MSM 10-K & 10-Q changes, risk factors and insider trading
Msc Industrial Direct Co. Inc. · NYSE · Wholesale-Industrial Machinery & Equipment · CIK 1003078 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Changes in tax legislation and associated compliance requirements could adversely affect our financial results.”
Removed heading “The Reclassification may not achieve the desired benefits for us or our shareholders.”
Removed heading “We have identified a material weakness in our internal control over financial reporting and, as a result of which, have determined that our internal control over financial reporting and our disclosure controls and procedures were not effective as of August 31, 2024. A failure to remediate this material weakness, and to maintain effective internal control over financial reporting and disclosure controls and procedures in the future, may result in a misstatement of our financial statements or the failure to detect such a misstatement.”
Largest changes
“We have identified a material weakness in our internal control over financial reporting and, as a result of which, have determined that our internal control over financial reporting and our disclosure controls and procedures were not effective as of August 31, 2024. A failure to remediate this material weakness, and to maintain effective internal control over financial reporting and disclosure controls and procedures in the future, may result in a misstatement of our financial statements or the failure to detect such a misstatement.”see in full comparison
“In 2025, the U.S. announced a variety of additional tariffs on goods from multiple nations and trading blocks and has been targeted with reciprocal tariffs and other retaliatory actions in response. Although the implementation of many of these tariffs and retaliatory measures have been paused or delayed, negotiations and the state of international trade policy and relationships continue to evolve. Additional tariffs, or the uncertainty around such tariffs, may cause disruptions to foreign and domestic supply chains or result in price increases. …”see in full comparison
“On March 14, 2025, a complaint was filed in the Supreme Court of the State of New York, County of New York by Macomb County Retiree Health Care Fund (“MCRHC”) against the Company and certain officers, directors and shareholders of the Company (the “Macomb Litigation”). In June 2025, MCRHC filed an amended complaint. The amended complaint alleges, among other things, breaches of fiduciary duties for actions related to the Reclassification and seeks disgorgement, unspecified damages, costs and expenses and such other relief as the court may deem proper. …”see in full comparison
“As discussed in more detail in Part II, Item 9A, “Controls and Procedures” below, management’s assessment of our internal control over financial reporting as of August 31, 2024 identified a material weakness relating to deficiencies in the operating effectiveness of our information technology general controls (“ITGCs”) relating to user access for certain information technology systems that support financial reporting processes for revenue and inventory transactions (the ITGC Material Weakness). …”see in full comparison
“Supply chain and sourcing efforts over time have diversified our product portfolio to reduce our exposure abroad and although we began to implement pricing and inventory management changes in response to tariffs in early 2025, we experienced the most significant impact on our financial condition and results of operations during the fourth quarter of fiscal year 2025. We expect to continue implementing countermeasures to mitigate the continued impact of tariffs in the first quarter of fiscal year 2026 and beyond. …”see in full comparison
“If we fail to remediate the ITGC Material Weakness and maintain effective disclosure controls and procedures in the future, our ability to accurately report financial information and prepare financials statements could be adversely affected and cause us to misstate our interim or annual financial statements, fail to meet our reporting obligations, incur significant expense, negatively impact investor confidence and adversely impact the price of our securities.”see in full comparison
Full comparison: every changed paragraph (30)
Additionally, macroeconomic conditions may impact the proper functioning of financial and capital markets, foreign currency exchange rates, commodity and energy prices, labor and supply costs, and interest rates. We have also been affected by macroeconomic conditions specific to the principal end markets that we serve, including as the result of work stoppages and organized labor activity.activity or reduced industrial activity due to tariffs. Any or all of these factors may impact us, our customers, and their demand for our products.
As a distributor, our profitability is highly dependent on our gross margin, which in turn varies based on the product sold and the type of customer. From time to time, we experience changes in our customer mix and in our product mix. Changes in our customer mix have resulted from various factors, such as changes in the geographies we serve, daily selling activities within current geographic markets, and targeted selling activities to newdifferent customers. Changes in our product mix have also resulted from various factors, such as marketing activities to existing customers, needs communicated to us from existing and prospective customerscustomers, tariff-driven sourcing decisions, and business acquisitions. As our national account and government customer program sales grow, we will face continued pressures on maintaining gross margin because these customers receive lower pricing due to their higher level of purchases from us. In addition, our continued expansion of our vending program and other E-commerce platforms places pressure on our gross margin. We may also be subject to price increases from our suppliers and independent freight carriers that we may not be able to pass along to our customers, particularly in periods of high or rapid inflation.
Volatility in commodity, energy and labor pricesprices, as well as periods of abnormal inflation, may adversely affect operating margins.
The MRO supply industry, although consolidating, still remains a large, fragmented industry that is highly competitive. We face competition from traditional channels of distribution, such as retail outlets, smalldealers dealerships,and wholesalers, regional and national distributors utilizing direct sales forces, manufacturers of MRO supplies, large warehouse stores and largerlarge direct mail distributors. We believe that sales of MRO supplies will continue to concentratebecome more concentrated over the next several years,time, which may make MRO supply distribution more competitive. Some of our competitors challenge us with a greater variety of product offerings, greater financial resources, additional services, or a combination of these factors. In addition, we also face the risk of companies that operate primarily outside of our industry entering our marketplace.
As a supplier to the U.S. government and public sector, we are subject to certain laws and regulations that subject us to certainmandate compliance requirementsstandards, andmay result in potential liabilities and may increase our costs of doing business.
As a supplier to the U.S. government and public sector, which represented approximately 9%10% of the Company's total Company revenue in fiscal year 2024,2025, we must comply with certain laws and regulations, including the Trade Agreements Act, the Buy American Act and the Federal Acquisition Regulation, relating to the formation, administration and performance of U.S. government contracts. These laws and regulations affect how we do business with government customers and, in some instances, impose added compliance and other costs on our business. From time to time, we are subject to governmental or regulatory inquiries or audits relating to our compliance with these laws and regulations. A violation of these specific laws and regulations, as well as others, could result in the imposition of fines and penalties orpenalties, the termination of our U.S.public governmentsector contracts and couldor harm to our reputationreputation, andall of which would cause our business to suffer.
Our ability to provide same-day shipping and next-day delivery of our core metalworking and MRO products is an integral component of our overall business strategy. Disruptions at transportation centers, shipping ports, or our customer fulfillment centers, including global and domestic locations, due to third-party work stoppages with our shipping partners or otherwise, or labor shortages or severe weather conditions affect both our ability to maintain core products in inventory and to deliver products to our customers on a timely basis, which may in turn adversely affect our customer relationships and results of operations. In addition, severe weather conditions and work stoppages affecting the end markets we serve could adversely affect demand for our products in particularly hard-hit regions and impact our sales and/or our ability to deliver our products.
In 2025, the U.S. announced a variety of additional tariffs on goods from multiple nations and trading blocks and has been targeted with reciprocal tariffs and other retaliatory actions in response. Although the implementation of many of these tariffs and retaliatory measures have been paused or delayed, negotiations and the state of international trade policy and relationships continue to evolve. Additional tariffs, or the uncertainty around such tariffs, may cause disruptions to foreign and domestic supply chains or result in price increases. We have incurred, and expect to continue to incur, costs as it relates to these tariffs for the foreseeable future. We expect to continue to pass price increases from our suppliers from tariffs to our customers, which may reduce demand. We have, however, experienced negative impacts on gross profit margin due to the timing difference between our pricing actions and higher levels of inflation-affected inventory.
Supply chain and sourcing efforts over time have diversified our product portfolio to reduce our exposure abroad and although we began to implement pricing and inventory management changes in response to tariffs in early 2025, we experienced the most significant impact on our financial condition and results of operations during the fourth quarter of fiscal year 2025. We expect to continue implementing countermeasures to mitigate the continued impact of tariffs in the first quarter of fiscal year 2026 and beyond. Further, we cannot predict the ultimate impact of tariffs and their effects on the global macroeconomic environment on our financial condition or results of operations.
