Fastenal Likely to Close About 300 More Branches as it 'Rationalizes' Footprint

The distributor, which saw Q4 sales grow 13%, continues to trim its branch count as it ramps up Onsite locations.

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Fastenal has maintained a reputation for transparency in its quarterly earnings calls with analysts and investors, and it did so again when recapping its 2021 fourth quarter and full-year financial results on Jan. 19.

In the company's call, CEO Dan Florness touched on a range of operational topics, from giving an update on how many active cases of COVID-19 the company has seen in recent weeks, to rising e-commerce demand and beyond.

One topic that was particularly interesting was Florness' commentary about Fastenal's physical branch footprint, which — as I noted in a recap of the company's Q4 figures — has shrunk from 2,227 at the start of 2018 to 1,793 at the end of Q4 2021. Fastenal opened two new public branches this past Q4 and closed 68, and for the full year, it opened 10 and closed 220. Fastenal's branch count ended 2021 down 10.5 percent year-over-year.

In the Jan. 19 call, Florness pointed out that Fastenal's branch count peaked in 2013, at which time the branch network touched about 95 percent of the U.S. manufacturing base. Today, he said, that figure is about 94 percent as Fastenal has "rationalized its network."

The most interesting nugget was when Florness went on to say the following:

"We believe that, ultimately, our branch network in the U.S. and Canada will be about 1,450 locations. So there's a few more to consolidate and that will be about a 93.5 percent coverage rate on the manufacturing base in the United States."

To get down to 1,450, that means Fastenal would have to net close about another 340 branches. However, no timeline for that was given in the call. But at its current pace, one has to think the company would reach its optimal branch count at some point in 2023.

Of course, at the same time, Fastenal has been ramping up its network of Onsites and Fast Vending Machines at a rate that has kept the aforementioned 94-95 percent coverage of the U.S. manufacturing base. The company had 1,416 active Onsites as of on Dec. 31, up 11.9 percent from a year earlier, with daily sales through Onsite locations growing better than 20 percent year-over-year. The company expects to sign another 375 to 400 Onsites in 2022.

The company's Fastenal Managed Inventory (FMI) — comprised of its FASTVend, FASTBin and FASTStock offerings — had Q4 net sales of $543 million, up 45.4 percent year-over-year and comprised 35.1 percent of total company sales, compared to 27.2 percent of net sales a year earlier.

E-Commerce Acceleration

At the same time — and spurred on by the pandemic — Fastenal's e-commerce business has accelerated. Fastenal reported that for all of 2021, daily sales through its e-commerce channels (via EDI, other technical integrations and web verticals) grew 45.2 percent vs. 2020. It grew even faster in Q4 at 48.2 percent year-over-year, representing 15.0 percent of total Q4 revenues. Overall, Fastenal said its digital products and services (comprised of FMI and e-commerce sales that don't represent FMI services billings) represented 46.4 percent of its total Q4 sales, up from 39.1 percent in Q1.

"Our business has evolved and one of those elements is e-commerce," Florness said in the earnings call. "In March of 2020, we broke 10 percent of sales going through e-commerce for the first time in our history. As we exit 2021, that number is now 15 percent of sales. As I mentioned on the previous page, from Q4 (2019) to Q4 (2021), our volume in e-commerce is up about 48 percent. And in that two-year period, from Q4 of '19 to Q4 of 2021, we are up 105 percent in our e-commerce business."

The Final Word

So, bottom line, expect to see continued numbers about Fastenal trimming its branch count, but keep in mind the company has publicly stated that it's part of its bigger plan.

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