快扣 (FAST) 2008 Q4 法說會逐字稿

Good day, everyone and welcome to the Fastenal Company 2008 annual and quarter four earnings conference call.

This call will be hosted by Mr Will Oberton, Chief Executive Officer, and Mr Dan Florness, Chief Financial Officer.

The call will last up to 45 minutes.

The call will start will a general overview by our Fastenal hosts Mr Oberton and Mr Florness.

The remainder of the time will be open for questions and answers.

Today's conference call of Fastenals presentation is being recorded by Fastenal.

The remaining telephone time will be open for questions and answers.

Today's conference call is being recorded by Fastenal.

No recordings, reproduction, transmission or distribution of today's call is permitted without Fastenal 's consent.

This call is being audio sim cast over the internet via the Fastenal Investor Relation's homepage as www.investor.fastenal.com.

A replay of the webcast will be available on the website up to November 3rd at midnight central standard time.

Just as a reminder, today's conference call includes statements regarding the Company's anticipated financial and operating results, as well as.

other forward-looking statements based on current expectations.

It is important to note that the Company's actual results may differ materially from those anticipated.

Information that could cause actual results to differ materially from the forward-looking statements are contained in the Company's periodic filings with the Securities and Exchange Commission.

We encourage you to review those carefully.

Forward looking statements are made as of today's date and we will undertake no duty to update the information provided on this call.

At this time, I would like to turn the call over to Mr Willard Oberton, Chief Executive Officer.

Please go ahead, sir.

Thank you Christine.

I would like to thank everyone for joining us today for the 2008 year end and fourth quarter conference call.

First, I am going to touch on 2008.

Then, I will touch a little bit on the quarter,and then, turn it over the Dan.

Overall, I believe 2008 was a good year for Fastenal.

We were able to grow sales 13.5%.

I will qualify that first.

It was a very good year for Fastenal for the first three quarters and slowed down hard as you saw.

We grew our sales 13.5%.

We had 20.2% earnings growth.

Very nice number.

Our operating profit, that's a number we look at very closely.

We had a goal of beginning of the year to increase that by 100 basis points.

Part of our pathway to profit goal and I am proud to announce that we were able to do that even in a difficult time -- increase it to 18-point -- excuse me.

Dan help me, I wrote down the increase of 100.

18.3 -- 19.3.

19.3.

Apologize for that.

We opened 7.5% more stores.

That was a little bit below our earlier goal but that but that was intentional as the economy slowed at the end of the year.

We said if we don't have leases signed, let's just back off and little bit and see what it looks like going forward.

I think that was a good decision.

From a head count growth, our other growth driver, we grow overall head count at 9.2%, with the store personnel growing at 12.2.

We are pretty comfortable with that number.

Again, that number came down a little bit at the end of the year, as there was more uncertainty in the economy.

We want -- our visibilities seemed to be a little shorter.

We weren't seeing as good of visibility going forward, excuse me.

But again, overall 2008, very good year, and I think Fastenal team did a nice job.

Fourth quarter, as I said, slowed down, October, our sales growth was 11.9.

November, we came in at 6.8 and December, we had no sales growth.

That's the first time in Fastenal 's 42 year history that we had no growth year-over-year, but it is a difficult time.

Some positives though for the quarter.

We did have nice margin improvement and driven by many areas, the biggest improvement was driven by outside sales team calling on small and medium sized customers.

We saw a little by of improvement because of the inflation, which slowed but we have timing there.

And the other big area for margin was transportation initiative, where we did a very nice job.

Which allowed us to have 11.3% earnings growth.

Positive in that is it's the first time we were ever able to leverage growth with sales below 10%.

Probably below 15%.

In our last conference call in the third quarter, the question was asked at what point do we what leverage earnings growth and Dan and I -- we felt it was 10%.

We were wrong on that in a positive sense.

We were able to do it at a much lower rate.

We are proud of the fact, we were able to do that.

Expense control in SG&A, we did a nice job in certain areas but other areas, we think we have room for improvement.

We are working hard on that.

Dan will give a little more color on that.

One of the areas I would like to touch on for a positive in the fourth quarter of 2008 was transportation group.

Now, we were held by lower fuel costs but in the fourth quarter, we actually made money on our overall transportation program.

Those of you that followed the Company for a while back in 2005, we announced we were going to overhaul our transportation.

We called it our transportation initiative, with a goal of having net freight internally.

For the first time the Company history, we were able to do it.

