Analyst Note| Brian Bernard, CFA, CPA |
While the global pandemic continued to pressure MSC Industrial Supply's top line during its fiscal first quarter, management did a good job defending the firm's adjusted operating margin. First-quarter sales declined about 6% year over year as elevated demand for personal protective equipment (safety and janitorial product sales were up 20% year over year) was not enough to offset weakness across MSC's core business. Still, the adjusted operating margin only declined 30 basis points to 11%. MSC's gross margin contracted 30 basis points to 41.9% due in part to the contribution from lower-margin PPE sales. Management did an excellent job managing recurring operating expenses, which declined at the same rate as sales. The company removed $8 million from its cost structure during the first quarter, and management is still targeting $90 million-$100 million of cost savings by fiscal 2023, which we view as an achievable goal.