We retain a significant portion of the risk under our healthcare insurance program. InWe fiscalcurrently year 2021, we began self-insuringself-insure for costs associated with associates’ healthhealthcare needs, which is limited by stop-loss coverage. Our healthcare insurance program accruals are determined on an actuarial basis, based on historical claims experience and an estimate of claims incurred but not yet reported and other relevant factors. While we believe our estimation process is well designed, every estimation process is inherently subject to limitations. Fluctuations in the frequency, magnitude or number of claims make it difficult to predict the ultimate cost of claims and may lead to future adjustments of reported results of operations which, depending on the magnitude of such adjustments, may significantly affect our reported results or negatively affect the reliability of our reported results.
Risks Related to theour ReclassificationSecurities
The Reclassification may not achieve the desired benefits for us or our shareholders.
The long-term impacts of the Reclassification are still unknown, and the Reclassification may not result in an increase in shareholder value or improve the liquidity and marketability of our equity. If the Reclassification is not viewed favorably by members of the investment community, it may impair the value of our Class A Common Stock and limit its liquidity and marketability. Furthermore, securities markets worldwide have experienced significant price and volume fluctuations in recent years. This market volatility, as well as general economic, market or political conditions, could cause a reduction in the market price and liquidity of shares of our Class A Common Stock.
So long as Mitchell Jacobson, Erik Gershwind, other members of the Jacobson / Gershwind Family Shareholdersand certain entities affiliated with the Jacobson / Gershwind family (ascollectively, definedthe below“Jacobson / Gershwind Family Shareholders”), collectively, have beneficial or record ownership of at least 10% of the issued and outstanding shares of Class A Common Stock, our Board of Directors will, subject to the procedures and limitations set forth in thethat Reclassification AgreementAgreement, dated as of June 20, 2023, with the Jacobson / Gershwind Family Shareholders (asthe defined“Reclassification belowAgreement”), nominate two individuals designated by the Jacobson / Gershwind Family Shareholders for election to our Board of Directors at any annual meeting of our shareholders at which directors are to be elected. So long as the Jacobson / Gershwind Family Shareholders, collectively, have beneficial or record ownership of less than 10% but 5% or more of the issued and outstanding shares of Class A Common Stock, our Board of Directors will, subject to the procedures and limitations set forth in the Reclassification Agreement, nominate one individual designated by the Jacobson / Gershwind Family Shareholders for election to our Board of Directors at any annual meeting of our shareholders at which directors are to be elected.
Risks Related to Information TechnologyIT and Intellectual Property
The implementation of our business strategy includes a commitment to technological innovation and the utilization of digital technologies, including the MSC website and other E-commerce capabilities. As our digital platforms have grown in recent years, we have increased, and expect to continue to increase, our investment in developing, managing and implementing technology informationIT systems, proprietary software development, and other technological innovations to support our customers. In addition, we continue to invest in our VendorVMI, Managed Inventory, Customer Managed Inventory,CMI, and vending solutions, which involve the use of vending machines that rely on network or web-based software.
We are also actively leveraging artificial intelligence (“AI”) in various contexts to improve customer experiences and drive efficiencies in certain areas of our business. As we continue to leverage, secure, and pilot the use of AI-driven technologies, we have increased and expect to continue to increase our investments in such technologies. While these innovations can present significant benefits to the Company, they also create risks and challenges. If investments in such technologies are less successful at attracting and retaining customers than similar investments by our competitors, or if we are otherwise unsuccessful at realizing the benefits of these technological investments generally,investments, this could have a material adverse effect on our business, financial condition, or results of operations.
Our IT systems are an integral part of our business and growth strategies. In recent years, we have modified our business practices, which included a shift to a hybrid work schedule for many of our office-based associates. As a result, weWe are dependent upon our IT systems to operate our business and our ability to effectively manage our business depends on the security, reliability, and adequacy of our IT systems. We also depend upon our IT systems to help process orders, to manage inventory and accounts receivable collections, to manage financial reporting, to purchase, sell and ship products efficiently and on a timely basis, to maintain cost-effective operations, to operate our websites and to help provide superior service to our customers. WeIn order to maintain and upgrade our core IT systems, we have made and continue to makesignificant investments inwhich technologyhave to protect our systems, computers, software, datafaced, and networks from attacks, damage or unauthorized access. We also have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance that breaches will not occurcould in the future orface, be covered by our insurance policy. The costs of maintaining our IT systems are significantdelays and requirecost recurring investment. In the past we have experienced,overruns and may againresult in functionality gaps and therefore not achieve their intended result. We may in the future experience,be challengesrequired withto make additional investments which may have an adverse impact our ITbusiness, systemsfinancial that have causedcondition or results of operation and may causealso usfail to notachieve realizetheir expecteddesired benefits of investments into our IT systems.result.
We have made and continue to make investments in technology to protect our systems, computers, software, data and networks from attacks, damage or unauthorized access. We also have implemented numerous security protocols in order to strengthen security, and we maintain a customary cyber insurance policy, but there can be no assurance that breaches will not occur in the future or be covered by our insurance policy. The costs of maintaining our IT systems are significant and require recurring investment. In the past we have experienced, and may again in the future experience, challenges with our IT systems that have caused or may cause us to not realize expected benefits of investments into our IT systems.
We have identified a material weakness in our internal control over financial reporting and, as a result of which, have determined that our internal control over financial reporting and our disclosure controls and procedures were not effective as of August 31, 2024. A failure to remediate this material weakness, and to maintain effective internal control over financial reporting and disclosure controls and procedures in the future, may result in a misstatement of our financial statements or the failure to detect such a misstatement.
The Company maintains a system of internal control over financial reporting and disclosure controls and procedures to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. As required by Section 404 of the Sarbanes-Oxley Act of 2002, we perform an evaluation of and report on the effectiveness of our internal control over financial reporting and disclosure controls and procedures, and our independent registered public accounting firm provides an opinion attesting to the effectiveness of such controls and procedures. The rules governing the standard that must be met for management to assess the adequacy of our internal control over financial reporting are complex and require significant documentation, testing and, where a deficiency is identified, remediation.
As discussed in more detail in Part II, Item 9A, “Controls and Procedures” below, management’s assessment of our internal control over financial reporting as of August 31, 2024 identified a material weakness relating to deficiencies in the operating effectiveness of our information technology general controls (“ITGCs”) relating to user access for certain information technology systems that support financial reporting processes for revenue and inventory transactions (the ITGC Material Weakness). As a result of the ITGC Material Weakness, our disclosure controls and procedures were not effective as of August 31, 2024. Although we have not identified any misstatements in our consolidated financial statements as a result of the ITGC Material Weakness, and our independent registered public accounting firm has expressed an unqualified opinion with respect to the consolidated financial statements in its report within Item 8. Financial Statements and Supplementary Data, the identified control deficiencies created the reasonable possibility that a material misstatement of the consolidated financial statements would not have been prevented or detected on a timely basis. Our management has commenced remediating the ITGC Material Weakness, however such remediation steps are ongoing.
If we fail to remediate the ITGC Material Weakness and maintain effective disclosure controls and procedures in the future, our ability to accurately report financial information and prepare financials statements could be adversely affected and cause us to misstate our interim or annual financial statements, fail to meet our reporting obligations, incur significant expense, negatively impact investor confidence and adversely impact the price of our securities.
Our success is dependent on our ability to hire and retain certain key management personnel.
Our success depends largely on the efforts and abilities of certain key members of our senior management. The loss or disruption of the services of one or more of such key personnel or the inability to identify a suitable or temporary successor to a key role could have a material adverse effect on our business, financial condition, or results of operations. We do not maintain any key-man insurance policies with respect to any of our executive officers.
On March 14, 2025, a complaint was filed in the Supreme Court of the State of New York, County of New York by Macomb County Retiree Health Care Fund (“MCRHC”) against the Company and certain officers, directors and shareholders of the Company (the “Macomb Litigation”). In June 2025, MCRHC filed an amended complaint. The amended complaint alleges, among other things, breaches of fiduciary duties for actions related to the Reclassification and seeks disgorgement, unspecified damages, costs and expenses and such other relief as the court may deem proper. We have incurred, and may be required in future to incur further, legal fees and other expenses related to the Macomb Litigation. In addition, any adverse determination with regard to the Macomb Litigation could expose us to significant liabilities.
