We felt it in the retail markets, as many stores posted lackluster Black Friday sales. Wal-Mart
Even though the construction equipment maker posted 11% higher Q4 net income year over year, comps at stores opened for five years or more -- which the company says best reflect the strength of the overall economy -- turned from a 6.8% gain in October to a 5.1% loss for December. That same trend also appeared at stores open for two years, and in total company sales, which went absolutely flat compared to last year's near-12% gain.
This is the first time in years that Fastenal has seen its comps go negative. The results mirror a Manufacturers Alliance/MAPI survey that found industrial output declining at an accelerating rate, falling 16% in the fourth quarter alone.
The profit gains Fastenal posted were better than those of rival MSC Industrial Direct
Things seem poised to get worse before they'll improve. According to Morgan Stanley analysts, the industrial economy is expected to contract 3.5% in 2009, compared to a small dip last year. The Bureau of Labor Statistics shows that through November, the U.S. lost more than 2 million jobs, with a 6.7% unemployment rate.
Fastenal has made a conscious decision to slow down store openings. Its near-term profitability is hurt by the new stores, because it takes anywhere from nine months to a year before a store sees its first profitable month. Relying as it does on direct sales, the maker of nuts, bolts, cutting tools, and the like would undoubtedly face even greater profit pressures from a slowing economy.
Many investors' hopes seem pinned on the Obama administration's stimulus packages, and those of other governments around the world. While the stimulus money will supposedly flow to so-called "shovel-ready" projects, which may ultimately shut out some industries or companies, parts suppliers like Fastenal, MSC Industrial, and Lawson Products
At roughly 18 times last year's earnings, Fastenal sports a rich price compared to its competitors, including Watsco
Further fully assembled Foolishness:
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Fool contributor Rich Duprey owns shares of Wal-Mart, but he does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.