From Ray A. Griffith, President and CEO:
As you are aware, 2005 was my first year at the helm of Ace Hardware Corporation. I am grateful and humbled by the opportunity to lead this worldclass organization.
Thanks to all of our retailer stockholders for a great year and your attention to retail execution. You continue to move our brand further into prominence. I am especially proud of our recent ranking by Corporate Research International. This independent firm's survey of Real People Ratings "Best of 2005" ranks Ace Hardware number one in the home improvement category of providing customer service, beating out Home Depot, Lowe's, Menards, True Value and others. Congratulations, Ace retailers!
As you read this annual report, you will garner more information, but financially your company had a record-breaking year - a record total dividend return of $185.4 million in upfront and paid dividends to our retailers. Our domestic business increased 5.1 percent, while our international business surged 11.9 percent and continues to produce solid gains. As a result of a strong fourth quarter with sales up 9.9 percent, we finished the year with the largest sales increase for our company since 1998!
Our second year commitment to the Ace Growth Strategy continues to reflect progress with our Vision 21-achieving retailers leading all vital categories as indicated by a wholesale purchase increase of 11.5 percent and a comparable retail same store sales increase of nearly 4.0 percent. We have 3,600 stores representing 88 percent of our wholesale business committed to one of our two great homes at Ace - Vision 21 or Individually Branded Retailer. At retail, the initiatives around this strategy produce significant results, and we appreciate your continued participation.
This past year we took a fresh look to ensure that your company is committed to operating efficiently by adopting a "Good to Great" methodology and philosophy. We completed a "stop doing list", addressed the "brutal facts" and took $12.9 million out of our cost infrastructure. We are better positioned for 2006 and beyond because of this effort.
Our joint challenges are many, partially because we strive for continuous improvement, everyday, everywhere - as we should and as you do in your businesses. We lead the $55 billion convenience segment of the industry with proactive strategies. Our focus is on our end consumer and improving the retail store model, and we are committed to that end.
Going forward, we are focused on completing our Eagle Technology initiative. I expect 2006 to be a watershed year for EagleVision®. This technology platform is critical for our retail stores and our longer term integrated supply chain project.
New stores are also critical to our growth, and we will continue to be creative in soliciting new stores. We opened 131 quality new Ace stores in 2005. The number of branching out stores increased 16 percent in 2005, while new investors opening Ace stores were up 58 percent.
You can be very proud of your company, the brand and our past performance. Today, Ace ranks in the top 25 of all retail organizations and is the number one hardlines cooperative in America. We have the best entrepreneurial retailers in any business, anywhere. We are blessed with an extremely capable and dedicated officer team surrounded by managers and associates at all levels who are committed and are proud of their company, and we have an energetic and devoted Board of Directors
supporting all that we do.
I thank you for your business, your input and your continued support. We look forward to sharing even better results with you at the end of 2006.
Ray A. Griffith
President and CEO