Changes in tax legislation and associated compliance requirements could adversely affect our financial results.
The Company is subject to tax laws and regulations in the United States and various foreign jurisdictions. Remaining compliant with these laws and regulations could increase the Company's tax compliance costs. In addition, the Company's future effective tax rates in the United States or foreign jurisdictions it operates in could be affected by changes in the political environment in the United States, tax laws, regulations, statutory rates, the valuation of deferred tax assets and liabilities, and interpretations of such tax laws.
In fiscal year 2025, the One Big Beautiful Bill Act (“OBBA”) was passed, which contained a broad range of tax reform. The Company did not experience any material impact to its tax rates, expenses or obligations from the legislation during fiscal year 2025. Due to the dynamic nature of tax laws, projected tax liabilities could differ significantly from eventual obligations. The total impact and interpretation of the legislation remains uncertain, and misapplication of the new laws could lead to adverse results.
There is an increasing focus on corporate social and environmental responsibility in our industry.industry, particularly among customers and suppliers outside the United States and in Europe. An increasing number of our customers have adopted, or may adopt, procurement policies that include social and environmental responsibility provisions that their suppliers should comply with, or they may seek to include such provisions in their procurement terms and conditions. This corporate social and environmental responsibility influence is expandingalso tofelt among other stakeholders such as investors, suppliers, associates and communities. We currently voluntarily comply with the sustainability standards set forth by various sustainability initiatives and organizations. These social and environmental responsibility practices, policies, provisions and initiatives are subject to change, can be unpredictable,unpredictable in the current environment, and may be difficult and expensive for us to comply with. At times, the social and environmental responsibility practices of our customers conflict with one another or may expose us to reputational or regulatory risk. In addition, the failure by us to take action or otherwise comply with the policies of our customers may negatively impact our customer relationships or reputation, which could have a material adverse effect on our business, financial condition, or results of operations.
Management's Discussion & Analysis (MD&A)
Largest changes
We incurredsee in full comparison$14.5$11.0 million in restructuring and other costs for fiscal year2024,2025, as compared to$7.9$14.5 million for the prior fiscal year.RestructuringTheanddecreaseother costswas primarilyconsistdueoftoconsulting-relateddecreasescostsinandboth associate severance and separation costsassociatedandwithconsulting-related costs compared to theCompany’spriorstrategicfiscalrealignment efforts to optimize its supply chain and distribution network and with the optimization of the Company’s operations and profitability improvement.year. See Note 14, “Restructuring and Other Costs” in the Notes to Consolidated Financial Statements for additional information.
Income from operations decreasedsee in full comparison19.3%22.8% to $301.6 million in fiscal year 2025, as compared to $390.4 million in fiscal year2024, as compared to $483.7 million in fiscal year 2023.2024. Income from operations as a percentage of net sales decreased to 8.0% in fiscal year 2025, as compared to 10.2% in fiscal year2024, as compared to 12.1% in fiscal year 2023.2024. The decrease in income from operations as a percentage of net sales was primarily attributable to, as described above, lower salesvolume, a higher level of Restructuringvolume andothergrosscostsprofit margin and an increase in Operating expenses as a percentage of netsales, partially offset by a higher gross profit margin.sales.
Inventory is reflected at the lower ofsee in full comparisonweighted-averagecost or net realizable value consideringfuturesuchdemand,factorsmarketasconditionsitsandage, the physical condition of the inventory, historic sales, historical write-down activity as well as known trends as compared to on-hand inventory.WeThe Company will write-down inventories forshrinkage andslow-moving or obsoleteinventory. The analysis includes inventory levels, sales information, historical write-down information, and the on-hand quantities relative to the sales history for the product.considerations.
The United States economy has experienced various macroeconomic pressures in recent years including an elevated inflationary environment, sustained high interest rates and general economic and political uncertainty.see in full comparisonSuchThese pressures have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations. More recently, new and expanded tariffs have contributed to heightened macroeconomic uncertainty. The impact from tariffs was most significant in the Company’s fourth fiscal quarter of 2025, and the Company anticipates increased pressure from tariffs in fiscal year 2026 as the impact from such tariffs continues.
“•We commenced our plan to sell our customer fulfillment center in Columbus, Ohio. The closure is part of our strategic realignment efforts to optimize our supply chain and distribution network and enhance operational efficiency. The related assets classified as held for sale within Property, plant and equipment, net in the Consolidated Balance Sheet as of August 31, 2024 had a carrying value of approximately $31,953.”see in full comparison
Gross profit decreasedsee in full comparison4.3%2.3% to $1,536.1 million in fiscal year 2025, as compared to $1,572.8 million in fiscal year2024, as compared to $1,643.0 million in fiscal year 2023.2024. Gross profit margin was 40.8% in fiscal year 2025, as compared to 41.2% in fiscal year2024, as compared to 41.0% in fiscal year 2023.2024. The decrease in gross profit was primarily a result of lower salesvolumevolume, as describedabove, partially offset by gross profits from our recent acquisitions.above. Theincreasedecrease in gross profit margin was primarily a result ofsignificanthigher inventory cost and change in customer mix, as sales to public sector customers grew as a percentage of overall salesin the prior fiscal year period that were transacted belowand ourtypicalsales to public sectormargins,customerswhichtransactdid not repeat in the current fiscal year period. This benefit was partially offset byat lower gross profit marginsfrom our recent acquisitions and discounting duringthan thelaunchbusinessofasouraweb price realignment initiative, which we believe was temporary and mitigated in the fourth quarter.whole.
Full comparison: every changed paragraph (47)
Our business model focusescenters on providingdelivering overallvalue-added services that address complex procurement costchallenges reductionfor our customers, with a focus on reducing total procurement costs and enabling just-in-time delivery tothrough meetintegrated our customers’ needs.solutions. We focus on offering inventory, process and procurement solutions that reduce supply chain costs and improve plant floor productivity for our customers. We aim to achieve ongoing cost reductions throughout our business by implementing cost-savings strategies and leveraging our existing infrastructure. Additionally, we will providesupport our customerscustomers' withgrowth furtherand procurementprofitability cost-savingby solutionsensuring operational efficiency through technologies such as our VMI, CMI and vending programs.programs — helping reduce downtime and ensure critical products are available when and where they are needed. Our vending machines in service totaled 29,611 as of August 30, 2025, compared to 27,003 as of August 31, 2024, compared to 24,830 as of September 2, 2023, and our in-plant programs totaled 342411 locations as of August 31,30, 2024,2025, compared to 265342 as of SeptemberAugust 2,31, 2023.2024. Our sales force, which focuses on a more complex and high-touch role, drives value for our customers by enabling them to achieve higher levels of growth, profitability and productivity. Our field sales and service associate headcount was 2,636 at August 30, 2025 compared to 2,697 at August 31, 2024 compared to 2,572 at September 2, 2023 and 2,536 at September 3, 2022.2024.
3 Individual amounts may not agree to the annual total due to rounding.
•We generated $410.7$333.7 million of cash from operations compared to $699.6$410.7 million in fiscal year 2023.2024. The decrease was primarily from thelower $300.0net millionincome received from the Receivables Purchase Agreement (the “RPA”) entered into during fiscal year 2023, offset byand a decline in inventories in the inventory balance throughout fiscalprior year 2024.period.
•We had net payments of $21.5 million on our credit facilities and private placement debt compared to net borrowings of $53.5 million on our credit facilities, private placement debt and shelf facility agreements compared to net payments of $340.0 million in fiscal year 2023. Proceeds from the RPA were primarily utilized to pay down debt on our credit facilities in fiscal year 2023.2024.
•We repurchased $187.7$39.3 million of Class A Common Stock, excluding excise taxes,Stock compared to $95.8$187.7 million in fiscal year 2023.2024, excluding excise taxes in both years. The higher share repurchase volume in the prior year included shares purchased to offset the share dilution resulting from the Reclassification.
•We incurred $14.5$11.0 million in restructuring and other costs compared to $7.9$14.5 million in fiscal year 2023.2024. Restructuring and other costs primarily consisted of voluntary and involuntary associate severance and separation costs and consulting-related costs.
