Fastenal Company (FAST) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fastenal Company Q4 and Full Year 2012 Earnings Results. [Operator Instructions] As a reminder, today's conference may be recorded. I would now like to turn the call over to your host, Ellen Trester, Investor Relations. Please begin.

Welcome to the Fastenal Company 2012 Annual and Fourth Quarter Earnings Conference Call. This call will be hosted by Will Oberton, our Chief Executive Officer; and Dan Florness, our Chief Financial Officer. The call will last for up to 45 minutes. The call will start with a general overview of our quarterly results in operations by Will and Dan, with the remainder of the time being open for questions and answers. Today's conference call is a proprietary Fastenal presentation and is being recorded by Fastenal. No recording, reproduction, transmission or distribution of today's call is permitted without Fastenal's consent. This call is being audio simulcast on the Internet via the Fastenal Investor Relations homepage, investor.fastenal.com. A replay of the webcast will be available on the website until March 1, 2013, at midnight, Central Time. 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 as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may often be identified with words such as we expect, we anticipate, upcoming or similar indications of future expectations. It is important to note that the company's actual results may differ material from those anticipated. Information on factors that could cause actual results to differ material from these forward-looking statements are contained in the company's periodic filings with the Securities and Exchange Commission, and we encourage you to review those carefully. Investors are cautioned not to place undue reliance on such forward-looking statements as there is no assurance that the matter contained in such statements will occur. Forward-looking statements are made as of today's date only, and we undertake no duty to update the information provided on this call. I would now like to turn the call over to Will Oberton. Go ahead, Mr. Oberton.

