Day, ladies and gentlemen, and welcome to the Fastenal Company Q3 2015 Earnings Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ellen Treaster of Investor Relations.
Ma'am, you may begin.
Welcome to the Fastenal Company 2015 Third Quarter Earnings Call. This call will be hosted by Will Overton, our President and Chief Executive Officer and Dan Flores, 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 and 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 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 December 1, 2015, at midnight Central Time. As a reminder, today's conference call may include statements regarding the company's future plans and prospects. These statements are based on our current expectations, and we undertake no duty to update them.
It is important to note that the company's actual results may differ materially from those anticipated. Factors that could cause actual results to differ from anticipated results are contained in the company's latest earnings release and periodic filings with the Securities and Exchange Commission, and we encourage you to review those carefully. I would now like to turn the call over to Mr. Will Overton.
Thank you, Ellen, and thanks everybody for joining the call today. I'd first like to start out telling you how happy the Board, Fastenal Board and myself are to announce Dan as our new CEO. We're very excited, Dan, still kind of considered a new guy because he won't be 20 years until next year with the company. But we think he's going to do we really believe he's going to do a great job. He has a great team around him that both Dan and I have helped develop over the last 30 years or so.
And we think Fentanyl has a great future under Dan's leadership. Thanks, Dan. Then I'm going to switch to the quarter. As you know, it's been a difficult quarter for Fastenal. Talked a little bit about our sales.
September slowed down slightly, and really, it's a story of industrial fasteners and the slowness within or the slowdown within that part of our business. In the Q1, we grew our industrial or our fastener business 5.5%, not great, but market taking share. And then by the Q3, it's dropped to negative 4.4%, driven by not only volume, but also some deflation in the markets, weak steel prices. We do not believe we're losing share. Actually, we believe we're still taking some share, not at the rate we would like or expect, but still taking share.
On a more positive note, our non fastener business grew at 5.9%, taking share, growing that business, and that's driven by a great effort on our by our sales team and continued success with our vending program. On the margin side of the business, I believe the team did a very nice job, considering the balance of things with margin plus and negative. Product mix goes against us when the fasteners are not growing. Customer mix goes against us when our large customers are all growing, our small customers due to our success with the National Accounts Program and then the deflation in weak steel lower fuel pricing. So there are some puts and takes.
And overall, I think the team has done a very good job of managing the margin. And as Bob Kerlin always reminds me, the margin is more about our pay programs and our incentives and our pay programs than it is about mix. Hardworking smart people have a way to make those the margin work for themselves by delivering additional service to our customers, bringing value to the field. I think I also feel the team did a nice job on expense control. We are able to add, I believe it was almost 1300 people.
I get so many numbers in my head at this point in the month, I lose it, but I know close to 1300 people
in the
year and still manage our expenses to have earnings leverage, which we've never been able to do that in the past. And that's really a testament not so much to Dan and I and the senior people, but the people in the trenches that are working every day to run their businesses profitably and create opportunities for themselves. The last thing and my comments are going to be very short today. The attitude at Fast Knoll, the mindset that we're in right now is a mindset of we need to create our own luck. We're not economists.
We don't know what the economy will do over the next 2 to 3 quarters. We're not real optimistic that it's going to bounce back quickly. So we need to create our own luck as an organization. And that's what we want to talk to the investing public about on November 5, all the things that we're doing. We're having an Investor Day on November 5, for those of you that don't know that.
All of the things that we're doing to help separate ourselves and take more market share in 2016 than we would otherwise be able to do without being very focused. We're going to talk about our increased investment in our stores. We're going to talk about the increased investment in our vending program, how we're refocusing that program and believe it will give us well above average growth through 2016 and beyond. We're going to talk about our on-site program. Dan mentioned that, I believe, for the first time in our quarterly release that came out this morning about our on-site program, what we're doing with that and why we're so bullish on that as why that brings value to our customers.
And we're going to talk about our web program, our e business. We know we're not we've fallen behind some of our large competitors in that, and we're working very hard to make efforts to come back on that and present our customers with a very, very good solution for them to buy products electronically. And there's a common theme to the 4 things that I just mentioned, our stores, our vending, our on-site and our to run their to run their business, so they can spend more time running their business than they have to spend buying parts that are necessary to make the place run. So with that, I'm going to turn it over to Dan, and he'll cover more information on the quarter. Thank you.
