Message To Shareholders

    Message to Shareholders: John Venhuizen

    A message from the President & CEO

    Dear Ace Shareholders,

    For only the third time in Ace’s history, our sales did not grow in 2023. We experienced a decline in revenue of a mere 0.4%, or $38 million. I believe that healthy things grow. Whether it’s a baby, a begonia, or a business – if it’s healthy, it ought to be growing. So, I don’t take a decline lightly, but context is king; allow me to provide two numbers that contextualize the decline. The evil cyber-attack that was perpetuated upon Ace cost us $40 million in revenue, and the mild winter weather hurt sales of winter goods by $70 million. If this sounds like a bit of an excuse for a sales decline – I confess; guilty as charged.

    Despite this, I’m pleased to announce record operating income, record shareholder dividend distributions, and record contributions to the Ace Foundation!

    Operating income increased 5.6% to $361 million, contributions to the Ace Foundation increased 3.5% to $23.6 million, and shareholder patronage dividends increased 3.5% to $356.5 million for a return on the equity you have in Ace of 38.7%.

    Over the last 12 years, we have delivered over $2.4 billion to shareholders and $161 million to the Ace Foundation, and these charitable contributions do not account for the millions of dollars and countless acts of sacrificial service that you have made to a host of other charities that make your heart race.

    Our Primary Business Units

    Ace Hardware domestic experienced a 1.5% sales decline at the corporate level but a $143 million increase at the retail level to reach system-wide retail revenue of $23.3 billion, making Ace the 5th largest franchise in the world and, according to Entrepreneur Magazine, the 5th best.

    Additional highlights include:

    • Named #6 "Most Trustworthy Company" in America and #1 in category by Newsweek
    • We opened 222 stores globally and 203 domestically, which brings our worldwide store count to 5,870
    • Traffic to Acehardware.com increased 27% to 298 million, revenue increased 10%, and omni-revenue exceeded $1.3 billion
    • Our B2B business, the Supply Place, grew 6% for Ace stores in the hardware format
    • Fill rates improved 1,400 basis points, RSC turnover decreased 800 basis points, on-time delivery was 95.3%, and Ace retailers enjoyed 6 months of product cost deflation in the face of rising CPI
    • While same customer transactions continue to be a battle, and same-store sales for the hardware format were down 0.6%, we have three other impressive "streaks" worth mentioning:
      • 12 years in a row of new domestic store growth
      • 16 years in a row of increased average transaction size
      • 16 out of 17 years as Highest in Customer Satisfaction, according to J.D. Power

    Ace Retail Holdings had revenue of $786 million, a decline of 0.1%. EBITDA, before one-time new store pre-opening expenses and the management fees we inflict upon ARH, was $64.4 million, or 8% of sales. At year end, you own and we operated 227 stores, an increase of 12 vs. prior year.

    Emery Jensen Distribution lagged a bit on the top line but delivered strongly on the bottom line. Revenue of $458 million was a decline of 4.2%, but operating income of $9.2 million was a 68% increase from last year. This business continues to increase our significance with suppliers and meaningfully escalate our dividend distributions to shareholders.

    Ace International Holdings had a challenging year. Revenue of $216 million was a decline of 3.4%, all of which was once again driven by our burdened customer in Saudi Arabia. Sans one-time expenses and our investments in Mexico, EBITDA nearly hit $2 million, but "all in," we lost a bit over $9 million for the year.

    2023 was the year in which we put some significant meat on the bone of our big vision to be the best most helpful hardware stores on the planet – and – the best, most trusted provider of home preservation services. Our acquisition of Unique Indoor Comfort Holdings propelled Ace Hardware Home Services to $126 million in revenue, an increase of 652%. Excluding one-time expenses associated with the transaction, EBITDA for our service business was $9.1 million.

    Our intention is to continue to invest in our services business to (i) secure more purchases from the pro (ii) enhance the reputation of the Ace brand (iii) make our business model more lucrative and "sticky" and (iv) offer an attractive alternative path to prosperity to many for whom college is not the ideal path.

    Shareholders may rightfully ask, "what’s in it for me?" Our answer would be: In addition to the strategic and scale benefits, the operating results from these subsidiary businesses generated income that increased our patronage dividend by over $80 million.

    Hope-Filled & Purpose-Driven

    Apart from spiritual influence and faith-based initiatives, I believe capitalism in general and small business entrepreneurialism in particular to be the greatest force for good the world has ever seen. Around the globe, entrepreneurs like you have (i) created more jobs (ii) generated more wealth (iii) paid more taxes (iv) produced more self-esteem and (v) lifted more poor people out of poverty than any force on the planet. We love celebrating and fueling your significant influence for good.

    We aren’t in the hardware business; we are blessed to be in the business of serving others. We aren’t a player in the hardware industry; we’re the hope of the hardware industry. We don’t exist to mark time; we exist to serve others. We gain by giving, we succeed by serving, we win by helping others. Our work is hope-filled and purpose-driven.

    Helpful is our weapon in the world. Thanks for wielding it with such conviction.

    Lastly, I want to extend a sincere word of heartfelt gratitude to Brett Stephenson who, because of term limits, must step down as Chairman of the Board in May. Brett’s leadership, wisdom, and support have made Ace a better place and me a better leader.

    John Venhuizen
    President & CEO

    2023 At-A-Glance
    Total
    Revenue
    (Billions)
    Patronage
    Dividends
    (Millions)
    Ace Foundation
    Contributions
    (Millions)
    2017
    2018
    2019
    2020
    2021
    2022
    2023
    Board of Directors
    Brett Stephenson Brett Stephenson
    Chairman
    Steven Burggraf Steven Burggraf
    Kristen A. Grunder Kristin A. Grunder
    Karen J. May Karen J. May
    Matthew V. Mazzone Matthew V. Mazzone
    David C. Barker David C. Barker
    Mark S. Driscoll Mark S. Driscoll
    Kirsten A. Pellicer Kirsten A. Pellicer
    Eric W. Lauterbach Eric W. Lauterbach
    message from the chairman