) surged around 6% on Sep 5, after it released solid sales
results for the month of August. August sales recovered from a
slower July and were a relief from the sluggish sales being
reported by Fastenal for the past 4-5 quarters.
Fastenal's net sales rose 2.5% year over year to $297.7
million in August. Currency was a 0.3% headwind. Daily sales
growth rates came in at 7.2% for the month, significantly higher
than 2.9% in July and 6% in June.
Fastenal serves customers in the manufacturing and
non-residential construction markets. Both the markets reported
improving August sales.
Daily sales to manufacturing customers (representing almost
50% of revenues) grew 6.1%, much higher than 2.1% reported in
July and also above 5.9% reported in the second quarter.
Daily sales to non-residential construction customers
(representing 20% to 25% of revenues) jumped 7.3%, a significant
improvement from a decline of 0.1% seen in July and a growth of
0.7% in the second quarter. Easy prior-year comparisons played a
role in driving the improvement.
The company has been witnessing a consistent decline in daily
sales growth rates for the past few quarters. The declining daily
sales rates are due to lower sales of its fasteners product line
which were being hurt by end-market slowdown and broader economic
uncertainty. Moreover, the construction business has also been
soft since the past two quarters.
In order to improve its top line, management announced some
interesting strategies during the second-quarter conference call,
held in early July. Management is deliberately slowing down focus
Management has eased pressure on stores to sign up vending
machines as a vending contract takes about 5-6 months to generate
revenues. Instead, stores are being encouraged to focus on
improving near-term sales.
In order to accelerate sales growth, Fastenal also took the
strategic decision to increase sales personnel at its stores. It
plans to add 100-150 employees per month for the next six months.
This strategy aims to free sales managers to focus more on
selling which could drive near-term sales growth. We believe
these initiatives to drive near-term sales have started to pay
off as reflected in improving sales trends for the month of
In addition, Fastenal has plans to reinvigorate the
high-margin fastener business and also improve sales performance
at under-performing stores. The company also plans to expand its
store-based inventory for fasteners, construction and safety
Moreover, Fastenal hopes to gain from a new pricing system for
stores and improved operational efficiency across its
distribution network (by adding significant automation).
Management expects these strategies to drive sales growth back to
the historical high-teens range by the first quarter of 2014.
Fastenal carries a Zacks Rank #3 (Hold). Other companies in
the sector that are doing well include
Liquidators Holdings, Inc.
Builders FirstSource, Inc.
The Home Depot, Inc.
). While Lumber carries a Zacks Rank #1 (Strong Buy), The Home
Depot and Builders FirstSource carry a Zacks Rank #2 (Buy).
BUILDERS FIRSTS (BLDR): Free Stock Analysis
FASTENAL (FAST): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
LUMBER LIQUIDAT (LL): Free Stock Analysis
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