Thank you, Ellen, and thank you, everybody, for joining us today. Most of the comments that I am going to make this morning are going to be based on the quarter, not the annual numbers. Starting out with the quarter, as you can see, sales were slow for the quarter. There's -- I don't believe there's any surprise in that because we announced the monthly numbers. We did see a little bit of an uptick in December, which was positive. A little color on the numbers. The sales growth was consistent throughout our business. Geographies, end markets, everything has been a step-down from where we were earlier in the year. We're not seeing any areas that are far slower or more positive, so it's interesting watching it, but it just looks to be a general slowdown across the markets that we served. One exemption from a customer grouping, and you'll note that -- or you'll see that on Page 7. If you look at our vending customers, they grew about 34% in the first quarter and dropped to about 28% in the fourth quarter, a drop of about 5% to 6%. And at the same time period, our company's growth dropped by almost 12%. It's too early for us to really understand what happened there, but it's a positive because it's a growing part of our business. We take that as a real positive. Switching to the margin. Year-over-year, for the entire year, our margin was down 30 basis points, which is disappointing because we work very hard on that. On a quarterly basis, this is the first or the only quarter of the year that we actually showed an improvement year-over-year, picking up 40 basis points over the fourth quarter of 2011. So directionally, we're very upbeat about margin. We have a lot of projects that we're working on, and our goal is to be in the top half of our range of 52% to -- or excuse me, 51% to 53% for 2013. And we're going to work very hard to try and make that happen. But as the year goes on -- or as the year went on, it seemed to improve. From an expense control standpoint, all I can say is to the Fastenal, the blue team, is I think they did -- we've done a nice job. We've -- our expenses grew on the fourth quarter by about 7.5%, and there were a few things that made that a little harder. Our vending bonuses that we announced at the beginning of the year were very tail-loaded because it was a 12-month incentive, and they billed [ph] as the year but there were a lot of people pushing hard. And you saw that in our vending numbers to achieve that goal at the end of the year, so that was a much larger number than we've seen in previous quarters. It's a great way to spend money, I believe, or is a good initiative. Another one is our 401(k) match. Our 401(k) profit sharing is based off our pretax profit percentage, which was a record for us and so that pushed up also. So we grew our expenses at 7.5% with those additional expenses. So I'm very proud of what everyone was able to achieve. Pathway to profit. For the year, on year-over-year, total basis, we only grew our pretax profit by 70 basis points, which is 30 points less than we had hoped for and planned for. But if you look at a 2-year basis, we were able to grow it by 220 basis points. So when we laid this out several years ago, we knew that it was going to be a little bumpy. But as long as we can continue to hit it and a longer runway, we're still happy with the results. For the year -- or excuse me, for the quarter, our pretax profit was 21.5% -- excuse me, that was an annual number I wrote down, 21.5%, which is a record for the company. And I'm really proud that we were able to achieve that. We're still very focused on the pathway to profit and believe that we can achieve our goals in a normal economy, whatever a normal economy means. I guess what I mean by that is as long as we don't see a big step-down in the economy, we're still very confident that we can achieve our pathway to profit goals and move that forward as the years go on, still believing it's a good strategic growth strategy for our company. Looking at some of our specific growth initiatives. As you know, most of you know, we've invested more heavily in the Government business over the last several years. For the quarter, our Government business grew just over 26 percentage points. Again, against 8% -- 8.5% for the company. So a nice improvement over the overall company numbers and something that gives us confidence to continue to invest in salespeople in that specific area. Our metalworking product area, it also grew nicely. It actually grew at 26% -- 27%, just slightly above the Government business but very similar. Again, gives us confidence to continue to invest in that product line and the salespeople that push it. So we're seeing nice things there. In 2012, we started working very -- developed a focused effort on trying to improve our fastener growth, mainly on the OEM side, the larger accounts side. And although it's too early to give any numbers as to how we're doing with that, we're very optimistic with the anecdotal information coming back from the field and this process that we've developed. And we believe that by the second half of 2013, we should be able to report more information and results, but we're very optimistic. The fastener business is a business that we're very good at, and there's a tremendous opportunity out there to grow that business. On the vending side of our business, industrial vending that we talk a lot about, I was very pleased with the fourth quarter results. We ended up with 20,161 machines for the year. Up until the -- actually the beginning of January, I didn't think we were going to achieve the 20,000 number. I kept going into Russ Rubie's office, the guy who runs it for us, and asking him about it. He was confident that we would, and I'm really proud of what they've been able to do. I think we're showing great progress there. As Dan put in the earnings release, our goal for 2013, we've upped it to 30,000. We put new incentives and put 30,000 units for the year. We put new sales incentives in place, raising the numbers and tweaking some things to try and get the focus that we'll need to achieve such high numbers, but we're confident that we should be able to hit those numbers. At the same time, we're working very hard on developing improved systems, processes and new efficiencies to try and improve that business and basically improve the profitability. It's already profitable, very good business, but we believe we can make it some of the most efficient business that we do. One of the big steps that we're taking to improve that business is we made a decision to invest in a vending-specific warehouse in Indianapolis, Indiana. It's a building that we own, but we're retrofitting it so that we're going to start picking orders. This will be in the middle of 2013. We're starting -- we're going to centralize the order picking for vending machines for any store that chooses to do this. And from the information coming back from the field, it will be a high percentage of them. So we will take the electronic order from the store, send it in electronically to the vending warehouse where they'll stock the specific items, pick up on a very efficient manner and send them back to the stores on a, basically, an overnight basis. There are 3 things that we believe will improve because of this. One, is we'll reduce our labor. It's a far more efficient process. Two, is we believe if we do this for the store, they will not need to stock the inventories to improve our inventory turns. And the third is that we believe we'll be able to improve our margins because we'll buy such tremendous volume into one location, and the central purchasing opportunity will give us margin opportunities. So we believe this is a good investment. That investment is part of our overall distribution plan. Dan has brought you to a much -- or a higher number for capital expenditures this year because based on what we've seen in Dallas, Indianapolis and our new Winona facility, we're very committed to automate more of our warehouses. We've seen great results and, really, that's in 3 areas. We've lowered our labor, improved our efficiencies. We've reduced the mistakes that we make in those warehouses because it's a better process. And we're able to push our trucks out earlier so we can provide even greater service to our customers. Based on that view, we've made a decision to add automation to Atlanta, our Atlanta warehouse, add our distribution warehouse on to our existing warehouse in Akron, Ohio. Those are under construction, as we speak. And then in the spring, we're going to add one in Scranton, Pennsylvania. We just received the permits for that this week. So we're very focused on expanding our distribution. And it's really all part of an overall plan of making a far more efficient distribution machine for Fastenal over a long period of time. With that, I'm going to turn it over to Dan, and he'll give you some more color on the numbers in the quarter. Thank you very much.