We made about a thousand dollars in the four quarter on freight -- overall, which means, we take all the credits that we get by charging freight to customers.

Our vendors paying us for moving their product for them.

Match that against expenses, at the end of the -- at the bottom line, it's actual a net positive for Fastenal.

I bring that up because it's something our transportation group has worked very hard on and bodes well for us going forward in a difficult time.

And also, on transportation, one thing that's going on externally is UPS and Fed Ex were actually raising their prices to offset their increase costs which gives us an advantage over our competition.

They use UPS and Fed Ex as primary carrier.

So we have more positives going there.

Looking forward in to 2009, things are very slow.

It's difficult out there.

Right now, looking at our January sales numbers, we see about a 4 to 6% negative sales growth in January.

The first time we ever seen that in the Company.

We are watching it closely.

We are trying to find out where the bottom is.

We don't know that at this point.

Based on that view, we are going to be very tight on head count, between December 1st and January 15th, we have lowered our overall head count by about 4% as a Company.

It's all been through attrition.

We haven't let anyone go.

We have a number of people leaving the Company and we are not replacing them at this point.

We also are going to slow store openings until we have better visibility.

We will be opening stores.

We don't have an exact number.

Really, what we are look at there, is if we find a great deal on a building.

We have the people-- if we already have the people in place to open the store-- we get a good deal on a building, we are going to open stores but lit be a very low number.

Our plan going forward is really to pay close attention to the economy.

Try and understand when we get to the bottom, when the economy starts slowing and starts to pick back up.

At that time, we should be in a good position to start reinvesting.

The first thing, we would reinvest in would be additional outside salespeople and that would be followed by store growth, which we believe, we will be able to do later in the year, if things pick up at all.

We are not retreating at all.

We are holding our cards close until we understand what going on in the economy.

With that, I would like to turn it over to Dan and Dan will give you more color on the quarter.

Thank you, Will.

As Will mentioned, one of the keys to us having a successful fourth quarter as we could have, fell into the expense control.

We had to move on quickly.

Historically, I talked about the components of operating expenses and they really get down to three or four categories, depending how you want to define it.

The first one being labor related costs, that would be the dollars that are paid to employees for the day-to-day activities, dollars that are paid to employees via profit sharing contribution and then our health care costs.

All those lumped together.

And all told those reflect somewhere between 66 and 70% of our operating expenses at any given quarter.

The second piece being occupancy.

Occupancy represents about 20% of our operating expenses.

The third would be our store vehicle.

And then finally, all else rolled up together.

And when we look at those pieces in the fourth quarter.

We look at those pieces going into the first quarter, some things that are going on.

In the past we talk about the shock absorbers built into the business model.

That really being that a fair amount of our pay is incentive competition.

At the store level, it centers on commissions.

At other portions of the business, it relates to monthly or quarterly bonus program that typically centers on either expense management or profit growth.

In the case of the fourth quarter, as Will touched on with transportation, we did a great job with expense management, in the fact that we were able the turn that long-term cost for the business into a nominal profit for the business during the fourth quarter.

As Will touched on, we have been very cautious with our payroll dollars.

Really since the first month of this quarter, some turnover we have not been replacing.

Part time hours, we did bring down from upper 20s to lower 20s as far as hours per week.

Worked by our part-time personnel in an effort to save dollars and match the energy expended to the energy needed in the store.

The one thing we ask of our employees and Will has been busy the last several weeks meeting with employees here in the Winoma Campus and other locations within Fastenal.

As have Nick, Lee and Steve in their respective business units.

Really talking to employees about as we go into 2009 some uncertainty.

And the service aspect we have as an organization, as well as the flexibility we need to practice as we go into the new year to allow for us to create opportunities for our employees and provide return for shareholders and provide great service for customers in that environment.

On the occupancy side, the -- again that represents 20% of our operating expenses.

For the most part that's a fixed cost component of our operating expenses.

We are attempting to turn that into and have begun to turn that in to a variable cost.

And in 2008, I talked about this on previous calls, I think that we did a nice job of lowering the rents going into new locations.

We lowered the new location rent in 2008 verse the same period of 2007, by about 15% per store.

In the actual cost of that facility.

As we look in to 2009 and we put this in motion late in 2008, about a third -- our typically when we open a store, we sign a three or four year lease.

So on any given year, we have a fair number of leases come up for renewal.

When we look at the 2009, we will have about 700 leases that come up for renewal.

