Fastenal Company (FAST)’s Q4 and FY2014 Earnings Results Conference Call Transcript

David Mandy – Analyst

Okay alright thanks Will. And then on the gross margins always gets far too much attention lately, but the 51% as i look historically as the company maintains that level of gross profit, profitability. I know that historically there’s been offsets whether that was direct sourcing Fastenals or ramp up the exclusive brand or change it to the logistics network etc. So i know historically even no national councils have moved up in the mix and non fasteners as a percentage of the mix. You’ve been able to maintain that level. what I’m wondering about is as those secular changes continue as they have in the past several decades, are there offsets that will allow you to remain in that range or is it just we’ve reached a point where gross margins could potentially be lower and we have to rely on better cost leverage?

Willard D. Oberton – Chairman

Well if you recall, I probably tried to walk through what happened from the past that the profit as our average store size could stagger. But i think that’s really the underlying cause of a lot of what we’re trying. Our average store size is fair cuz we’re more and more successful with our larger customers and we drive some key accounts in those individual stores. And that’s what pushes a store from 80 to a 100. Or from a 100 to 150 or 150 to 200. Over time we have some 40 and 50000 dollars per month customers. Or maybe even 80000 dollars per month customers. But you have some big businesses coming into stores and like i talked about in the last call if i look at our stores that do more than a hundred thousand a month in sales so at the time it was just over a thousand of our 2700 hundred stores. That group operates at a lower gross margin and it goes up to 70 bases points lower than the company does. And so as we move from a 100 to a 110 to a 130 to a 160000 average store over the next few years cuz we’re only nominally adding units. Which means our average store size is gonna grow. I would expect our gross margin to compress and right know I’d be expecting it to be close to over 50. And that say 51 or 50.5 we just reported because of the impact of that. But as I also talked about given up that 70 bases points you give up You pick up about 450 bases points in operating leverage. And that’s the secret.

Leland J. Hein– President & CEO

That’s going out over 1-3 years.

Willard D. Oberton – Chairman

Oh, absolutely let’s look it out into the future because that group of stores had over 160000 dollars a month.

Leland J. Hein – President & CEO

Yeah and just quarter of that group of stores is a 20.5 % pretext. That’s the 4th quarter. So that gives the idea of a potential of the profitability of the organization.

David Mandy – Analyst

Yeah got it. Okay thanks a lot, stay warm.

Leland J. Hein – President & CEO, Will & Dan

Thanks Dave