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Ace focuses on growth as accounting questions linger

BY HBSDEALER Staff

Denver As an estimated 7,500 Ace Hardware store owners, managers and employees gathered in Denver for the company’s 2007 Ace Fall Convention & Exhibits. Ace CEO and president Ray Griffith, as well as other executives, pointed to a focus on growth and continued to describe the company’s accounting problem as a manageable challenge.

The accounting issue — the co-op reported a $154 million discrepancy in its books earlier in September — figured prominently in meetings with retailers and vendors during the market’s events on Thursday. Still, management stressed that the co-op is moving ahead with business and focusing on growth under the directions of its board.

Addressing vendors and other market guests on Thursday, Griffith was upbeat. “Operationally, we are rock solid,” he said. “Our business is sound, our brand is sound and our retailers are sound across the country. And we can handle this. I’d rather not have to handle it, but we can handle it.”

Several retailers who spoke anonymously with Home Channel News, however, complained that there remained a lot of unanswered questions regarding how the $154 million discrepancy is going to affect them.

After attending a closed-to-the-press “Town Hall Meeting,” one retailer told HCN: “You learn some tidbits but not a lot more,” and he described the meeting as a “gripe session.” Another attendee suggested: “I don’t think they know enough to really give good answers.”

The accounting error was described as a $154 million difference between the general ledger and the perpetual inventory, or the actual inventories in the company’s retail support centers. Experts are continuing to study the issue, and Griffith suggested that as transit inventories are reconciled, “the difference will go down.”

As evidence of Ace’s stability in spite of the challenge, Griffith told vendors that since Sept. 5 when the accounting error was announced, he is aware of only two retailers who are considering leaving the co-op. “That’s an indication of the strength of this organization and the strength of this brand,” he said.

As questions about the accounting issue lingered, there were clear signs Thursday that many retailers were focused on the business of growing their business. While the four concurrent regional town hall meetings were taking place in rooms in the lower levels of the Colorado Convention Center, retailers mixed with vendors Thursday on the main hall above, where lawn and garden exhibits opened on Thursday.

There was also a steady flow of retailers through the new product area, where dealers scouted out the new merchandise available through the Ace support centers. The products ranged from Culligan home water filters to Fortress Products knit caps to heart-shaped Jelly Belly lollipops.

Lori Bossmann, vp-merchandising, advertising and marketing, explained that Ace’s merchandising team continues to hammer its three key objectives: increase traffic, enhance productivity and maximize return. She described a new weather trend service from Wayne, Pa.-based Planalytics that the co-op believes will lead to more lucrative assortments in what is anticipated to be a colder, wetter winter.

Griffith said he’s focused on business, despite the distraction of the accounting issue. He guaranteed to vendors that there will be no problems getting paid, and he said he instructed accounts payable “to err in the favor of the vendor, and process the check.”

The company’s labor optimization program — optional for its retailer dealers — is an example of focusing on growth, he stressed.

“We are not coming to a standstill,” he said. “We are charging forward.”

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Pro-Build purchases Alpine Lumber Supply

BY HBSDEALER Staff

Pro-Build Holdings has announced the purchase of Alpine Lumber Supply, a pro dealer serving the Coeur d’Alene, Idaho, market from two locations, in Sandpoint and Post Falls. The terms of the deal have not been disclosed.

Founded in 1978, Alpine Lumber is a full-service lumberyard known for specialty wood products as well as decking, fencing, and siding. It operates a kitchen design center and millwork showroom. The company also installs windows, doors, stairways, tub and shower enclosures, mirrors, and closet systems.

Alpine Lumber will join Pro-Build’s existing operations in Coeur d’Alene and Spokane. “The addition of these teams will allow us to enhance our reach into the northern Idaho market as well as expand our installed services offerings,” said David Dittmer, president of the Pro-Build West region.

The largest pro dealer in the United States, Denver-based Pro-Build operates more than 520 locations in 40 states. Sales in 2006 were $5.1 billion.

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KB Home records $35.6 million in losses

BY HBSDEALER Staff

Los Angeles-based KB Home was hit with a tough third quarter, showing $35.6 million in net losses compared with earnings of $153 million in last year’s second quarter.

Sales dropped 32 percent to $1.54 billion from $2.28 billion in the year-ago period.

“Our third-quarter results reflect the seriously challenging market conditions that prevail for homebuilders across most of the nation,” said Jeffrey Mezger, president and CEO. Mezger said a combination of tough factors has made selling homes much more difficult — including an oversupply of unsold homes and resale homes, “downward pressure’” on home values, tightened lending standards, high foreclosure rates and greater buyer caution.

The company incurred $690.1 million in charges related to inventory and joint venture impairments and the abandonment of land option contracts.

“Despite the disappointing third-quarter loss, we are making steady progress on strengthening our balance sheet and aligning our operations and investment strategy with current market conditions and our longer-term expectations for the business,” Mezger said.

KB Home is one of country’s largest homebuilders, with operating divisions in 15 states.

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