The challenge we put out to all regional and district leadership when we met back in the fall is start -- let's get those renegotiations done early.

We laid out a target for them.

90% of your stores, we should obtain 20% reduction in rent.

That's our internal target.

In the logic behind that is when we open a store -- the landlord -- in many cases will do nominal buildout.

They might remove walls or install walls.

They might clean up -- redo the floor, redo lighting.

Do some nominal buildout for the stores.

For those that visit our stores, you know that are not fancy but there are still dollars involved there.

Typically, landlords want to recoup those dollars on their first least term.

That puts us in a position on the renewal that the landlord has room to take that out and we want to aggressively go after it.

Again, to convert part of the occupancy from fixed to variable, at least in the short-term.

Finally, as I look at the store vehicle, November and December as you can see in our numbers, saw some nice benefit from the reduction in fuel costs, as we go in to first quarter there is tailwind to that -- in that October really didn't see as much benefit as November and December did.

So we have some sequential tailwind for both cost of goods portion as we lated to our large truck fleet.

And operating expense related to the pick up fleet at our stores.

The final to all else category, really feel we can manage that through the short-term, that tends to be less variable but also relatively small part of our operating expenses.

When I lump all those together, we go into Q1 '09 with a very stable and operating expense category and our intention going into the quarter would be if you're looking at Q1 '09, versus Q1 '08, we believe our operating expenses will be flat and up 3%.

That's really our attempt to again continue the operating with the investments for growth that we made.

In '08.

Allow that to allow us to continue to take market share as we go in to '09.

In a position to defend a piece of the income statement.

And typically, we don't give this type of visibility in to our future but we feel that given the slow down we saw in the fourth quarter and you are the uncertainty in the first quarter, it's prudent to think out loud about operating expenses and where we think they will trend in the first quarter of '09.

On page three of our earnings release, you see our pathway to profit statistics.

Some things to note, historically, when we get into a periods like this.

If I go back to 2001.

If we would have had a similar table to this laid out, one thing you would have seen is a certain amount of malling, that's the correct word to use -- on our older stores -- as you have seen are highly profitable businesses for us, they leverage nicely on the way up.

That hill is just as steep on the way down if they are not growing or experiencing some contraction.

Those stores experienced contraction in the four quarter.

I'm pleased to say on the year-over-year basis if I look at our stores over 100,000, the 100 to 150 category and 150 plus, they improved their profitability from 2008 to 2009, in a period where the leverage points to the businesses would dictate they would contract.

We did that with a combination, we saw improvements in the gross margin which we touched on earlier and a nice job managing our labor costs and all the other expenses within the store and the benefit of some fuel.

All those pieces came together to allow the stores to be successful in a period where historically they would go backwards.

Probably the biggest thing when I look at this chart, we did, in my mind, improve nicely year over year, we take an step back, we need to work on that.

A lot of that relates to the fact we put in part-time employees in those stores in the last 12 months to allow our salespeople to be out selling more hours of the week.

Then the final piece is as you see in that 100 to 150 category with the stores backwards, some of them slip in to the 60 to 100 category.

The -- on the working capital side of the equation, we continue to make strides in our working capital.

On page six of the earnings release, I touched on the changes in accounts receivable and inventories on a year-over-year basis.

Last two months of the year, that period represents the period of sales that creates our accounts receivable.

We were up almost 7% in November and as Will mentioned, sales flat in December.

Year-over-year our accounts receivable up 3.6%.

I consider that a moral victory we have been able to manage that relative to our sales growth.

And we will continue to strive hard to manage that as we through this.

As in the areas we talk about that, as Will mentioned, in support areas, we are not adding head count and not replacing attrition.

The only exception in that, in my space is I'm trying to find people in other areas of the finance group, so we can continue to staff and maintain staffing within the call center and accounts receivable because of the importance I place on maintaining management over accounts receivable in this time frame.

Inventory side, when I look at the 11.8% year-over-year, I'm disappointed that it's more than 10.

I'm very aware of the fact that product that we were buying in the August/September/October time frame because of the lead time on inventory cycle, we would have anticipated having been sold in November and December and the sales shortfall, really led to dollars on the balance sheet.

Still great inventory.

We will turn that inventory in the early months of 2009, and I feel we are poised well in 2009 for working capital management, accounts receivable and inventory.

Finally, a little bit on cash flow.

When we started the profit in early 2007.

I laid out some goals that I saw was pathway to profit as we elevated our profitability and increased the average size of the store.

