Fastenal Company (FAST) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fastenal Company Fourth Quarter and Fiscal Year 2013 Earning Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the conference over to Ellen Trester of Investor Relations. Ma'am, please go ahead.

Welcome to the Fastenal Company 2013 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. Also present is Lee Hein, our President. 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 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, 2014, 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 materially from those anticipated. Information on factors that could cause the actual results to differ materially 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, thank you for joining us today. As all of you have seen, the fourth quarter 2013 was not a good quarter for Fastenal. Starting out with the sales. December was slow, but overall, we felt pretty good about the quarter from a sales standpoint. Both October and November were on track, and December is always a difficult month with the way the holidays falls. We kind of throw that out. So overall, we think we're moving in the right direction from a sales standpoint. The big disappointment in the quarter was obviously the margin. Going into the quarter, the trend was going in the wrong direction, but we thought we could change that. And as it turned out, the trend actually went further down. I've spent a lot of time in the last month looking at the margin, trying to understand and breaking it down the things caused by lower -- excuse me, lower volume, freight issues and things like that, will come back in the first quarter and we believe that, that'll get us somewhere in our 51% to 53% range. Dan will cover that better. I've also spent a lot of time looking at other things, other opportunities that we have: improving our freight program, looking at very low-margin business and other opportunities, buying product better. And we have a lot of momentum within the company in improving the margin right now because, as you probably know, this a big part of our pay program for all the people in the field, so there's a lot of energy there. They're less happy about it than you are. So I'm very confident that with the snap -- or the jump back of the mechanical parts of the margin and the energy that we have in, we should see nice improvement in the first quarter. One bright spot in the quarter was our expense control. We added hundreds of people in the stores, and we were still able to manage our expenses. Our SG&A expense is about where we thought they would be, actually a little lower than we had earlier thought they would be with the additional labor. So I want to give a shout out to the Fastenal team that's on. They really worked hard in controlling the expenses. As the sales come back, if we can continue to control our expenses, I think we'll be in a very good position. Another area that I am very positive on are the vending numbers. Although the signings dropped considerably, more than we thought they would, we really have been focusing on quality versus quantity. And when you look at the numbers, the customers that have -- that are using or deploying our vending systems now make up over 36% of our revenue. That group of customers in the third quarter grew at about, I believe, it was 15.2% or 15.3%. That jumped up to 18.7% growth in the quarter. So if you annualize that business, it's a greater than $1 billion business that's growing close to 20% in this environment. We're very, very positive on that, and we're going to continue to work hard at signing machines. We've lost a little momentum on that. So what I would look at for the 2014 calendar year, it'll be a little bit -- be the opposite of last year. We'll probably start slow and end strong because there's a lot of momentum, a lot of people are working on trying to move the machines and pick up that pace. Looking at a similar year to 2014 is what we're predicting -- or, excuse me, 2013. 'Pathway to profit.' Again, the progress was slow, but that's a simple story. Without sales and margin, you can't grow your pretax earnings as a percentage of sales. But Dan, Lee and I have spent some time talking about that and we're all very confident that our goals are correct and that they're very achievable goals. So just looking at the quarter, or more importantly, looking forward, what is the direction? I'm feeling good about this quarter and the rest of 2014. The biggest reason for that is we have our people in place. We've added about 900 people in the stores, we've added another 100 people outside the stores in selling capacities, National Accounts sales specialists. We've done a nice job of putting our leadership people in place. We've added 3 regional vice presidents. We've added more than 50 district managers. Those people are now in place and they're working hard and we're seeing good results from that. Another positive is I believe, and even if the economy doesn't come roaring back, it does feel like the environment is getting better. And I know Dan has some numbers he's going to cover on that. So we have the people in place. We have the leadership. We have a lot of motivated people because it hasn't been a good quarter financially for the team, not just the high-level team, but all the way down to the district managers. There are a lot of people that are working very hard to drive the business in the right direction. With that, I'll turn it over to Dan and then take questions later. Thank you.

