How fast is Fastenal growing and what is driving it?

Net sales grew 38.3% in 1997 to $397.99 million. Growth came primarily from new store openings, unit sales growth at existing stores, and to a lesser extent new product lines, rather than price increases. Stores opened in 1997 contributed about $18.2 million, or 4.6%, of sales.

Is the company's profitability keeping pace with its sales growth?

Not fully. Net earnings grew 25.5%, slower than the 38.3% sales increase. Gross margin fell to 52.5% from 53.1%, and operating and administrative expenses rose to 35.6% of sales from 34.6%, reflecting payroll, occupancy and training costs for expansion. Management expects these investments to pay off over time.

How financially sound is the company?

Fastenal had no long-term debt at year-end 1997. Stockholders' equity rose to $165.9 million and working capital to $106.6 million. Short-term borrowings increased to $16.3 million in notes payable, largely to fund inventory growth, which rose to $79.4 million.

What are the main risks to the business?

The filing cites an economic downturn hurting existing stores, difficulty finding and retaining staff for smaller-community stores, the ability to add new product lines and integrate them, weather affecting distribution, foreign currency and trade relations, disruptions from new information systems, Year 2000 computer problems, and changes in the pace of new store openings.

What does the company plan for 1998?

Management hopes to open about 200 new store sites, plans additional distribution centers and sites in Canada and Puerto Rico, and expects about $36 million in capital spending. It is also converting to a Windows NT point-of-sale system, which is expected to be completed around the third quarter for the largest stores.

FAST 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 16, 1998. Cited figures are marked; the original filing is the authoritative source.

Fastenal Company (FAST) reported a strong 1997, with net sales rising 38.3% to $397.99 million^a from $287.69 million in 1996, and net earnings up 25.5% to $40.83 million, or $1.08 per share.

Growth was driven mainly by new store openings (160 added in 1997, bringing the total to 644 sites across 48 states and Canada), unit growth in existing stores, and newer product lines rather than price increases. Store sites opened in 1997 contributed about $18.2 million^b (4.6%) of 1997 sales, and the company's 10-year average compound annual net sales growth rate exceeded 30%. Profitability moderated relative to sales.

Gross margin slipped to 52.5% from 53.1%, mainly due to product mix, and operating and administrative expenses rose to 35.6% of net sales from 34.6%, reflecting payroll, occupancy and training costs tied to expansion. Management says these costs are part of planned expansion and should pay off later. The balance sheet remains conservative: the company carries no long-term debt, though notes payable rose to $16.3 million, inventories increased to $79.4 million^c, and working capital reached $106.6 million.

Management plans roughly $36 million^d in 1998 capital expenditures and about 200 new store openings, and it is rolling out a new 824-page catalog and NT-based point-of-sale system. Key risks flagged in the filing include an economic downturn affecting existing stores, the ability to staff smaller-community stores, Year 2000 computer issues, foreign currency and trade exposure, and the pace of new store openings.

The company reports no legal proceedings and pays a modest $0.02 annual dividend. Investors should weigh the strong top-line growth and expansion runway against margin pressure from rising operating costs and the execution risk of rapid store and product-line growth.

02—Key points

Key Highlights

Net sales grew 38.3% to $397.99 million in 1997, versus 29.3% growth from 1995 to 1996.
Net earnings rose 25.5% to $40.83 million, or $1.08 per share, lagging sales growth due to higher operating and administrative expenses.
Store count expanded by 160 to 644 sites in 48 states and Canada, with plans to open about 200 more in 1998.
Gross margin declined to 52.5% from 53.1% (and 53.4% in 1995), driven primarily by product mix; operating and administrative expenses rose to 35.6% of sales from 34.6%.
The company carries no long-term debt; notes payable increased to $16.3 million, and working capital grew to $106.6 million.
Newer product lines (FastTool, SharpCut, PowerFlow, EquipRite, CleanChoice, PowerPhase, FastArc) continue to diversify sales, with threaded fasteners falling to about 61% of sales from 64%.
Management plans roughly $36 million in 1998 capital expenditures, mainly for pickup trucks, data processing, and warehouse and packaging equipment.

03—Questions

Frequently Asked Questions

How fast is Fastenal growing and what is driving it?
Net sales grew 38.3% in 1997 to $397.99 million. Growth came primarily from new store openings, unit sales growth at existing stores, and to a lesser extent new product lines, rather than price increases. Stores opened in 1997 contributed about $18.2 million, or 4.6%, of sales.
Is the company's profitability keeping pace with its sales growth?
Not fully. Net earnings grew 25.5%, slower than the 38.3% sales increase. Gross margin fell to 52.5% from 53.1%, and operating and administrative expenses rose to 35.6% of sales from 34.6%, reflecting payroll, occupancy and training costs for expansion. Management expects these investments to pay off over time.
How financially sound is the company?
Fastenal had no long-term debt at year-end 1997. Stockholders' equity rose to $165.9 million and working capital to $106.6 million. Short-term borrowings increased to $16.3 million in notes payable, largely to fund inventory growth, which rose to $79.4 million.
What are the main risks to the business?
The filing cites an economic downturn hurting existing stores, difficulty finding and retaining staff for smaller-community stores, the ability to add new product lines and integrate them, weather affecting distribution, foreign currency and trade relations, disruptions from new information systems, Year 2000 computer problems, and changes in the pace of new store openings.
What does the company plan for 1998?
Management hopes to open about 200 new store sites, plans additional distribution centers and sites in Canada and Puerto Rico, and expects about $36 million in capital spending. It is also converting to a Windows NT point-of-sale system, which is expected to be completed around the third quarter for the largest stores.

04—Continue

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