A message from the President & CEO

John Venhuizen, President & CEO

Dear Ace Shareholders,

After two consecutive years of stunning growth, operating results generated yet another year of record revenue and profit. We anticipated 2022 to be a challenging year driven by rampant inflation and rising interest rates. As it turned out, financial results, subject to all appropriate caveats implicit in an unusual year, exceeded our expectations with consolidated net income increasing 3.2% to $341 million and shareholder dividends rising 10% to $345 million.

While these are both record figures, we believe pre-tax return on equity (ROE) is a superior measurement of financial performance and stewardship. At 39.2%, pre-tax ROE declined from last year’s 42.7%, but still represents a remarkable return, well above our historical average and significantly outpacing the S&P 500 company return by a wide margin.

Financial Performance

We achieved more than a few financial records in 2022. Revenue eclipsed $9 billion for the first time in Ace’s history, and we achieved best-ever performance in revenue, net income, patronage distributions and contributions to the Ace Foundation.

Our strong performance on the income statement did not come at the expense of investments in our future. We agree with Peter Drucker’s principle that a primary imperative for management is to prudently risk today’s assets to wisely secure tomorrow’s future. As evidence of that, our capital investments in 2022 exceeded that of the previous three years combined, all while decreasing external debt and increasing shareholder equity to $892 million. Our plan is to do more of the same in 2023 by making significant investments to (i) expand our distribution capacity (ii) strengthen our supply chain (iii) expand our footprint (iv) improve the retail store model and (v) to further accelerate and enhance our digital ecosystem.

Our Primary Business Units

Ace Hardware domestic increased revenue by 7.7% and net income by 9.0%. The primary drivers of this growth, inflation notwithstanding, were new stores, same-store sales increases and a double-digit rise in our digital business. While same-store transactions declined, same-store sales, total transactions and total retail sales increased to $23.1 billion, making Ace the 5th largest franchise in the world, and, according to Entrepreneur Magazine, the 7th best.

Additional highlights include:

Ace Retail Holdings had a solid year. You own, and we operate, 216 stores. Those stores generated total revenue of $787 million, an increase of 1.3%. Operating income, before management fees we inflict upon this business, declined 7.4% to $63.8 million. Westlake and Great Lakes Ace remain a strategic pillar in our quest to be the best, most helpful hardware stores in every neighborhood and we’re proud of the team’s 8% EBIT business.

Emery Jensen Distribution (EJD) delivered a very impressive year. Total revenue increased 12.3% to $479 million. Operating income before the management fees we also inflict upon this business, and a one-time warehouse charge, increased 29% to $8.9 million. The EJD team continues to increase our significance to suppliers, drive greater cost-of-goods sold advantage for the enterprise and enlarge the dividend distribution to shareholders.

Ace International Holdings had a challenging year. It was frustrating in the sense that the team delivered revenue in excess of plan in all regions except one. Unfortunately, that one is massive. Our business in Saudi Arabia was down 56% and the driver of our 17.9% sales decline to $224 million. Despite a $3.9 million loss for the year, I remain sincerely enthusiastic about our international opportunity.

While our Ace Hardware Services business has yet to reach the scale to be deemed a "primary" business for the company, it is strategically significant to our future, handsomely growing and wonderfully profitable thus far. Total revenue increased 87% to $16.7 million. On a cash basis, the Handyman operating company is throwing off EBIT of 15%, while the franchise business is at 13.4% of revenue and our new plumbing business enjoyed EBIT of 15%. Our intention is to continue to invest in our services business in an effort to (i) secure more purchase from the pro (ii) enhance the reputation of the Ace brand and (iii) 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 $72 million.

Our Mission & Purpose

Our compounded annual growth (CAGR) over the last 10 years is 9.2%, and our net income CAGR is 15.5%. These are impressive financial figures in which you should take great pride. They may, however, pale in comparison to the long litany of additional benefits the Ace enterprise has delivered. In just 10 years, you – the Ace team – have (i) created over 22,000 jobs (ii) increased retail sales by $12 billion (iii) paid taxes to local, state and federal authorities in excess of $2.4 billion (iv) employed over 105,000 people and (v) contributed north of $157 million to charities that make your heart race!

Ace is an incredible force for good in this world! And we’ve yet to reach the zenith of our potential. We exist to help others and that purpose never gets old or devoid of opportunity.

Thanks for making Ace a special place. I know I speak for all the corporate team when I say that we love fueling the aspirations of, and advocating the benefits for, entrepreneurial owners around the globe.

John Venhuizen
President & CEO