Thanks, Will, and thanks for the message at the start of the call as well. And good morning, everybody, and thanks for your interest in Fastenal. I'm going to work to keep this focused on the quarter. As Will mentioned, we plan on having an Investor Day on Thursday, November 5, at our Indianapolis facility. And we'll be talking a lot about 2016 and beyond and one of the things.
And I think one of the things that will stand out in that day is always looking at the facts at hand in a business. How are in what ways are we great? In what ways do we have the best opportunity to leverage that greatness? And the thing that always stands out for me when I think of Fastenal, and that was true 20 years ago when I joined the organization, it's true today. And that is we put a lot of energy into recruiting, identifying talent and nurturing talent and unleashing that talent, letting people make decisions in their business to impact their future.
And knowing that, the second thing that we're great at is early on, we figured out how to make money in a footprint with a lot of small locations. We figured out when I look at a lot of industrial distributors, a lot of great companies, regional companies, national companies, one thing that stands out is it's really difficult to make money in a store doing $50,000 or $60,000 or $70,000 a month. But if you can figure that out, as you move beyond that, you can put people close to the customer, you can provide you have the ability to provide a different type of service than anybody else. And we thrive in a marketplace that wants to be that wants to get better, that wants to be helped by some of the tools, some of the things we bring to the table. And that's really what's driven our ability to excel is, if you put great people close to the customer and you have a business model with a structurally low operating cost, you can compensate people fairly for what they're doing and you build a great organization over time.
And that's really what we've done and we want to talk about that in early November. But getting back to the quarter, I have tried to incorporate over the last few quarters into our press release. Obviously, the usual items that we talk about and disclose, but really some quick bullets on what are some negatives and positives in the quarter. And I always want to get the negatives all the way, so we can then talk about the positives because I think there's the one list outshines the other. But the reality of it is in 20 15, we, our customers, have been hit hard by the slowdown in the oil and gas sector and hit hard by the strength of the U.
S. Dollar and the ability of our customers to compete effectively across the globe. And 89% of our sales are in the U. S. So anything that's negative to the U.
S. Market is negative to us in the short term as far as managing through it. The other item and you saw it in our September number, we've seen stabilization in a lot of parts of our business in recent months. The Texas market for us did take a little bit of a step down in September. And the other item I noted is our Canadian business and this is all in local currency.
So I want everybody to be mindful of that. I've heard a lot about the negatives in the Canadian market and the weakness in the Canadian market. We continue to I put it in my negatives because we're only growing at 6% because we were growing at 10% in the second quarter. But I continue to look at that and say it's a negative in that business has slowed, but it's really a positive in what we're able to accomplish up there in a very tough environment. And it demonstrates the types of things that we can do.
And Jeff Watson and his team, I think, are doing a wonderful job with that business of continuing to manage through and prosper. And if I looked at individual regions around the country, there's a lot of similar stories to our business. It's just that you have some geographic areas that are getting really hit really hard. And those areas are big areas for us. But the positive is we're executing well in a lot of places.
And I think that shines out in some of the positives I mentioned. We entered the year saying, we weren't sure what the oil and gas was going to mean for us in 2015, but we're going to invest in people at the store level. We're going to invest to keep growing our business long term because the opportunities for us are immense. And year to date, we've added 1234 people into our stores. In the last 12 months, we've added just over 1300.
And we've continued to invest in the energy of the business. And I think that's meaningful. I did introduce our 2016 estimate for store openings. And right now, we're starting a range of 60 to 75 stores, so 2% to 3%. I'm happy to talk about that.
The last few years, most of the discussion has been about looking at some of our locations, rationalizing some of our locations, and we'll always do that, but also talking about what we're doing to grow the business, because again, when you have the ability to break a profit at a reasonable level in the store and you see opportunities to take market share in a lot of different ways, get close to your customer, this is one of those pieces. The other thing that is positive is I look at our national accounts business and I've gotten I've had the opportunity to work with the folks in our national accounts team quite extensively over the last year or so. And some things that I've learned over the last year is the opportunity is immense and we're seeing that shine through in our signings. Now we might have existing customers that their business has been weakened and we have their business, but their business is down 10%, 20%, 30%, we can't change that in the short term. What we can change is, are we doing everything we can to get all the wallet share we can at that facility with that customer?
Are we doing things to help their business? Because where we help our customers, they help us back with more business. Are we doing those things? And are we out meeting new customers every day? And when I look at the pace of signings, we are on pace to easily exceed our last 3 years of individual signings with new customers.
