10-QPeriod: Q3 FY2002

FASTENAL CO Quarterly Report for Q3 Ended Sep 30, 2002

Filed October 29, 2002For Securities:FAST

Summary

Fastenal Company's Q3 2002 report shows continued top-line growth with a 10.6% increase in net sales for the first nine months and a 13.7% increase for the third quarter compared to the prior year. This growth was primarily driven by higher unit sales, indicating a strong operational demand, although the company noted some deflationary pricing pressures. While sales increased, net earnings saw a more modest rise of 3.3% for the nine-month period and 12.4% for the quarter, impacted by a slight decrease in gross margins and increased operating expenses related to store expansion and investments in information systems. The company is actively expanding its store footprint, with plans to open a significant number of new locations in 2002. This expansion, while building future growth capacity, introduces short-term costs associated with payroll, occupancy, and transportation, affecting earnings leverage. Fastenal also announced the sale of its Do-It-Yourself (DIY) business, acquired in 2001, which is expected to result in a gain in the fourth quarter. The company maintains a strong liquidity position with no material outstanding capital expenditure commitments as of September 30, 2002, and anticipates funding future expansion through operational cash flow.

Key Highlights

  • 1Net sales increased by 10.6% for the nine months ended September 30, 2002, reaching $686.2 million, driven by higher unit sales.
  • 2Third-quarter net sales rose by 13.7% to $238.1 million, also attributed to increased unit volume.
  • 3Net earnings for the nine months grew by 3.3% to $58.7 million, while quarterly net earnings increased by 12.4% to $19.1 million.
  • 4Gross margin slightly decreased due to product mix changes and the impact of the now-divested DIY business.
  • 5Operating expenses grew, influenced by new store openings, increased payroll, and investments in the management information system.
  • 6Fastenal divested its Do-It-Yourself (DIY) business on October 3, 2002, expecting a gain of $6-7 million in Q4 2002.
  • 7The company plans to open approximately 140-170 new stores in 2002, indicating a continued focus on physical expansion.

Frequently Asked Questions

Fastenal reported an increase in net sales for both the nine-month period (10.6% to $686.2 million) and the third quarter (13.7% to $238.1 million), driven by higher unit sales. Net earnings also saw growth, albeit more modest, with a 3.3% increase for the nine months ($58.7 million) and a 12.4% increase for the quarter ($19.1 million). The company is actively expanding its store base, which is impacting short-term operating expenses and earnings leverage.

Sales growth is primarily attributed to an increase in unit sales. Management noted that the company experienced some deflationary impact on pricing, meaning prices did not increase significantly, and growth came from selling more items rather than charging higher prices.

Fastenal sold its Do-It-Yourself (DIY) business on October 3, 2002. This business was acquired in August 2001 and had contributed to sales but had operated at approximately break-even. The divestiture is expected to result in a gain of approximately $6 million to $7 million in the fourth quarter of 2002, simplifying the company's operations.

The company has sufficient liquidity, with $25.5 million in cash and cash equivalents and no material outstanding commitments for capital expenditures as of September 30, 2002. Management anticipates funding its expansion plans through cash generated from operations, available cash reserves, and, to a lesser extent, its borrowing capacity.