million primarily due to reduced sales.

Total debt including patronage refund certificates was $334.3 million at April 3, 2010, a decrease of $19.4 million and $18.1 million as compared to January 2, 2010 and April 4, 2009, respectively. These decreases were primarily due to the payment of the patronage refund certificates during the first quarter of 2010.

During the quarter, the Company also paid the patronage distribution early to the retailer shareholders and increased that cash payout from 20 percent to 35 percent. After record earnings in 2009, the Company paid $29.2 million of cash patronage distributions in March of 2010. This is compared to last year's payment of $15.6 million which was paid in April of 2009. Cash payments for property and equipment for the quarter ended April 3, 2010 were $8.3 million, an increase of $2.3 million over the comparable period in 2009. Capital expenditures in both 2010 and 2009 were driven primarily by technology spending to support Ace's Business Transformation Project.

About Ace Hardware:

For more than 85 years, Ace Hardware has been known as the helpful hardware store by both customers and communities. With approximately 4,500 locally owned and operated hardware, home center and building materials stores, Ace is the largest hardware cooperative in the industry. Headquartered in Oak Brook, Ill., Ace currently operates 14 distribution centers in the U.S. and one in Shanghai, China, and its retailers' stores are located in all 50 states and more than 60 countries.

Source: Ace Hardware


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