What happened

Shares of Fastenal (NASDAQ:FAST), the industrial supplies store, gained 10% last month, according to data provided by S&P Global Market Intelligence. Amid the trade wars and uncertainty in the business environment, investors cheered its third-quarter earnings, which saw EPS come in $0.02 above analysts' estimates. 

Net sales improved 7.8% year over year to $1.379 billion. Earnings per share of $0.37 were 8% higher than the year-ago quarter. 

Fasteners, bolts, and screws

Image source: Getty Images.

So what

Management characterized business conditions as "sluggish." One of the metrics it focuses on is daily sales growth, which has decelerated from 12.2% in the first quarter to 6.1% in the most recent quarter. That was blamed on a "general slowing in economic activity" that began in the second quarter and continued in the third quarter. 

But investors were clearly pleased with how the company is handling the impact of tariffs. Gross margin was down 0.9 percentage points compared with the year-ago quarter, but improved 0.30 points over Q2 2019. The company said this performance "reflects improved execution of our strategies to offset tariffs and inflation."

Now what

Fastenal continues to invest in its three growth drivers: on-site locations, vending machines, and e-commerce. These initiatives are about getting closer to customers. Historically, Fastenal delivered market-beating returns with its strategy to open branch stores around the country. That story has played out, so to keep growing, management has started opening on-site locations and vending machines at or near the customer.

In the last quarter, the number of on-site locations grew by 30% year over year, and the number of vending locations increased by 12%. Additionally, e-commerce sales increased by 28% over the year-ago quarter. 

Analysts currently expect the company to grow sales 8.1% this year and 5.7% next year. Earnings are expected to be up 6.1% this year and 5% in 2020.