Ace Hardware Third Quarter 2018 Results: 6.3 percent increase from last year

U.S. same-store-sales up 1.8 percent during the quarter

Ace Hardware Corporation reported record third quarter 2018 revenues of $1.43 billion, an increase of $84.8 million, or 6.3 percent, from the third quarter of 2017.  Net income was $36.3 million for the third quarter of 2018, a decrease of $17.5 million from the third quarter of 2017. 

Revenues

Consolidated revenues for the quarter ended September 29, 2018 totaled $1.43 billion.  Total wholesale revenues were $1.34 billion, an increase of $64.4 million, or 5.0 percent, as compared to the prior year third quarter.  Increases were noted across all departments with paint, electrical and holiday d├ęcor showing the largest gains.  Wholesale merchandise revenues to new domestic stores activated from January 2017 through September 2018 contributed $37.5 million of incremental revenues during the third quarter of 2018, while wholesale merchandise revenues decreased $8.9 million due to domestic stores that cancelled their membership.  Wholesale merchandise revenues to comparable domestic stores increased $31.3 million for the quarter.  The Company’s Ace Hardware International Holdings, Ltd. (“AIH”) subsidiary had a $4.0 million decline in wholesale revenue from the prior year, while Ace Wholesale Holdings LLC (“AWH”) subsidiary contributed $3.3 million of incremental wholesale revenue in the third quarter of 2018.

Total retail revenues for the quarter were $85.9 million, an increase of $20.4 million, or 31.1 percent, as compared to the prior year third quarter.  Retail revenues from Ace Retail Holdings LLC (“ARH”) were $79.0 million in the third quarter of 2018.  This was an increase of $13.5 million, or 20.6 percent, from the third quarter of 2017.  The increase was the result of new retail stores added since the third quarter of 2017.  ARH operated 122 stores at the end of the third quarter of 2018 compared to 108 stores at the end of the third quarter of 2017.  Retail revenues from Ace Ecommerce Holdings LLC (“AEH”), which was formed in the third quarter of 2017 for the acquisition of The Grommet on September 30, 2017, were $6.9 million in the third quarter of 2018.

Ace added 50 new domestic stores in the third quarter of 2018 and cancelled 24 stores. The Company’s total domestic store count was 4,449 for the third quarter of 2018 which was an increase of 83 stores from the third quarter of 2017.  On a worldwide basis, Ace added 75 stores in the third quarter of 2018 and cancelled 26, bringing the worldwide store count to 5,210 at the end of the third quarter of 2018.

Gross Profit

Wholesale gross profit for the three months ended September 29, 2018 was $167.2 million, a decrease of $1.2 million from the third quarter of 2017.  This decrease was despite the 5.0 percent increase in wholesale revenues, as the wholesale gross margin percentage was 12.5 percent of wholesale revenues in the third quarter of 2018, down from 13.2 percent in the third quarter of 2017.  The decrease in the wholesale gross margin percentage was primarily the result of higher receiving costs due to lower Retail Support Center (“RSC”) productivity as well as unfavorable inventory reserve adjustments and LIFO expense.  The decrease in RSC productivity is the result of an expanded product assortment, higher inventory and increased employee turnover.