Thanks, Will, and good morning, everybody, and thank you for joining in on our call today. My comments today will be relatively brief. I'll touch on a few things. First off, one housekeeping note, and this is just something for the analysts on the call. Please be mindful of, as we enter our first quarter of 2013, we have a calendar change for the quarter. There aren't any big swings like we saw in Q4 where we have months with plus or minus 2 days. I believe we have one additional day in January. We're down one in February. We're down one in March. So last year, it was a 64-day quarter. This year is a 63-day quarter. We get that day back in the third quarter this year so the annual basis, 2013, is pushed to 2012. Just a housekeeping note. The chart on the bottom of Page 3, I think, tells the story a little bit of the year as far as from a top line standpoint. So as Will mentioned, as we've talked about in earlier calls, we saw a dramatic -- a meaningful change in our business in the late April and May time frame. And if you look at those, the lines on that graph, you see a separation of current year to the 2 prior years and the benchmark period quite dramatically emerge when you get into May, and it stayed there for the balance of the year, and that really changed the chart of our year. The big change that drove that was the change in our fastener business, and Will touched on it earlier the -- some of the investments and the initiatives we have with the -- as they center on fasteners as we go into '13. We're optimistic about those. When I look at the -- at what happened to our fastener business, the drop-off from 15% growth in the first quarter to 2.5% growth from the fourth quarter, I really see that as a pure indicator of the state of our economy, the state of the market we sell into, because the change is so abrupt, it was really a case of customers just purchasing less product because they're producing less product themselves. Our fastener business is really driven by the OEM portion of it. And if we have a customer that's down 10%, 15%, 20% on their production, that directly ties to their OEM spend, and it's a less direct relationship to the MRO spend. So really impacted the fasteners. The flip side of that coin is our non-fastener area. We started the year growing about 25%. We ended the year growing about 13.6%. I think that the change also represents the state of the economy. But a good piece of that offset by the impact of some of our initiatives and the biggest one that comes to mind would be our vending, as well as our Government, our metalworking, but the vending was really the driver of that. And so we've done a really nice job, in my opinion, of coming up with incremental growth drivers to our business to deflect the impact of the short-term economic situation that we face. And it really, to me, speaks more about the opportunity that is in front of us. There's a massive market out there for us to sell into, and this is a means to take market share faster. ISM Index. We've been publishing that in our release throughout this year, just to try to give a little more insight for the reader of the release. It's been moving around a bunch. One thing that was -- that you noticed around in the last 4 months of the year, it's been bouncing around, but we did end the year north of 50. If there's any consolation to it, it's nice to end in an upbeat rather than in a downbeat number, so we are optimistic as we go into 2013. As Will touched on, nice progress, again, with our FAST Solutions and the fact that the customers with vending continue to hover in that 30%, maybe -- rather think we were 28% and change, but continue to hover in that 30% neighborhood of the growth. And that growth, to me, is, as I've said in past calls, is a sign of engagement with that customer. Every one of our customers has the potential to spend more money with us, and the real question is how do we position ourselves to get more of that spend and provide more solutions for our customer in the process. The profit drivers, and again, Will touched on this as well, we hit 20.9% in Q4, 21.5% in -- for the year of 2012, both our high-water marks for our organization. And we're quite proud of those and proud of the blue team for achieving those numbers. Gross margin. I think Will covered it sufficiently on the fact of what's going on from a trend standpoint. One item I'd add is really the nature of the trends inside the quarter, so get beyond the headline and look at inside the quarter a little bit. In Q3, if you look at where we were in July to September, we've been struggling as we've gone through the year. Our fastener business is a little bit weaker. Our vending business is driving our margin. Our large account business is growing a little bit faster. So there's some things that are naturally creating headwinds for us in our gross margin. As we went through third quarter, our gross margin from July to September dropped 20 basis points, so our slant was downward as we went through the third quarter. From September to October, our gross margin was flat. From October to December, we increased 40 basis points. So the headline number might be the same gross margin in Q3 and Q4, completely different quarters, if you look under the surface a little bit. And I think that positions as well, and we're quite optimistic about our