•In the first quarter of fiscal year 2024, we completed the Reclassification. Pursuant to the Reclassification, each issued and outstanding share of Class B Common Stock was reclassified, exchanged and converted into 1.225 shares of Class A Common Stock. See Note 12, “Shareholders’ Equity” in the Notes to Consolidated Financial Statements for additional information.
•We commenced our plan to sell our customer fulfillment center in Columbus, Ohio. The closure is part of our strategic realignment efforts to optimize our supply chain and distribution network and enhance operational efficiency. The related assets classified as held for sale within Property, plant and equipment, net in the Consolidated Balance Sheet as of August 31, 2024 had a carrying value of approximately $31,953.
•We acquireddisposed of the Columbus CFC with a sales price of $32.0 million, which resulted in a loss on sale of property of approximately $1.2 million after the settlement of certain intellectualclosing property assets from SMRTcosts and acquired KAR, ApTex and Premier.fees. See Note 6,7, “AcquisitionsProperty, Plant and Equipment” in the Notes to Consolidated Financial Statements for additional information.
The first phase of our Company-wide initiative, referred to as “Mission Critical,” focused on market share capture and improved profitability. We successfully executed on the first phase of Mission Critical initiatives at the end of fiscal year 2023, which included solidifying our market-leading metalworking business, with an emphasis on selling our product portfolio, expanding our solutions, improving our digital and E-commerce capabilities and diversifying our customers and end-markets. The next phase of our missionMission criticalCritical journeyjourney, which began in fiscal year 2024, is anchored in three pillars: (i) maintaining the momentum of the first phase of the missionMission criticalCritical program and our existing growth drivers, (ii) increasing our focus on both core customers and OEM fasteners, and (iii) driving productivity improvements and reducing operating expenses as a percentage of net sales. To accomplish the next phase of our missionMission criticalCritical journey, we willintend to leverage investments in advanced analytics to improve supply chain performance, maintain momentum from our category line reviewsperformance and upgrade our digital core to unlock productivity within our order-to-cash and procure-to-pay processes. In fiscal year 2024, weWe completed our web price realignment initiative,initiative in fiscal year 2024 and welaunched areour currentlyenhanced inmarketing theefforts processand of rollingrolled out ourseveral E-commerce enhancements.enhancements during fiscal year 2025.
Our primary objective is to grow sales profitably while offering our customers highly technical and high-touch solutions to solve their most complex challenges on the plant floor. We have experienced success to date as measured by the growth rates of our high-touch programs, such as vending and in-plant programs, and the rate of new customer implementations. Our strategy is to position ourselves as a mission-critical partner to our customers. We willintend to selectively pursue strategic acquisitions that expand or complement our business in new and existing markets or further enhance the value and offerings we provide.
The United States economy has experienced various macroeconomic pressures in recent years including an elevated inflationary environment, sustained high interest rates and general economic and political uncertainty. SuchThese pressures have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations. More recently, new and expanded tariffs have contributed to heightened macroeconomic uncertainty. The impact from tariffs was most significant in the Company’s fourth fiscal quarter of 2025, and the Company anticipates increased pressure from tariffs in fiscal year 2026 as the impact from such tariffs continues.
The average IP Index for the 12 months ended August 31,30, 20242025 of 102.7103.3 decreasedincreased from the average from the prior fiscal year of 102.8.102.7. The IP Index for the fourth fiscal quarter of 20242025 of 102.9104.0 decreasedincreased compared to both the prior year period of 103.0102.9 and increased slightly compared to the prior quarter of 102.7.103.7.
During fiscal year 2024,2025, the Company experienced soft demand for the products and services it offers. This soft demand was felt more acutely in the heavy manufacturing industry, which represented 47%58% of our revenues during the year ended August 31,30, 2024.2025. TheThese IPtrends indexdid forimprove during the fourth quarter, with several subindexes such as Machinery & EquipmentEquipment, segmentAerospace, indicatedAutomotive aand contractionPrimary ofMetals 1.6%indicating forexpansion. Despite moderate improvement in certain end-markets during the fourth quarterquarter, ofincluding 2024our andpublic asector contraction of 3.2% for the 12 months ended August 31, 2024. The subindexes for Primary Metals and Fabricated Metals also indicated a contraction for both the quarter and 12 months ended August 31, 2024. As a result,end-market, the demand environment for the Company’s products was softer than the demand environment for the economy as a whole during fiscal year 2025, which we believe is due to the concentration of the Company’s customers in these and other subindex industries, which grew more slowly thanlagged the IP index as a whole.
Fiscal Year Ended August 31,30, 20242025 Compared to the Fiscal Year Ended SeptemberAugust 2,31, 20232024
Net sales in fiscal year 20242025 decreased 4.7%,1.3%, or $188.3$51.4 million, from the prior fiscal year. The $188.3$51.4 million decrease in net sales was comprised of $239.1$88.1 million of lower sales volume,volume and $5.9 million of unfavorable foreign exchange impact, partially offset by $18.5$21.6 million from improved pricing, inclusive of changes in customer and product mix, discounting and other,other $27.5items and $21.0 million of net sales from recent acquisitions and $4.8 million of favorable foreign exchange impact.acquisitions. Of the $188.3$51.4 million decrease in net sales during fiscal year 2024,2025, sales to our core and other customers decreased by $145.7$45.5 million, sales to our publicnational sectoraccount customers decreased by $60.0$33.1 million, inclusive of large, non-repeating public sector orders in the prior year, partially offset by an increase in sales to our nationalpublic accountsector customers of $17.4$27.2 million.
(3)Includes changes in customer end-market classifications as a result of the transition from the Standard Industrial Classification (SIC) to the North American Industry Classification System (NAICS) in the first quarter of fiscal year 2025.
Gross profit decreased 4.3%2.3% to $1,536.1 million in fiscal year 2025, as compared to $1,572.8 million in fiscal year 2024, as compared to $1,643.0 million in fiscal year 2023.2024. Gross profit margin was 40.8% in fiscal year 2025, as compared to 41.2% in fiscal year 2024, as compared to 41.0% in fiscal year 2023.2024. The decrease in gross profit was primarily a result of lower sales volumevolume, as described above, partially offset by gross profits from our recent acquisitions.above. The increasedecrease in gross profit margin was primarily a result of significanthigher inventory cost and change in customer mix, as sales to public sector customers grew as a percentage of overall sales in the prior fiscal year period that were transacted belowand our typicalsales to public sector margins,customers whichtransact did not repeat in the current fiscal year period. This benefit was partially offset byat lower gross profit margins from our recent acquisitions and discounting duringthan the launchbusiness ofas oura web price realignment initiative, which we believe was temporary and mitigated in the fourth quarter.whole.
Operating expenses increased 1.4%4.8% to $1,223.6 million in fiscal year 2025, as compared to $1,167.9 million in fiscal year 2024, as compared to $1,151.3 million in fiscal year 2023.2024. Operating expenses were 30.6%32.5% of fiscal year 20242025 net sales, as compared to 28.7%30.6% for fiscal year 2023.2024. The increase in operating expenses and operating expenses as a percentage of net sales was primarily attributable to increasedhigher payroll costs,and primarilypayroll-related due to our annual merit increasecosts and higherinvestments associate headcount to support solutions growth andsupporting our digital initiatives. These increases were partially offset by lower variable expenses associated with lower sales volume, including lower incentive compensationinitiatives and freightsolutions expense.growth.
Payroll and payroll-related costs were approximately 56.1%57.0% of total operating expenses for bothin fiscal year 20242025, andas compared to 56.1% in fiscal year 2023.2024. Payroll and payroll-related costs, which include salary, incentive compensation, sales commission, and fringe benefit costs, increased by $9.1$42.4 million for fiscal year 2024.2025. The majority of this increase compared to the prior fiscal year was due to increasedhigher incentive compensation as well as higher salary expenses to support our strategic growth investments andfrom our annual merit increase. This increase was partially offset by lower commissions and incentive compensation costs.increases.
