The distributor of industrial and construction supplies grew sales 13% last year to nearly $5 billion, but much faster growth—20%—came via its internet-connected product-dispensing vending machines.

Fastenal Co. is “investing to grow rapidly” as it moves from “a $5 billion to a $10 billion company,” CEO Dan Florness says.

Dan Florness, president and CEO,
Fastenal Co.

To reach that goal, he said on a conference call with stock analysts yesterday, the distributor of industrial and construction supplies will “have to do things better” and control expenses while also growing revenue.

Regarding revenue growth, total net sales for 2018 increased 13.1% to just under $5 billion. But much faster growth came from internet-connected, product-dispensing vending machines located at customer locations, where workers can retrieve items ranging from metal-cutting tools and lubricants to work gloves and shop aprons. “Sales through our machines rose more than 20% in 2018, Holden Lewis, executive vice president and chief financial officer, said on the conference call, according to a transcript from Seeking Alpha.

To retrieve items, employees of a Fastenal customer log into the vending machine for authorized access. As they remove products, an internet sensor records the transaction and updates financial and inventory records. The corporate customer can access an online dashboard to view records of transactions and check that individual employees and departments purchased items within their authorized budgets. Fastenal also monitors inventory levels in each machine, which gets re-stocked by the distributor’s staff.

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Fastenal doesn’t break out e-commerce sales, but executives point to the importance of online channels to the company’s growth. Lewis added that Fastenal was continuing to benefit from “healthy growth” through the company’s e-commerce channel at Fastenal.com, and he and Florness cited the rapid growth and investment in the number of vending machine installations.

Fastenal wrapped up 2018 with more than 81,000 vending machines at customer locations, up 14% over 2017, and it expects to sign contracts for about 25,000 more this year, Lewis said. Fastenal also grew its number of “Onsite” locations, which are “stores” and inventory management services Fastenal sets up with its own supply chain experts at a customer’s location to make its products immediately available. Onsite locations, which can include Fastenal’s vending machines, increased in number by 47.8% to 894.

Same-day delivery

Fastenal also cut its number of public stores, or branches, last year by 6.5% to 2,227 from 2,383 in 2017. It uses these branches to complement its e-commerce site, allowing customers to order products online and arrange with their local branch for same-day delivery. Fastenal says that, as it learns what products an individual customer needs most often, it will stock that customer’s nearest branch with those products.

The company ended 2018 with 21,619 employees, up 5.1%. Florness, noting that employees are important part of the company’s multichannel operations, said employee base pay rose about 9% year over year in 2018 and that incentive compensation increased 20%. He noted that for every dollar spent on payroll last year, the company earned $1.04 in profit.

For the fourth quarter ended Dec. 31, 2018, Fastenal reported:

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  • Net sales of $1.232 billion, up 13.1% from $1.089 billion in 2017;
  • Gross profit of $587.8 million, up 10.7% from $531.2 million, resulting in a profit margin of 47.7%, down from 48.8%;
  • Net earnings of $168.8 million, up 10.8% from $152.4 million.

For the year ended Dec. 31, Fastenal reported:

  • Net sales of $4.965 billion, up 13.1% from $4.391 billion in 2017;
  • Gross profit of $2.40 billion, up 11% from $2.16 million, resulting in a gross profit margin of 48.3%, down from 49.3%;
  • Net earnings of $751.9 million, up 30.0% from $578.6 million.

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