MSC's strategy pays off

In releasing its third-quarter fiscal earnings results last week, MSC Industrial Direct reported a net sales growth of 28.5 percent compared to the same quarter last year and clearly indicated that its strategic plan to deal with the recession is paying off. Net sales for the first nine months of fiscal 2010 for the giant MRO distributor were $1.231 billion compared with $1.135 billion in the first nine months of fiscal 2009.

While other companies slashed headcount during the deep recession, MSC did not lay off one employee. Instead, MSC focused on increasing its sales training and education for employees; instituted a next-day delivery, same day shipping system; and continued its investment in e-commerce, all of which have paid off extremely well, according to company executives.

"Given our experience in past downturns and our deep understanding of how these times impact local and regional competitors in our fragmented market, we believed in our plan and the share gains it would produce. I am happy to say we are now beginning to see our investments validated in our results," said David Sandler, president and chief executive officer. "Although there remains significant uncertainty relating to the economic environment and the current recovery, we are confident that our growth in market share will continue to accelerate."

In an earnings call report with financial analysts, Sandler that said unlike many of his competitors, MSC is “not scrambling”to fill gaps in service, to hire and train new people to support growth, and does not have the supply chain issue that many others have. “Although there remains significant uncertainty relating to the economic environment and the current recovery, we are confident that our growth in market share will continue to accelerate. As customer businesses have begun to recover, the demand on MRO distributors have grown quickly," he said.

“The supply chain has begun to stretch and customers do not want to or cannot afford to restock their inventories of supplies. Increased production and backlogs mean that customers can no longer wait several days for their orders. This is now a just-in-time world.

“We've increased our spending on electronic channels, and this will continue throughout Q4, as the results are excellent. Our broader e-commerce initiative remains on track and continues to hold great promise for further revenue growth and earnings leverage in the future. Our large account program continued its robust growth as we build upon our success in this sector.

"And our investment in Asian sourcing, private branding, and our product management initiatives also continue. We are using these programs to offset near-term gross margin headwinds, and ultimately, to expand our gross margins over time.”

Meanwhile, customer inventory levels of MRO products have increased over last quarter but remain well below historical levels, according to Erik Gershwind, executive vice president and chief operating officer.

"We are seeing what we describe as cautious restocking among our customers, with an overall level of caution and a desire to run lean and preserve cash," Gershwind said.

For the fiscal 2010 fourth quarter, the company expects net sales to be between $446.0 million and $458.0 million.