And I feel very good about where we are even year to date and the fact that we're almost at the 2014 number right now as far as signings and we'll easily exceed it through the end of the year. So very excited about what's going on in our national accounts business. The On-site, as Will mentioned, it's the first time I've ever mentioned it in our earnings release. When I look at our On-site business and I take a little bit more expansive view of it when I think of that business, I include in that what we call On-site today as well as what we call Strategic Account Stores. When I combine that business, it's really about dedicated locations, either physically inside the customer's facility or really nearby, dedicated locations that are about this one customer and getting closer and closer to that customer, helping them in their business, becoming more knowledgeable That business over the last 15 years has grown to be almost 15% of our just over 15% of our sales today.
So it's about a third of our national comp business and it's a great win win relationship. We can get on-site, lean up some of our operations and really take a much wider view of things we can do for the customer. And I think that bodes well for us into the future. And we'll be talking on that, as I mentioned, in our meeting in early November. As Will mentioned, our gross profit improved in the quarter.
We're doing a lot of things to make good wise decisions every day at the store level, at the district level on how we price our product. Clearly, the fastener piece is tough because there's some deflation going on in that market. Right now, it's creating top line issues for us. It's creating some gross margin issues for us. Despite that, we continue to manage through it and eked out a nominal improvement in our gross profit.
Finally, and this is about our district managers and about our regional leaders, they're managing the business really well in a tough environment. We've asked them to go out and add people. And to that, they've added 1300 people into business. We've asked them to open some locations to keep building for the future in an environment where our existing book of business is going through a very weak period, despite all those things, we had incremental margin of almost 50% in the quarter. I'm proud of them for what they accomplished because that's about them and because we're asking them to do a lot of things.
But with that, I will turn it over to the Q and A. Thank you.
Thank Our first question comes from Adam Youlman of Cleveland Research. Your line is open.
Hi, guys. Good morning.
Hey, Adam.
Good morning, Adam.
Congrats, Dan, on the CEO position. I guess the one area that I'd like to start with, you talked about it a bit in the release and in the prepared remarks about the national account wins.
I'm wondering if there's any way to quantify
the opportunity that's popped up with a lot of these wins already on track ahead of last year. Is that the revenue opportunity or just the sheer numbers of them? So could you help us with that?
Well, I guess the biggest way to think about it is national accounts when we started that business 20 years ago was low single digits as a percentage of our business. Today, it's about 46% of our business. And when I think of national accounts and I add to that other large customer pieces that we don't classify as national account, but large regional accounts, a lot of our government business. When you start adding all those pieces together, you're probably talking 56%, 57% of our business. And I don't know if everybody knows all the facts of life, but I've always been a firm believer.
Eightytwenty works in a lot of things. And I really believe that the large account business, the national account business can be a 70%, 75%, maybe 80% piece of our business if you broaden the definition a little bit of our business long term. And the real question is, how do we keep growing that business given that we have a structural advantage in the marketplace. We have people close by a lot of these locations. A lot of these locations are not in the major metros.
They're in various locations through the states, through the provinces of Canada, around the planet. And so the fact that we can get close to a lot of them and grow it long term, I think, is tremendous, because I do believe that's going to be a driver of our growth long term. And vending and on-site are merely another tool to that growing that business.
Okay. I'm just wondering, because the revenues were only up 1% in the quarter. If nothing changes next year, we expect to get another
Because our top end dropped. I mean, if you look at where we've done a great job in the last three or 4 years, it's heavy industry, and that heavy industry has dropped tremendously. Dan mentioned oil and the strong dollar. The other big one is agriculture for us, in mining, things like that. So the gap between us signing a lot of more accounts in our national account performance, it's 2 different things right now.
We're taking share for the future. Economy picks up, we will be rewarded for that is what we believe.
Okay. Thanks.
That makes sense.
Thank you. Our next question comes from Robert Barry of Susquehanna. Your line is open.
Hey guys, good morning.
Good morning, Robert.
And Dan, congratulations.
Thank you.
So it sounds like even though the top line is decelerating that the messaging on investment is that it's going to remain strong, maybe even accelerate with more store openings, e commerce investment, etcetera. So curious how we should be thinking about the SG and A line over the next 12 to 18 months?
