With initiatives swirling, Ace Hardware posts declines

With multiple initiatives in play -- including a plan to create a subsidiary to run its international division -- Ace Hardware Corp. posted declines in sales and earnings for the third quarter of 2010.

The Oak Brook, Ill.-based co-op said the strongest selling categories were tools, plumbing, housewares, and lawn and garden.

Ace Hardware Corp. reported total revenues of $824.9 million for the third quarter of 2010, a decline of 0.9% from $832.6 million in 2009. Net income for the co-op was $13.9 million, a decline of 48%, compared with $26.7 million in the third quarter of 2009.

“While our year-to-date results are down significantly as compared with last year, most of which was planned, we are optimistic about our ability to meet our full-year plan,” said Ray Griffith, Ace president and CEO. “We remain encouraged by our various retail initiatives including Craftsman and Benjamin Moore, which will provide our retailers opportunities to grow their businesses. In addition, we are excited about our recent announcement to restructure our international division, as we believe there are tremendous opportunities to enhance and grow the Ace brand outside the United States, especially with some of our existing retailers.”

Ace announced in September that it will restructure its international division and operations into a new corporation with its own board of directors and management team, as opposed to a division within the Ace cooperative structure, effective at the beginning of 2011. This new entity will be a majority-owned subsidiary of Ace Hardware Corp., with a minority interest owned by its international retailers. Existing international retailers will no longer own shares of stock in Ace Hardware Corp. or receive patronage distributions. They will also have the opportunity to contribute additional equity capital to the new entity. This restructuring will not have a material impact on patronage distributions for Ace’s domestic members, according to the co-op.

Merchandise sales to comparable domestic stores in the third quarter of 2010 increased slightly by $400,000 as compared with the prior year. Merchandise sales to new domestic stores activated in the 2009 and 2010 fiscal year periods contributed $10.4 million in incremental sales in the current year third quarter, while merchandise revenues decreased $11.9 million due to canceled stores.

Ace added 43 new stores and canceled 41 stores in the third quarter. This brought the company’s total store count to 4,461 at the end of the third quarter in 2010. 

Merchandise sales from Ace’s international business increased $2.5 million, or 5.7%, in the third quarter of 2010 as compared with the prior-year quarter, primarily due to stronger sales to retailers in Central and South America, the Middle East and Asia.

Operating expenses increased 11.4% to $84.9 million in the third quarter of 2010 as compared with 2009. The increase in operating expenses reflects higher selling, general and administrative expenses of $9.9 million, primarily due to higher expenses related to the implementation of the company’s Business Transformation Project of $3.8 million, higher bad debt expenses of $2.3 million primarily due to the recognition of a favorable adjustment in the prior year, and higher health insurance expenses of $1.8 million.

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