MSC Industrial Direct Co., Inc. (NYSE:MSM) Q2 2024 Earnings Call Transcript

Chris Dankert: And then I guess, following the DC closure in Columbus, just what level of sales of the business currently set up for us is there’s still some more efficiency programs and adjustments going on there. But make just a general sense for like what level of sales can we serve today following that closure?

Erik Gershwind: Yes, Chris. So what I would say is this closure, obviously, a decision like this takes a lot of time with a very long time horizon in mind. The business with the 4 primary distribution centers that will remain post Columbus plus the rest of the network can support substantial growth, and really, we had already had from a geographic coverage standpoint, a pretty good situation. Columbus was around throughput. And I mentioned the two factors that had changed. So with those two factors, i.e., 1 being the mix of solutions business and two being automation, which there’s plenty of still opportunity to go on the automation front that there is a lot of room for throughput capacity. The other point I would say is that we are — this networks, I mentioned in addition to Columbus, we’ve launched a network study.

So that network study really has two goals in mind. One is going to be around productivity. So you can expect us to come back with productivity targets and go gets that will be part of our self-help story here towards mid-teens operating margins. The other part of that study though is how do we provide better customer service. So we expect the productivity opportunity. We also expect opportunities to provide even better service and allow the network to support us way into the future. So punchline is, we feel good about where we are now to support continued growth, and I think we’re going to get more opportunities coming out of the network study.

Operator: And our final question today comes from Ken Newman with KeyBanc Capital Markets. Please go ahead.

Ken Newman: Good morning. I just wanted to take the back half bridge maybe a little bit differently. If you look in the operational statistics deck, you do have that historical monthly seasonality table in there. And I think if you just follow it from where you’ve got the preliminary March numbers, it does take you below the low end of your full year guide. Outside of the stuff that you kind of highlighted from first half to second half, I’m just curious if there’s anything else in there that we should kind of be aware of, whether it’s just timing of holidays. I think Good Friday is going to be here in March versus April typically. I don’t know if there’s a way you can help us quantify that impact? Or if there’s anything else there that we should be aware of from a monthly seasonality perspective?

Kristen Actis-Grande: Yes, Ken. So on the — maybe I’ll start with the second part of your question first on Good Friday. Because of our lovely since calendar, Good Friday was actually in the fiscal month of March, both last year and this year. So there’s always a little bit of noise depending on whether that’s the last day of the month or not, but I’d say largely a nonevent with March. To the first part of your question, yes, if you run out like the seasonality, kind of normal average seasonality for the year, to your point, you would end up at a number that’s below the bottom of the guidance. And there’s really two main buckets of things that we are looking at improving upon that would drive that inflection differently, sequentially, first half to second half than the normal seasonality month-over-month would imply if you run that out.

First is the macro recovery we talked about kind of lumpy, I guess, the destocking thing that Steve mentioned into that. And then two is the growth initiatives. And again, it’s tough to peg exactly when — which month they come online. If you think about all the items we outlined, solutions, good line of sight to public sector, pretty good line of sight to demand gen, we obviously have some assumptions on when that time, but if you think about the core customer energy or the reenergizing the core customer initiative and what you get on volume lift from the list price repositioning and then the improvements from web, those are really the two toughest to model from an inflection perspective because we don’t have anything in our historical baseline that tells us how to think about those.

So when you think about modeling kind of range of assumptions that you’re putting on different initiatives, we have to make a pretty wide set of assumptions about those two. So it does make the second half modeling tricky, and it’s also why we’re over-rotating on the 3 parts of the growth initiatives that I outlined earlier, again, the solutions, the demand gen, and the public sector line of sight. But yes, you absolutely have to have macro improvement and the inflection from the growth initiatives to drive a different expectation if you were to just — I know what you’re saying run out the month-over-month projection.

Ken Newman: From a follow-up, obviously, others have touched on it earlier in the call, but obviously, you’ve got a lot of things going on in the OpEx line. I am curious if there’s any expected impacts from any supply chain friction, whether that’s from shipping lane dynamics, from stuff coming over the water or maybe even this Baltimore bridge, which I’m guessing is still maybe a nonevent for you guys as of now. But how do you think about transport logistic cost kind of flowing through the income statement into the back half?