What we've over the last couple of quarters, we spent a lot of time looking at where we can make a maximum investment and still maintain at least not negative leverage, some positive leverage like we did in this quarter. And we've done a nice job of that. So we're going to invest in we're going to talk about investing in some inventory for our stores. We're going to take that inventory out of our we're going to redeploy the inventory from distribution to the front line, and we have a very good plan for that. We talk about vending.
We've added we've greatly increased our sales force. We found other areas to offset those expenses, and we found ways to pay for those people. So we've had to do is we've had to become very focused. And one of the reasons we have to do that is for the investing public, but the bigger reason is for our employees who get paid off the performance of the business. And so we're very focused on creating our own luck, but at the same time, we're not going to give away the bank and destroy the quarter.
So looking forward, tight expense control, continue to add people at a certain level and hopefully separate ourselves with additional growth.
One thing you have to always keep in perspective, and we've touched on this a lot over the last 7, 8 years is that what we've always coined a pathway to profit and that is anything that we can do that drives the average that drives our average store to get a little bit bigger has incredible profit gains built into it. And so you can invest some dollars to do that. And the only thing that's on our list that doesn't drive that in the ultimate sense is opening 60 or 75 stores. And we know what that cost and that's a pretty modest cost. And so it's really all the rest of the things are about things we can do to drive the top line because the deflation the negatives that we've had in our business are already embedded in our business.
The negatives that have occurred in 2015, the customer that's down 10% or 15% or 20% or 30%, that's already inherent in our business. So the things that we can do to drive market share gains faster, whether that's national account signings or driving our vending, driving our on-site as a complement to the national account signings, all those are wins that are highly profitable wins and allow us the luxury of investing.
Guys, that all makes sense. And I think the focus on the top line seems reasonable. But it does also sound like you're willing to live with, at least in the near term, what could be very low incrementals, given what's happening on the top line and yet this commitment to pushing on the investment. Is that fair? Like how are
you thinking about the incrementals?
I think that's fair. I mean, although 50% incremental is great, we only have a couple of percentage points of earnings growth, it doesn't add up in real dollars. Our pathway, and I believe what our true long term shareholders want is they want us to grow. And we're going to work very hard in that growth, but be very smart about it. We're not going to be trying a bunch of crazy things that we don't new things because we don't have a lot of luxury to do that right now.
And that's as we laid both Dan and I laid them out, we're going to invest in things that are very tried and true with a great team that knows how to execute. And we're going to have to say no a lot to good ideas that don't make the top of the list. And in doing that, we believe we can be on that balance point, a little bit incremental earnings growth, but that's not our major focus. Our major focus is getting some growth back and doing it wisely. And that's why using the things we're very we know very well and keeping our costs low in every investment we make.
We're good at that.
Great. Thank you, guys.
Thanks, Rob.
Thank you. Our next question comes from David Manthey of Robert W. Baird. Your line is open.
Thank you. Good morning, everybody, and congratulations, Dan.
Good morning, Dave. Thanks.
Yes. First off, on the Yes. First off, on the deflation, both of you in your monologues mentioned it. And I'm wondering if you could tell us what the top line impact on revenues of fasteners and non fasteners were in the current quarter relative to pricing?
The deflation is really about the fastener side of the business, that's about 40% of our business. And that's about we're seeing about 2 points of deflation right now in the business.
Okay. And then as it relates to your FIFO inventory methodology, as we look ahead to 2016, are there any implications there? Or generally, what are your expectations for pricing and margins in 2016?
Sure. If our inventory turns about twice a year, that's our overall inventory. Our fasteners turn slower than that. And so the deflation has been a full this year. It's hurt our top line.
It's hurt our gross margin. But we really haven't seen much of the benefits through our cost of goods because that inventory is what's coming on our shelves. And if you think about the pace of our business, if our business is growing faster than we expect, that inventory is turning a little faster. If we're growing a bit slower, that inventory stretches out a little bit. But that bodes well for us going into 2016, that will be a friend to our business.
Okay. So you expect pricing out the door to remain relatively benign then and you're benefiting from the lower cost inventory?
The pricing out the door is going to depend on what the market's doing in the next 12 months, Dave, more than anything. Is the market stable? Is the market improving? Is the market weakening? If the market is stable or improving, I think we can do a pretty good job holding on to that.
And most of it will be about the new business we're adding and is there a mix difference going on than anything else.
All right. And just to be clear, the 2% you mentioned, that's revenues to fasten all of on fasteners in terms of pricing?