I felt a goal for us would be operating cash flow, north of $0.85 on the dollar of earnings.

I am pleased to say that in 2007, we were at 98% operating cash flow as a percent of net earnings for the year.

In 2008, we were at 93.

From a free cash flow standpoint, operating cash minus capital expenditures, we were north -- our goal would be to be above that 50 to 60% range.

In 2007 we were at 77%.

In 2008, 62.

The only thing that pulled that down was the tremendous increase in capital expenditures in 2008.

Primarily driven by our distribution expansion in Denton Texas and Indianapolis, Indiana .

I feel good about cash flow characteristic as we look in to the future.

Final piece.

This is just a FYI for those of you that might not have seen it.

We announced dividend last night.

First quarter dividend payable in late February of $0.35 per share.

With that, my guess is there will be a few questions.

Two points I wanted to make on the expense control.

These are smaller examples but examples nonetheless of things we are doing to manage expenses every day.

In 2007, we talked a lot about the MC70, the hand-held technology that our store personnel were using.

And in that technology, it's a cellular connection that we have.

Our , costs for each of the handheld units is $30 per month for the cellular connection.

We recently renegotiated that and lowered it to $19.

$11 per months savings times 3,000 units and it's a nice savings and a savings that is permanent as we go through the year and one example of a way we can continue to manage expenses in this environment.

A second one is, we have 200,000 plus active customer a month.

In the late months of 2008, we created the ability to email and efax our invoices to our customers.

One beauty of having the call centers, we talk to customers every day about invoices and collections and things like that.

We can talk to them about how they receive the invoices.

Pleased to say, we have about 8000 customers we turned on to email and efax in the late months of '08.

Our goal is to drive that to 50% of our customers, during 2009.

Receiving their invoices.

That cost for us between paper and postage and envelopes is about [$150,000] a month.

Ability to manage expenses like that is a big deal as we look into 2009.

Dollars we can free up to keep feet on the street selling and servicing our customers needs.

One other item I touched on, this is visibility into the sales information.

What I asked our some folks internally to do is taking a look at some trends in our business.

We don't give much trends as far as type of customer but again, it's useful to understand some trends we are seeing in our business.

What we looked at is our customers broken out between different types of entities.

Brush of manufacturing, broad brush of construction, and a broad brush of other service industries, some of which feeds into manufacturing but almost carving out of that manufacturing and it's almost pure MRO business.

About 50% of our sales today are broad brush manufacturing.

Another 27% is a whole bunch of other pieces.

Some you could define as manufacturing, some define as service industries and then the last piece about 23% of our sales is construction.

I look at a baseline of business, look at our customers in those groups back in the second quarter of '08, and look at their trends, typically we would see a fall off from Q3 to Q4 of somewhere in the neighborhood, I'm using typically 2007 as the baseline, a drop off of 3.5 to 4.5%, business because of seasonality.

What we saw is a dropoff from Q3 to Q4 in a neighborhood of 16 to 18% and interestingly enough, when I look at the manufacturing, service industries, and the construction, there is not a noticeable dissimilarity in the falloff that occurred in the fourth quarter.

Construction, you would expect some falloff, and again, in '07 it was 4% from Q3 to Q4.

Largely, seasonal.

That number was 18% this year.

The pure manufacturing, again falloff last year 3.5%.

That number fell off 16% this year.

What we saw in the case of December, you saw a lot of companies that literally shut down for a couple of weeks, three weeks, their business activities or significantly reduced them to really tread water and wait until we get to the new year.

And finally the other, the broad brush service industries, about 4.5 dropoff last year, 16 this year.

Not notable dissimilarities between the groups.

I hope that information is useful and not confusing.

Sometimes you throw like that out, and it might raise

What Dan is saying is everything slowed down.

Essentially.

Essentially, it was a broad based drop in the environment.

With that, I will turn it back over to Christine for a q-and-a session.

Again, I would ask as we have asked in previous quarters to limit yourself to one question and get back in queue.

If you do the question that is related -- or a follow up to the answer just given, that's okay but try to limit it so everybody has an opportunity to ask questions.

Thank you.

Thank you.

(Operator Instructions) Our first question will come from Jeff Germanotta with William Blair.

Good morning, gentlemen.

And congratulations on a great profit performance in a tough environment.

My question relates to gross profit.

You've been doing great things there, where it is the freight initiative, foreign sourcing, raising prices et cetera and posted a pretty big year-over-year increase over 200 basis points.

