A prolonged economic downturn, marked by a strong U.S. dollar and decreased demand from the oil and gas industry, turned its fiscal third quarter into another financially challenging one for MSC Industrial Supply Co., a distributor of business and industrial products.
But one bright spot was a continued rise in e-commerce sales, CEO Erik Gershwind said today.
“The sense that the industrial economy may have been stabilizing has given way to more belt-tightening and less optimism among our customers,” he said during a conference call with stock analysts, according to a transcript provided by Seeking Alpha.
As a result, total sales for MSC’s third quarter ended May 28 fell 2.4% year over year to $727.5 million. But e-commerce sales increased to 58.6% of total sales, up from 56.0% a year ago, Gershwind said. As a result, e-commerce sales increased 2.1% to $426.3 million.
MSC, which won the 2016 B2B E-Commerce Player of the Year during the annual Internet Retailer Excellence Awards ceremony last month, also continued to build out during the quarter its e-commerce site, MSCDirect.com. The company increased its volume of online inventory by 65,000 SKUs, bringing its online SKU count to nearly 1 million.
MSC distributes business and industrial products ranging from metal-cutting tools to electronics equipment and janitorial supplies. MSDirect.com is No. 97 in the B2B E-Commerce 300, which ranks companies on their annual Internet sales.
Gershwind pointed to other possible problems ahead, including a potential drop in demand from European customers following Britain’s recent vote to exit the European Union. “The uncertainty around the impact of Brexit could serve to create further headwinds on U.S. manufacturing exports, given the strong dollar as well as the potential slowing of underlying European demand,” he said.
Nonetheless, he added that MSC’s technology investments have positioned it to benefit in several ways from a continued downturn, as other distributors that have not invested to improve their online as well as offline operations. “Should the environment remain poor or even deteriorate further, distributor layoffs may accelerate, creating even more opportunities for MSC, such as new customer relationships, the hiring of industry salespeople, and strong supplier relationships.”
MSC also reported for the third quarter ended May 28:
E-commerce sales increased 2.1% to $426.3 million from $417.5 million a year earlier;
Total sales fell 2.4% to $727.5 million from $745.5 million;
Net income—helped by a decrease in the cost of goods sold—increased 2.3% to $64.82 million from $63.34 million.
For the 39 weeks ended May 28:
Total sales fell 3% to $2.118 billion from $2.183 billion a year earlier;
Net income decreased 1.7% to $169.37 million from $172.29 million.
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