One challenge of acquiring new companies can be getting them up to speed with digital commerce. At MSC Industrial Supply Co., where e-commerce sales have steadily increased in recent years to account for just over 60% of total sales, its acquisition of fastener supplier All Integrated Solutions caused its electronic sales to dip under that share mark.
MSC’s e-commerce sales for its fiscal fourth quarter ended Sept. 1—including transactions through its internet vending machines and its flagship website, MSCDirect.com—accounted for 59.8% of net sales, down slightly from 60.6% in the prior quarter. Although a tiny drop, it marked a blip in what for MSC has been a steady march forward with digital commerce. MSC is a distributor of metalworking and maintenance, repair and operations (MRO) products and services.
MSC’s fiscal Q4 e-commerce sales were $501.12 million, up 10.8% from $452.28 million in the year-earlier quarter, as total sales increased 11.2% to $838.0 million. Without AIS’s sales included, MSC’s Q4 e-commerce sales accounted for 60.4% of total sales, a spokesman says.
AIS doesn’t feature a purchasing cart on its website, AllIntegrated.com; MSC hasn’t said whether it plans to inject e-commerce into AIS’s operations. MSC acquired AIS on April 30, 2018, from private equity firm High Road Capital Partners. It didn’t disclose the price it paid for AIS, but noted that AIS posted revenue of $66 million for the 2017 calendar year.
Eyeing government sales and tariffs
MSC’s sales to government agencies in Q4 was “down mid-single digits” and “muting the improvement we are seeing in the rest of the business,” CEO Erik Gershwind said on a conference call with stock analysts Wednesday, according to a transcript from Seeking Alpha. He attributed the decline “to a slower rate of government year-end spend, along with the additional impact of a couple of recent contract losses.”
Gershwind added MSC has “taken swift actions to correct the issues in government, but I do expect it to remain a headwind over the next couple of quarters.”
MSC is also facing a challenge from tariffs on products imported from China, though for now its exposure to tariff-related cost increases is “under 5% of our total cost of goods,” Gershwind said. He added that MSC expects to pass the tariff impact on to customers.
Value for small-company accounts
On a more positive note, Gershwind said MCS’s direct marketing channel sales to small-company accounts—helped in part by web pricing—“grew double-digits” in Q4, followed by growth “in the mid-teens” that extended into September. “Although less than 10% of sales, we view this as another encouraging sign, as an indication that we can bring our new value proposition to life even without a live person in the right-sized accounts.”
MSC’s formal corporate name is MSC Industrial Direct Inc., but it generally goes by MSC Industrial Supply, the name of its primary operating unit.
For the fiscal fourth quarter ended Sept. 1, 2018, MSC reported:
- Total net sales of $838.0 million, up 11.2% from $753.8 million in the year-earlier quarter;
- Gross profit of $359.67 million, up 7.9% from $333.45 million, resulting in a gross profit margin of 42.9%, up from 44.2%;
- Net income of $73.02 million, up 20.2% from $60.75 million;
- A SKU count of “nearly 1.65 million,” up by “roughly 40,000” from Q3.
For the fiscal year ended Sept. 1, MSC reported:
- Total net sales of $3.204 billion, up 10.9% from $2.888 billion;
- Gross profit of $1.393 billion, up 8.3% from $1.286 billion;
- Net income of $329.22 million, up 42.3% from $231.43 million.
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