potential for gross margin as we enter the new year, and Will touched on that earlier. Operating expenses. I think we did a nice job managing through that during the year. I'm particularly proud of the portions of our operating expenses because if you look at where they did grow, they're really growing because of growth drivers in our business and our success with those growth drivers. The vending bonus, I think, is a great example of that. On things that are more fixed cost components, we're managing those fixed costs, I think, quite well. On the occupancy, for example, 100% of the increase related to occupancy centered on our vending initiative, whereas all the other pieces we were able to manage in an offset fashion. Bringing on the Winona facility live and adding a number of storage this year, both of those are offset by savings in other areas, so good expense management there. From a cash flow standpoint -- oh, and I skipped past the operational working capital on Page 13. A little disappointed on that page. Quite frankly, the calendar wasn't our friend in the fourth quarter. A good chunk of our business is customers with terms of 30, 45 days, so we have a lot of customers that will pay in that 40- to 42-day neighborhood. And so for us, in any given quarter, in any given month, the real question is how much of our sales from the middle month of the quarter is collected by quarter end because all of our December business, by and large, is outstanding at the end of the year. And our November business, what percentage of that is collected? When you have a really short December, and the way the calendar worked out, we had a really short December this year. There's just not enough of November that gets collected in December and it's coming in, in January. So it creates some challenges for us on the AR side, something that, I believe, will correct itself as we get into a more normalized calendar period in 2013. The inventory, on the other hand, we bought some inventory at year end. There were some opportunities availed to us by our suppliers to buy inventory at a discount. We took advantage of some of those opportunities. We added probably about $15 million more in inventory in the fourth quarter than I would have expected. And I think they were good decisions. I think we could have done a better job of offsetting some of that in other places. And I think we'll be able to burn off a good chunk of that inventory, that increase as we go through first quarter. On the cash flow side, when we started the pathway to profit back in 2007, I remember the meeting down in the Indianapolis facility where we first introduced pathway to profit. On the cash flow, what we already talked about at the time was operating cash expectation. My number I had in my head was 85%, so I cited a range of 80% to 90% to give me a little bit of wiggle room. I think what we've really done over, as the pathway to profit has improved a little bit of profitability, that 85% has moved more up to a 90% number. And that's where really my head is at when I think of where our operating cash should be as a percentage of earnings. For the year, we came in at 94%. In fact, I think in the last 6 years, 5 of those years, I think we've been north of 90%. And so very pleased with our ability to generate just cash, operating cash, in our business. In that same discussion, talk about we had 90% of earnings and operating cash, we'll spend about 25% of that in CapEx because we're a growing business and we need the infrastructure for future growth. In 2012, that number came in about 32%. The real driver there is the vending side. I think about 45% of our CapEx for the year was vending centered. And as Will touched on, next year, we have quite a few plans in place for expansion of our distribution centers. We're very optimistic about the capability of our vending initiatives, and we would expect to be higher in CapEx. In fact, I'm looking at our 10-K page for CapEx next year. And just for those of you in the analyst community, we're expecting a number somewhere between $185 million and $190 million in CapEx next year. So meaningful increase over the $134 million that we did this year. With that said, that leads me to the last item, and that is our dividend. Last night, we announced a dividend of $0.10 per share. Our last regularly -- we paid a supplemental dividend of $0.50 late in 2012 because of the uncertainty around dividend taxes. If I go back to our last regular quarter, we paid out about $0.21. In the release, I touched on the fact that we expect to pay a smaller dividend than the initial quarters of 2013 because of the large payout late in '12. We want to replenish our cash a little bit, primarily because, if I was going to read anything into Fastenal's release this quarter, what I would read into it is bullishness. We are bullish on our ability to put out vending machines, and I think that bullishness is supported by what we actually did in 2012. We're bullish about expanding our distribution capabilities because of what we've seen in 2011 and 2012. And we are bullish on what we can do on top line sales in the new year, and that requires some working capital. So we're a little cautious on our dividend payout in the first quarter, but we expect in the future to resume to a normal payout pattern. With that, I will turn it over to Q&A.