Yes.
Okay. Very good. One clarification here. When Will was talking, I think he cut out a little bit. Will, you were saying something about creating your own luck.
And then I believe you said you're not optimistic things will bounce back quickly. Is that what you said? Or did I catch that wrong?
No, I'm saying that we're not planning. Personally, I'm not real optimistic when I look at everything going on in the world. And that's the way the thinking is, let's create our own luck. If I'm wrong, I'll be the happiest guy in the room. But right now, when you look at election year, you look at the turmoil in the Middle East, China and many other parts of the world, weak economy in Europe.
There's nothing that points doesn't look like oil is going to come back and corn is probably low for a long time. There aren't a lot of strong economic indicators that are going to push us up, but we're in a huge market. We're in a market that in the U. S. Alone is, who knows, dollars 100,000,000,000 to $150,000,000,000 to lease $100,000,000 we know that.
And so we have to go out and take share. And our problem today isn't that we aren't taking share. Our problem today is that our base business, as Dan said earlier, has shrunk. Our good existing customers are buying less from us. So to grow at 2%, we have to take share at a much faster rate.
If the economy just stabilizes and that base of business just stays flat, we're going to stack business on top and we're going to separate ourselves from the from our competitors in the market, and that's what we're planning on. Now if we were to bounce back and we were to do that at the same time, then you'll see growth we had I believe you'll see growth like we had in 2010, where we're getting a benefit of our existing customers growing at a rapid pace and new business piling on top of that. So those are the 2 scenarios. My crystal ball tells me it's probably the one where we take share and add it on top of a more stable
base. Got it. Thanks a lot guys.
Thank you. Our next question comes from Robert McCarthy of Stifel Nicolaus. Your line is open.
Good morning, everyone. Congratulations, Dan.
Thank you.
You're right. So a few questions here. I guess in terms of we spoke in the past that kind of the expectation is that perhaps you would have seen growth in September given what you saw in your recent pronouncements in monthly sales releases, but it's obviously inflected negatively. So could you expand upon what your expectations are given the tougher comparison in the Q4 into 1Q given kind of the stack of what you're seeing? What should we expect qualitatively for growth in the Q4?
We've never been good at forecasting the future, so we've tended to stay away from it. We've what we always try to do is talk about what we're doing to invest and how we're going to manage through it. We were disappointed by the September number as well with 10 days left in the month and it was looking to be slightly negative, as we saw. And so it wasn't a case of strong finish, weak finish, that kind of thing. It was pretty steady throughout the month.
It was more pronounced in certain geographic areas like I talked about. Because like I say, I look around the country and I see a lot of positive things and but saw some things that did worsen. So This is slow. And I don't think it's going to I don't see anything externally that's going to cause it to pick up in the next 3 months. And so Will's point that we need to make our own luck.
We need to look at our business. We need to look at things we're really good at, things that where we have great relationships with customers and set our priorities accordingly and drive our own growth, make our own luck.
Yes. And then just as
a follow-up to that, I think I'd take your comments to imply that the 4th quarter, given what we see in terms of the stack of compares, would be negative in terms of the top line. How do you think about the gross margin given the supplier or the lack of supplier incentives and the seasonal nature? Should we think of them thinking about a sequential downtick there qualitatively? Probably, right? I mean, how do you think about the Q4 in terms of the factors that are going to drive gross margin there?
I think we'll manage through it just fine. We know our team on the supply side, managing our transportation areas, They're ready to manage through that piece. They know what we're expecting as well. When I think of the mix of our business and what are the things that are positive and negative to our Q4 and our 2016, I believe we can manage the gross margins through it just fine. And so I'm optimistically looking at 2016 and the Q4 2015 that we'll manage through it in true fashionable style and to be just fine with the gross margin.
One last question if you indulge me. In terms of the to 65 store adds, could you talk just qualitatively how we should think about CapEx and OpEx there? And what are the learnings from basically driving growth at your existing stores now that are you looking at different geographies or different footprints or different configurations for your stores so that you'll get a better return on the store growth because probably you're optimizing for the right region?
Yes. First off, on the CapEx side, our CapEx, whether you're looking at 2015 or 2016 and beyond, there's never much CapEx that goes into new stores. If you think about a new store, the CapEx going into it, it's really centered on computer system, some shelving and a pickup. And the rest of it's working capital, primarily inventory, obviously. So the investment going to a new store, we've dialed that in years ago.
