True Value 2010 Annual Report Download - page 25

MANAGEMENT’S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operation
4 True Value Company
2.2%, while sales to new members increased $18,407, or 1.0%.
True Value’s revenue from the net change in participating stores
was unfavorable primarily due to the continued erosion of existing
members as a result of the challenging economic times.
Partially offsetting the sales decrease in the net change in par-
ticipating members’ category was a sales increase in the Comp
Store Sales category of $4,965, or 0.3%, resulting from continu-
ing members’ sales increases at retail. This is supported by the
members’ comparable store sales at retail, reported from over
1,500 True Value core hardware members, being up 0.3% on True
Value-related SKUs as well.
$ Gross
Margin
Gross margin 2010 2009 (Decrease)
For the Year Ended $215,706 $220,226 $(4,520)
Percent to Net Revenue 12.0% 12.1%
Gross margin for the year ended January 1, 2011, decreased by
$4,520, or 2.1%, over the prior year. Gross margin was negatively
impacted by the lower handled product volume sold through
True Value’s distribution network which negatively impacted
gross margin by $2,824. Also, the combined lower product sales
volume to the members drove lower product purchases by True
Value, resulting in unfavorable rebates and discounts of $3,828
as compared to the prior year. Other unfavorable gross margin
components include higher freight-in expense of $2,175, a result
of an overall shift toward imported product, and increased fuel
cost of $1,911 on delivery of outbound product that True Value
opted to absorb rather than pass along to the membership.
Partially offsetting these unfavorable gross margin components
were a favorable change in inventory reserves of $3,749 primarily
resulting from having less unproductive inventory compared to
the prior year, as well as favorable impacts of $1,979 primarily due
to lower expenses related to promotional activities.
Logistics and $ Expense
manufacturing expenses 2010 2009 (Decrease)
For the Year Ended $57,433 $57,876 $(443)
Percent to Net Revenue 3.2% 3.2%
Logistics and manufacturing expenses decreased by $443, or
0.8%, as compared to the prior year primarily due to favorable
fixed costs as a result of renegotiated property and equipment
leases, as well as lower direct warehouse wages as a result of the
lower handled sales volume.
Selling, general and $ Expense
administrative expenses 2010 2009 (Decrease)
For the Year Ended $92,608 $92,784 $ (176)
Percent to Net Revenue 5.1% 5.1%
SG&A expenses were comparable to the prior year. In 2010, True
Value increased its SG&A spending on strategic investments by
$3,300 over 2009. This incremental investment spending was
primarily offset by a reduction in bad debt expense of $3,331,
due to improved collections in 2010 as compared to additional
reserves on high risk members in 2009.
$ Expense
Increase/
Interest expense 2010 2009 (Decrease)
Members $4,811 $4,495 $ 316
Percent to Net Revenue 0.3% 0.2%
Third-parties $2,749 $3,168 $ (419)
Percent to Net Revenue 0.2% 0.2%
Member interest expense increased by $316, or 7.0%, as com-
pared to the prior year. The increase in expense was primarily
due to higher outstanding member notes, partially offset by
lower average interest rates.
Third-party interest expense decreased by $419, or 13.2%, as
compared to last year. This decrease in expense was due to a
lower average outstanding debt level, partially offset by higher
Bank Facility interest rates. True Value’s average daily outstanding
borrowings on the Bank Facility were lower by $29,606 whereas
the average interest rate was higher by 0.7% compared to 2009.
$ Net
Margin
Net margin 2010 2009 (Decrease)
For the Year Ended $60,716 $65,446 $(4,730)
Percent to Net Revenue 3.4% 3.6%
The 2010 Net margin of $60,716 decreased by $4,730, or 7.2%, from
the 2009 Net margin of $65,446 for reasons as discussed above.
($ in thousands)