Thanks, Will, and good morning, everybody, and thanks for joining our call today. Before I start with some of the comments, I thought I'd start out -- I think what's best is to get something on the table. First off, want to apologize for the quarter, and probably as importantly, apologize for the need to put out an early announcement and not being 100% accurate on that early announcement. We are optimists. That's never going to change. We expect much of our organization and of ourselves and that, as well, is never going to change. The story is really about one of gross margin. That was what prompted us to put out the early announcement. It afforded us the opportunity to talk frankly and openly and aggressively internally to fix some things that were going in the wrong direction. We're always conscious of the fact that we're -- being a public company with a meaningful multiple, we are careful what we say and what we don't say, internally and externally, because things can get out and we wanted to be upfront with everybody on that. Gross margin dropped 109 basis points, as Will touched on. Utilization was a piece of that, as well as vendor allowances. Those pieces are mechanical. Those pieces will correct themselves and that's what I believe pushes us back into that 51% to 53% range. But the time that we had in the last several weeks of December, the first several weeks of this month, have afforded us the opportunity to go aggressively internally. There are some things that stand out, and I think this speaks to our ability to fix some of the issues. All things are not created equal. Margin didn't deteriorate equally in all stores. Like anything else, there's a subset. Our folks have tools to use for how to price products. Some use them very well and some need work on it. Some need more involvement from the district manager. We've been expanding our district manager pool as we've gone through the year, which I believe gives us the oversight to be able to fix some of these pieces quicker. And I believe we can improve our gross margin as we go into Q1, outside of the mechanical things that are there. End market mix continues to be a struggle point for us, as you can see, is the fastener, as a percentage of our business, continues to whittle down. I thought I'd share some numbers here, and I'm always a little cautious to share these numbers because I don't want a dizzying commentary coming out but -- so it might make sense for the analysts on the call to grab a pen and paper right now and jot down a few notes. We've talked in the past about manufacturing and how big a piece of our business manufacturing is. It's about half our business. The other half is about -- half of the remaining half, so about 25% of our business, is construction-centered and the other 1/4 of our business is a whole bunch of things that add up to that number. But when I -- because we're a fastener company, a lot of our manufacturing is in the NAICS category that's known as heavy manufacturing. And the way our data is laid out, the way the NAICS information is laid out, NAICS is North American Industry Classification System, I believe, there's a heavy manufacturing group, there's a medium manufacturing group and there's a light manufacturing group. We don't do -- as a percentage of our sales, the light manufacturing is relatively small. And a lot of that comes from the fact that starting out as a fastener company, a lot of our business, because we weren't more of an MRO supplier, lends itself to people that use a lot of metal. Medium manufacturing, the light and medium, combined, is about 10% of our business. The heavy manufacturing group is about 40% of our overall company business, so it's about 80% of our manufacturing business. And again, I looked at it and that makes sense to me because, again, a high percentage of our business is fasteners and you have a lot of OEM fasteners being used in that business. If I look at our manufacturing business in total. Over the course of this year, that business grew about 7% in the first quarter. It grew about 6% in the second quarter. It grew about 5% in the third. In the numbers we just reported this morning, it grew 7.2% in the fourth quarter. So it did see an uptick. If I look at the -- and clearly, for that to have an uptick, it has to be driven by some things that are going on in the heavy manufacturing subset. The heavy manufacturing subset grew about 7% in the first quarter, grew about 5% in the second quarter, so it was weighing down that 6% overall manufacturing number. It grew about 3% in the third quarter, so it was weighing down even more the overall manufacturing group. In the fourth quarter, that group grew, depending on the month, between 6% and 7%, so we did see a marked change in the growth pattern and that's what drove our overall manufacturing to be up just over 7% for the quarter. Some of that is comp because last year -- later in the year, that piece of business was slowing down. So I thought I'd -- just to confuse the discussion, I thought I'd take a look at it from one more perspective and that is what happened from Q3 to Q4? What's going on? Is there anything going on in the trends of that business? Last year, that business dropped, consistent with the company, from Q3 to Q4, of about 5.5%. And that drop off to our business from Q3 to Q4 is not a new phenomenon because 2 things happen in the fourth quarter that impact our business: one is you have a lot of holidays going on that provide for periods where you have shutdowns in plants and facilities, whether that be over Thanksgiving weekend or around the Christmas, New Year time -- holiday period. And that could be influenced in the Christmas, New Year time frame by timing within the week. Heavy manufacturing in the company this year -- well, the company was down 5.2%, I believe, from Q3 to Q4. The heavy manufacturing was only down 4%, and so there was a change in the trend of our -- of the biggest piece of our manufacturing from Q3 to Q4. On the flip side of that coin, we did see our construction business fall off more than normal from Q3 to Q4. And I believe that has more to do with the timing of the holidays in December than it does with anything else. And so I do believe we've seen a change in our heavy manufacturing from Q3 to Q4. We'll see how that plays out. It's no secret, on earlier calls, I've expressed skepticism to the ISM and I still do, but I do believe there are some improvements in the patterns and we'll see how that plays out as we go into 2014. As it relates to -- again, historically, we've shied away from any kind of commentary on the current month and the real reason being whenever we do it, we're wrong. Whenever we do it, we're wrong. And so I'm not going to explicitly go into, here's what I think we're going to do for growth in the first quarter -- well, excuse me, in the month of January. We published within the confines of our releases what we think are normal sequential patterns, and we hold to those normal sequential patterns. We think they have meaning. Clearly, the weight -- the impact of our heavy manufacturing and the subset of that, that is heavy equipment manufacturing, weighed heavily on our numbers in 2013. But I asked our technology folks to take a look at how we -- when we communicate with our stores, in any given day, we have 2,700 points of contact out there that we're talking to electronically every day and we're gathering information from. And in any given day -- business day, in any given business month, you have some stores that for whatever reason either don't connect for one -- on a particular day or they have -- they connect but their sales are incredibly low and so there appears to be something impacting that business that day. And so we looked at it not from trying to quantify dollars, not from trying to gauge dollars, but just saying based on our 2,700 points of contact and the number of stores in that group that have some type of impact that we see just in the transmission information, either the connected or a minimum level of sales, what we saw in the first -- and this is through Friday of last week in January, we saw about a 16% impairment in the level of activity. So we are getting off to a slower start in January. With that said, the last 3 days have -- we have been seeing much stronger sales patterns. Some of that is normalcy coming back in our business. Some of that is, last week, Indianapolis, our distribution center in Indianapolis was shut down for several days. The trucking network was shut down due to very, very severe weather in the state of Indiana. Certain counties, it's my understanding the state of Indiana had a state of emergency and so that did impact our business. So we've had 3 very strong days. Part of that is product getting through our -- Indianapolis is kind of our center point, if you will, of trucks transferring between different geographic areas of the country. Those trucks are getting through, and those sales that had been slid off early part of the week are coming through in the last 3 days and we're seeing strong patterns. So we are internally optimistic on our ability to have a strong January. We did get off to a slow start because of the weather. That is all the commentary I have. I think the earnings release is self-explanatory in its detail. At this point, we would open up for call -- for questions.

