True Value 2009 Annual Report Download - page 20

Management’s Discussion and Analysis
of Financial Condition and Results of Operation
2009 Financial Report 5
RESULTS OF OPERATIONS FOR 2008
COMPARED TO 2007
NET REVENUE
A reconciliation of Net revenue between 2008 and 2007 follows:
% of
Net 2007 Net
($ in thousands) Revenue Revenue
2007 Results $2,040,602 100.0%
Comp Store Sales:
Warehouse revenue (11,307) (0.6%)
Vendor-direct revenue (24,533) (1.2%)
Paint manufacturing revenue (4,156) (0.2%)
Net Comp Store Sales (39,996) (2.0%)
Change in participating members:
Terminated members:
Warehouse revenue (28,712) (1.4%)
Vendor-direct revenue (10,963) (0.5%)
Paint manufacturing revenue (2,059) (0.1%)
Net terminated members (41,734) (2.0%)
New members:
Warehouse revenue 25,416 1.2%
Vendor-direct revenue 16,838 0.8%
Paint manufacturing revenue 1,348 0.1%
Net new members 43,602 2.1%
Net change in participating members 1,868 0.1%
Advertising, transportation and
other revenue 10,184 0.5%
Total change (27,944) (1.4%)
2008 Results $2,012,658 98.6%
Net revenue for the year ended January 3, 2009 totaled $2,012,658,
a decline of $27,944, or 1.4%, compared to the prior year.
Merchandising departments with significant decreases included
hand and power tools, seasonal, paint, rental, and electrical and
lighting, partially offset by lumber and building. The reduction in
net revenue was predominately in the Comp Store Sales category
of $39,996, or 2.0%. Management attributes this decline to a mild
winter season, a late arrival of spring weather in many areas of
the country and the economic recession, partially offset by a
53rd week of revenue of approximately $21,000 in True Value’s
2008 fiscal year.
Partially offsetting the decrease in the Comp Store Sales
category was the first increase in over a decade in the change
in participating members’ category of $1,868. Sales to new
members increased $43,602, or 2.1%, while sales to terminated
members declined $41,734, or 2.0%. True Value’s revenue from
the net change in participating stores was favorable primarily as
a result of increased interest in new store openings from current
members along with stores converting from other cooperatives.
True Value’s management attributes these conversions and new
store openings to the rollout of the new DTV store format and
the impact it has on retail sales.
The advertising, transportation and other revenue category also
partially offset the decrease in the Comp Store Sales category by
$10,184. This favorability was primarily due to the transportation
fuel surcharge on product shipments from True Value’s distribution
facilities to the members and the increase in the promotional
support fee charged to members for national advertising. The
fuel surcharge relates to the significant 2008 cost increase in diesel
fuel and the higher promotional support fee relates to increased
national advertising spending.
$ Gross
Margin
Gross margin 2008 2007 (Decrease)
For the Year Ended $227,279 $235,117 $(7,838)
Percent to Net Revenue 11.3% 11.5%
Gross margin for the year ended January 3, 2009, decreased by
$7,838, or 3.3%, over the prior year. The gross margin decrease
was primarily driven by lower handled product volume sold
through True Value’s distribution network which drove lower
product margin, outbound freight revenue, and rebates and
discounts. Additionally, gross margin was unfavorably impacted
by higher reserves on specific inventory items, increased fuel
costs and higher freight-in expense. These unfavorable year-
to-date decreases were partially offset by both higher handled
product margin rates and the fuel surcharge on handled product
sold through True Value’s distribution network.
Logistics and $ Expense
manufacturing expenses 2008 2007 Increase
For the Year Ended $61,154 $60,218 $936
Percent to Net Revenue 3.0% 3.0%
Logistics and manufacturing expenses increased by $936, or
1.6%, as compared to the prior year. Logistics and manufacturing
expenses increased due to merit increases, higher health benefit
expenses and a lower level of warehouse costs capitalized into
inventory, partially offset by efficiencies, lower sales volume and
additional facility lease expense incurred in 2007 that did not
reoccur in 2008.
($ in thousands)