10-QPeriod: Q3 FY2001

FASTENAL CO Quarterly Report for Q3 Ended Sep 30, 2001

Filed October 31, 2001For Securities:FAST

Summary

Fastenal Company's Q3 2001 report shows a mixed performance against a challenging economic backdrop. While net sales increased by 7.3% year-over-year for the quarter, driven by new store openings, profitability faced pressure. Net earnings declined by 18.3% compared to the prior year's third quarter, primarily due to a decrease in gross margins and higher operating expenses that outpaced sales growth. The company continued its expansion strategy, opening new store sites and investing in infrastructure, including a new distribution center. Management highlighted the impact of a weakening industrial economy and noted a potential bottoming of the sales growth trend in September, partly influenced by the events of September 11th. The company also completed a small acquisition of Textron's retail fastener business.

Key Highlights

  • 1Net sales for the third quarter of 2001 increased by 7.3% to $207.1 million, compared to $192.9 million in the same period of 2000, driven by new store openings.
  • 2Net earnings for the third quarter decreased by 18.3% to $17.0 million, down from $20.8 million in Q3 2000.
  • 3Gross margins saw a slight decline, from 52.1% in Q3 2000 to 51.0% in Q3 2001.
  • 4Operating expenses increased at a faster rate (17.6%) than net sales growth (7.3%) for the quarter, contributing to the decline in net earnings.
  • 5The company opened 25 new store sites in the first nine months of 2001, contributing to overall sales growth, though older sites experienced sales decreases.
  • 6Fastenal acquired the retail fastener business of two Textron subsidiaries on August 31, 2001, with the acquired business contributing $2.3 million in sales in the quarter.
  • 7Cash and cash equivalents significantly increased to $56.2 million at the end of Q3 2001, from $19.7 million at the end of 2000, primarily due to operating activities.

Frequently Asked Questions

The primary driver of Fastenal's sales growth in the third quarter of 2001 was the opening of new store sites. While existing older stores saw a slight decline in sales (-1.7%), new locations opened in 2000 and 2001 contributed positively to the overall net sales increase.

Net earnings declined because operating expenses grew at a faster rate (17.6%) than net sales (7.3%). Additionally, gross margins experienced a slight decrease from 52.1% to 51.0%. These factors, combined with increased costs for utilities, fuel, and healthcare, outweighed the sales growth.

Management noted a weakening industrial economy and a trend of declining daily sales growth rates. However, they believe the September sales growth, absent the impact of September 11th, may indicate a possible bottoming of this trend. The company continues to plan new store openings, but these plans can be altered based on evolving economic conditions.

Fastenal acquired the retail fastener and related hardware business of two Textron subsidiaries on August 31, 2001. This acquisition contributed $2.3 million in sales during the third quarter and had a minor dilutive effect on the company's gross margin. It did not materially contribute to earnings in the quarter.