[Operator Instructions] Our first question comes from the line of David Manthey from Robert W. Baird. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: First, Dan, if you can just clarify the comment, the 16% impairment, I'm just not sure what that means or how to read that. Are you implying that, that's related to sales trends?

No, not at all. There's no weighting in that number, Dave. So we have 2,700 point-of-sale locations out there. And those locations, you have a store here that's doing $700,000 a month, a store over here that's doing $30,000 a month. There is no weighting to that number. What it's really doing and it's saying, looking across that -- the one thing I always want to be -- we want to be careful of is that we don't skew our commentary based on who we've talked to or who speaks the loudest. So if -- we live in Minnesota here. We're on the border with Wisconsin. If we're talking to some district managers in Wisconsin and Minnesota because southern half of Wisconsin is belted with snow, that isn't necessarily indicative of our business nationwide or across the continent or around the planet. So merely try to look at it from the standpoint of looking at those points of contact. And if you expect X number to be with a substandard level of sales in any given day, is there a difference between what we've seen in the last -- actually, the last 3 years? And through last Friday, we saw about a 16% increase in the number of locations that had a weird day, either they didn't hook -- set up for communicating at all or they set up for communicating but they did $12 in sales. That tells me there's -- maybe there's a store manager that's logging in from home and doing some work or that they've made it into the office, but the store is essentially closed or their customers are essentially closed and they're just -- they did some minimal activity that day. And merely trying to gauge the impact across 2,700 locations, the subset -- and the subset is quite small. So it doesn't take a lot to move it 5 points or 10 points. It's saying -- so there is an impact from weather, but that's not -- don't read that as a direct correlation to sales. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Great. Okay, I just wanted clarification on that. And I guess the other thing that people are wrestling with today is that you pre-released on the 20th and then you effectively missed that guidance by $0.01 to $0.02 over the next 2 weeks. And I think to some extent, you addressed it. It doesn't seem like it's a sales issue. It seems like it's more a GP issue. Could you talk about or quantify the impact from lower rebates in the fourth quarter? I mean, was there a reversal of previously accrued rebates, and if so, how much? Could you just talk about that impact? And was that the condition that led to the shortfall relative to the December 20 announcement?