How do you feel about those components and the sustainability of them as you look at softening demand and lower commodity prices in 2009?

We are pretty comfortable.

We may not stay at the 53%.

But we are comfortable in that 52% range, more of our normal trend of the last few quarters.

And several reasons, one is keeps talking about is our outside salespeople working hard on driving revenue from smaller customers where you can make a little higher margin.

Second is when the commodity prices drop, some of it you will have to give back, some we won't have to give back.

Understanding that our average customer does 200 to $250 -- when you take out the key accounts, the average customer only does about 200, to $250 in fasteners.

So it is not a high visibility item.

If we offer high service level, we can continue to actually improve margins as costs come down, not lose our margin.

In the third is transportation.

As I said, you can tell I was elated by our progress of the transportation.

We actually shaken the rug on that.

We found a bunch of areas that we can save money.

I'm confident that we have more room to improve the gross margin with the transportation expenses that go in to margin component.

We are comfortable in gross margin and maintain a level at or above what we did in 2008.

Next question coming from Adam Uhlman with Cleveland Research.

Good morning.

First of all follow up to that, How much did lower diesel prices and transportation costs boost gross margin in the fourth quarter?

Dan is working on it.

I mean -- you're looking at about, if you look at the fuel costs, I will touch on that point.

You know our fuel cost dropped about $4 million from Q3 to Q4.

And about half of that number, $2 million would have benefited costs of goods.

Okay.

Great, then Dan could you talk about active account growth in the third quarter and then in the fourth quarter, what kind of growth rates are you seeing?

I don't have that right in front of me, but what we saw in November.

We saw active account growth in the low teens.

Yes.

We had our active account growth in November was actually pretty good.

December it fell off but so much of that was driven by plant closings.

So we discounted the information because customers that buy from us all the time, some of them were shut down for most of the month.

But through November, we had I think it was 12.5% active account growth.

That's the thing -- I didn't mention that this morning -- that's the drums we are pounding with our salespeople right now.

Even if you can't produce top line revenue.

If you expand your account base in a difficult time, eventually those customers will come back, and that's where we will get the leverage growth of expanded base and expanded activity per customer.

And that's very positive message that we are sending out continually.

Our next question will come from Holden Lewis with BB&T Investment Bank.

Good morning.

Thank you.

Did you give a little bit more color in terms of the price in cost dynamic?

I mean, do you fully expect you will be able to hold the pricing that you put in through 2008 or are you expecting to have to give some away?

And if you give some away, are you waiting until the inventory works through and you recognize the lower cost inventory.

Give us a sense of what the expectations are and the timings as we move through 2009.

We will have to give some back.

We can not hold the price across the board with every customer.

But the timing will be, we will give it back as the inventory costs come down.

I you remember our conversation, I believe it was the second quarter conference call, I described how the timing works.

Our businesses, our stores act as true businesses.

They are going to be very reluctant to lower their price before their cost goes down because that's going to hit them in the pocketbook.

So it works naturally as if you were a small business.

We pass price increases and pass price decreases through to them and they pass them along to the customers.

The larger customers -- mostly larger customers -- we have contractual agreements that will basically allows us to move up the price and we have to move back down with the price.

So that won't create a gross margin problem.

It will create a little bit of head wind on the top line revenue but it's not a tremendous amount.

Right now, we don't know exactly what it is because prices are still moving.

It's with the larger customers where we have the contracts.

I think with many of the small customers, we will maintain most of the current prices.

Also, understand that only the deflation at this point is only affecting the carbon steel fasteners.

A lot of the products are maintaining the prices and in fact, some have actually gone up in 2009 based on what they are made of in the production costs.

It's not a broad base 100% deal.

Next question from David Manthey with Robert W Baird.

Good morning.

Hi, Dave.

I know this is slicing it kind of thin here, but in terms of the trends that you are seeing sounds like things turned out hard late December as to be expected.

Is there any color at all you can give us as it relates to the first week in January relative to that.

And then, maybe what you saw as recently as last week is it getting worse?

Level?

The true -- through the first ten days of January, we are seeing our sales down about 4 to 6% year-over-year on a daily basis.

That's a similar trend to what we saw -- actually that's slower than we saw in late December but December was such a hard month to judge because of the way the holidays came.

So it looks like January came out slightly below where December was or so far, through ten days of January.

Does that help?

Yes.