[Operator Instructions] Our first question comes from Holden Lewis of BB&T. Holden Lewis - BB&T Capital Markets, Research Division: Wanted you to expand a little bit on the gross margin, if you could. I mean, it sounds like you're kind of assuming that the momentum you experienced in November, and perhaps December, is going to carry forward. So can you give us a sense of -- I mean, November, December, are we already in between that 52% and 53% range? Kind of what drove the number perhaps up there? And to the extent that you may need to improve it further, what do you expect to do in 2013 to achieve that? I don't know if it's pricing getting better. How are you going to do that?

Well, there are several things we're working on, Holden, one is pushing fasteners harder, hopefully, get some help there. But another initiative that we've been working hard on for last few quarters is we've developed some new pricing systems for our stores. And although it's early, we've been seeing some positive results there, using better data on guiding the stores on where to price the product. And so we're working hard on that. We really believe that we're going to pick up some improved margins. I mentioned the vending, we're working very hard. We've actually installed a team within the vending group to work on underperforming machines. What we've identified in some of the vending areas is our -- we put a lot of pressure for people to sign these machines and sometimes, we didn't give the product away, but that's what it would almost look like. So we're going in and we're reconfiguring some of the machines with more profitable product. So there's several initiatives that we're working on. But as Dan stated, from October to December, we've seen a nice, steady uptick. And typically, December is the worst year -- month of the year for margin. I don't know why, but that's the way it always seems. This year, actually, was the exception to that. So it's all about focus, but the biggest piece would be the new system that we're working on at the store. Holden Lewis - BB&T Capital Markets, Research Division: Okay. And can you just comment, as my follow-up, on sort of the pricing environment? I think you alluded to perhaps some pressure in international markets. But what are you seeing in terms of just the core pricing in your domestic markets and maybe also just any discounting or anything like that you might be seeing in the market?

We haven't seen a lot of change in the markets, to be honest with you. The steel pricing has been soft, and that has not helped us. It's also part of the reason, I believe, our fastener sales are down because Asian steel prices have dropped. But otherwise, there has not been a lot of activity. We've had some of our suppliers coming in pushing price increases. We've been pretty successful on holding those off. There's not a lot of inflation, and there's not a lot of -- business is slow, so people are less likely to push pricing. Very, very kind of uneventful pricing environment. We just believe we have some opportunity to move it on our own. And we're not pushing a lot of price increase. We did do some selective price increases on some of the products, all non-fastener products. We didn't push fasteners at all.

Our next question comes from Adam Uhlman of Cleveland Research.

I have a couple of vending-related questions. I guess, first, on what are we seeing today on the vending adoption across the store base? And kind of what percentage of the stores are participating now? And maybe just your general thoughts on how that progresses for 2013.

Actually, right now, about 90% of our stores have at least one vending machine. And just north of 80% of our stores have put out a vending machine in the current year. But what reason we're bullish on vending is if you really get down to it and you look at where the machines are, it's still in a subset of our stores. We have a lot of stores out there that have one machine or 2 machines, but it's the subset that have really hit home with it. Will?

One thing that we did, Adam, because we're aware that we have a lot of opportunity in these underperforming stores, is the new vending incentives that we put into place. One of them is we introduced some new incentive to the managers that were -- did well last year, that hit a certain number last year. We are offering them an opportunity to make up to $3,500 to go down the street to a store that hasn't done as well in their area and sell up to 10 machines. So if they hit 10 machines, they get -- we send them a check for $3,500 and it racks [ph] itself from 5 to 10. So we think -- because what we've identified is those managers are the best salespeople we have in our company, the ones that are already doing it. So we're leveraging that talent. We also have taken the 70 people that we have driving around in vans, the vending vans, and we've changed their pay program. The stores in the top quartile of vending signings last year, they will only be paid 50% commission. We'll cut their commission in half on our best stores. The bottom half of our stores, we will double their commission, no, the bottom half. So 25% of the stores are going to get half commission, 50%, they're going to get double commission because what we know -- we know what happens is those salespeople are going to go where the rain is happening or where they can make money. And so they're going where we don't really need the help because those managers are so good. To identify this opportunity, we've adjusted the programs. It was all rolled out in early May -- or excuse me, in early December, and we're excited to watch how it happens. We've already gotten some good stories back on the manager, we call it the mentoring program, on that program where we -- managers' gone in and hit it in a couple days.

Okay, got it. That's really helpful. I guess just tying it all together, Dan, you had mentioned that you're really bullish on the top line opportunity for the year, and the momentum on vending would suggest really strong growth. If the economy doesn't move from where we're at right now, any stabs in the dark of what you think you could do in revenue growth?

