FAST
#June was disappointing, there's no question.
And even at the 1% on the extra day, it was not where we wanted it.
And when you look at ---+ when you talk about outside of the oil and gas, some bright spots for us, I look at some things that are happening and taking place within the business in Florida, in California, in some of our Midwest regions.
We're starting to see Canada, when you really factor in the native currency, is actually performing well.
And so this oil and gas thing, as we've talked before, <UNK>, it's just got such a ripple effect through the economy and through the business, that it's just weighting us down.
But if you look at non-res, we think when we look at our information, we believe that's heavily tied to oil and gas.
So that's a factor.
We look at ag and heavy manufacturing ---+ all headwinds right now for us.
That's a fair statement.
That's the assumption I'm going on, too.
I believe so.
We've touched on that and really talked about the mix and what it does to gross profit.
But the inherent cost structure that we have and the ability to leverage that cost structure ---+ one of the things I shared with our Board yesterday is, if you look at our business, we have the 80% of our business that's going through either a US or Canadian store.
And 20% of our business that's either going through what we call an on-site situation ---+ or a strategic account store where we have a very close, tight relationship with a large customer ---+ or our non-US and Canadian store business.
If I set those aside and look at the 80% that is the store business, when we set up the Pathway to Profit back in 2007, most of our business was going through that store piece.
And we said as this piece continues to mature, we could take the operating margins from the 18.3% we are at, to north of 23%.
This quarter, if I look at strictly the store subset ---+ so that chunk of business that represents about 80% of our sales ---+ we were at north of 23%.
So we actually hit our Pathway to Profit target in that subset of stores.
And we've always said that's a point-in-time number, because that group of stores is about $106,000 a month in business.
So I think it's a very bullish for our long-term ability to drive the profit machine that is Fastenal.
You bet.
Well, the leverage that we described in Pathway to Profit, that's structural.
That's a case of, our occupancy as a percentage of sales continues to decline, because we're running more dollars through that same building.
The portion of our labor that's tethered to the store becomes a smaller and smaller portion of our labor pool.
Those kinds of things are structural.
The things that aren't structural that are part of the tug-of-war of life, if you will, is one of the challenges <UNK> put out to the team, and I think the team responded tremendously to, is: folks, we're investing and adding all these people.
We can't spend money doing other things.
We've always been [prival] to traveling.
And sometimes we joke about some of the things we do when we travel, because that's who we are.
We doubled down on that.
Now, how permanent that component is, is a function of the tug-of-war of life.
If we were growing faster, <UNK>'s message might not have resonated quite as deeply with our district managers, our national accounts folks, our regionals.
Because they might be traveling a little bit more because they're visiting more customers, they're visiting more people, they're doing more things.
And sometimes you dial that back.
Maybe you don't need to have that meeting.
Maybe you have that meeting as a conference call rather than a face-to-face.
Maybe you do these things in the short-term.
But those in the scheme of our expense pool are relatively small, but they're very symbolic.
And the fact that we managed our travel, our non-store operating expenses, as well as we did, I think, was enhanced by the call to action that <UNK> put out there three, six and 12 months ago.
But we demonstrated we can do it when we need to do it.
Because when you're growing your top line 5%, you've got to do things like that, that may maybe you wouldn't have to do if you were growing at 12% or 14%.
Rob, I would just add one thing, though, and you have to link this together.
That when you put a call out to the troops, and you get them into the why ---+ and I said that at the opening ---+ they were asking and they want to grow.
Their commission plans are set up that way.
So they want to grow, they want to take market share, they want to serve at a high level.
When you put out there that we want to add energy into your store, but I need a little help over here ---+ that's what we're talking about.
They saw the reason, and they responded.
Like <UNK> said, the team just did a tremendous job.
Oh, that will be in our Q.
Let me see if I have that page handy here.
Let's see.
On a machine-equivalent basis, okay, the signings number would be 3,931 versus the 2,916 that we did in the first quarter.
The installed at the end of the period would be 37,714 versus 35,997 at the end of first quarter.
And I think the rest of the stuff was in our release.
We have a group of store employees, district managers and national account members that are key to driving that number.
Because one thing that we know about our business that we keep reiterating with our team: the vending machine is a sign of engagement with your customer.
If you are truly engaged with your customer, you should be able to put vending machines out there and it makes the business stickier.
And it's just good common sense.
Have a reason to be in talking to your customer multiple times a week.
I think the other thing too, Rob, is, again, I worked in the store and when you ---+ again, it's a world of competition, and we like that.
We love it.
And so when a competitor comes in and they see our blue machines in there, our folks are starting to understand that how tough it is for the competition to get us out.
It's a learning curve with 2,600 stores, 2700 stores.
But more and more stores are adopting, more and more stores are seeing the benefit.
More customers ---+ and for me personally, if I'm in a store and I have a customer with vending, and I show you and take you to that customer, and you see it in action, that is how we continue to see more engagement and more adoption in the field.
I think it's what we said earlier.
I think this is actually linked to what's going on with our national accounts.
Everybody's engaged with vending, whether it's the local store, district managers, regionals and national accounts.
But as our national accounts are providing the growth, they're also providing a lot of what we're seeing on our vending right now.
Yes, sir.
And it's 9:42, Central.
It looks like we have time for one quick question, if there's any left.
Our goal is always to be as close to 30% as we can.
And I was pleasantly surprised by the fact we were able to hit 40%, despite the fact that June came a little bit weaker than we thought it was going to be.
And I noted that on the last call; we get antsy when that number is below 25%.
Because if that number isn't at least better than our operating profit, what's causing us to lose that.
Now, if we're losing that because we are consciously making an investment in something, that's one thing.
But our anxiousness rises if we're not meaningfully beating that number.
We've seen the impact in our revenue, we've seen the impact in our gross profit.
It's difficult to quantify it, because sometimes there's a lot of noise in the numbers.
We have different customers in there.
You have customers we are changing the source of supply, because you're bringing a better cost value to them.
It's not just in steel; it can be in non-steel products as well.
But there's no doubt about it, steel is creating headwind for us, and it's creating some challenges.
It also creates some opportunities.
Earlier, when asked about our gross margin change, I indicated about half the drop from Q1 to Q2 centered on our supplier incentives, and probably about a quarter of the drop related to the impacts of pricing.
Yes.
Thank you.
