Fastenal Sales Up, Profit Down In Q3 As Store Closures Increase

Fastenal posted continued modest sales growth and profit decline in Q3, while store closures continue to far outpace openings.

Winona, MN-based Fastenal — No. 10 on Industrial Distribution's 2016 Big 50 List — reported its 2016 third quarter fiscal results on Tuesday, in which the company posted a slight uptick in year-over-year sales while its profit dipped. The company also provided details on its store openings and closures, as well as headcount.

Fastenal reported Q3 sales of $1.014 billion, up 1.8 percent year-over-year, while profit of $126.9 million decreased 7.0 percent. Q3 sales were nearly identical to Q2's of $1.013 billion, which was a 1.6 percent growth year-over-year. Q2 profit declined 6.3 percent.

Fastenal had September sales of $338.8 million, with daily sales up 2.8 percent year-over-year. The company has posted monthly daily sales growth in seven of the nine concluded 2016 months. Here's how the past 13 months of Fastenal's daily sales growth has been:

  • September 2016: +2.8 percent
  • August 2016: +0.3 percent
  • July 2016: +2.1 percent
  • June 2016: 0.0 percent
  • May 2016: +1.1 percent
  • April 2016: +3.8 percent
  • March 2016: 0.0 percent
  • February 2016: +2.6 percent
  • January 2016: +3.3 percent
  • December 2015: -3.8 percent
  • November 2015: -1.1 percent
  • October 2015: -0.8 percent
  • September 2015: -0.3 percent

Fastenal ended Q3 with a total store employee headcount of 13,097, down 3.2 percent year-over-year and down 6.2 percent year-to-date. During the last 12 months, the company has reduced its store headcount by 430 people. It has added employees in other areas, however, especially in its Onsite business. Fastenal's total employee headcount decreased by 115 in the past year.

"We continue to add headcount where necessary to support our growth initiatives, notably our Onsite business," the company said in Tuesday's earnings release. "However, the continued softness of the North American industrial economy has caused us to more intensively scrutinize our full- and part-time staffing levels outside of these initiatives. Indeed, after increasing our total headcount every quarter during 2015, it has declined during every quarter of 2016."

Fastenal opened three new stores in September and eight in Q3 overall, bringing its year-to-date openings to 35. The company expects to finish 2016 with approximately 40 new stores. However, the company's store closures far outpace its openings, as the company has closed 99 stores year-to-date. The company said about 90 percent of those stores were in close proximity to another Fastenal store, and about 85 percent had leases expiring within 18 months.

"We intend to continue evaluating markets for openings and for closures and consolidations in the remainder of 2016 and into 2017," Fastenal said.

Fastenal had 2,545 store locations at the end of Q3, down 2.9 percent year-to-date.

The company's installed industrial vending machines count continues to grow, with the count reaching 60,400 by the end of Q3. That's up 12.8 percent year-over-year and up 8.8 percent year-to-date.

Fastenal said it signed 144 new contracts in the first nine months of 2016, outpacing the 131 it signed at this point of last year. It signed 133 Onsite customer locations year-to-date, with 100 operational as of Sept. 30.

Fastenal's fastener sales continued its longstanding decline as its percentage of total sales, comprising 36.1 percent of total sales in Q3. It has declined in seven of the past nine fiscal quarters. The company said fastener sales contracted 2.9 percent in Q3. Fastenal's non-fastener sales have grown about 5 percent in each of the first three quarters of 2016.

Fastenal said its safety product line has had 10 percent growth year-to-date, benefited by its industrial vending initiatives.

September sales to manufacturing customers increased 2.3 percent, while sales to non-residential construction customers declined 2.1 percent. Fastener sales declined 1.9 percent in September, while all other sales grew 6.1 percent.

"Business conditions in the third quarter of 2016 looked very similar to those in the first half of 2016," the company said. "Our OEM and construction fastener sales remain relatively weak, reflecting the sustained relative weakness of our heavy equipment and construction end markets. We saw similar plant shutdowns/slowdowns around the July 4 holiday, but these were less pronounced around Labor Day. Daily sales in the U.S. were a little weaker in the third quarter of 2016 than was the case in the first half of 2016, largely a result of the continued softness among our largest (top 100) customers."

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