Freight expense was $148.5 million for fiscal year 2024, as compared to $156.8 million for fiscal year 2023. The primary driver of the decrease in freight expense was a decrease in sales volume.
DepreciationFreight and amortizationexpense was $80.5$150.5 million for fiscal year 2024,2025, as compared to $74.7$148.5 million for fiscal year 2023.2024. The primary driversdriver of the increase in depreciationfreight andexpense amortizationwas werehigher increasedshipping capitalrates expendituresincurred relatedwhile toservicing E-commercecertain andcustomers digitalin initiatives.the public sector.
Depreciation and amortization was $88.4 million for fiscal year 2025, as compared to $80.5 million for fiscal year 2024. The primary drivers of the increase in depreciation and amortization were increased capital expenditures related to E-commerce and digital initiatives.
We incurred $14.5$11.0 million in restructuring and other costs for fiscal year 2024,2025, as compared to $7.9$14.5 million for the prior fiscal year. RestructuringThe anddecrease other costswas primarily consistdue ofto consulting-relateddecreases costsin andboth associate severance and separation costs associatedand withconsulting-related costs compared to the Company’sprior strategicfiscal realignment efforts to optimize its supply chain and distribution network and with the optimization of the Company’s operations and profitability improvement.year. See Note 14, “Restructuring and Other Costs” in the Notes to Consolidated Financial Statements for additional information.
Income from operations decreased 19.3%22.8% to $301.6 million in fiscal year 2025, as compared to $390.4 million in fiscal year 2024, as compared to $483.7 million in fiscal year 2023.2024. Income from operations as a percentage of net sales decreased to 8.0% in fiscal year 2025, as compared to 10.2% in fiscal year 2024, as compared to 12.1% in fiscal year 2023.2024. The decrease in income from operations as a percentage of net sales was primarily attributable to, as described above, lower sales volume, a higher level of Restructuringvolume and othergross costsprofit margin and an increase in Operating expenses as a percentage of net sales, partially offset by a higher gross profit margin.sales.
Total other expense increaseddecreased 72.7%,20.3%, or $20.1$9.7 million, to $47.6$38.0 million for fiscal year 2024,2025, as compared to $27.6$47.6 million for the prior fiscal year. The increasedecrease was primarily due to higherlower interest rates and lower outstanding balances on our credit facilities, lower fees incurred associated with the Receivables Purchase Agreement (the “RPA”) entered into during the second quarter of fiscal year 2023,2023 partiallyand offsetthe byimpact of prior year recognitionrealized ofand $6.6unrealized millionlosses ofon Employeeforeign Retention Credit funds. See Note 8, “Income Taxes” in the Notes to Consolidated Financial Statements for further information.exchange
Our effective tax rate for fiscal year 20242025 was 25.3%,24.9%, as compared to 24.8%25.3% for fiscal year 2023.2024. See Note 8, “Income Taxes” in the Notes to Consolidated Financial Statements for further information. The increase in the effective tax rate was primarily due to non-deductible expenses associated with the Reclassification and derecognition of certain deferred tax assets, partially offset by a higher tax benefit from stock-based compensation and a benefit from federal tax credits.
As of August 31,30, 2024,2025, total borrowings outstanding, representing amounts due under our credit facilities and notes, as well as all finance leases and financing arrangements, were $485.7 million, net of unamortized debt issuance costs of $1.5 million, as compared to total borrowings outstanding of $508.8 million, net of unamortized debt issuance costs of $0.8 million, as compared to total borrowings outstanding of $454.3August million,31, net of unamortized debt issuance costs of $1.0 million, as of September 2, 2023.2024. The increasedecrease in total borrowings outstanding was driven by highera netlower borrowingslevel under our credit facilities,of private placement notes and shelf facility agreements. The increase in total borrowings outstanding was driven by higher net borrowings under our credit facilities primarily to fund our recent higher share repurchase volume to offset the share dilution resulting from the Reclassification.debt. See Note 10, “Debt” in the Notes to Consolidated Financial Statements for more information about these balances.
•a smaller decrease in the change in accounts receivable primarily attributable to the RPA entered into during the second quarter of fiscal year 2023; partially offset by
•a decreasedecline in inventories in the changeprior inyear inventoriesperiod primarily attributable to lower sales and purchase volume.volume as well as inventory optimization efforts; partially offset by
•an increase in the change in accounts payable and accrued liabilities as compared to the prior year period primarily due to higher accounts payable and payroll and payroll related accruals The table below summarizes certain information regarding the Company’s operations:
The table below summarizes certain information regarding the Company’s operations:
Working capital decreased compared to August 31, 2024, primarily due to a higher balance in the Current portion of debt including obligations under finance leases.
Days’ sales outstanding as of August 30, 2025 remained consistent compared to August 31, 2024.
Working capital decreased compared to September 2, 2023, primarily due to lower inventory and cash balances, partially offset by lower balances in Accounts Payable and Accrued expenses and other current liabilities. The current ratio remained consistent with the prior year period.
The increase in days’ sales outstanding as of August 31, 2024, as compared to September 2, 2023, was primarily due to the receivables portfolio consisting of a greater percentage of our national account program sales, which typically have longer payment terms.
Inventory turnover as of August 31,30, 20242025 increased compared to SeptemberAugust 2,31, 2023.2024. This improvement in inventoryInventory turnover was duecontinues to the decline in inventory outpacing the decline in cost of goods sold. Recent lower inventory balances wereimprove due to lower purchase volumes, category management efforts and supply chain efficiencies.efficiencies to optimize inventory levels.
Net cash used in investing activities for fiscal year 20242025 and fiscal year 20232024 was $123.4$63.3 million and $112.7$123.4 million, respectively. The use of cash for both fiscal years was primarily due to expenditures for property, plant and equipment mainly related to vending programs and other infrastructure and technology investments. The use of cash in fiscal year 2025 was partially offset by proceeds from the sale of the Columbus CFC and the use of cash in fiscal year 2024 also included payments for the acquisitions of KAR,KAR Industrial Inc., ApTex, Inc., Premier and SMRT in fiscal year 2024 and Buckeye Industrial Supply Co. and Tru-Edge Grinding, Inc. in fiscal year 2023.SMRT.
•$189.7 million of regular cash dividends paid during fiscal year 2025 compared to $187.3 million of regular cash dividends paid during fiscal year 2024;
•$39.3 million in aggregate repurchases of Class A Common Stock during fiscal year 2025 compared to $187.7 million in aggregate repurchases of Class A Common Stock during fiscal year 2024; and
•$187.3 million of regular cash dividends paid during fiscal year 2024 compared to $176.7 million of regular cash dividends paid during fiscal year 2023;
•$187.7 million in aggregate repurchases of Class A Common Stock during fiscal year 2024 compared to $95.8 million in aggregate repurchases of Class A Common Stock during fiscal year 2023; partially offset by
•net borrowingspayments under our credit facilities,facilities and private placement debt andof shelf$21.5 facilitymillion agreementsduring fiscal year 2025 compared to net borrowings of $53.5 million during fiscal year 2024 compared to net payments of $340.0 million during fiscal year 2023.2024.
In April 2017, the Company entered into a $600.0 million revolving credit facility, which was subsequently amended and extended in August 2021.2021, May 2023 and July 2025 (as amended, the “Amended Revolving Credit Facility”). Subsequent to the end of fiscal year 2024,2025, the Company made additional net payments of $19.0$15.0 million through October 4,2, 20242025 on itsthe revolvingAmended creditRevolving facility.Credit Facility. The current unused balance of $538.7$543.7 million from the revolvingAmended creditRevolving facility,Credit Facility, which is reduced by outstanding letters of credit, is available for working capital purposes if necessary. As of August 31,30, 2024,2025, the Company also had three uncommitted credit facilities, totaling $211.0$230.0 million of aggregate maximum uncommitted availability. As of August 31,30, 2024,2025, we were in compliance with the operating and financial covenants of our credit facilities. See Note 10, “Debt” in the Notes to Consolidated Financial Statements for more information about our credit facilities.