So we're really, really efficient with that. Our CapEx going into next year is really about what are we doing on the front of vending, what are we doing as far as our distribution centers And what are we doing as far as our vehicle fleet? Because those are really where the dollars are driven, not if we open 75 stores or if we open 25 stores.
And I guess we'll get further color on that at the November Analyst Day in terms of how you're thinking about the CapEx. But clearly, given the level of investment, you expect an uptick there?
No, no. I can give a preliminary number on our CapEx for next year. This year, we're going to be in kind of that mid 150s neighborhood, between $155,000,000 $158,000,000 and that's very much in line with what we talked about earlier in the year. I would expect next year our CapEx will drop meaningfully and it will be in that $130,000,000 neighborhood, maybe 125,000,000
And what's the driver of that given the level of investing in vending and DCs, etcetera?
The real driver of that is, if you think about our business over the last few years, we had 2 big drivers of CapEx. One was we came out a number of years ago and said, you know what, we've automated 2 of our distribution centers. We really like what we've seen, and we're going to do that into the future and we're going to do it aggressively. And so we went from having 2 distribution centers fully automated. Today, about 84% of our picks are done through automated DCs.
And so now what happens is in an Akron, Ohio, for example, where we have a highly automated distribution center, the dollars that go into there today are more about how much is that business is growing, what do we need in distribution capacity to support that growth, but we're not automating the facility, we're expanding completely different proposition. So our CapEx, when I think of distribution, will drop meaningfully from where it was in each of the last 3 years. The second one is vending. When we started vending back a number of years ago, we really didn't know how fast this thing would grow. If you recall in 2012, we started the year saying, geez, if we could sign X number 10,000 machines for the year, we consider that a home run.
And we hit that number, I believe, it was around July 6. And the one thing that we wanted to do is we wanted to have our powder dry to support that business. And so not only did we invest capital in the machines we are deploying, we invested capital in the machines to be deployed because we didn't want to outshoot our ability to produce machines. And so we have an inventory of machines that we've been working through. And so that puts us in a luxury of now managing our vending equipment to the needs of the business as opposed to staying well out ahead of it because we have a better idea of our pace.
Well, I'll see you in Indianapolis.
Very good. Great. Thank you. Look forward to it.
Thank you. Our next question comes from Ryan Merkel of William Blair. Your line is open.
Thanks. Good morning, everyone. We've covered a lot of ground here, but I just want to go back to the incremental margins just for a second. Just assuming next year sales are up only 2%, 3%, let's say, what would incremental margins look like you think given that you're going to ramp some of the investment spend a bit more?
Incremental margins would probably move a lot closer to our operating profit. Okay. We wouldn't be in the I mean, let's face it, right now, we're in kind of an unusual place of incremental margins being north of 35%. In our history, you look at a lot of our over the last decade, 25% to low 30% was a much normal range. And I think in the environment, if you're investing for the future, to hope for being on that upper end of the range probably isn't realistic.
And you move down closer to our operating margin. But the piece you have to keep in the back of your mind is we have a natural lift to our business profit as we add dollars to our individual stores. And so if we're adding in your example, Ryan, if we're adding 2% to 3% top line growth and we're opening 2% to 3% stores, we're kind of treading water there. But we don't have some of the mix issues going on that we've had going on over the last few years if we're only doing 2 or 3.
We're going to be very focused on beating that sales number. Absolutely. That's the way we win and that's the way all everyone dependent on us, our shareholders and our employees win. And if the economy just stabilizes, our customer base stabilizes, we have a very good chance of making that happen, we believe.
Absolutely fair. I hope it's better than 2%, 3% too. I just wanted to sort of calibrate everybody on what the incremental margin would look like under that sort of more dire outlook. And then just lastly, Fastenal growing 0% here in September in a non recessionary environment, it's pretty surprising, I think, for a lot of us. But if we just step back and we think about quantifying some of the headwinds, and I don't want to put words in your mouth, but it seems to me oil and gas customers are probably down, what, 30% this year, might be a 3% headwind to sales.
And then what about exports? I got to think an even bigger impact. But you tell me, and we've also got FX as a one point headwind.
A couple of things. First off, the premise of the question, I would argue that anybody selling into the industrial market is not selling into a non recessionary environment. We are I agree with you there. Industrial environment is in a recession. I don't care what anybody says, because nobody knows that market better than we do with the number.