Then, as you look at -- so you're comparing the first three weeks here of January to the last couple of weeks of December?

Is that what you're saying?

No.

We're comparing the first three weeks of January with the first three weeks of January in 2007.

2008.

At the year-over-year comparison.

Year-over-year comparison, our trend is below where it was one year ago, 4 to 6%.

And that's all the visibility we have, and we have daily visibility.

I spent a lot of time traveling last week.

I was in front of probably 300 managers and groups and the mood is very good.

I was trying to explain that to my board yesterday.

They are going how can the mood be good when the sales are down but you have to understand, they are running small businesses.

So if I am running an $80,000 business, last year I did 80.

This year I am on track for 77 or something like that.

I'm still busy.

I still have customer activity.

That's positive that they are optimistic about it because they are still out knocking on doors.

The last thing we want is for them to sticking their head in the sand and saying uncle.

The people are working hard.

What we are seeing -- we don't have the account activity yet for January but from what I'm hearing from stores anecdotally, is that most of the customers are buying.

I believe, we will have okay account growth in January.

The average customer will just buy less product and that's what is driving -- putting the pressure on our top line revenue growth.

Thanks a lot, guys.

Our next question will come from Piper Jaffray.

We will hear from Michael cox.

Thank you.

Congratulations on a nice quarter.

Thanks Mike.

Hoping you could comment on the discrepancy or maybe there wasn't one between strategic accounts and smaller customers as you look at the fall off in sales activity.

And a follow up on your prepared comments, you mentioned you seen attrition in head count reductions here for this month.

If you could comment on sales rep hiring plans in 2009, do you expect that to grow at a double digit rate?

Thank you.

I will take the first half of that and Will can take the second half.

As far as large versus small differences noted, there is no question about it when I look at 2008, especially the late month of 2008, our large account business has been hurt more by the economy than our small account business but on -- with that same notion, both are hurt.

It's degree with which the hurt in the late months of the year.

Large account business, slipping, and but the small account business is soft as well.

And little more on that, that's helped our gross margin is that the small accounts run at a higher gross margin.

The mix changes and the margin moves up on the mix.

As far as hiring of outside salespeople, right now, we are not going to put out numbers on that.

What we want to do first, is see where the bottom is.

Our plan is to continue hiring outside salespeople in 2009.

We are reluctant to do it until we see where the number is.

The Company is -- or where the economy is.

We are committed to not put ourselves in a position to let people go.

We have so start laying off and doing things like that, we are committed to our team.

We believe, it's prudent to let the attrition go.

We are not going to allow happen, stores are not going to run with one person or under staff.

If the store volume warrants it, we need three or four people in the store.

We will replace people and keep the customer service level high.

If someone leaves or if business drops off and someone leaves, if a $300,000 store that goes to 250 and someone quits, we will probably not replace that person at this time.

That is what we are monitoring.

We are letting our people, our district managers and regional managers make the decisions.

Dan and I are not making them.

We are monitoring the results.

Based on that strategy, our head count is down by about 4% over the last six weeks just through normal attrition.

Our next question will come from FTN Midwest Securities.

We will hear from John Baliotti.

Good morning.

Will, I think earlier in your prepared remarks, you mentioned costs.

I wasn't sure if it was for the first quarter or for the year.

I think you mentioned that you expected to be flat up 3%.

Is that right?

I mentioned that John.

I was looking at our operating expenses.

I was looking at trends in payroll and occupancy and remaining expenses and operating expenses.

It was a about the first quarter.

When I look at first quarter of '09 versus first quarter of '08.

Hopefully, we will have SG&A that's flat year-over-year but zero to three would be the range that we are looking at right now.

Based on trends and as far as the second, third and fourth quarter, at this point, I would be making the wild speculation because a lot of that can depend on when we feel we seen the bottom.

When we feel we are at a stable floor that we can build from again.

And look -- revisit and what we are doing with head count and store openings.

That could be a month away or three months away.

Overall, you were saying, you might have mentioned, you still think 52 to 53 gross margin is still good range to think about for '09?

Yes.

We believe it is.

I'm sorry.

You are saying something?

What I was going to say before, is understand, we do not see us being conservative with store openings and hirings as retreating.

We believe, we are waiting to see what goes on in preparing that when we see a bottom we believe it's starting to pick up.

We plan to be aggressive growing our business until we know where it is.

I just want to make that point clear, some guys say you never back up.

We are not backing up we are taking a wait and see attitude for a short period of time.