We just as a -- historically, don't go there because we just hate to try to predict what the economy is going to do. What I can tell is our sequential pattern, I think, tells a story, and I think we have a lot of growth drivers. If I look -- I always look at it and say, what are my plusses and what are my minuses from that historical benchmark period. One minus that you have to acknowledge is the fact we're opening fewer stores today than we were a decade ago. For that one minus, I have a handful of plusses. We have a vending initiative. We have international expansion. We have metalwork initiative. We have government initiative. We actually have a stronger manufacturer initiative. We have an OEM fastener initiative. And you start adding all those pieces up and you see what some of our initiatives did to buck the trend, if you will, in the non-fastener part of our business in 2012. It really tells me that we have like 10:1 positive to negative in our growth driver. Obviously, the first one, we are opening fewer stores, and that was evident in the past time frame when I'm using that benchmark. But I think all these other 10 more than offset it. So we think there's -- odds of beating that trend are greater than missing that trend line, and I think that speaks for itself on how that plays out for '13, and then the wildcard is that little thing called the economy.

Our next question comes from Robert Barry of UBS.

Dan, that was great hearing you list all those growth drivers. I was curious which of them you think will contribute more to growth in 2013 than they did in 2012, i.e. which of them is actually accelerating?

Well, I think it's clearly the vending. And the real reason for that is there's a latency to it. We signed a lot of machines. We have a lot of machines in place at year end, relatively were at the end of last year. But most old machines, if you look at the machines rolled out in the last 3 months, they really haven't contributed that much in top line for the current year. If you look at the machines rolled out in the third quarter, they're just starting to get traction. And the ones from the first 6 months of the year gave us a half a year's worth of stuff. So you get a full year from the stuff in the first half, you get 4 quarter -- you get 3 additional quarters from the stuff in the third quarter, and you get 4 quarters from the stuff in the fourth quarter. You lob all those things together and that's a lot of inertia there.

I think the other reason vending is because of -- in the first quarter, it represented 7 -- the customers that play in it represented 17% of our revenue. That grew to more than 25%. If that trend were to continue by the fourth quarter of next year, we're up somewhere close to 40% -- or high-30s. And if we maintain a growth rate even close to where we are, that puts a lot of energy into our growth.

Just to follow up on that, maybe 2 questions. One is the acceleration and signings where you think you'll see a commensurate acceleration in installs or maybe even a faster rate of installs; I thought there were some things you were doing to kind of reduce the time from signing to install. And then second is if you could just update us on what you're seeing in terms of the mix of the machines you're signing. Is each install still generating on average about $2,000 a month in that incremental business? Or is that mix changing at all?

On the installs, we actually slipped a little bit in the fourth quarter. Looking at it -- and January, I guess, will tell the story, but December really turned into about a 3-week month for installing machines because we didn't -- we got very little done in the holiday week. So if we can make that ground up, we're still going to -- we're going to be somewhere around that 90-day lag. We'd like to shorten that up, but we struggle with it. Part of the reason we're struggling with it is because the signings are growing at such a rapid pace. But if we can stay at 90 days, we'll be -- I mean, we'll be just fine there as long as we continue to sign the machines. Or if we can get it to 90 days and stay there. What was the second? I...

Well, why don't I get on the mix? One thing I did add to this quarter's release is, and I added it for a couple reasons, one to demonstrate the evolution of the business and the new models that we've introduced to our fleet of equipment, if you will. But if I go back to the first quarter of 2010, basically, all the machines we had out there were the helix, the FAST 5000, that standard helix-based machine. Today, that FAST 5000 represents just around 60% of our total installed base. We've introduced quite a few lockers and other machines into the fleet. And a lot of the -- if I have an install at a customer, it's not uncommon where the next machine would be a locker, to marry it up with the first machine. And so you're seeing a mix. I think a lot of the initial machines that go into customers will still be the FAST 5000, the helix-based machine, but you'll see a lot of them where they're sitting there in tandem.

Well, one of the things we introduced either late and -- probably late 2011 was a standalone locker. Before that, we had to have a helix. The computer and the helix drove the locker system. About a year ago, we introduced a locker that actually had its own controller. So that really increased that system because it could -- it's multifaceted. It offers -- creates a new opportunity for us to sell and them to buy.

