MSC Industrial Direct Co., Inc. Q3 FY2025 earnings call

• Reenergizing the core customer: Early evidence in fiscal 3Q showed core customer daily sales down 0.8% year-over-year, in line with total company results. Web enhancements led to low double-digit year-over-year and mid-single-digit quarter-over-quarter growth in direct traffic to mscdirect.com, and encouraging progress in site conversion rate metrics.
• Maintaining momentum in high touch solutions: In-Plant program count up 23% year-over-year, vending machines installed base up 9%, and OEM average daily sales up low single digits year-over-year.
• Leadership depth: Added John Reichelt as Senior Vice President and Chief Information Officer.
• Tariff management: Took a more broad-based price increase recently, Made in USA offerings gaining traction with daily sales up year-over-year.
• Network optimization: On track to deliver $10 million to $15 million in annualized savings by fiscal year '26.

Fiscal third quarter sales were $971 million, declining 0.8% year-over-year. Average daily sales (ADS) declined 0.8% year-over-year but improved 7% quarter-over-quarter. Gross margin was 41%, improving 10 basis points year-over-year. For Vending, average daily sales in the third quarter were up roughly 8% year-over-year and represented approximately 19% of total company net sales. Sales to customers with an In-Plant program grew 10% year-over-year and also represented approximately 19% of total company net sales.

• Fiscal fourth quarter sales expected to be down 0.5% to up 1.5% year-over-year, midpoint flat quarter-over-quarter.
• Adjusted operating margin expected to be between 8.5% and 9% in the fiscal fourth quarter.
• Full-year free cash flow conversion now expected to be approximately 120% compared to prior expectation of approximately 100%.

• Tariff-related uncertainties impacting customer activity and pricing.
• Macro environment uncertainties affecting manufacturing end markets.
• Uncertainty around supplier price increases and their impact on margins.

Q: Hoping we could start with the price outlook for 4Q and into next year. How should we be thinking about incremental price from those actions that you took late in 3Q?

A: Erik said they took some surgical increases, then a more broad-based increase recently. Outlook beyond that is agile, with potential for further moves. Kristen added details on the topline guide for Q4 and how price fits in.

Q: You referenced supplier price increases a few times. What do those conversations look like today?

A: Discussions with suppliers are ongoing and fluid. Erik mentioned broader inflationary pressures from suppliers and Kristen added details on gross margin and OpEx drivers.

Q: On the website metrics, can you talk about the marketing that's required to drive that? And whether you're seeing that lift in the quarter sustained?

A: Erik said it's a combination of digital, personal outreach, etc. Traffic and conversion rate improvements are encouraging and sustained.

Q: Why is 20% the incremental target today?

A: Erik said 20% or better is over the cycle, achievable with stable gross margins, normalized OpEx, and productivity initiatives.

Q: I guess just quickly for Martina, maybe on the sales force efficiency and productivity gains. Maybe can you talk through what some of the actual actions are being taken there?

A: Martina said they redesigned territories for better account coverage, starting with public sector, then national accounts, then core, focusing on touching the best potential customers with the right frequency.