Private Placement Debt and Shelf Facility Agreements
In July 2016, we completed the issuance and sale of unsecured senior notes. In January 2018, we entered into two note purchase and private shelf facility agreements. In June 2018 and March 2020, we entered into additional note purchase agreements. No new notes may be issued pursuant to the Shelf Facility Agreements. In March 2024, the Company paid $50.0 million to satisfy its obligation on the 2.40% Series 2019A Notes, due March 5, 2024, which were the last notes associated with the Shelf Facility Agreements. In April 2024, the Company completed the issuance and sale of $50.0unsecured millionsenior aggregate principal amount of 5.73% Senior Notes, due April 18, 2027.notes. See Note 10, “Debt” in the Notes to Consolidated Financial Statements for more information about these transactions.
Inventory is reflected at the lower of weighted-average cost or net realizable value considering futuresuch demand,factors marketas conditionsits andage, the physical condition of the inventory, historic sales, historical write-down activity as well as known trends as compared to on-hand inventory. WeThe Company will write-down inventories for shrinkage and slow-moving or obsolete inventory. The analysis includes inventory levels, sales information, historical write-down information, and the on-hand quantities relative to the sales history for the product.considerations.
What changed in the latest 10-Q
Risk Factors
In addition to the other information set forth in this Report, you should carefully consider the risks and the uncertainties discussed in Item 1A, “Risk Factors” of Part I of our Annual Report on Form 10-K for the fiscal year ended August 30, 2025, which could materially affect our business, financial condition and/or operating results. There have been no material changes in the Company’s risk factors from those disclosed in our Annual Report on Form 10-K. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be not material also may materially and adversely affect our business, financial condition and/or operating results.
No wording changes found in this section.
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Management's Discussion & Analysis (MD&A)
New heading “International Emergency Economic Powers Act (“IEEPA”) Tariff Refunds”
Removed heading “Restructuring and Other Costs”
Largest changes
“International Emergency Economic Powers Act (“IEEPA”) Tariff Refunds”see in full comparison
Gross profit increasedsee in full comparison3.6%,5.2%, or$26.8$59.5 million, to$770.3$1,200.7 million for thetwenty-six-weekthirty-nine-week period endedFebruaryMay28,30, 2026, compared to$743.4$1,141.2 million for the same period in the prior fiscal year. Gross profit margin was40.9%41.0% for thetwenty-six-weekthirty-nine-week period endedFebruaryMay28,30, 2026, as compared to40.8%40.9% for the same period in the prior fiscal year. The increase in gross profit was primarily a result of higher net sales, as described above, while the increase in gross profit margin was primarily a result of favorable pricingactions as a result of tariff-driven product cost inflation concerns.actions.
Gross profit increasedsee in full comparison3.4%,8.2%, or$12.4$32.7 million, to$377.6$430.4 million for the thirteen-week period endedFebruaryMay28,30, 2026, compared to$365.2$397.7 million for the same period in the prior fiscal year. Gross profit margin was 41.1% for the thirteen-week period endedFebruaryMay28,30, 2026, as compared to 41.0% for the same period in the prior fiscal year. The increase in gross profit was primarily a result of an increase in net sales, as described above, while the increase in gross profit margin was primarily a result of favorable pricingactions as a result of tariff-driven product cost inflation concerns.actions.
“On February 20, 2026, the United States Supreme Court issued a ruling invalidating certain tariffs originally mandated under IEEPA. As a result, the United States Court of International Trade ordered the United States Customs and Border Patrol to process refunds for tariffs collected under IEEPA. As a distributor, we are not the importer of record for most products we sell. …”see in full comparison
“We incurred $2.5 million in Restructuring and other costs for the thirteen-week period ended February 28, 2026, as compared to $1.4 million for the same period in the prior fiscal year. The increase was primarily related to higher severance and separation benefits associated with the Company’s workforce realignment actions in the current fiscal year. See Note 9, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.”see in full comparison
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MSC is a leading North American distributor of a broad range of metalworking, maintenance, repair and operations (“MRO”), and production fastener and hardware products and services. We help our customers drive greater productivity, profitability and operational performance with industry-leading inventory management and supply chain solutions and deep expertise from more than 80 years of working with customers across industries. We offer approximately 2.5 million active, saleable stock-keeping units through our E-commerce channels, including our website, www.mscdirect.com (the “MSC website”); our inventory management solutions; our catalogs; our brochures; and our customer care centers, customer fulfillment centers (“CFCs”), regional inventory centers and warehouses. We service our customers from five CFCs, nineeight regional inventory centers, 37 warehouses, and five manufacturing locations. We continue to implement our strategies to gain market share, generate new customers, increase sales to existing customers and diversify our customer base.
Our business model focuses on providing overall procurement cost reduction and just-in-time delivery to meet our customer’scustomers’ needs. Many of our products are carried in stock, and orders for these in-stock products are typically fulfilled the day on which the order is received. We focus on offering inventory, process and procurement solutions that reduce supply chain costs and improve plant floor productivity for our customers. We aim to achieve ongoing cost reductions throughout our business by implementing cost-saving strategies and leveraging our existing infrastructure. Additionally, we provide our customers with further procurement cost-saving solutions through technologies such as our Vendor Managed Inventory (“VMI”), Customer Managed Inventory (“CMI”) and vending programs — helping reduce downtime and ensure critical products are available when and where they are needed. Our vending machines in service totaled 30,41430,790 as of FebruaryMay 28,30, 2026, compared to 28,08528,741 as of MarchMay 1,31, 2025, and our In-Plant programs totaled 423426 locations as of FebruaryMay 28,30, 2026, compared to 387399 as of MarchMay 1,31, 2025. Our sales force, which focuses on a more complex and high-touch role, drives value for our customers by enabling them to achieve higher levels of growth, profitability and productivity. Our field sales and service associate headcount was 2,4732,496 as of FebruaryMay 28,30, 2026, compared to 2,7262,721 as of MarchMay 1,31, 2025.
Highlights during the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026 include:
•We incurred $7.3 million in Restructuring and other costs, compared to $3.8$6.4 million for the same period in the prior fiscal year, consisting primarily of current year severance and separation costs associated with the Company’s sales optimization efforts as well as consulting-related costs in the current and prior fiscalfis xcal year.
The first phase of our Company-wide initiative, referred to as “Mission Critical,” focused on market share capture and improved profitability. We successfully executed on the first phase of Mission Critical initiatives at the end of fiscal year 2023, which included solidifying our market-leading metalworking business, with an emphasis on selling our product portfolio, expanding our solutions, improving our digital and E-commerce capabilities and diversifying our customers and end-markets. The next phase of our Mission Critical journey, which began in fiscal year 2024, is anchored in three pillars: (i) maintaining the momentum of the first phase of the Mission Critical program and our existing growth drivers, (ii) increasing our focus on both core customers and OEM fasteners, and (iii) driving productivity improvements and reducing operating expenses as a percentage of net sales. To accomplish the next phase of our Mission Critical journey, we intend to leverage investments in advanced analytics to improve supply chain performance and upgrade our digital core to unlock productivity within our order-to-cash and procure-to-pay processes. In fiscal year 2024, we completed our web price realignment initiative. In fiscal year 2025, we launched our enhanced marketing efforts, rolled out several E-commerce enhancements and began our sales optimization initiative, which included investment in an enhanced, data-driven territory model to optimize field seller portfolios. The Company continued its sales optimization efforts during the first half of fiscal year 2026.
(i) maintaining the momentum of the first phase of the Mission Critical program and our existing growth drivers, (ii) increasing our focus on both core customers and OEM fasteners, and (iii) driving productivity improvements and reducing operating expenses as a percentage of net sales. To accomplish the next phase of our Mission Critical journey, we intend to leverage investments in advanced analytics to improve supply chain performance and upgrade our digital core to unlock productivity within our order-to-cash and procure-to-pay processes. In fiscal year 2024, we completed our web price realignment initiative. In fiscal year 2025, we launched our enhanced marketing efforts, rolled out several E-commerce enhancements and began our sales optimization initiative, which included investment in an enhanced, data-driven territory model to optimize field seller portfolios. During fiscal year 2026, alongside its sales optimization initiative, the Company is focused on enhancing end‑to‑end customer interactions through data‑driven insights and organizational alignment to deliver a more personalized and seamless customer experience.
