2005 Q1 Earnings Report
FASTENAL COMPANY REPORTS FIRST QUARTER EARNINGS Net sales for the three-month period ended March 31, 2005 totaled $353,809, an increase of 24.5% over net sales of $284,206 in the first quarter of 2004. Net earnings increased from $28,147 in the first quarter of 2004 to $37,031 in the first quarter of 2005, an increase of 31.6%. Basic earnings per share increased from $.37 to $.49 for the comparable periods. During the first quarter of 2005, Fastenal opened 74 new sites (Fastenal opened 49 new sites in the first quarter of 2004). These 74 new sites represent an additional 4.8% stores since December 31, 2004. There were 5,799 site employees as of March 31, 2005, an increase of 5.4% from December 31, 2004. SALES GROWTH: The twelve months of 2001, 2002, 2003, 2004 and the first three months of 2005, excluding the DIY Business, had daily sales growth rates of (compared to the comparable month in the preceding year):
The Fastenal Company of Winona, MN (NASDAQ Symbol FAST) reported the results of the quarter ended March 31, 2005. Dollar amounts are in thousands.
Note - Daily sales are defined as the sales for the month divided by the number of business days in the month.
FASTENAL COMPANY REPORTS FIRST QUARTER EARNINGS
Net sales for the three-month period ended March 31, 2005 totaled $353,809, an increase of 24.5% over net sales of $284,206 in the first quarter of 2004. Net earnings increased from $28,147 in the first quarter of 2004 to $37,031 in the first quarter of 2005, an increase of 31.6%. Basic earnings per share increased from $.37 to $.49 for the comparable periods.
During the first quarter of 2005, Fastenal opened 74 new sites (Fastenal opened 49 new sites in the first quarter of 2004). These 74 new sites represent an additional 4.8% stores since December 31, 2004. There were 5,799 site employees as of March 31, 2005, an increase of 5.4% from December 31, 2004.
The twelve months of 2001, 2002, 2003, 2004 and the first three months of 2005, excluding the DIY Business, had daily sales growth rates of (compared to the comparable month in the preceding year):
The twelve months of 2001, 2002, 2003, 2004, and the first three months of 2005, including the DIY Business, had daily sales growth rates of (compared to the comparable month in the preceding year):
The first table reflects growth rates of Fastenal excluding $16,974 and $8,526 of DIY Business net sales from January 1, 2002 to October 3, 2002 and from August 31, 2001 to December 31, 2001, respectively (the period of time the DIY Business was owned). Management has included the first table above because we believe it provides a consistent presentation of the growth rates of the organic store-based business and ongoing operations before, during, and after the period in which the DIY Business was owned and operated.
The daily sales growth rates in the first table above represent several trends. The first being a downward trend in the first eleven months of 2001, which reflected the overall weakening of the industrial economy we service in North America. This trend reversed itself from December 2001 to June 2002; this was partly due to changing comparisons in the prior year and partly due to stronger month-to-month (i.e. April to May and May to June) growth rates compared to 2001.
During July 2002, the daily sales growth rate decreased, began to improve again in August 2002 through November 2002, and slipped in December 2002, the final month of the year. The first six months of 2003 continued the choppy trend in net sales growth experienced in the second half of 2002, while the July 2003 to March 2005 time frame generally represents improvement followed by stabilization in the growth rates. The choppy trend, which the Company experienced from July 2002 until June 2003, reflects the alternating strengthening and weakening in the industrial economy during that period, while the July 2003 to March 2005 general improvement and stabilization reflects continued strengthening in the economy as it relates to the customers we sell to in North America and the impact of the Fastenal store initiative (see reference below regarding CSP). The 2004 period was also impacted by inflation in the steel based products we sell.
