SG&A Investments
Q: Are you increasing SG&A spend to drive higher growth?
A: Management explained that they have been investing to grow throughout the cycle. While SG&A growth has been limited to 5% or less in each of the last five quarters, they highlighted a 20% growth in sales travel expenses aimed at improving contract business and signings. They emphasized that they are not panicking over a 2% growth quarter and will continue investing rather than slashing costs.

Gross Margin Outlook
Q: Has your view on gross margin cadence changed?
A: Management stated that their view on gross margin cadence has not changed. They expect gross margin to be down in 2024 but not as much as in historical periods. In the first quarter, gross margin was down 20 basis points, which is representative of their expectations. They believe the variables affecting gross margin remain in place as anticipated.

Pricing and Cost Pressures
Q: Are you seeing inflationary pressures that could lead to price increases?
A: Management noted that they are not currently hearing about significant inflation in raw materials that would necessitate raising prices. While U.S. steel indexes have been volatile, the foreign steel indexes relevant to their supply chain have not shown significant changes. They mentioned that raw materials like steel comprise about one-third or less of the final product's value. Therefore, steel has not been a catalyst for price changes, and they are not seeing rampant inflation that would require price adjustments.

Potential Tariff Impact
Q: What is your perspective on potential tariffs and their impact?
A: Management emphasized their commitment to maintaining a reliable, high-quality, and cost-effective supply chain with diversified sourcing. They have been diversifying their supplier base geographically for the past four to five years to mitigate risks like tariffs. While tariffs can increase supply chain costs and impact pricing to customers, they are prepared to manage such changes and believe they are better equipped now than five years ago to handle pricing and costing processes in response to tariffs or other cost increases.

Onsite Performance and Leadership Changes
Q: What drove the strong Onsite performance this quarter?
A: Management attributed the improved Onsite performance to organizational changes made in the spring of 2023. They realigned everything under one sales leader and consolidated the U.S. back into one business unit to focus on common goals. As a result, Onsite signings improved, noting 102 new signings. They also mentioned record sign-ups for their trade show, indicating increased engagement from the sales team and customers. They believe these changes are starting to show positive results, although they acknowledge that more time is needed to see the full impact.

Store Closures and Onsite Growth
Q: How will fewer store closures affect Onsite growth?
A: Management explained that while closing branches sometimes led to Onsite growth when business moved to Onsite locations, they don't believe that closing branches directly drives Onsite growth. They anticipate their traditional branch count to be stable to slightly up over time, with primary growth coming from adding more Onsites. They are confident in sustaining organic growth through this focus on Onsite expansion.

End Market Challenges
Q: Where are the negative outliers in your end markets today?
A: Management indicated that most end markets are experiencing general softness with no significant outliers. They mentioned that fabricated metals and machinery have been challenging for a while, but currently, the softness is broad-based across most markets. They are not receiving many specific market call-outs at this time.

New Disclosure on OEM vs. MRO Fasteners
Q: Why did you break out OEM versus MRO fastener business?
A: Management stated they have been internally tracking the split between OEM and MRO fastener sales for several years and felt comfortable sharing this data now. They noted that both OEM and MRO fasteners tend to move directionally with industrial production, but the magnitude may differ. Sharing this information provides more granularity into their business, including how Onsites are more oriented towards OEM fasteners. They believe this adds useful color for understanding their business.

Customer Expo Impact
Q: Does the customer expo lead to revenue or build relationships?
A: Management explained that the customer expo serves both purposes. It helps close deals and expands business by engaging decision-makers from both Fastenal and customers. The expo allows customers to see and understand their offerings, such as vending machines and RFID setups, and interact with suppliers and other customers. They expect a return on the investment in the expo, with business expansion occurring shortly thereafter.

Change and Organizational Friction
Q: What about recent changes is creating friction?
A: Management discussed that change can be challenging in a successful business. They highlighted that their Western business unit was negative this quarter, while the Eastern unit was positive. They emphasized the need for leaders who prioritize growth over simply harvesting the business. Adjusting the organization's focus and direction can create friction, but they believe it is necessary to drive growth and expand customer partnerships.

Onsite Signings Progression
Q: How did Onsite signings progress through the quarter?
A: Management indicated that Onsite signings were consistent throughout the quarter, with March possibly being the biggest month. They did not provide specific details but suggested there was steady progress without significant fluctuations.

Price/Cost Dynamics
Q: Can you stay price/cost positive if pricing remains flat?
A: Management noted that pricing excluding fasteners remains positive. While fastener pricing may be negative, it is largely offset by non-fastener pricing. They described the pricing environment as fairly unremarkable, with pricing within a 0% to 2% range. They are not seeing significant factors that would disrupt their ability to maintain positive price/cost dynamics.