The United States economy has experienced various macroeconomic pressures in recent years including pricing pressure from tariffs and inflation, sustained high interest rates, increased fuel costs and general economic and political uncertainty. The impact from tariffs was most significant in the latter half of the Company's fiscal year 2025 and has continued into fiscal year 2026. Furthermore, as a supplier to the United States federal government, the federal government shutdown during the Company’s fiscal first quarter and the partial federal government shut downs during the Company’s fiscal second quarter negatively impacted sales to our public sector end-market. Additionally, increased fuel costs resulting from the conflict inwithin Iran and geopolitical tensions in the region has increased macroeconomic uncertainty generally and may lead to higher freight expense and cost pressure on the products offered by the Company. These pressures have impacted, and may continue to impact in the future, the Company’s business, financial condition and results of operations.
International Emergency Economic Powers Act (“IEEPA”) Tariff Refunds
On February 20, 2026, the United States Supreme Court issued a ruling invalidating certain tariffs originally mandated under IEEPA. As a result, the United States Court of International Trade ordered the United States Customs and Border Patrol to process refunds for tariffs collected under IEEPA. As a distributor, we are not the importer of record for most products we sell. However, during the thirteen-week period ended May 30, 2026, we formally submitted refund claims for tariffs which had previously been paid by the Company as the importer of record and are now disallowed under the United States Supreme Court ruling. As of May 30, 2026, cash refunds received were not significant. The ultimate availability, timing and amount of potential refunds remains uncertain and subject to regulatory, legal and administrative developments. As of May 30, 2026, we have not recorded a receivable related to such tariff refunds due to the aforementioned uncertainty, however we may recognize additional benefits in future periods.
Following the Supreme Court’s ruling on IEEPA tariffs, the United States Executive Branch introduced tariffs under a different statutory authority. There remains significant uncertainty regarding the scope and duration of current and potential tariffs. The Company continues to monitor and evaluate these developments and assess their potential impact on the Company’s business, financial condition and results of operations.
We utilize various indices when evaluating the level of our business activity, including the Industrial Production (“IP”) Index. Through statistical analysis, we have found that trends in our customers’ activity have correlated to changes in the IP Index. The IP Index measures short-term changes in industrial production. Growth in the IP Index compared to the prior quarter indicates growth in the manufacturing, mining and utilities industries. Approximately 67% of our revenues came from sales in the manufacturing sector during both the thirteen- and twenty-six-weekthirty-nine-week periods ended FebruaryMay 28,30, 2026. After giving effect to the annual technical revisions to calculations of the IP Index which occurred in November 2025, the IP Index over the three months ended FebruaryMay 2026 and the average for the three- and 12-month periods ended FebruaryMay 2026 were as follows:
The average IP Index for the three months ended FebruaryMay 2026 was 102.2,102.3, an increase compared to the prior quarter average of 101.7102.2 and an increase from an average of 100.5101.0 during the comparative quarter in the prior year.
During fiscal year 2026, the Company has experienced a more constructive demand environment compared to much of fiscal year 2025. The heavy manufacturing industry, which represented 58% of our revenues during the thirteen-week period ended FebruaryMay 28,30, 2026, showed signs of expansion. Several IP subindexes, including Aerospace, Machinery and Equipment, Primary Metals and Fabricated Metals improved. Non-manufacturing demand, in particular the Company’s public sector end-market, recovered from lower sales levels in the first fiscal quarter as a result of the federal government shutdown but such recovery was partially offset by the partial federal government shutdowns duringearlier January and February and continuing into our thirdin fiscal quarter.year 2026. We will monitor the current economic conditions for the impact on our customers and markets and assess both risks and opportunities that may affect our business and operations.
Thirteen-Week Period Ended FebruaryMay 28,30, 2026 Compared to the Thirteen-Week Period Ended MarchMay 1,31, 2025
Net sales increased 2.9%,7.8%, or $26.1$75.9 million, to $917.8$1,047.1 million for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to $891.7$971.1 million for the same period in the prior fiscal year. The $26.1$75.9 million increase in net sales was comprised of a positive impact from pricing of $58.8$70.1 million, $4.5 million of higher sales volume, and favorable foreign exchange impact of $2.9$1.3 million, partially offset by $35.6 million of lower sales volume.million. The positive pricing impact was inclusive of changes in customer and product mix, discounting, favorable tariff-related pricing actions and other items. Of the $26.1$75.9 million increase in net sales during the thirteen-week period ended FebruaryMay 28,30, 2026, sales to our core and other customers increased $26.5$42.7 million, sales to our national account customers increased $0.6$25.6 million and sales to our public sector customers decreasedincreased $1.0$7.6 million.
The table below shows, among other things, the change in our average daily sales (“ADS”) by total Company, by customer end-market and by customer type for the thirteen-week periods ended FebruaryMay 28,30, 2026 and MarchMay 1,31, 2025, each as compared to the same period in the prior fiscal year:
(3)Prior year data includes the effect of a reclassification of end-markets, primarily between Manufacturing Heavy/Light and Other.
We believe that our ability to transact business with our customers directly through the MSC website as well as through various other electronic portals gives us a competitive advantage over smaller suppliers. Sales made through our E-commerce platforms, including sales made through Electronic Data Interchange (“EDI”) systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 64.1%63.7% of consolidated net sales forin both the thirteen-week period ended FebruaryMay 28,30, 2026,2026 as compared to 63.6% of consolidated net sales forand the same period in the prior fiscal year.
Gross profit increased 3.4%,8.2%, or $12.4$32.7 million, to $377.6$430.4 million for the thirteen-week period ended FebruaryMay 28,30, 2026, compared to $365.2$397.7 million for the same period in the prior fiscal year. Gross profit margin was 41.1% for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to 41.0% for the same period in the prior fiscal year. The increase in gross profit was primarily a result of an increase in net sales, as described above, while the increase in gross profit margin was primarily a result of favorable pricing actions as a result of tariff-driven product cost inflation concerns.actions.
Operating expenses increased 2.9%,3.6%, or $8.8$11.3 million, to $310.3$323.7 million for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to $301.6$312.3 million for the same period in the prior fiscal year. Operating expenses were 33.8%30.9% of net sales for both the thirteen-week periodsperiod ended FebruaryMay 28,30, 20262026, andas Marchcompared 1,to 2025.32.2% for the same period in the prior fiscal year. The largest contributioncontributions to the increase in Operating expenses waswere higher depreciation and amortization expense, provision for credit losses and stock-based compensation expense.
Payroll and payroll-related costs, which include salary, incentive compensation, sales commission and fringe benefit costs, were $171.2$173.8 million, or 55.2%53.7% of total Operating expenses, for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to $173.3$175.3 million, or 57.5%56.1% of total Operating expenses, for the same period in the prior fiscal year. The headcount reduction actions during fiscal year 2026 resulted in lower salary,salary and sales commissions and incentive compensationcommission costs, which waswere partially offset by our annual merit increase.increase and larger incentive compensation accruals.
Freight expense was $35.0$37.7 million for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to $35.8$40.9 million for the same period in the prior fiscal year. The primary driver of the decrease was favorable third-party shipping rates achieved through our network optimization initiatives.initiatives and higher freight costs in the prior year incurred while servicing certain customers in the public sector.
Depreciation and amortization was $24.8$24.9 million for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to $22.5$22.3 million for the same period in the prior fiscal year. The primary drivers of the increase inwas depreciationprimarily anddriven amortization were increasedby capital expenditures related to E-commercesupport the Company’s strategic growth initiatives and digitalexpanded initiatives.solutions footprint.
Restructuring and Other Costs
We incurred $2.5 million in Restructuring and other costs for the thirteen-week period ended February 28, 2026, as compared to $1.4 million for the same period in the prior fiscal year. The increase was primarily related to higher severance and separation benefits associated with the Company’s workforce realignment actions in the current fiscal year. See Note 9, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from operations increased 4.1%,29.0%, or $2.5$24.0 million, to $64.8$106.7 million for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to $62.2$82.7 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales increased to 7.1%10.2% for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to 7.0%8.5% for the same period in the prior fiscal year. The increase in income from operations as a percentage of net sales was primarily attributable to, as described above, an increase in grossnet profitsales margin.along with a decrease in Operating expenses as a percentage of Net Sales.
