The Fastenal Company of Winona, MN, reported the results of the quarter ended June 30, 2013. Except for per share information, or as otherwise noted below, dollar amounts are stated in thousands.

On June 30, 2013, Fastenal had 2,677 stores. During the first six months of 2013, it opened 33 new stores, an increase of 1.2% since December 2012 (Fastenal has increased its store count by 1.6% since June 30, 2012).

On June 30, 2013, the company operated 29,549 FAST SolutionsSM (industrial vending) machines. During the first six months of 2013, it installed 8,454 new machines, an increase of 40.1% since December 2012 (Fastenal increased its machine count by 126.7% since June 30, 2012). On June 30, 2013, the company had 15,760 employees, an increase of 4.1% since December 2012.

The increase in net sales in the first six months of 2013 and 2012 came primarily from higher unit sales. Growth in net sales was impacted by inflationary price changes in our non-fastener products and some price deflation in our fastener products, but the net impacts were limited.

Growth in net sales was not meaningfully impacted by the introduction of new products or services, with one exception, our FAST SolutionsSM (industrial vending) initiative did stimulate faster growth with a subset of customers.

The higher unit sales resulted primarily from increases in sales at older store locations and to a lesser degree the opening of new store locations in the last several years.

Growth drivers

In its first ten years of being public (1987 to 1997), Fastenal opened stores at a rate approaching 30% per year.  In the next ten years, it opened stores at an annual rate of approximately 10% to 15% and, over the last five years, at a rate of approximately 3% to 8% (Fastenal currently expects to open approximately 55 to 80 stores in 2013, or approximately 2.0% to 3.0%). 

Vending machine strategy

The company’s FAST SolutionsSM (industrial vending) operation is a rapidly expanding component of its business.  Officials believe industrial vending is the next logical chapter in the Fastenal story; they also believe it has the potential to be transformative to industrial distribution, and that Fastenal has a ‘first mover’ advantage. The company is investing aggressively to maximize this advantage.

 One of the vending goals relates to the rate of ‘machine signings’ — the goal was simple, sign 2,500+ machines per quarter (or an annualized run rate of 10,000 machines). In 2012, the company  hit its annual goal of 10,000 machines during July, and the momentum continued through the year. Fastenal says it intends to continue its aggressive push with FAST SolutionsSM (industrial vending) and, to this end, established an internal goal to sign 30,000 machines in 2013, or 2,500 per month rather than per quarter. “This was a very aggressive goal, and, in hindsight, we should keep very aggressive goals to ourselves,” said company officials

In the first half of 2013, Fastenal has signed approximately 11,000 machines. It consciously slowed the pace in the second quarter to promote a ‘quality of install’ mentality into the rapid approach. Fastenal thinks this was a good move and will continue this practice. Despite this change, the company signed 20% more vending machines in the first half of 2013, when compared to the first half of 2012.