STATEMENT OF EARNINGS INFORMATION (percentage of net sales):
|Three Month Ended
|Gross profit margin||50.1%||50.3%|
|Operating and administrative expenses||33.3%||34.3%|
|Loss on sale of property and equipment||0.1%||0.1%|
|Earnings before income taxes||16.9%||16.0%|
Gross profit margins for the first quarter of 2005 and the first quarter of 2004 were similar. The slight contraction in 2005 was caused by the greater inflation cost in the steel based products flowing through cost of sales. The impact was expected, and reflects product costs in the last three to six month 'turn period' of inventory in a 'first-in, first-out' inventory costing model.
Operating and administrative expenses grew at a slower rate than net sales growth during the quarter. This was primarily due to the tight management of employee numbers throughout the organization in all of 2004 and the first quarter of 2005. As discussed in our 2004 annual report, payroll and related expenses have historically represented approximately 70% of operating and administrative expenses. Effective management of this expense allows us to leverage the sales growth more effectively. This tight management was significant, given the store expansion (discussed later). We will continue to manage headcount in a similar fashion and expect to maintain most of the labor efficiency.
Income taxes, as a percentage of earnings before income taxes, were approximately 38.0% in the first three months of 2005 and 2004, respectively. This rate fluctuates over time based on the income tax rates in the various jurisdictions in which we operate.
Two components of working capital, accounts receivable and inventories, improved during the first quarter of 2005. The March 2004-to-March 2005 percentage growth (i.e. year over year) and the year-to-date dollar growth were as follows:
|March 2004-to-March 2005 percentage growth|
|Three Month Ended
The improvements stem from our initiatives to improve working capital. These initiatives include (1) the establishment of a centralized call center to facilitate accounts receivable management (this facility became operational early in 2005) and (2) the tight management of all inventory amounts not identified as either expected store inventory (see reference below regarding CSP), new expanded inventory, or inventory necessary for upcoming store openings.
As discussed in previous public statements, the Company's goal is to continue opening approximately 13% to 18% new stores each year (calculated on the ending number of stores in the previous year). On December 31, 2004, the Company operated 1,533 stores; therefore, as previously announced, we expect to open approximately 200 to 275 new stores in 2005. The Company opened 219 new stores in 2004 (or an increase over December 31, 2003 of 16.7%) and 151 new store sites in 2003 (or an increase over December 31, 2002 of 12.9%). While the new stores continue to build the infrastructure for future growth, the first year sales are low, and the added expenses related to payroll, occupancy, and transportation costs do impact the Company's ability to leverage earnings. As disclosed in the past, it has been the Company's experience that new stores take approximately ten to twelve months to achieve profitability. The planned openings can be altered in a short time span, usually less than 60 to 90 days.
In addition to the planned store expansion, we continued our 'customer service project' (or CSP) in 2005. As of March 31, 2005, approximately 93% of our stores were operating in a CSP fashion. Since the CSP format represents the stocking model in substantially all of our locations, we now refer to these converted locations simply as stores with our expected inventory stocking model, versus the CSP designation. Consistent with our operating philosophy, we intend to continue identifying products and store display themes to position our stores to the Fastenal goal of being 'the best industrial and construction supplier in each local market in which we operate'.
Additional information regarding certain Fastenal Company statistics for the current quarter is available on the Fastenal Company World Wide Web site at www.fastenal.com. The Company discloses sales and store information on a monthly basis (except the sales for the third month of a quarter). This information is posted at www.fastenal.com on the third business day following the end of the first two months of a quarter. This press release contains statements that are not historical in nature and that are intended to be, and are hereby identified as, "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding management of headcount and labor efficiency, increases in selling locations, the time it typically takes a new store to achieve profitability, and the timeline for altering planned store openings. A change in the economy, from that currently being experienced, could cause the store openings to change from that expected. A change in the number of markets able to support future store sites could change the management of headcount, which in turn, together with changes in sales growth and store openings, could impact labor efficiency. A discussion of other risks and uncertainties is included in the Company's 2004 annual report under the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations".~
2005 Q1 Earnings Report, Page 2
2005 Q1 Earnings Report, Page 3
Consolidated Statements of Earnings
2004 Q1 Earnings Report, Page 4