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ACE HARDWARE REPORTS THIRD QUARTER 2023 RESULTS

Record third quarter revenues of $2.3 billion, an increase of 2.5 percent from last year
Record third quarter net income of $130.0 million, an increase of 29.2 percent from last year
Accrued patronage dividend to shareholders of $338.2 million, a decrease of 1.7 percent from the first nine months of 2022
Ace ranked fifth largest U.S. based franchise system by Franchise Times
Ace named Top 10 Workplace in Chicagoland for the sixth time by Chicago Tribune
OAK BROOK, Ill. -- Ace Hardware Corporation ("Ace" or the "Company") today reported record third quarter 2023 revenues of $2.3 billion, an increase of $55.8 million, or 2.5 percent, from the third quarter of 2022. Net income was $130.0 million for the third quarter of 2023, an increase of $29.4 million from the third quarter of 2022.

"It's quite the privilege to once again announce record revenue and record earnings for the quarter," said John Venhuizen, President & CEO. "Nearly 24% growth in our digital business is a testament to the efficacy of the Ace team and the degree to which our local retailers have integrated our digital and physical assets as 90% of the business is either picked up in store, or, delivered to the customer by our retail associates."

The approximately 3,700 Ace retailers who share daily retail sales data reported a 0.7 percent decrease in U.S. retail same-store-sales during the third quarter of 2023, which was the result of a 0.5 percent decrease in average ticket and a 0.2 percent decrease in same-store transactions. Removing the deflationary impact of lumber stores, U.S. retail same-store-sales were up 0.6 percent in the third quarter of 2023.

Revenues

Consolidated revenues for the quarter ended September 30, 2023 totaled $2.3 billion. Total wholesale revenues were $2.1 billion, an increase of $54.3 million, or 2.7 percent, as compared to the prior year third quarter. Increases were seen across a majority of departments with outdoor power equipment, power tools and lawn and garden showing the largest gains. New stores are defined as stores that were activated from January 2022 through September 2023. The Company had an increase in wholesale merchandise revenues from new domestic stores of $55.5 million during the third quarter of 2023, while wholesale merchandise revenues decreased $7.9 million during the third quarter due to domestic stores whose memberships were cancelled. Wholesale merchandise revenues to comparable domestic stores decreased $43.0 million for the quarter. The Company's Ace International Holdings, Ltd. subsidiary experienced a $1.9 million decrease in wholesale revenue versus the third quarter of 2022, while Ace Wholesale Holdings LLC reported a $0.8 million decrease in wholesale revenues from the third quarter of 2022. The Company's Ace Services Holdings LLC subsidiary, which is reported as part of the Company's wholesale business, experienced a $41.9 million increase in wholesale revenues from the third quarter of 2022. This is primarily due to the acquisition of Unique Indoor Comfort Holdings, LLC ("UICH") during the second quarter of 2023, which contributed $39.7 million of incremental revenues.

Total retail revenues for the quarter were $194.9 million, an increase of $1.5 million, or 0.8 percent, as compared to the prior year third quarter. Ace Retail Holdings LLC ("ARH") revenues increased $2.8 million, or 1.5 percent, from the third quarter of 2022. This increase was driven by new stores added by the Westlake Ace Hardware ("Westlake") and the Great Lakes Ace Hardware ("GLA") chains since the end of the second quarter of 2022, which contributed $5.7 million of incremental revenues. Westlake experienced a 1.0 percent decrease in same-store-sales, while GLA experienced a 0.4 percent decrease in same-store-sales in the quarter. Westlake and GLA together operated 233 stores at the end of the third quarter of 2023 compared to 216 stores at the end of the third quarter of 2022.

Ace added 36 new domestic stores in the third quarter of 2023 and cancelled 17 stores. The Company's total domestic store count was 4,943 at the end of the third quarter of 2023, which was an increase of 102 stores from the third quarter of 2022. On a worldwide basis, Ace added 38 stores in the third quarter of 2023 and cancelled 21, bringing the worldwide store count to 5,828 at the end of the third quarter of 2023.

Gross Profit

Wholesale gross profit for the three months ended September 30, 2023 was $318.9 million, an increase of $46.4 million from the third quarter of 2022. The wholesale gross margin percentage was 15.2 percent of wholesale revenues in the third quarter of 2023, up from 13.4 percent in the third quarter of 2022. The increase in wholesale gross margin percentage was primarily due to a reversal in LIFO from an expense in 2022 when vendor prices were rising, to LIFO income in the third quarter of 2023 as certain vendor prices declined.

Retail gross profit for the three months ended September 30, 2023 was $89.8 million, an increase of $1.7 million from the third quarter of 2022. The retail gross margin percentage was 46.1 percent of retail revenues in the third quarter of 2023, up from 45.6 percent in the third quarter of 2022. The increase in retail gross margin percentage was primarily due to vendor funds earned related to new store openings. For ARH, retail gross profit is based on the Company's wholesale acquisition cost of product, not ARH's acquisition cost which includes a markup from the Company.

Expenses and Other

Wholesale operating expenses increased $14.2 million, or 7.8 percent, from the third quarter of 2022. The increase is primarily due to the acquisition of UICH during the second quarter of 2023, which added $17.1 million of incremental operating expenses in the third quarter of 2023; partially offset by lower compensation benefit expense. Wholesale operating expenses as a percent of wholesale revenues increased to 9.4 percent in the third quarter of 2023 from 9.0 percent in the third quarter of 2022.

Retail operating expenses increased $0.5 million, or 0.7 percent, from the third quarter of 2022. Retail operating expenses as a percent of retail revenue was unchanged at 36.0 percent in both the third quarter of 2023 and 2022.

Interest expense increased $4.8 million from the third quarter of 2022 due to higher interest rates and increased borrowings, resulting from the acquisition of UICH.

Balance Sheet and Cash Flow

Receivables increased $18.1 million from the third quarter of 2022 driven by an increase in notes receivable from Ace Retailers due in future years.

Inventories decreased $135.3 million from the third quarter of 2022 primarily as a result of efforts to reduce overstock inventory. The change in the LIFO reserve also contributed to the decrease.

Long-term debt, including current maturities, increased $156.5 million versus the third quarter of 2022. At the end of the third quarter of 2023, long-term debt consisted of $343.9 million outstanding on the revolving credit facility, $13.8 million outstanding on the Westlake credit facility, and $47.7 million owed to former retailers.

About Ace Hardware

Ace Hardware is the largest retailer-owned hardware cooperative in the world with over 5,800 locally owned and operated hardware stores in approximately 60 countries. Headquartered in Oak Brook, Ill., Ace and its subsidiaries operate an expansive network of distribution centers in the U.S. and have distribution capabilities in Ningbo, China; and Cuautitlán Izcalli, Mexico. Since 1924, Ace has become a part of local communities around the world and known as the place with the helpful hardware folks. For more information, visit acehardware.com or newsroom.acehardware.com.

In 2023, Ace ranked "Highest in Customer Satisfaction with Home Improvement Retail Stores" according to J.D. Power, sixteen out of the last seventeen years.

SOURCE Ace Hardware Corporation