We do not believe two or three years from now, it will have a material affect on where we are.

ne thing worth noting is that our businesses have has a tremendous advantage and that is our ability to move quickly.

The ability to add osc's and open stores is a very short window time.

One of the things that made our ability to add salespeople shorter is we increased our part-time head count by 50% of the store over the last 12 months.

Many of those people are looking for full-time opportunities and we can hopefully hold them at bay for a short period of time until we have the opportunities.

Then, we can turn it on very quickly.

Great, thank you.

Our next question will come from Brent Rakers with Morgan Keegan.

Good morning.

I wanted to follow up on earlier comments you made about the transition from December month factory activity to January month factory activity.

More specifically, you talked a bit about the factory shutdowns during the second half of the December.

Have those factories come back on line in general?

Weakness in other factories that's impacting the January comps?

We don't have good information specifically of what factories are on line and which factories are not.

We don't look at our account activity until the end of the month.

We never done it on in the middle of the month.

I -- what we are hearing from the field, anecdotally from the store managers and the people I was with in the last two weeks, is there is a lot of activity but people are buying less.

They are very, very conservative on -- Anything that they don't need absolutely today, they are not buying it.

We are doing the same thing with our suppliers.

If we don't need it, we are not going to buy it.

There is a conservative posturing with the companies trying to conserve cash.

The difficult thing is trying to understand that is demand this low?

Is it an inventory correction and it's probably a combination of both.

It's fear of the future.

Uncertainty.

Lower demand.

And let's sell everything we have before we buy anything new.

Combined to drive weakness.

Only thing I would add to that, Brent, is if you look at our daily active number in December.

That was down about 11% from January.

And right now, the -- at least what we are comfortable in talking about it -- we are seeing trends of activity January to January, down 4 to 6%.

Our activity will not be down -- my prediction is, what I've seen, the activity will not be down that much.

Right.

I'm sorry.

I'm confused by that last comment.

You are down four to six but your activity won't --

Sales.

Sales top line revenue growth appears to be down -- for the month it looks like down four to six.

From what I am hearing, our customer activity, number of actives will not be down that much.

Now, I'm predicting we will have slight growth in our actives.

We are selling to more customers.

They are just buying less product.

Great.

Thanks a lot.

Our next question will come from Mike Hamilton with RBC.

Good morning.

Congratulations on fabulous execution.

Thanks.

Wondering if you could talk about trends in Canada?

We have actually -- when you take out the currency, issue, our trends in Canada are very good.

We have had low, single digit or high -- excuse me-- high single-digit growth in the fourth quarter 8 to 10% growth in Canadian dollars.

You convert that and we are down 10%.

Canadian economy has not been hit as hard at least for us.

With surprise there, is even in the car belt, the auto belt between Windsor and Toronto, we still have seen some decent growth.

One other question.

When you look at planned activity on the rental side, the real estate leasing, you had a collegial business model where a fair number of leases are with customers.

How do you walk that line as you prepare for those negotiations?

It's actually a relatively small number that would be with customers.

I would guess it's below 5%.

Well below 5% with customers.

I would --

I'm trying to think.

I know of a few.

It's pretty slim.

Relatively small.

My guess is they are recalling us for price decreases.

Our next question will come from Sam Darkatsh with Raymond James.

Good morning, Will.

Good morning, Dan.

How are you?

We are doing well.

Thanks.

Just probably a follow up or piggy back on the last question.

Historically, how soon do changes in the broad steel marketplace, either inflation or deflation, affect the fasteners that you are purchasing from the vendors.

And then my secondary question, would be what was average ticket or average PO, however you define it, on a year-over-year basis in the quarter.

As far as the lag, Dan is going to look up the average invoice.

There is usually a three to six month lag.

It really depends on what products you are talking about.

The products that are narrow skew count, high volume, things like fedded rod, it's a shorter cycle because we turn the inventory faster.

Items that are more semi-standard, the cycle actually goes six to nine months because they produce them with less frequency.

We buy them in larger quantities relative to what we sell.

Overall, if steel pricing -- if steel prices started going down in the August time frame, that product will be hitting our shelves about this time, January about five to six months later.

It will be passing through to our customer in April/May time frame because we turn that product to about two, to 2.5 times a year.

Steel to the the supplier-- they produce it, ship to us, we sell through our inventory, ship it to our customers.

That entire cycle is about nine months.

On the question about average invoice size.I will give you three data points.