Our next question comes from Luke Junk with Robert W. Baird. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: Will, I was wondering if you could expand on the comments in the press release you're guiding, the steps you're taking to reinvigorate both the OEM fastener growth and also to address the underperforming locations. And then Dan, just conceptually, wondering how you're thinking about the October to January relationship this year, just considering the fact that, of course, we had the Sandy drag [ph] in October and we've got one fewer day in January here as well.

As far as the OEM fastener initiative, we put in -- we worked on this throughout the year, but in the middle of the year, we put in a small team, brought our leader from Europe back and put him in a position of driving OEM initiative. Basically, what he's done is they -- working in conjunction with our district managers, they've developed a list of more than 3,000 customers that have the potential to do north of $250,000 a year, and this is our estimate, $250,000 a year in OEM fasteners, the average being much higher than that. Each district manager has a list of anywhere from 8 to 15 of these customers, and these are customers that we do not have their OEM fastener business today. In many cases, we have a relationship but it's a smaller relationship. He's developing a system to -- so that they can -- it's really a call system that he's been working with them on to basically rail these customers in over a longer period of time, and we've seen some great results. We believe that the call, the sales call activity, is up by probably 4 or 5x with these people and these customers. And we believe with that, over the next, I'd say, the second half of 2013, we're going to see positive results. We've seen a lot of -- we're hearing a lot of positive results but not in the quantities that we need or the size of numbers that we need. But we're very optimistic about that. As I mentioned earlier, we're very good at providing fasteners. We're a good -- I believe, a very strong fastener distributor. But we weren't always good at selling all the things that we did but we're able to do. As far as the underperforming stores, that's been something we've been talking about since -- for a long time, and my board has been reminding me of that a couple of quarter -- a few quarters ago. And so we sat down as a leadership team and said we're going to take aggressive approach with this, just like we did with metalworking and vending and all these other things. We're going to create a budget, and then after we have the budget, we're going to create a team. And we developed a budget, how much we have -- working with Dan's group how much we could afford to spend on this. And then we assigned 2 proven leaders in our company, one to take the east -- well, actually, 3, one to take the east, one to take the west and one to take Canada. And they have put together a team of about, I think, it's about 35 to 40, I don't have an exact number.

38.

38, okay. 38 proven store managers, a couple district managers, and these people are going in just to the underperforming stores. One other thing we did is we added a -- Lee Hein added a direct report. First, a long-term employer is very good with statistics and understanding where we are with the numbers. And he is basically the scorekeeper and he runs the performance improvement program. So he runs the numbers. We have proven sales leaders in the field, leading groups of people going into these stores, the stores that this gentleman I -- Ryan Rosenberg is his name. Ryan identifies the stores just starting, as the year rolls out, very optimistic. The team of 38 people is in Winona for the first 3 days of this week. I was able to meet with them for quite some time. Had -- able to have dinner with the group and they're fire breathers. They're the A types that want to go out there. And so we're optimistic that we're going to -- are we going to solve all of our store problems? No. Are we going to show improvement? I'm very confident that we will.

Regarding the October to January sales trend, here's the way I thought about it and we're having discussions internally and in our meeting with the board yesterday. Typically, I'd look at October and I'd look out to the following January and I'd expect it to increase about 90 basis points. This year, September and October, there was some weird stuff going on with the calendar. October was impacted by the hurricane on the East Coast. And so I took a little bit of a different approach and I said instead of taking October, if I took September and October and I average the 2, and then I went off that, what does that mean for daily sales growth in January using the same type of 90 basis points step-up? That gets it to just under $13 million a day. I think it's $12.9 million and change a day in sales, which would imply a growth rate of just over 10% in the month of January. And that's where my head would have been, and the only thing that moved me away from that position would be, is there something going on that influences that? I can tell you the first week of January and typically, we don't go here but since you asked, the first week of January, that 3-day short week was a disaster. There were a lot of businesses that were shut down for that entire week. When we're calling around the different regional VPs and different district managers, they're just like, you know what, this customer, this customer -- they're rattling off their customers that are shut down, and so we got off to a horrible start in the month of January. And even that next week, we didn't really climb too much out of the hole. This week's going well and so I don't think we'll hit the 10% number, but I don't feel negative about February and March based on how January is going. We just had an awful start to the month because a lot of customers were shut down, but it seems to be running normal now. I don't know if Will wants to add anything to that, but...

