True Value 2008 Annual Report Download - page 26

management’s discussion and analysis
of financial condition and results of operation
2008 FINAN CIA L REP OR T :: 5
RESULTS OF OPERATIONS FOR 2007
COMPARED TO 2006
Net Revenue
A reconciliation of Net revenue between 2007 and 2006 follows:
% of
Net 2006 Net
($ in thousands) Revenue Revenue
2006 Results $2,049,976 100.0%
Comp Store Sales:
Warehouse revenue 56,954 2.8%
Vendor-direct revenue (20,890) (1.0%)
Paint manufacturing revenue (16,419) (0.8%)
Net Comp Store Sales 19,645 1.0%
Change in participating members:
Terminated members:
Warehouse revenue (34,627) (1.7%)
Vendor-direct revenue (12,836) (0.6%)
Paint manufacturing revenue (2,622) (0.1%)
Net terminated members (50,085) (2.4%)
New members:
Warehouse revenue 17,280 0.8%
Vendor-direct revenue 8,657 0.4%
Paint manufacturing revenue 493 0.0%
Net new members 26,430 1.2%
Net change in participating members (23,655) (1.2%)
Other revenue (5,364) (0.3%)
Total change (9,374) (0.5%)
2007 Results $2,040,602 99.5%
Net revenue for the year ended December 29, 2007 totaled
$2,040,602, a decline of $9,374, or 0.5%, compared to the prior
year. The reduction in net revenue was predominately due to
the continued erosion of sales in the change in participating
members’ category. Net revenue also decreased in the other
revenue category as a result of higher new assortment incentives
and free freight on certain product shipments. These declines
were partially offset by increased Comp Store Sales that were
favorably impacted by sales growth in products sold through True
Value’s distribution network, particularly in the seasonal and lawn
& garden products categories.
$ Gross
Margin
Gross margin 2007 2006 Increase
For the Year Ended $235,117 $232,611 $2,506
Percent to Net Revenue 11.5% 11.3%
Gross margin for the year ended December 29, 2007, increased
by $2,506, or 1.1%, over the prior year. The increase in gross
margin was driven by Comp Store Sales growth in products sold
through True Value’s distribution network and improved returns
on liquidated sales of excess inventory. Partially offsetting these
gross margin increases were the continued erosion of warehouse
sales from the change in participating members, the impact from
new business model policy changes announced at the 2006 fall
market and higher freight-in expense due to increased importing.
The business policy changes, which reduced the members’ cost
of doing business with True Value, include full credit on Policy
A returned goods, free freight on promotional orders placed in
the early order windows and co-op reimbursement for True Value
produced circulars.
Logistics and $ Expense
manufacturing expenses 2007 2006 Increase
For the Year Ended $60,218 $58,805 $1,413
Percent to Net Revenue 3.0% 2.9%
Logistics and manufacturing expenses increased by $1,413, or
2.4%, as compared to the prior year. The increase in expense was
primarily due to increased labor expense resulting from higher
volumes sold through True Value’s distribution network and
additional facility lease expense, partially offset by the retirement
benefit expense savings realized in 2007 from True Value freezing
its two noncontributory defined benefit retirement plans for its
nonunion participants in 2006.
Selling, general and $ Expense
administrative expenses 2007 2006 Increase
For the Year Ended $100,560 $94,527 $6,033
Percent to Net Revenue 4.9% 4.6%
SG&A expenses increased by $6,033, or 6.4%, as compared to the
prior year. SG&A expenses increased primarily due to increased
labor expense of $4,858 and expenses related to developing and
marketing the DTV model store of $2,849. Partially offsetting these
increases were lower outside legal services of $945. The increase
in labor expense was mainly due to the 2006 curtailment gain
that resulted from True Value freezing its two noncontributory
defined benefit retirement plans for its nonunion participants that
did not reoccur in 2007 and higher salaries and wages partially
($ in thousands)