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Fastenal Looks to Vending to Drive Margin Improvements

Company leverages "T" hub facility to improve efficiency.

Fastenal continues to be disappointed with its gross margin and is looking to its vending program to drive growth.

"I’m still completely convinced, looking at the numbers, that vending will be our most efficient and most profitable business overall … for a long period of time, for years to come because of all the things we built in," CEO Will Oberton says in the company's second-quarter earnings call.

Fastenal is also looking to leverage its centralized vending-product distribution center in Indiana, known as "T" hub, to take some of the vending responsibility out of its stores. (Read more about Fastenal’s vending strategy in Fastenal’s Vending Evolution.)

CFO Dan Florness says the "T" hub facility is ramping up. Picking activity was up two and a half times from May to June.

"And we still have ton of opportunity," Florness says. “It also allows us to drive towards product consolidation of what’s in ’T’ hub. Efficiency is the win at the store. The gravy on top of that is as we drive consolidation, we improve the gross margin of our vending business because we’re consolidating the brand of SKUs that are going through the machines."

While it has been a lengthy process, Fastenal expects its vending program to provide a lot of opportunity for growth. "It will take time to do it, but with things we are doing with ’T’ hub and buying better packaging – there are a lot of initiatives going on with vending, and so we are very excited about the vending opportunity and believe it's a big part of our future along with fasteners and many other things," Oberton says. (For more information on how Fastenal is looking to bolster its vending program, read Fastenal Preps for Harder Vending Push in 2014.)

The number of FAST Solutions machines was up 7.3 percent in the quarter to 43,761 vending machines.

Fastenal also continues to expand its part-time workforce, with employee count up 5 percent to 18,135. "… We’re investing in people at the store, we’re investing in selling energy at the store," Florness says. "That’s going to provide us the energy to ramp up our growth and that’s what you are seeing in the year-over-year numbers."

Fastenal's sales for the second quarter were $949.9 million, up 12.1 percent year-over-year. Year-to-date sales were $1.8 billion, up 10.4 percent over the same period the previous year.

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