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EXCLUSIVE: True Value CEO Discusses Earnings, Sale Rumors

The results of continued investments in True Value’s strategic plan are starting to pay dividends and the recent rumors swirling around a potential sale of the co-op will not be a distraction, according to the company’s president and CEO John Hartmann, who granted Hardware Retailing an exclusive interview.

“This isn’t the first time rumors have been circulated around True Value and this isn’t the first time that our competitors have taken something out of context to create their own narrative and serve their own purpose. The fact that our competitors are so focused on us is the best validation of the huge progress that we have made over the last four years,” Hartmann said.

His comments were in response to what he says are recent communications from within the industry surrounding a story first reported in Bloomberg that the Chicago-based co-op was being shopped for a potential sale.

As to whether the co-op is being listed as a potential target for acquisition, Hartmann echoed his earlier statements that any consideration of a potential sale is nothing outside the scope of regular business and that no sale would even be considered without buy in from True Value’s member-owners.

“It is our obligation as an organization to look at a variety of (strategies) and the board and I take our fiduciary responsibility to our shareholders very seriously. Our shareholders own the company and anything that would change that, they would have to have a say in,” he said.

Rather than addressing any of the rumors broadly, to this point Hartmann said he has been speaking to True Value members one on one and in group meetings to reinforce the future direction of the company and reaffirm the organization’s commitment to its strategic plan.

Regarding True Value’s financial position, Hartmann pointed to the co-op’s second quarter results, which were released late last week. In the earnings release, True Value reported comp-store sales for the period up 0.9 percent while comp-store sales at Destination True Value locations were up 1.8 percent. Overall gross billings for the co-op during the quarter were $579.7 million, down 0.9 percent from the previous year. The co-op recorded revenues for the period of $430.4 million, a 1.9 percent decrease from 2016. A highlight of the financial report was the company’s net margin of $16.7 million, up 28.1 percent from last year and 43.1 percent year to date.

“We, like others in our channel have seen our results impacted by some unfavorable seasonal patterns. But despite that, our Destination True Value retail comp-store sales were up 1.8 percent and our overall retail comp-store sales were up just under 1 percent,” Hartmann said. “But what is important to understand relative to our financial health is the profitability of our company was up 43.1 percent on a year-to-date basis. So despite a tough sales environment, we are delivering increased profitability to our retailers.”

Though the second quarter numbers didn’t reflect a large sales increase, Hartmann says he is pleased with the overall direction the company is headed since engaging in a strategic reset in 2014.

“When I started, our members were suffering the consequences of years of underinvestment,” he said. “We put into place a thoughtful, long-term strategy. We launched this new strategy, that was based on feedback from our members, in 2014 and that strategy today is working and it is making our retailers more competitive and it is supporting stronger growth and profitability.”

True Value’s 2014 strategic plan centered on making investments throughout the company in areas such as improved service levels, infrastructure, technology, and supply chain.

To fund these efforts, True Value has relied on revenue increases but also tapped into a line of credit that some have cited as one of the potential reasons the company may be looking at a possible sale.

In its 2016 Annual Report, True Value reported that it had used approximately $300 million of a $450 million revolving credit facility. This line of credit has a term that ends in December 2019 and is being used “to fund working capital, capital expenditures, patronage dividend payments and financing to its members for remodels and new stores,” according to the annual report.

When asked if he was comfortable with this position, Hartmann said he was “absolutely” comfortable with it. “We have a long-standing relationship with our key banking partners. We have a terrific credit facility and we are not even close to our maximum amount of debt that our company could carry. We manage that debt very carefully,” Hartmann said. “When you think about where we spend our money, there is a return on investment that will far exceed the debt costs we are carrying.”

As an example, Hartmann pointed to the co-op’s aging distribution network, which was “largely built over 30 years ago.” Hartmann says investing in improvements to this network will reduce operating costs and ultimately reduce working capital needs.

“Investments like this have a very real and positive dramatic impact and while there is a short-term increase in the debt level, on the other side of this period of investment, not only will that debt come down, but our distribution will be optimized and reduce our working capital costs,” Hartmann said. “That’s an example of how we are using our debt level to make substantial improvements.”

With these kinds of investments and positive financial reports, Hartmann is looking forward to sharing additional successes with retailers at True Value’s upcoming Reunion, which will be held in Chicago September 24-27.

“We have a terrific Reunion scheduled,” he said. “We’ve got record attendance leading up to the Reunion and we encourage all of our retailers to come and hear directly from us about all the things happening at True Value,” he said.

Hartmann said there are no special plans to address any rumors at the Reunion but that he is always happy to talk to retailers and answer any questions they have. “Every one of our members has access to my mobile phone number and they can call me at any time, and they do,” he said.

Instead, Hartmann said he wants to focus on four points regarding True Value’s direction.

“We have a plan. We are executing our plan. We have established credibility with retailers because we listen to them and we responded with a plan based on what they need. And, we are 100 percent focused on supporting them as we execute this plan,” he said.

About Dan Tratensek

Dan Tratensek
In his position as publisher of Hardware Retailing magazine, Dan has the opportunity to visit with independent retailers of all types and sizes and use these visits to shape the editorial direction of the magazine to meet the needs of the independent hardware retail market. Dan also oversees NRHA’s other publishing projects, which include a range of special interest publications, contract publishing titles, online content and more. Dan formerly worked as an editor and reporter for Hardware Retailing and has been involved in business journalism and news reporting for the past two decades

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