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Ace finds $154 million shortfall

BY HBSDEALER Staff

In a letter posted today on its member intranet, Ace Hardware announced that it overstated the company’s gross profit and net income going back several years, resulting in a $154 million discrepancy. The error could result “in a significant adjustment to the company’s financials,” the letter said, and eliminate the co-op’s profits and members’ patronage dividends for fiscal 2007.

As a result of the accounting error, CEO Ray Griffith said the co-op would not be pursuing a change in Ace’s corporate structure. The company had recently been in discussions to convert to a traditional for-profit corporation.

Ace staff uncovered the problem in mid-August while it was reviewing financial statements to bring them into compliance with Securities and Exchange Commission standards. A difference of $154 million was found between the general ledger and the perpetual inventory levels at Dec. 31, 2006.

After informing the board of directors, the organization then brought in Protiviti, an independent consulting firm, to delve into the exact cause and extent of the problems, which cover the 2002 to 2006 time period “and probably back before that.” The analysis is still underway and could take months to complete, the letter said.

Griffith stressed that there was no evidence of theft or missing money. He apologized to the members and said that processes have been put in place to prevent a future occurrence.

Acall to Ace Hardware from HCN seeking further comment was not immediately returned.

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Owens Corning completes siding business sale

BY HBSDEALER Staff

Owens Corning, the Toledo-based supplier and manufacturer of insulation and building materials, has completed the sale of its siding business to French building materials giant Saint-Gobain.

The $371 million sale included Owens Corning’s Norandex/Reynolds siding distribution business with 153 distribution sites in the United States and manufacturing facilities in London, Ontario; Joplin, Mo.; and Claremont, N.C.

“This sale is part of our ongoing strategy to focus on core businesses that bring value to our customers,” said Dave Brown, president and CEO. “This transaction enhances shareholder value by strengthening Owens Corning’s ability to generate consistent profitable growth across its portfolio of businesses.”

The transaction completes Owens Corning’s previously announced strategic review of its “Siding Solutions” business, the company said in a statement.

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Lowe’s, Home Depot look to new store formats

BY HBSDEALER Staff

Columbus, Ohio-based retail research firm Retail Forward held its annual home improvement industry conference on Aug. 30, outlining the predictions for the next five years at the nation’s two largest home improvement retailers.

Both retailers face challenges in the coming years, but those challenges differ, analysts said. While Home Depot must deal with aging stores and fewer expansion opportunities, Lowe’s will face new challenges in Canada.

First, speaking on Home Depot, economist and senior consultant Steve Spiwak said the nation’s largest retailer faced impending market saturation, and predicted the retailer would follow through on plans to diversify its store formats to continue expansion.

“Home Depot has its work cut out for it,” Spiwak said. On top of a weak housing market and major competitive pressures from Lowe’s, “it’s facing market saturation and an aging store base.”

For that reason, rather than continue strictly in the 100,000-square-foot and larger big-box format, the company could be considering smaller “25,000- to 50,000-” square-foot stores, “about the size of a neighborhood hardware store.”

Spiwak pointed to the company’s purchase of Yardbirds, which became Home Depot’s small-format offering in the San Francisco area. “Those basically were a way to get into the lucrative San Francisco bay area,” he said, but added the Yardbirds format could serve as a good “testing ground” for other areas of the country.

Although Lowe’s does not face the same markets saturation problems as Home Depot, nor the same issues with aging stores, it has expressed interest in further exploring smaller-format stores in coming years, said Nick McCoy, senior consultant with Retail Forward.

Lowe’s is looking at “smaller markets and in-fill markets with smaller stores — 80,000-square-foot stores that have done fairly well,” McCoy said, adding, “anything less than 80,000-square-feet will be too small. Don’t look for Lowe’s to be opening small hardware-type stores any time soon.”

The companies both have found ways of dealing with the housing slump, in part by focusing on “non-traditional events,” such as football tailgating and back-to-school sales.

“We expect, of course, that industry growth is slowing,” overall, McCoy said. “We expect it to be cut [roughly] in half over the next five years,” from 8.5 percent to 4.5 percent.

To read more about Retail Forward’s predictions for Home Depot and Lowe’s, read the Sept. 10 issue of Home Channel News. Click here to subscribe.

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