DISTRIBUTORS/CO-OPS

Highlights from True Value’s 2017 Financials

BY HBSDealer Staff

True Value Company posted its 2017 Financial Report, showing a slight sales decline during the company’s last full year as a co-op. The co-op’s net margin increased to $24.8 million, compared to $23.7 million in 2016.

Last month, True Value finalized the sale of 70% the company to ACON investments. The move ushers in a new era for True Value, which ends its run as a member-owned co-op becoming instead a nationally branded wholesale distributor.

Here are some of the financial highlights from the company’s last year as a co-op.

Revenue: In 2017, revenue decreased 1.7% to $1.49 billion, compared to $1.51 billion in 2016.

Gross billings: Compared to the prior year, gross billings declined 0.9% to $2.055 billion in 2017. That slight decline followed six years of consecutive growth. Gross billings include warehouse revenue, vendor direct revenue and other fees before the reduction for vendor direct costs of revenue. The $2.05 billion figure marks “the company’s second highest level of sales in the past decade.”

Comparable store sales: With more than 1,700 stores reporting, retail comps grew 0.8% in 2017. Retail sales showed gains in eight of the company’s 12 U.S. regions. Gains were also recorded in six out of nine merchandise categories. Leading the way: hand and power tools.

Net margin: In 2017, net margin was $24.8 million, up from $23.7 million in the previous year. These figures include strategic plan investment expenses of $24.8 million in 2017, and $18.8 million in 2016.

Store count: The co-op finished the year with 4,311 stores, down from 4,392 stores at the end of 2016. During 2017, the company signed 59 new core hardware stores. An additional 27 U.S. retailers converted to True Value from other buying groups.

Sales to new stores increased by $29.6 million. However, lost revenue from terminated stores was $47.5 million.

In its financial report, True Value added: “Due to competitors capitalizing on sale rumors, the Company experienced a lower level of conversions from other buying groups to True Value in the second half of 2017.”

Patronage dividend: The co-op’s $23.6 million patronage dividend increased by about $500,000 over the dividend from 2016.

E-commerce: Sales were up 21%.

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Poll question: The impact of the co-op model

BY HBSDealer Staff

Independent hardware and building supply dealers come in all kinds of sizes and all kinds of business models. And in the last half century or so, the co-op business model has played a major role in the industry.

This week’s poll question examines the extent of the impact of the co-op on the independent dealer. HBSDealer asks: “How much credit should be given to the co-op business model for the success of the independent hardware and building supply dealer over the last half century?”

Take the survey on the right side of this page (or scroll down on your mobile advice.) HBSDealer also encourages your opinions via e-mail, send them to [email protected].

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True Value
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It’s a deal: True Value agrees to sale

BY Ken Clark

A special meeting of the True Value board of directors Friday morning announced the results of a proxy vote, and it wasn’t close. In management’s final tally, True Value members voted 85% to pass the deal, which will turn over 70% equity of True Value Company to ACON Investments. Current True Value members will keep 30% equity, as well as receive a $196 million cash payout.

The announcement Friday morning marked the culmination of a process that began March 15, when True Value announced its intention, with the unanimous support of True Value’s board of directors, to enter into the deal with the Washington, D.C.-based private equity company.

“We’re excited about the overwhelming, positive response that we got from our shareholders, they have been the decision makers in this process,” said John Hartmann, True Value CEO.

From the beginning, True Value management has promoted the transaction as a growth strategy. An opportunity, as Hartmann said in the March 15 announcement, “to unlock the substantial majority of their investment while accelerating the transformation of the company to better serve our customers.”

When the deal is finally signed and sealed, as is expected in the coming days, the following key provisions of the plan kick in:

  • ACON will acquire 70% of the company, with 30% equity retained by members
  • True Value members will receive $229 million in returns and credits. Of that, $196 million will be paid in cash.
  • True Value will cease to exist as a co-op and will begin to exist as a nationally branded wholesale distributor.

The vote was a landslide that overcame a vocal minority of True Value members who opposed the deal. Organized resistance to the proposal gravitated to the web page “Concerned True Value Members” on Facebook.

Asked about the criticism on that page, Hartmann pointed to the strong support of the plan reflected in the vote. “Everyone is entitled to their opinion, but what really matters is the vote. In the end everyone is a part of the True Value family, and this was not a 51-49 thing.” He added. “I don’t really care who voted [for or against]. My team and I need to continue to earn our members business every day.”

Despite the dramatic change in structure created by the vote, Hartmann says the dealer-distributor relationship will remain the same, with business as usual, for at least the near future. Any dealer currently using the brand can continue to use it. In the future, a minimum-purchase threshold will entitle dealers to use the True Value brand in the store and in local media, as well as participation in the True Value e-commerce ship to store program.

Hartmann added that True Value dealers have already discussed plans to use the release of the equity in the next couple of weeks to reinvest in their business, or happily make a bank deposit with their money, he said.

“We believe we’ve been responsive to our shareholders’ questions about all of these things,” he said. “We’re very excited about the future and about helping them to continue to grow.”

In a prepared statement, Aron Schwartz, managing partner of ACON said: “True Value is an iconic brand and one that we have long admired. We believe that independent hardware retailers are an essential part of our society, providing consumers and communities with unrivalled service and expertise. We share True Value’s passion for helping to ensure that the independent hardware retailer thrives for decades to come, even as times change and the competition gets tougher.”

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