Well, the quantification is we dropped about 109 basis points from Q2 to Q3 -- Q3 to Q4, excuse me. About 30% of that number related to either vendor allowances, rebates, or to volume incentives. And that was split pretty evenly between the 2. It isn't a case of you're reversing than you've booked in the past. It's a case of you just -- you didn't earn as much as you thought and what you're booking for the quarter is less. Most of those programs are calendar year basis. And those numbers really didn't change. When you release on the 20th -- we indicated we thought we'd have earnings per share growth over the $0.33 from last year. I honestly thought we'd do $0.34. And the gross margin was slightly worse than I expected, but not meaningfully. The sales were -- it's a number of factors. The sales were a little bit weaker than I expected. But again, whenever we predict it midmonth through, you're going to be wrong. It's just a degree of -- it's an issue of degree and an issue of direction. And the sales came in slightly weaker than I expected. The gross margin was slightly weaker than I expected. The operating expenses were about where I expected. And we came in at $0.33 -- a very strong $0.33. We're on the north side of $0.33, but it didn't come up to $0.34. And I guess that's the answer.

And our next question comes from the line of Sam Darkatsh from Raymond James. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: Couple of questions here. I wanted to piggyback Dave's last question there. Dan, it looks like you had -- of the sequential gross margin decline, Q3 to Q4, 70 basis points or so was mix and pricing. And I guess, the inference that you're assuming a 51% to 53% gross margin for the year, for 2014, suggests that, that is going to alleviate. Now a little bit of the pricing you talked about, but I'm concerned about why mix would not be even a greater headwind in '14 than it might be in '13 because of the re-acceleration of vending and some other factors. Could you help as to why the headwinds from mix might dissipate going forward?

Well, to me -- I don't necessarily think the headwinds from mix are going to dissipate. I think the component that relates to our execution to our -- just our day-to-day pricing, we talked about why we released the -- put the announcement out early. We've had some pretty frank discussions internally at the region and district level about gross margin and some habits and some habits we were seeing in stores, in a subset group of stores. What prompts me to not believe the mix is going to get worse -- because one of our issues during 2013 is our mix has been deteriorating throughout the year. One of the reasons for making the -- sharing the commentary about the subset for our business because giving you a lot more information than we normally give about how much is heavy manufacturing. There's a big subset of that, that is heavy equipment that we've talked a bit about on prior calls. What we're seeing in that business for the first time that I could say in the last 4 quarters -- 5 quarters, is stabilization in that business with some improvement because the -- if you take that 40% that's heavy manufacturing, about half of that is heavy equipment and the other half is everything else. It's a variety of end markets. The heavy equipment has stabilized, which means if the overall pool has improved, the non-heavy equipment piece is expand -- is growing closer to 10% in the quarter. And that's got a lot of fasteners in it and that isn't necessarily as much production fasteners. So there's some mix things there that, I believe, will help us, and at the worst, won't hurt us as we go forward, because that's what we've been fighting all year, Sam. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: The 51% to 53% comment, I guess one can infer that the midpoint of the bell curve would be 52%. Is that realistic to assume for '14? Or is it just -- if you are in the low part of that, you're still within the range and therefore still okay? I mean, how should we look at that range realistically?

We continue to look at that range over not a quarter-to-quarter basis, but year-to-year basis. Clearly, coming into the year below the range with mechanical changes in Q1 to get us to the bottom of the range does not imply a 52%. We're going to be looking back into it. We believe some of the things we can do to get us north of just being on that razor's edge of 51% it can move us north of that. But the mechanics right now of our business, whether it be utilization or how the vendor allowances work, we believe gets us to the low end of that range and where we move beyond that is a function of execution and mix.

And Sam, the long-term margin story of Fastenal has always been about our execution and that's why no one's really ever understood it, how has Fastenal operated at such a higher point than everyone else? And we did not execute well in the second half of 2013 and we're very focused on correcting that in the first half of 2014. So we have to prove that we understand that, and mix and economy and everything plays in. But the biggest thing that plays in is our people doing disciplined pricing. Sam Darkatsh - Raymond James & Associates, Inc., Research Division: If I can sneak one more in, if at all possible, you had a lot of moving parts around labor and occupancy in '13. How would you project those expense lines to grow in '14, at least directionally, if you could help us with that?

