- Net income of $95.7 million, up 11.5 percent
- Adjusted EBITDA of $167.7 million, down 2.4 percent
- Revenues of $3.5 billion, down 10.4 percent
- Operating expenses decreased $20.1 million or 5.9 percent
Ace Hardware Corporation, the largest retailer-owned cooperative in the hardware industry, today reported net income of $95.7 million for the fiscal year ended January 2, 2010, an increase of $9.9 million or 11.5 percent, compared to $85.8 million for 2008. Fiscal 2009 consisted of 52 weeks compared with 53 weeks for fiscal 2008.
Ace reported adjusted EBITDA (earnings before interest, loss on early extinguishment of debt, taxes, and depreciation and amortization expenses), after excluding certain non-comparable items, of $167.7 million for fiscal 2009, a decrease of $4.1 million or 2.4 percent, compared to $171.8 million for 2008.
For the fourth quarter of 2009, net income was $12.4 million, a decrease of $2.8 million from 2008 and adjusted EBITDA was $32.3 million, a decrease of $2.3 million from 2008. Fourth quarter 2009 net income and adjusted EBITDA were lower compared to 2008 primarily due to the impact of reduced sales in the thirteen week period for fiscal 2009 as compared to the fourteen week period of fiscal 2008.
“While we are disappointed with our revenues for 2009, our overall performance was solid in what was a very challenging year,” said Ray Griffith, Ace president and chief executive officer. “We reduced operating expenses for a third consecutive year and strategically invested in our business to support the best hardware retailers in the industry.”
Total revenues for the fiscal year ended January 2, 2010 were $3.5 billion, a decrease of $399.8 million or 10.4 percent from $3.9 billion in 2008. For the fourth quarter of 2009, total revenues were $800.3 million, a decrease of $154.3 million or 16.2 percent as compared to 2008. Excluding the impact of the 53rd week in fiscal 2008, total revenues declined 9.5 percent and 12.6 percent in the full year and fourth quarter of 2009, respectively, as compared to 2008.
Excluding the impact of the 53rd week in fiscal 2008, merchandise sales to comparable stores for 2009 decreased $249.1 million primarily due to a soft economy. On a regional basis, domestic sales were most negatively impacted in California and Arizona, markets which have experienced some of the most severe declines in the overall U.S. housing market. On a category basis, domestic sales were most negatively impacted by declines in the electrical and tools categories. However, we experienced an increase in the lawn and garden category. Merchandise sales to new domestic stores activated in the 2008 and 2009 fiscal years contributed $54.2 million in incremental sales in the current year. Ace added 120 new stores and cancelled 210 stores in fiscal 2009. This brought the company’s total store count to 4,491 at the end of 2009.
Excluding the impact of the 53rd week in fiscal 2008, merchandise sales from Ace’s international business in 2009 decreased $33.4 million, or 16.8 percent, as compared to the prior year. On a regional basis, international sales were most negatively impacted by declines in the South America, Central America and Middle East regions due to a slow global economy.
Gross profit for the fiscal year ended January 2, 2010 was $447.6 million, a decrease of $16.8 million over 2008, but the gross profit percentage was 12.9 percent as compared to 12.0 percent in 2008. A significant portion of this increase was attributable to LIFO inventory deflationary benefits in 2009 as compared to an inflationary impact on LIFO expense in 2008. Additionally, higher vendor rebate recoveries and a shift in 2009 towards a higher percentage of warehouse sales that carry higher handling charges also had a positive impact. The increase in gross profit percentage resulting from these factors was partially offset by lower product margins on merchandise sales. Warehouse sales represented 77.8 percent of merchandise sales in 2009 as compared to 76.6 percent in 2008, while direct ship sales were 22.2 percent, down from 23.4 percent.
Operating expenses decreased $20.1 million, or 5.9 percent, to $319.8 million in fiscal 2009 as compared to 2008. The decrease in operating expenses reflects lower selling, general and administrative expenses of $10.9 million driven by lower nonrecurring expenses coupled with lower bad debt expense of $7.6 million partially offset by higher information technology expenses of $4.0 million related to the company’s supply chain initiative. In addition, retail success and development expenses decreased $8.6 million primarily due to the company’s cost control initiatives, which included lower field overhead expenses. Distribution operations expenses decreased $0.5 million as lower retail support center expenses of $8.0 million were partially offset by lower distribution costs capitalized into inventory of $7.4 million in 2009.
At January 2, 2010 and January 3, 2009, the company had cash and cash equivalents totaling $105.7 million and $80.3 million, respectively. Inventories decreased $21.5 million to $438.9 million at the end of fiscal 2009 as compared to 2008 reflecting lower sales volume. Service levels (fill rates) to Ace retailers were 96.7 percent for both 2009 and 2008, reflecting Ace’s ongoing commitment to support its retailers’ needs.
Trade accounts receivable decreased $33.9 million to $191.0 million at the end of fiscal 2009 primarily due to reduced sales in the fourth quarter of 2009. Accounts payable decreased $38.8 million reflecting lower inventory balances at year end.
Total debt including patronage refund certificates, net of cash, decreased $42.7 million to $248.0 million at the end of fiscal 2009 as compared to 2008. Capital expenditures for fiscal year ended January 2, 2010 were $57.6 million, an increase of $25.1 million over 2008 driven primarily by technology spending to support Ace’s supply chain initiative.
Ace continues to generate strong cash flow from operations. For the fiscal year ended January 2, 2010, the company generated $169.6 million of cash through its operations as compared to $151.8 million during 2008.
For more than 85 years, Ace Hardware has been known as the helpful hardware store by both customers and communities. In 2009, Ace ranked “Highest in Customer Satisfaction among Home Improvement Stores for the Third Consecutive Year,” according to J.D. Power and Associates. 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.
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