MSC Industrial Direct Co., Inc. (NYSE:MSM) Q2 2023 Earnings Call Transcript

Page 9 of 10

And if you look at the areas that are the shining stars right now, they are the areas that we have pivoted to. The high touch, the solutions, areas like public sector where we feel like there’s a moat around the business. So the stuff that’s growing above company average are the portions of the business where we’re technical, we’re high touch and we feel like the moat is the deepest, that has me really excited. The flip side is, obviously, if there’s portions that are growing higher than company average, there’s other portions that have to be growing under company average. And I think that’s what you’re nipping at. And what I would say there Pat is the areas that are growing under company average are more of the legacy business. And by legacy business, I would mean small customers, pure spot buy commodity transactions, that would be the stuff that is growing, but it’s growing less than company average.

So to me that’s encouraging and it actually paints even more of a runway. And I think what Kristen and Martina and team are digging into right now is two levers that we see, because ultimately, we’re not satisfied with growth where is at. We want to see it get even better. And there’s two levers. Number one is, how do we scale the new stuff, the part of the strategy even faster, in-plant, vending, the high touch, what we’re doing in public sector, like we’re gaining momentum and we think we can scale it even faster, that’s part one. Part two is, how do we get the things that are growing below company average? How do we get that legacy business up to at least the company average? And what has me encouraged there Pat, this is stuff like — this is the legacy, the bread and butter of the MSC.

So I think it’s absolutely doable. And we’ve sprinkled through the comments a bunch of things that we have going right now to do so. So number one, we hit on e-commerce enhancements. And that will be a never ending journey, but I’m really excited by the energy and the talent that John has brought to our e-commerce. So if you look at our e-commerce numbers and obviously e-commerce has application across the board, all customer sizes, but certainly for smaller customers, the enhancements we’re putting in place, we’re already doing pretty well in e-com. We think we can be doing better. And so you’re going to see those enhancements improve things in the coming quarters. Number two, the category line reviews, we talked about optimizing the portfolio of both in terms of products and suppliers.

In some cases that will mean new product additions, in other cases, it’s going to mean streamlining the offering. And that is not only about cost position, it’s about creating a really great shopping experience for the customer. So that’s the second thing. The third one that we didn’t highlight, but it’s there, and it’s probably worth mentioning is, we have a bunch of marketing activities. So there has been sort of a regeneration energy around marketing programs geared towards smaller customers. And what we’re trying to tap into right now Pat is, how we bring our value — this high touch technical value proposition that is so — working so well with larger customers? How do we bring it in a cost effective way to smaller customers? And that’s where our marketing team is focused right now.

So those would be examples of things that our goal is to re-energize. So if you think about the progress we’re making at the top right now, where we focus, if we can bring the water level up on the rest, it really gets excited.

Patrick Baumann: That’s helpful color. Do you feel like — is price a barrier at all to growth in that part of the business or do you feel like you’re kind of in the ballpark on price for that portion of sales?

Page 9 of 10