Well, we haven't opened a lot of stores, so occupancy will probably grow in the mid- to upper-single digits. Utilities are higher. It's been, as you know, it's been cold out and so utilities...

And the vending machines.

And the vending machines. So we have 2 things driving that. So we have 5% to 8%, I would say. Occupancy, we're adding 15% more hours.

Labor.

Labor -- excuse me, labor. Sorry. Labor will grow this year, but we've done a nice job of adding part-time labor. We're controlling our support labor well. We do not expect labor to outgrow sales, so the overall labor number for the year should not outgrow sales and we should have earnings leverage as we go into the year.

And our next question comes from the line of Adam Uhlman from Cleveland Research.

Just to start with that clarification on your commentary about the heavy manufacturing customers, because if I remember correctly in the prerelease, we were talking about that subset of customers seeing weakness intensifying. And now it sounds like you're saying that stabilized and actually getting better. What exactly is the message there?

The message in the prerelease, and I wish when they name these categories, they'd have names that were distinctly different, you have heavy manufacturing and a subset of that is heavy equipment. The prerelease was talking about heavy equipment through -- if we looked at what we were trending, that business was -- that business grew about 1.5% in the fourth quarter. And that's about half of our heavy manufacturing. And to give you a frame of how that worked, that was growing north of 7% -- that was growing upper-single digits at the start of the year. It was growing -- by second quarter, it was growing mid-single digits. In Q3, it had dropped below 2% growth. And in Q4, it was there -- it was slightly below it, but it was essentially the same. That's really the piece that continues -- that continued to hurt us. And that's about half of -- that's about 20% of our business. So it's about -- of that 40% that is heavy manufacturing, half of that is heavy equipment. That's the piece that we've been talking more about over the course of the year, because that's the folks that makes the big wheeled -- the things that are going into mining, into construction, into agriculture, into defense, big, big pieces of equipment that we've been talking about in prior quarters, as opposed to expanding that to look at just heavy manufacturing in general.

Okay, got it. And then flipping over to the gross margin, I guess. We put the price guidance system into place earlier this year and there seemed to be some traction on getting pricing and then the back half of the year things started to fall apart. And I guess I'm just wondering conceptually if the system's telling your guys that they should be selling at lower prices, or the transaction gross margins are different than what the goals are, I guess can you just walk us through how well that's being put into place? Or people just ignoring what the computers are saying?

Well, first off, the system isn't telling us to sell at a lower price. If you look at the measurements of the system, it shows clear deterioration in the last 5 months of the year. I think there's -- and this is a little philosophical point of view and take that for what it's worth when it comes from an accountant. I think July created a sense of urgency in our organization because our sales growth -- we had a really tough July. Part of that was amplified by the placement of July 4th and you can rationalize all you want, but bottom line is we had a tough July. And really, we're pushing hard on grow our business, grow our business, grow our business. And I think the pendulum swung a little bit to the point of it's more important to grow than it is to have managed -- than it is to focus on your margin. And life's about both. Our secret is you grow, but you grow profitably. And I believe we lost some energy on that. We made some changes in our leadership. We expanded our leadership pool in the second half of the year. We added about 27% more district managers. We contracted the average size of the district. We added several, I think, it was 3 regionals in the second half of the year, really to provide more leadership on a store-by-store basis. And part of that was focused on things that we had seen with our -- we had done some stuff early in the year for performance improvement. And so you have a lot of moving pieces. You have some store managers that are stepping into district roles. You have some district managers that are new in the role. You have some -- so you have some stores -- change creates a little chaos. And I think a combination of pushing really hard to grow, pulling back a little bit on the push as it relates to freight and our price guidance system, I think those 3 things coming together, plus some change in leadership internally, caused collectively our organization to take our eye off the ball a little bit on gross margin. We thought coming into the fourth quarter, we had stabilized what was deteriorating as we went through the third quarter. We didn't get there. We saw the weakness and that's what prompted a pre-announcement. But it isn't the price guidance system that's telling us to sell at price A and we're selling at that and it's lowering our margin. That's not the case at all.

