Net sales at MSC Industrial Supply Co. increased 7% year over year to $823 million in its fiscal second quarter, as the company continues to build on its internet sales including its product-vending machines placed at customer locations.

Ecommerce sales were less of a revenue driver than in prior quarters, however, increasing 6.5%, investment analyst Sam Darkatsh of Raymond James & Associates noted on a conference call with MSC executives today. “That’s the first time total ecommerce platform sales were not a growth driver,” he said, when asking why.

MSC’s ecommerce platform includes sales through its ecommerce site MSCDirect.com and its internet vending program; its ecommerce sales have consistently grown more sharply than total sales in recent years, bringing ecommerce to about 60% of total sales.

Carlos Lara,
Head of MSC Mexico

On the conference call, MSC CEO Erik Gershwind and Rustom Jilla, chief financial officer, cited two main reasons for the relatively slow growth: acquisition activity, including its April 2018 purchase of the AIS fastener business, can bring in relatively low or “zero” ecommerce sales; and the increase in vending contract signings in Q2 will take time to produce revenue.

“We’re actually really excited to see vending really taking off this year,” Gershwind said. But many of the vending contract signings “are not yet making their way into sales numbers,” he said, adding: “When we sell vending to customers, only a portion runs through the vending machine; many [sales] also run outside of the machine, and may or may not be electronic.”

MSC didn’t break out ecommerce as a percentage of total sales for its fiscal second quarter, which ended March 2. But it said ecommerce sales in its fiscal first quarter, which ended Dec. 1, 2018, were 60.1% of total sales, resulting in $499.79 million in Q1 ecommerce sales, up 8.7% from the prior-year quarter. By comparison, total Q1 sales increased 8.2%.

For the recently closed second quarter, MSC’s ecommerce sales increase of 6.5%—slightly below the 7.0% increase in total sales, kept its ecommerce sales at close to $500 million, or about 60% of total sales.

Gershwind noted today that MSC was “pleased” with the market response to MSC’s price increase of between 2% and 3% in February.

Gershwind also said that MSC has established MSC Mexico after acquiring a majority stake in a Mexico-based distributor, TAC Global Solutions. “We view Mexico as a strategic foothold for us, and a critical component of presenting ourselves to national accounts as a North American supplier,” he said. “A direct presence there allows us not only to support current U.S. customers with Mexican plants, but also opens up the Mexican market for us, which is a meaningful long-term growth opportunity.”

Carlos Lara, who is a co-founder of TAC, will lead MSC Mexico; he also owns a minority interest in the new business.

MSC’s formal corporate name is MSC Industrial Direct Co. Inc., but it generally goes by MSC Industrial Supply Co., the name of its primary division.

For the second quarter ended March 2, MSC reported:

• Total sales increased 7.0% to $823.0 million;
• Gross profit increased 4.3% to $351.8 million, resulting in a gross profit margin of 42.7%, down from 43.9%;
• Net income of $68.43 million, down from $117.6 million; the change in income was partly the result of tax changes.

For the 26 weeks ended March 2, MSC reported:

• Total sales increased 7.6% year over year to $1.655 billion;
• Net income was $142.66 million, down from $177.14 million.

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