We touch 250,000 active customers a month.
Cat, Deere, Emerson, Terex, name the list, they're all down 8 to 10. Right.
If I look at our top last quarter, I cited some stats of our top 25 customers. I'll take a broader brush and I'll look at our top 100. Right now in the Q3, 44 of our top 100 customers are negative. We have not lost any business with that group. They're negative in their spend.
In some cases, they're negative because their business is very negative and they're somewhat negative with us. In some cases, their business is treading water, and they've decided to tighten their belt. I mean, look at our CapEx next year. There's going to be suppliers to our capital spend that will have a tighter year in 2016 than they have in 2015, because we're not automating 2, 3, 4 distribution centers in the next 12 months. Of that 44 that were negative, 32 of them were negative more than 10%.
Of that 44 that's negative, 17% of them were negative more than 25%. That's a sign of a recessionary environment, because despite all that, we continue to add customers at a faster pace than we've done in recent years, and we which is about momentum into the future, which is we continue to grow our national account business, which is about momentum. And but we have existing customers that are struggling through a pretty weak environment in their own business.
We're right. I mean, you read my research. I agree with you in the recession for the heavy manufacturing. I just meant the traditional GDP for the U. S.
Is negative 2 quarters in a row. Really the focus of my question was, if I think about the headwinds this year, oil and gas 3%, exports maybe 4% to 5%, FX 1 point, right? Where those things are turnaround, you could be back to a 10% plus top line grower. So I was just trying to
quantify Just
level out. Even if they just set them on
line. Just level out.
Okay. Great. Thanks.
Thank you.
Thank you. Our next question comes from Sam Darkatsh with Raymond James. Your line is open.
Good morning. And again, Dan, kudos on a very well deserved promotion. I want to make sure that's reiterated.
That makes sense.
Couple 2, 3 questions, just housekeeping of nature. First off, can you give us, Dan, what the machine equivalents were, the vending machine equivalents both signed during the quarter as well as the installed base?
I'm going to I don't have that number, but I'm going to throw out one stat that's impressive that the volume through the machine sales dollars through the machine grew 16.6% in the quarter just in a very difficult environment. I think I said this to Ryan Merkel and I saw him recently that that's about a $600,000,000 business for us growing in high double digit or almost 17%, probably the fastest growing industrial business out there of that size. So we're doing seeing very, very good growth, and that's the reason that as a team, we decided to double down on that growth. Now Dan, I think Dan has his numbers here. He's paging through.
Yes. Yes. I have the number of units in service. I don't have a copy of the 10 Q in front of me. We'll be filing that on Friday, and all the details are in there.
But our equivalent number of units in service at the end of the quarter is 40000 and 67 and the actual device count is 3,000,547.
And Sam, we're internally, we are more focused on the growth through the machine than any other metric because that's what it's all about. That's what creates the commission and the profit.
Thank you for that. And a couple more quick questions if I could. I think if I'm understanding it, Dan, the store openings of 60 to 75 next year is a gross number. I'm guessing you may still have some closings that are anticipated.
Do you have
a sense of what the net store count, the
dark. I would suspect if we closed 20 stores, that wouldn't surprise me. And I don't have a firm number on that, but it wouldn't surprise me. So a number I've had in my head is we'll probably add 50 net next year.
And then the last question. You had a little bit you repurchased, I believe, about 600,000 shares in the quarter, which was a little bit below the pace or first half of the year. Was that timing? Was there something strategic to that? Where do you anticipate the level or the pace of repos over the near to intermediate term?
Yes. We hit it really hard in the second quarter as we talked about on the July call. We pulled the pace back a little bit. Part of it, we're in discussions right now to up our line nominally to have dollars in place for that and some other pieces that are going on with our business in the next 9 months to 12 But we'll probably continue at that pace, maybe a little bit higher in the next few quarters. A lot of it's going to depend on where the market values the stock to.
At the 3rd quarter pace you're referring to?
Yes.
Okay. Thank you, gentlemen. I appreciate it. Much obliged.
Yes. Thanks, Sam.
Thank you. This concludes our Q and A session. I would now like to turn the call back to management for closing remarks.
Again, this is Dan speaking. We will reiterate, thank you for participating in our call today. Thank you for continued support of Fastenal. And our Investor Day in early November, in addition to hosting our Investor Day, we will be broadcasting that on the web for people to listen to remotely. Thank you and have a good day.
Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.