And our next question comes from the line of Holden Lewis from BB&T. Holden Lewis - BB&T Capital Markets, Research Division: Just wanted -- you're talking a lot about sort of hopefully getting the macro and the heavy equipment starting to move better and the impact that could have on the model. And I guess I'm sort of curious about maybe a little more color on the progress of your internal efforts in the sense that, well, I think the idea here has been to continue to drive vending while adding heads to sort shore up the sales infrastructure and maybe get fasteners going. And all that's sort of initiative-driven. This quarter, we saw, I think, the vending contracted, like the lowest level in 9 quarters. Obviously, heads are way up above revenues. And fasteners grew a little bit better, but against a much easier comp. I didn't think it looked that impressive. So I mean, all of those, I guess, initiatives didn't seem to have much bearing in Q4, not sure we expected it to. But I still wanted to get your feel about how you feel you're executing on those initiatives and how you expect that to proceed as we go through the upcoming year?

You mean the fastener initiative, Holden? Holden Lewis - BB&T Capital Markets, Research Division: Well, yes, I mean, are we getting vending contracts up again, getting the heads to start producing, getting the vendor -- getting the fastener growth going again? All just sort of the internal stuff there.

On the fastener side, I think we're making good progress. We're doing a lot of things just working with the stores and working very hard on picking up OEM fastener accounts. And I think we're making progress there. On the vending, as I said earlier in the call, we are -- the contract number was lower, but we had talked about it in both the second and third quarter that we are less focused on that and far more focused on the quantity -- or the quality, and going back to the machines we already have, and driving more revenue. And if you look at the numbers, I think we did a very nice job there driving that growth up to almost 19% and expanding it as a percentage of the overall business. So the vending is working well and we're going to continue to focus on that as heavily as the signings. But as that goes up, I think it's going to motivate the team to sign even more because it's great business for the stores. So in 2014, we should have a good both signing and install year with vending. And there's was a third one you mentioned, oh, the headcount. We're making nice progress. But if you look at the heads, most of them or the vast majority were added after September in the fourth quarter. And our information shows us that they'll start producing revenue, helping the individual stores, in 90 to 120 days and we're going to be in that zone starting in February. So we should see some improvement in January and then continue to improve throughout the year. Our goal is real simple: we need to get into the double-digit growth as soon as possible and then move up from there. And we believe we're making the right investments to get that done.

And our next question comes from the line of Ryan Merkel from William Blair. Ryan Merkel - William Blair & Company L.L.C., Research Division: Just following up on the last question, I guess. Based on some of the trends you talked about today with heavy manufacturing getting a bit better and then all the sales energy you've added, it doesn't sound like anything's changed about your confidence in double-digit growth in 2014. Is that a fair statement?

Absolutely.

Absolutely. Ryan Merkel - William Blair & Company L.L.C., Research Division: And so what do we need to assume about the macro or any of those specific end markets or anything about the initiatives in order to hit that target?

We need economic growth across-the-board. I mean, if the U.S. economy, and it's mainly the U.S. economy, but Canada also, Canada is struggling right now and the economy isn't very good. But 80% -- or 90% of our business is in United States. If the United States economy grows in the 2% to 3% and we don't grow in the teens, then it's about Fastenal, it's not about anything else. If the U.S. economy slows down a little bit, and we're getting 1% GDP, then it's going to be harder to break out of it. But we're not predicting the 1%. We think that it will be a sluggish but a decent economy right now is what our view is. And with that, we plan to break out of it -- break out of the single digits and continue to improve our growth throughout the year. We're very, very focused on hitting our goals and Lee and his team have done a very good job of working on good growth goals or sales goals and communicating that very well. And I've been on the phone for 1.5 weeks with regionals and DMs and everybody understands what the mission is. There's no murkiness in what we're trying to do: hit goal and do it profitably. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay. And then is there anything to glean from December in terms of how sales tracked the first 2 weeks versus how they tracked the last 2 weeks? Was there a meaningful difference?

