Message to Shareholders: John Venhuizen
A message from the President & CEO
John Venhuizen, President & CEO
Dear Ace Shareholders,
Your company had what was arguably the most difficult, extraordinary and perhaps rewarding year in Ace’s storied history. I have always believed that we are blessed to be in the business of serving others. And now, after a year like 2020, I feel blessed to be an essential retailer with strong suppliers, an expansive supply chain and amazing people. Throughout this entire enterprise, and at every level, the Ace team withstood a massive surge in demand as consumers channeled a disproportionate share of their discretionary spending into their homes and gardens. I couldn’t be more impressed with Ace’s ferocity to protect our people, rigor to safeguard our customers and discipline to execute our strategy, which garnered a 24% increase in market share against the biggest Goliaths in the retail world.
2020 hastened the future of hardware retailing, and a large majority of you capitalized upon the economic opportunity it provided. However, the financial gains secured today are insignificant in comparison to the enhanced reputation engendered for tomorrow. No one will ever measure the greatness of a business by the money they made, but by the people they served. By means of either measuring rod, Ace stood tall in 2020.
The Numbers
Simply put, the financials for 2020 are remarkable. Consolidated revenue increased 27.9% to $7.8 billion. Consolidated net income increased 126% to $317 million. Patronage dividends to shareholders increased 61% to $293 million. All of these are records for the company and in aggregate generated an incredible 46% pre-tax return on the equity shareholders have in Ace.
And of course — true to form — the Ace team (customers, suppliers, retailers and corporate) once again used our success as a springboard to be significant in the communities we serve by contributing a record $18.7 million to Ace Foundation charities.
We grew substantially in nearly every way and invested aggressively with a bullish bent toward the future. And yet, we ended the year with only $178 million in debt — which includes $122 million in payments we owe to you through patronage refund certificates, a figure accountants force us to classify as "debt." Our strong balance sheet yielded the lowest debt-to-equity ratio I’ve ever seen in my history with Ace.
The Business Units
Ace Hardware Domestic (AHD) increased revenue by 30% and net income by 66%. These wonderful numbers were primarily driven by incredible performance at retail by incredibly talented and resilient retailers. Chief among a litany of stunning statistics are:
- Same-store sales increase of 25.9%. Pinnacle performers were up 29.1%.
- Same-store sales for Paint, Power and BBQ were up 31%, 51% and 60% respectively
- Acehardware.com revenue increased 272%
- 167 new domestic stores were opened with average sales of $181 per sq. ft.! Total store count at year-end reached 4,647 domestically and 5,463 globally.
- We continued to build on our 4 critical "streaks:"
7 out of 8 years in a row of increased same-store retail transactions
9 years in a row of net new domestic store growth
11 years in a row of increased same-store sales and gross profit growth
13 out of 14 years in a row as Highest in Customer Satisfaction among Home Improvement Retail Stores, according to J.D. Power - We hired over 3,800 people in our distribution centers, with a net peak of 1,300 more warehouse associates to better serve and support our owners
Ace Retail Holdings had an incredible year. Total revenue increased 53% to $713 million, while operating income jumped 794% to $69 million, or 9.6% of sales. Westlake Ace captured $561 million of the revenue with operating income at 9.5% of sales, while Great Lakes Ace secured revenue of $152 million and operating income at 10.7% of sales. Same-store sales increased 24.7% at Westlake and 33% at Great Lakes Ace (both exclude the 53rd week). These two chains remain both intensely strategic to our future and a forcing mechanism to permeate retail DNA into all that we do and develop.
Emery Jensen Distribution (EJD) staged perhaps the greatest comeback in wholesale distribution history with a $28 million, or 89%, improvement in operating income and 4% sales growth to achieve $407 million in revenue. EJD not only expands our skill, scale and cost-of-goods advantage in the hardline distribution space, it also delivered over $16 million to your patronage distribution.
Ace International Holdings was our only business unit that did not exceed expectations this year. The global pandemic wreaked havoc upon many of our large international Ace retailers. As a result, revenue declined 2.9% to $246 million and operating income dropped 116% to a loss of $885,000. Despite the unavoidable setback, international still contributed over $5.6 million to your patronage distribution.
Tucked within these four primary business units are The Grommet and Ace Handyman Services (AHS). AHS amazed me with their ability to convert the branding and marketing from Handyman Matters to Ace Handyman Services and rapidly expand our franchise locations during a global pandemic. This is a twenty-year-old business that entered the year with 115 locations and finished with 165, a strong testament to the power of the Ace brand! And, The Grommet was able to grow their retail revenue by 16% and improve their operating income by $12 million.
The Mission
On December 19, 1777, the Continental Army of the U.S. marched into Valley Forge fatigued, discouraged and on the brink of giving up. They were stuck there for six months with scarce provisions. Over two thousand soldiers died because of... a virus! Despite the challenges, Valley Forge is often called the birthplace of the American Army. Despite the difficulty, the single most noteworthy achievement of the Continental Army — and frankly, the only reason you’ve heard of Valley Forge — is that, despite the burdens, the Continental Army matured into a professional fighting force! The weary, fatigued troops emerged from their "lockdown" with a rejuvenated spirit.
In spite or — maybe — because of the duress of Valley Forge, this Army became a more cohesive, healthier, highly efficient fighting force! And that, my friends, is precisely what I see for Ace. We will emerge from COVID-19 with a rejuvenated spirit and as a more cohesive, healthier, highly efficient fighting force.
Sitting right in front of us is a once in a lifetime opportunity to fortify permanent step change, transformational growth that will benefit Ace for generations. Our mission is to dig our heels in, defend our service, convenience and quality turf, and further advance our determined, persistent march up the mountain. You were amazing last year. Now... it’s time to Give No Ground!
John Venhuizen
President & CEO
John Venhuizen, President & CEO
Revenue
(Billions)
Dividends
(Millions)
Contributions
(Millions)
Chairman