True Value 2009 Annual Report Download - page 18

Management’s Discussion and Analysis
of Financial Condition and Results of Operation
2009 Financial Report 3
RESULTS OF OPERATIONS FOR 2009
COMPARED TO 2008
NET REVENUE
A reconciliation of Net revenue between 2009 and 2008 follows:
% of
Net 2008 Net
($ in thousands) Revenue Revenue
2008 Results $2,012,658 100.0%
Comp Store Sales:
Warehouse revenue (66,655) (3.3%)
Vendor-direct revenue (62,123) (3.1%)
Paint manufacturing revenue (2,891) (0.1%)
Net Comp Store Sales (131,669) (6.5%)
Change in participating members:
Terminated members:
Warehouse revenue (45,235) (2.2%)
Vendor-direct revenue (19,760) (1.0%)
Paint manufacturing revenue (2,311) (0.1%)
Net terminated members (67,306) (3.3%)
New members:
Warehouse revenue 14,925 0.7%
Vendor-direct revenue 2,562 0.1%
Paint manufacturing revenue 349 0.0%
Net new members 17,836 0.8%
Net change in participating members (49,470) (2.5%)
Advertising, transportation and
other revenue (8,194) (0.4%)
Total change (189,333) (9.4%)
2009 Results $1,823,325 90.6%
Net revenue for the year ended January 2, 2010 totaled $1,823,325,
a decline of $189,333, or 9.4%, compared to last year. Net reve-
nue declined $168,333, or 8.5%, after excluding the 53rd week of
revenue included in True Value’s 2008 fiscal year of approximately
$21,000 that was not included in fiscal year 2009. All merchan-
dising departments experienced notable decreases with the
exception of the lawn and garden, and seasonal departments
which experienced nominal decreases compared to the other
departments. The reduction in net revenue was predominately
in the Comp Store Sales category of $131,669, or 6.5%. Man-
agement attributes this decline to the economic recession and
the 53rd week of revenue that was included in True Value’s 2008
fiscal year and not in fiscal year 2009. The economic recession
had a compounding negative impact on True Value’s Comp
Store Sales: first, True Value members lowered their product
purchases due to lower spending by the average consumer, and
contractors who were impacted by the declining housing and
home improvement industry. Second, True Value members also
lowered their product purchases as they conserved their cash flow
by bringing down inventory levels in order to preserve cash dur-
ing the economic recession. This is supported by the members’
comparable store sales at retail, reported from approximately
1,500 True Value core hardware members, being down 2.8% on
True Value-related SKUs compared to True Value’s Comp Store
Sales to all core hardware members being down 5.4%.
Revenue was also lower in the change in participating members’
category by $49,470. Sales to terminated members declined
$67,306, or 3.3%, while sales to new members increased $17,836,
or 0.8%. True Value’s revenue from the net change in partici-
pating stores was unfavorable primarily due to the continued
erosion of existing members and a slow down in new 2009 store
openings. The 2009 store openings were primarily driven by new
store openings in the new DTV store format from current mem-
bers. Management attributes this overall slow down of new store
openings to the economic recession and its related impact on the
credit market as a number of True Value’s existing and prospective
members were unsuccessful or delayed in obtaining financing.
Management anticipates the store openings postponed in 2009
due to a delay in financing will transpire in the future.
The advertising, transportation and other revenue category was
also unfavorable by $8,194 predominately due to lower transpor-
tation revenue resulting from a lower volume of product shipped
from True Value’s distribution facilities to the members.
$ Gross
Margin
Gross margin 2009 2008 (Decrease)
For the Year Ended $219,813 $227,279 $(7,466)
Percent to Net Revenue 12.1% 11.3%
Gross margin for the year ended January 2, 2010, decreased by
$7,466, or 3.3%, over the prior year. Gross margin was negatively
impacted by $21,195 due to the lower sales volume. This margin
decline was mitigated as approximately 47.0% of the total net
product sales decline was in low margin direct ship sales which
is not in proportion to True Value’s historical sales mix. In addi-
tion, the combined lower product sales volume to the members
drove lower product purchases by True Value which resulted in
unfavorable rebates and discounts of $9,021.
($ in thousands)