Yes, there is, but there's always a meaningful difference in the last 10 days of December versus the first half of December just because of the holidays. The question is, was it worse than normal? I thought for the quarter and for the -- I thought for the month of December when we put out our release, we'd be closer to 8% than 6.7%. And so that was a piece of the delta. Is that a function of sales fell off? Or is it a function of our ability to predict the sales through the month? It's probably a little bit of each. But there's no question that this year, the impact of the holidays was worse than the past several years. Past several years, Christmas and New Year's have hugged the weekend, so either they've been on the weekend or they've touched the weekend. This year, it was in the middle of the week. And in some regard, some of that weakness might have been folks moving on to January. I'm not making excuse for that, but if I'm in a store, if I'm in a district and my December is -- I'm moving on for the next year. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay, that's helpful. It just seemed that -- the month is pretty good at, I think, 6.7% and it just seems that based on what we've heard from everyone else, the last 2 weeks were really, really rough. So it kind of felt to me like you might have been running at that kind of 9%, 8% rate that first 2 weeks of December, which maybe could bode well for next year, but doesn't sound like you're really willing to go there.

Well, I mean, we thought we'd be at 8%.

This is for everyone on the call. We're disappointed that we put out not the best information a few weeks ago, so we're not going to go anywhere. We have to put the numbers up. I mean, as far as predicting where it's going to go with sales and margin, it's up to us to produce the numbers going forward. And so we don't want to -- we don't want to lay anything out that's going to mislead anybody. We're working very, very hard to grow the business profitably. And I think we can do that, but we'll see a little bit at the end of January, February and then really the drill story is what happens, what we put out in April.

And our next question comes from the line of Tom Hayes from Thompson Research.

I was just wondering back to the headcount issue, have we gone through the bulk of the expansion of the headcount that we had been talking about for the back half of this year? Or should we expect more additions at this rate going into the first quarter?

We won't be adding at this rate, but our long-term goal is to try and add 15% more hours into our stores on an ongoing basis because all of the -- looking at history, it shows that if we want to grow our business in the high teens or the low 20s, we need to add our headcount or we need to add energy into the store at that rate. We'll get about 5 points from inflation and from just productivity gains. And so if we don't add any people, probably 5% growth is what we could expect over a long period of time. If we had 15% more hours, we should be able to grow the business in that high teens to low 20s. But understand, 15% more hours does not translate into dollars because we're adding part-time people, which come in at a much lower rate. And so that's why I say we can -- we should be able to grow our business faster than we grow our headcount. But even though we had a bad quarter, we're not going to pull back on the throttle and get real -- freak out on that, because if we do that, we'll go back to where we were with not enough people to grow our business. We have to have a steady hand, work very hard at controlling the labor, but also getting the growth in the labor hours and managing the rest of the expenses so we get earnings leverage as our growth picks up. And although we haven't done a good job this quarter growing our earnings, over a long period of time, we have proven that if we grow our business, we can make money and show leverage.

Okay. And Dan, just one follow-up, just your thoughts on CapEx levels for 2014?

CapEx, it'll be in our annual report we put out here in a few weeks. But we're looking in that $180 million to $190 million neighborhood. Hopefully, it's on the lower end of that range. We had a lot of dollars in 2013, a good chunk of that's from all the automation we're doing and we'll see some tapering off on that.

And we have time for one final question. Our last question comes from the line of Hamzah Mazari from Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: Most of my questions have been answered, but just a question on whether you folks are actively looking to change some of your mix of business, specifically maybe getting larger on some of the MRO side of the business. I realize you have a lot going on execution-wise internally, on gross margin, currently. But maybe talk about how you're looking at changing mix of business longer term?

Really, the way that we handle that is here in Winona at the leadership role, we're not determining that. We try and set our store managers up to be the local experts and the district managers support them, and their goal is to grow their business profitably. So whether they sell it through OEM fasteners, MRO, construction, whatever they're strong in, if they are able to go out and hit their sales goals and do it profitably, we really aren't concerned whether it's construction, equipment or MRO. We do things in the background, things like vending and fastener initiatives to try and make it easier for them.

[indiscernible] to help them grow.

Exactly. But I mean, we're not trying to run it from a central position. We're trying to -- we really believe -- when I talk about market intelligence, I call -- I described that as intelligent people in the market and that's what Fastenal has. We have a lot of bright people out there working hard and we don't want to tell them how to do it for the most part. We want to tell them what's expected and then support them to get there. Hamzah Mazari - Crédit Suisse AG, Research Division: Great. And just a last follow-up. You spoke about gross margins a lot. Are there new tools and processes you need to put in place to get to the improvement we're talking about on gross margins? Or are existing processes and tools sort of enough to get there?

We have the tools in place to get there. We just have to make sure that the people are using the tools that we've given them.

Thanks, again, everybody, for participating in our call today, and we're moving on to 2014. Have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.