Well, I think you hit it perfectly. Over a long period of time, it seems like the holidays continue to expand or the time people take off. We've always seen, in a slower economic time, factories look for reasons to shut down because it's good for the employees and good for the bottom line. Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division: And then just a follow-up on that, Will. Thanks for giving us an update on the growth in the metalworking and Government this quarter. I'm just curious if you have the numbers in front of you just on what those businesses are in addition to international as a percent of the total business here at year end.

The metalworking business represents -- for the year, it represented just over 8% of our revenue growing and so it -- I don't have the quarter, how it grew. And the Government business is right at 4%. So those 2 combined are 12%. You add international and you have about 22% of revenue.

Our next question comes from John Baliotti with Janney Montgomery Scott.

Just had a couple housekeeping questions. I was wondering, could you just -- in terms of December, how many days were you open?

I believe it was 19 days.

Yes, it was 19 days. We took off the day before Christmas. We actually work pretty clean because it created a 4-day weekend there and then we were open the last day, the Monday after -- or Monday before New Year's.

Okay. So you were close -- so you were only open -- the stores were only open 19 days?

19 days versus 21 in Q4.

Okay. So then for December for this year, we're going to have 2 extra days, December '13?

I don't have it in front of me.

I don't even know off hand.

All right. I have 21 days for December of '13. I just wanted to see if -- make sure we had the right number there. On the -- in terms of vending, is there a sense of -- or is there a way to characterize the number of installed machines, what -- kind of what percentage are loaded and revenue generating versus last year? Has that number increased?

Could you repeat the question?

The number of vending machines that you have installed, is there a metric to look at in terms of how many are loaded and revenue generating, kind of how that growth has been versus last year?

What we've seen ever since we started vending is if we sign a machine, it will take about 90 days to install it on the average. And then after it's been installed, it takes on the average about 90 days to generate the full revenue. And what that is -- when we talk to our managers and ask why that is, they say it's because, in most cases, the customers have inventory built up to be used to supply their plant, so there's a burn through of inventory. But as far as comparing it to last year, I would see no difference. We send them all of our inventory, but the customer has to sell off what they have before they start buying from us. And we assist them in that process because the faster we burn through it, the faster we create sales.

So basically it's about 180 days from signing until it's loaded and generating?

Well, before it's generating. It's loaded at about 90. It's fully generating at about 180.

Okay, great. And then on the -- here's the last...

I was going say there's a range on that, but that's a good average.

Yes. Okay, great. And then just the last housekeeping, on the -- in terms of the stores, you gave us some expectations for this year. We're looking at about 65 to 80 stores. Are you expecting that to be a net number? Like, if you look at this year, you added 80, the net number is 67. Is that -- that 65 to 80, you look at that as a net for 2013?

Yes, I think -- I'm thinking of is what we're going to open, but I'm not anticipating much in the term of closing this year. We've been challenging our folks. One thing that I think is a healthy process for every company to go through all the time is to constantly look at your business and say -- and we're doing performance improvement program that Will just touched on. We're doing different things. We have a performance improvement program within our vending initiative of looking at all of our machines and -- well-performing machines, underperforming machines. You have to look at all your business, including your store locations, and sometimes you fish or cut bait.

Okay, looks like we're right on 9:45 and again, I want to thank everybody for participating in the call this quarter. And I hope you found the release to be informative as you look at our business. One item in closing, I sometimes try to find something to have for closing, I asked Russ Rubie, who heads up our vending initiative, if he had any odd locations that I could share with the folks on the call today where we have some of our vending equipment. He didn't come up with -- he came up with a few that I felt were worth noting of just places we put vending machines. I know in Western Canada, it sounds like we have a few machines that are underground in some mining operations and producing well. We also, down in Florida, have some vending machines that are physically located in sugarcane fields underneath a roof where folks working on the sugarcane fields can access equipment -- or supplies, excuse me. And we have quite a few in Northern California in some wineries. So I thought I'd share a few of those, the places vending machines can go. And so I think the future is bright for Fastenal and our vending opportunity.

And I'll add to that, we have many with office supplies. So if any of you need some in your offices, just give me a call, you have my number. Thank you very much for your support.

Bye now.

Thank you, ladies and gentlemen. Thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.