In January '09, our average invoice was just over $200.

202.

The September/October time frame, that number had grown to about $209.

In the month of December, that number that number contracted to 196

We have a follow-up question from Holden Lewis.

Thank you.

In the last downturn you also had reduced your store opening rates, head counts that sort of thing.

I think in the wake of that and given your strong financial condition, your comments have sort of been around, we regret having done that.

We wish we would have been more aggressive growing through the downturn in terms of investment spending.

Now, it seems like then, you're doing investment spending but tapping the brakes substantially in light of the downturn.

Is there risk that we will look down the road a few years and say we regret having done this or the conditions different or am I recollecting incorrectly.

Can you give historical perspective to this?

First, Holden, you are a smart guy.

There is risk in everything we do.

But we don't plan to keep our feet on the brakes very long.

We believe there is as much risk plowing head long into it, because this is very different from the way it appears.

It could be different from the last one.

We are positioned, as Dan said, we can pick up our store pace very quickly and add salespeople at a rate we never been able to because of the position we have with our outside sales initiative, but our part time initiative to support that.

Maybe we are being a little conservative but I'm comfortable with that position right now and for the next month or two or three depending on where it goes.

Into the shortly into the year, we are going to have to make decisions.

Dan wants to make a comment also.

I am going to throw a couple of things out.

If I go back to the '98 time frame.

When the Asian flu came through and put a shutter on the global economy.

We stopped opening stores in the fourth quarter of that year.

Our biggest regret when we looked back at it is we underestimated the inertia to turn off and turn on store openings.

We were disappointed not in the fact not we shut it off but we were disappointed in the fact that in '99, we couldn't get it going again.

I think we opened 49, 50 stores in '99.

That was a frustration point.

In the 2001 time frame, we kept opening stores for the most part through the cycle.

I think the biggest difference when I look back to that time frame is we have gone from really 100% of our long-term growth drivers centered on store openings through today about 60% center on store openings and 40% center on the osp program.

If we think about the 40% pull back, we did on store openings in 2007.

The osp initiative with the dramatic increase we done with the part time sales force -- or part time work force at the store over the last year and a half, really put us in a position where we can relight that match, pretty quickly.

And our store openings, our ability to open stores and turn that on and off is night and day different today in a post cfp environment than it was in the late 1990's.

There is one other piece to it and its internal, is I felt the only way we are going to get the other expenses pulled back quickly was throw the brakes on everything.

Once we feel comfortable about distribution and transportation, -- then we can start opening up a little more investment in to outside salespeople, and stores but if you let some run wide open, you are not going to pull the rest back.

Sometimes, we found you hit it very hard you pull it back tight.

We are there right now.

We believe, we done a nice job of that.

I think our numbers show that.

We can say, where is the best place to invest money.

It's with our best district managers and store managers.

We know that.

History has showed us that.

Gentlemen, appears to be no further questions in the queue.

I would like to turn it over to Willard Oberton and Daniel Florness for closing remarks.

This is Daniel Florness.

I would just like to thank everybody for listening in on our call.

As I think we shown historically and talking about today, our optimism for the future is completely unchanged and our optimism on the market and our ability to market is unchanged.

Right now, we are searching for the bottom.

So again, we have a solid footing to build it.

Keep building the business on.

Finally, one item I like to mention.

I'm not going to throw a name out but over the years, I have been with Fastenal over 12 years and over the years, I had the great benefit of being associated with a wonderful organization and a great group of people.

And last week, I was reading an article about one of our employees in North Carolina.

And it talks about this employee who gone to work that day and figured he would be selling fasteners and other industrial supplies and there was a tanker truck that tipped over in front of the store.

It had about 7000-gallons of gasoline in it.

The truck tipped over.

Engine was running.

Our employee, along with other gentlemen, basically disregarded the fact there is gasoline leaking from the vehicle and were able to -- with the help of a pocket knife, cut this person loose from the vehicle, their foot was trapped and had to cut the person's boot off and pull them away from the vehicle.

And as they got across the street, the vehicle burst in to flames.

I throw that out not from a -- I throw it out.

I'm proud of that individual and proud to say I work at the same organization as that individual.

That's true of a lot of folks in the organization.

We have a wonderful collection with a servant's heart and really care about the success of their customers at the end of the day.

I will get off my soap box and everybody have a good week.

Thanks everybody.

That does conclude the teleconference for today.

Thank you for your participation and have a wonderful day