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Fastenal Company Reports 2010 Third Quarter Earnings

The 'pathway to profit' initiative allows us to focus on the three drivers of our business: (1) store headcount, (2) store (or unit) growth, and (3) average sales volume per store, which ultimately drives our level of profitability. Our original goal was to hit the $125 thousand per month store average by 2012. We believe the duration of the economic weakness could delay the timing of when we achieve the $125 thousand per month average by approximately two years. However, the current economic weakness only serves to strengthen our belief in the 'pathway to profit'.

Future store openings – In July 2010, we indicated our intentions to open 80 to 95 new stores during the second half of 2010, or an annualized rate of 6.8% to 8.0%. During the third quarter of 2010 we opened 45 stores; our goal for openings in the second half of 2010 remains unchanged. 

Store Count and Full-Time Equivalent (FTE) Headcount – In response to the 'pathway to profit', we increased both our store count (opening 7.5% and 8.1% new stores in calendar 2008 and 2007, respectively) and our store FTE headcount. However, the rate of increase in store locations slowed (we opened 3.0% new stores in calendar 2009) and our FTE headcount for all types of personnel was reduced when the economy weakened late in 2008. The number of stores at quarter (QTR) end, the average FTE headcount per quarter (QTR), and the percentage change were as follows for each of the last five quarters, for the third quarter of 2008 (our peak quarter before the economy weakened), and for the first quarter of 2007 (the last completed quarter before we began the 'pathway to profit'):

  QTR 3 QTR 2 QTR 1 QTR 4 QTR 3 QTR 3 QTR 1
  2010 2010 2010 2009 2009 2008 2007
               
Store locations-quarter end count 2,453 2,407 2,392 2,369 2,352 2,300 2,073
% change (twelve months)  4.3% 2.4% 2.1% 2.5% 2.3% 7.2%  
% change since March 2007 18.3% 16.1% 15.4% 14.3% 13.5% 11.0%  
               
Store personnel - absolute headcount 8,643 8,401 8,404 8,519 8,608 9,123 6,849
% change (twelve months)  0.4% -3.7% -7.8% -9.9% -5.6% 17.9%  
% change since March 2007 26.2% 22.7% 22.7% 24.4% 25.7% 33.2%  
               
Store personnel - FTE 7,450 7,118 7,004 7,007 7,087 8,280 6,383
Distribution and manufacturing personnel - FTE 1 2,007 1,884 1,800 1,768 1,763 2,244 1,962
Administrative and sales support personnel - FTE 1,365 1,298 1,300 1,298 1,322 1,404 1,383
Total - average FTE headcount 10,822 10,300 10,104 10,073 10,172 11,928 9,728
               
% change (twelve months)              
Store personnel - FTE 5.1% -1.2% -9.7% -15.1% -14.4% 15.2%  
Distribution and manufacturing personnel - FTE 13.8% 1.5% -8.7% -20.3% -21.4% 5.4%  
Administrative and sales support personnel - FTE 3.3% -4.7% -6.7% -8.1% -5.8% 3.2%  
Total - average FTE headcount 6.4% -1.2% -9.1% -15.2% -14.7% 11.7%  
               
% change since March 2007              
Store personnel - FTE 16.7% 11.5% 9.7% 9.8% 11.0% 29.7%  
Distribution and manufacturing personnel - FTE 2.3% -4.0% -8.3% -9.9% -10.1% 14.4%  
Administrative and sales support personnel - FTE -1.3% -6.1% -6.0% -6.1% -4.4% 1.5%  
Total - average FTE headcount 11.2% 5.9% 3.9% 3.5% 4.6% 22.6%  

We have reduced our FTE headcount at our store locations 10.0% since our peak of 8,280 FTE headcount in third quarter of 2008, much of this decrease relates to a reduction in part-time hours worked as our absolute headcount numbers related to store personnel declined by 5.3% during this time period. Since the first quarter of 2007, the last completed quarter before we began the 'pathway to profit', our store count is up 18.3%, our absolute store headcount is up 26.2%, and our store FTE headcount is up 16.7%. During this timeframe, our non-store FTE headcount increased from 3,345 to 3,372 1, or 0.8%. We believe these fluctuations allow us to manage our expense in the short-term while maintaining our ability to sell into the marketplace.

1   Note – The distribution and manufacturing headcount was impacted by the addition of 92 employees with the acquisition of Holo-Krome in December 2009.

Store Size and Profitability – The store groups listed in the table below, when combined with our strategic account stores, represented approximately 87% and 89% of our sales in the third quarter of 2010 and 2009, respectively.  Strategic account stores are stores that are focused on selling to a group of strategic account customers in a limited geographic market. Our remaining sales (approximately 13% to 11%) relate to either: (1) our in-plant locations, (2) our direct Fastenal Cold Heading business (including our Holo-Krome business acquired in December 2009), or (3) our direct import business. Our average store had sales of $71,600 and $61,600 per month in the third quarter of 2010 and 2009, respectively. This average amount was $71,600 per month in the first quarter of 2007 (the last completed quarter before we began the 'pathway to profit'). The average age, number of stores, and pre-tax margin data by store size for the third quarter of 2010 and 2009, respectively, were as follows:

Sales per Month Average Age (Years) Number of Stores Percentage of Stores Pre-Tax Margin Percentage
Three months ended September 30, 2010
         
$0 to $30,000 3.8 419 17.1% -11.0%
$30,001 to $60,000 6.7 913 37.2% 13.2%
$60,001 to $100,000 9.4 595 24.3% 22.7%
$100,001 to $150,000 11.7 325 13.2% 26.0%
Over $150,000 15.5 166 6.8% 27.5%
Strategic Account Store   35 1.4%  
Total   2,453 100.0%  
 
Three months ended September 30, 2009
         
$0 to $30,000 3.9 541 23.0% -17.7%
$30,001 to $60,000 6.4 929 39.5% 9.7%
$60,001 to $100,000 9.5 521 22.2% 20.0%
$100,001 to $150,000 11.8 231 9.8% 24.2%
Over $150,000 15.9 105 4.5% 26.6%
Strategic Account Store   25 1.1%  
Total   2,352 100.0%  

Note – Amounts may not foot due to rounding difference.

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