Fastenal's gross margin saw gains in the first quarter of 2013, improving 70 basis points from the fourth quarter of last year. The latest increase continues the turnaround seen since the third quarter of 2012, which saw declining margins, according to CFO Daniel Florness.
The distributor has taken specific action over the past six months to change the direction of the gross margin. “If you think about our initiatives, though,” Florness said during Fastenal’s first-quarter conference call, “there are still some headwinds in our initiatives and tailwinds.”
Florness and Fastenal CEO Willard Oberton mentioned three factors, positive and negative, affecting gross margin for Fastenal in the first quarter of 2013:
- A new pricing guidance system. Oberton said most of the margin improvement Fastenal saw in the first quarter was driven by a new pricing system that better incorporates historical pricing data. “We have that somewhere between 60 percent and 70 percent deployed, so we have about one-third of the opportunity ahead of us,” Oberton said.
- Underperforming vending machines. Florness said a “small percentage” of machines in its vending initiative are in situations that don’t make sense, with some bringing in as little as $500 per month. “Our challenge is, we’re not giving a service to our customer with that $500 or $600 a month machine. And we sure as heck aren’t giving a return to our sales on the deployment of that machine,” Florness said. Over the past six months, he said, an expanded team has begun to take a closer look at underperformers.
- Private label products. Exclusive brands as a percent of sales broke into double-digit territory in the fourth quarter, Florness said, and that growth continued in the first quarter. “We have a lot of runway left there, and we need to move that a little faster,” he said.
