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Fastenal Company Reports 2010 Fourth Quarter And Annual 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 drive 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'.

During 2010, we modified our thought process around the 'pathway to profit' in two regards: (1) we have structurally lowered our cost structure and believe we can hit our profitability target in the 'pathway to profit' initiative before our stores reach $125 thousand per month (see evidence of this in our 'Store Size and Profitability' table later in this release) and (2) we have expanded the universe of 'sales people' we measure from strictly 'store personnel' to 'store personnel' and 'non-store selling personnel'. This latter group includes, among others, the following: (1) national accounts personnel, (2) dedicated sales specialists (manufacturing, government, industry focused, and automated solutions), (3) district sales managers, and (4) regional leaders and others generally engaged in regional sales support. We began to ramp up our investments in both groups beginning late in 2009 and throughout 2010.

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 second half of 2010 we opened 82 stores. In 2011, we intend to open 150 to 200 new stores, or an annualized rate of 6.0% to 8.0%.

Store Count and Full-Time Equivalent (FTE) Headcount – Because of our '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 5.4% and 3.0% new stores in calendar 2010 and 2009, respectively) and our FTE headcount for all types of personnel was reduced when the economy weakened late in 2008. The number of stores at quarter end, the average headcount at our stores per quarter, the average FTE headcount per quarter, and the percentage change were as follows for the first quarter of 2007 (the last completed quarter before we began the 'pathway to profit'), for the third quarter of 2008 (our peak quarter before the economy weakened), and for each of the last five quarters:

  Q1 Q3 Q4 Q1 Q2 Q3 Q4
  2007 2008 2009 2010 2010 2010 2010
               
Store locations-quarter end count 2,073 2,300 2,369 2,392 2,407 2,453 2,490
 % change (twelve months)    7.2% 2.5% 2.1% 2.4% 4.3% 5.1%
 % change since Q1 2007   11.0% 14.3% 15.4% 16.1% 18.3% 20.1%
               
Store personnel - absolute headcount 6,849 9,123 8,519 8,404 8,401 8,643 9,048
 % change (twelve months)    17.9% -9.9% -7.8% -3.7% 0.4% 6.2%
 % change since Q1 2007   33.2% 24.4% 22.7% 22.7% 26.2% 32.1%
               
Store personnel - FTE 6,383 8,280 7,007 7,004 7,118 7,450 7,611
Non-store selling personnel - FTE 616 599 597 594 591 639 712
 Sub-total of all sales personnel - FTE 6,999 8,879 7,604 7,598 7,709 8,089 8,323
               
Distribution and manufacturing personnel-FTE 1 1,962 2,244 1,768 1,800 1,884 2,007 2,040
Administrative personnel-FTE 767 805 701 706 707 726 744
 Sub-total of non-sales personnel - FTE 2,729 3,049 2,469 2,506 2,591 2,733 2,784
               
Total - average FTE headcount 9,728 11,928 10,073 10,104 10,300 10,822 11,107
% change (twelve months)              
Store personnel - FTE   15.2% -15.1% -9.7% -1.2% 5.1% 8.6%
Non-store selling personnel - FTE   -2.4% -2.1% -1.3% 0.3% 9.0% 19.3%
Sub-total of all sales personnel - FTE   13.8% -14.2% -9.1% -1.1% 5.4% 9.5%
               
Distribution and manufacturing personnel-FTE 5.4% -20.3% -8.7% 1.5% 13.8% 15.4%
Administrative personnel-FTE   7.9% -12.6% -10.7% -8.5% -1.4% 6.1%
 Sub-total of non-sales personnel - FTE   6.0% -18.2% -9.3% -1.4% 9.4% 12.8%
               
Total - average FTE headcount   11.7% -15.2% -9.1% -1.2% 6.4% 10.3%
               
% change since Q1 2007              
Store personnel - FTE   29.7% 9.8% 9.7% 11.5% 16.7% 19.2%
Non-store selling personnel - FTE   -2.8% -3.1% -3.6% -4.1% 3.7% 15.6%
 Sub-total of all sales personnel - FTE   26.9% 8.6% 8.6% 10.1% 15.6% 18.9%
               
Distribution and manufacturing personnel-FTE 14.4% -9.9% -8.3% -4.0% 2.3% 4.0%
Administrative personnel-FTE   5.0% -8.6% -8.0% -7.8% -5.3% -3.0%
 Sub-total of non-sales personnel - FTE   11.7% -9.5% -8.2% -5.1% 0.1% 2.0%
               
Total - average FTE headcount   22.6% 3.5% 3.9% 5.9% 11.2% 14.2%
               

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

We have reduced our average FTE headcount at our store locations 8.1% since our peak of 8,280 average FTE headcount in the third quarter of 2008, much of this decrease relates to a reduction in part-time hours worked as our average absolute headcount numbers related to store personnel declined by 0.8% during this time period. 

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