Total other expense decreased 16.7%,67.2%, or $1.8$5.1 million, to $8.8$2.5 million for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to $10.5$7.6 million for the same period in the prior fiscal year. The decrease was primarily due to lowerthe interestrecognition costsof on$5.1 ourmillion of Employee Retention Credit Facilities(“ERC”) and remeasurement gains from foreign exchange compared to foreign exchange losses in the prior year.claims.
The Company’s effective tax rate for the thirteen-week period ended FebruaryMay 28,30, 2026 was 24.7%,24.5%, as compared to 24.3% for the same period in the prior fiscal year. The increase in the effective tax rate was primarily due to lower permanent deductions compared to the prior year.
The factors which affected net income for the thirteen-week period ended FebruaryMay 28,30, 2026, as compared to the same period in the prior fiscal year, have been discussed above.
Twenty-Six-WeekThirty-Nine-Week Period Ended FebruaryMay 28,30, 2026 Compared to the Twenty-Six-WeekThirty-Nine-Week Period Ended MarchMay 1,31, 2025
Net sales increased 3.5%,5.0%, or $63.3$139.2 million, to $1,883.5$2,930.5 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $1,820.2$2,791.3 million for the same period in the prior fiscal year. The $63.3$139.2 million increase in net sales was comprised of a positive impact from pricing of $97.8$167.9 million and favorable foreign exchange impact of $3.9$5.2 million, partially offset by $38.4$33.9 million of lower sales volume. The positive pricing impact was inclusive of changes in customer and product mix, discounting, favorable pricing actions and other items. Of the $63.3$139.2 million increase in net sales during the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, sales to our core and other customers increased $58.4$101.1 million, sales to our national account customers increased $10.4$36.0 million and sales to our public sector customers decreasedincreased $5.5$2.1 million.
The table below shows, among other things, the change in our ADS by total Company, by customer end-market and by customer type for the twenty-six-weekthirty-nine-week periods ended FebruaryMay 28,30, 2026 and MarchMay 1,31, 2025, each as compared to the same period in the prior fiscal year:
We believe that our ability to transact business with our customers directly through the MSC website as well as through various other electronic portals gives us a competitive advantage over smaller suppliers. Sales made through our E-commerce platforms, including sales made through EDI systems, VMI systems, Extensible Markup Language ordering-based systems, vending, hosted systems and other electronic portals, represented 64.1%64.0% of consolidated net sales for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to 63.7% of consolidated net sales for the same period in the prior fiscal year.
Gross profit increased 3.6%,5.2%, or $26.8$59.5 million, to $770.3$1,200.7 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, compared to $743.4$1,141.2 million for the same period in the prior fiscal year. Gross profit margin was 40.9%41.0% for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to 40.8%40.9% for the same period in the prior fiscal year. The increase in gross profit was primarily a result of higher net sales, as described above, while the increase in gross profit margin was primarily a result of favorable pricing actions as a result of tariff-driven product cost inflation concerns.actions.
Operating expenses increased 2.8%,3.1%, or $16.8$28.1 million, to $621.9$945.6 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $605.1$917.5 million for the same period in the prior fiscal year. Operating expenses were 33.0%32.3% of net sales for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to 33.2%32.9% for the same period in the prior fiscal year. The largest contributions to the increase in Operating expenses was primarily a result of advertising expense andwere higher depreciation and amortization expense and higher share based compensation expense. The decrease in operating expenses as a percentage of net sales was primarily due to growth in net sales outpacing the increase in Operating expenses.
Payroll and payroll-related costs, which include salary, incentive compensation, sales commission and fringe benefit costs, were $345.7$519.5 million, or 55.6%55.0% of total Operating expenses, for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026 as compared to $347.0$522.3 million, or 57.3%56.9% of total Operating expenses, for the same period in the prior fiscal year. The headcount reduction actions during fiscal year 2026 resulted in lower salary,salary and sales commissions and incentive compensationcommission costs, which was partially offset by our annual merit increase.
Freight expense was $71.4$109.1 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $73.3$114.1 million for the same period in the prior fiscal year. The primary driver of the decrease was favorable third-party shipping rates achieved through our network optimization initiatives.initiatives and higher freight costs in the prior year incurred while servicing certain customers in the public sector.
Depreciation and amortization was $49.4$74.4 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $43.7$66.0 million for the same period in the prior fiscal year. The primary drivers of the increase inwas depreciationprimarily anddriven amortization were increasedby capital expenditures related to E-commercesupport our strategic growth initiatives and digitalexpanded initiatives.solutions footprint.
Advertising expense was $26.5$39.9 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $22.8$34.9 million for the same period in the prior fiscal year. The primary driver of the increase was higher search engine marketing spend as part of the Company's enhanced marketing efforts which began in fiscal year 2025.
We incurred $7.3 million in Restructuring and other costs for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $3.8$6.4 million for the same period in the prior fiscal year. The increase was primarily related to higher severance and separation benefits associated with the Company’s workforce realignment actions in the current fiscal year. See Note 9,10, “Restructuring and Other Costs” in the Notes to Condensed Consolidated Financial Statements for additional information.
Income from operations increased 4.8%,14.0%, or $6.5$30.5 million, to $141.0$247.8 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $134.5$217.3 million for the same period in the prior fiscal year. Income from operations as a percentage of net sales increased to 7.5%8.5% for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to 7.4%7.8% for the same period in the prior fiscal year. The increase in income from operations as a percentage of net sales was primarily attributable to, as described above, an increase in grossnet profitsales marginalong andwith a decrease in Operating expenses as a percentage of netNet sales.Sales.
Total other expense decreased 21.2%,33.0%, or $4.7$9.8 million, to $17.5$20.0 million for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to $22.2$29.8 million for the same period in the prior fiscal year. The decrease was primarily due to the recognition of $5.1 million of ERC funds, lower interest costs on our Credit Facilities, lower fees incurred associated with the Receivables Purchase AgreementFacilities and current year remeasurement gains from foreign exchange compared to foreign exchange losses in the prior year.exchange.
The Company’s effective tax rate was 24.5% for boththe thirty-nine-week period ended May 30, 2026 as compared to 24.4% for the twenty-six-weekthirty-nine-week periodsperiod ended FebruaryMay 28, 2026 and March 1,31, 2025.
The factors which affected net income for the twenty-six-weekthirty-nine-week period ended FebruaryMay 28,30, 2026, as compared to the same period in the prior fiscal year, have been discussed above.
As of FebruaryMay 28,30, 2026, we had $46.2$74.1 million in cash and cash equivalents, substantially all with well-known financial institutions. Historically, our primary financing needs have been to fund our working capital requirements necessitated by our sales growth and the costs of acquisitions, new products, new facilities, facility expansions, investments in vending solutions, technology investments, and productivity investments. Cash generated from operations, together with borrowings under our credit facilities andfacilities, net proceeds from the private placement notes,notes and proceeds from the sale of receivables under our securitization program, have been used to fund these needs, to repurchase shares of Class A Common Stock from time to time, and to pay dividends to our shareholders.
As of FebruaryMay 28,30, 2026, total borrowings outstanding, representing amounts due under our credit facilities and notes, as well as all finance leases and financing arrangements, were $511.8$506.8 million, net of unamortized debt issuance costs of $1.4$1.3 million, as compared to total borrowings outstanding of $485.7 million, net of unamortized debt issuance costs of $1.5 million, as of the end of fiscal year 2025. The increase in total borrowings outstanding was driven by higher net borrowings under our credit facilities. See Note 7,8, “Debt” in the Notes to Condensed Consolidated Financial Statements for more information about these balances.
We believe, based on our current business plan, that our existing cash, financial resources and cash flow from operations will be sufficient to fund anticipated capital expendituresexpenditures, debt maturities and operating cash requirements for at least the next 12 months. We will continue to evaluate our financial position in light of future developments and to take appropriate action as it is warranted.
Net cash provided by operating activities was $123.8$225.5 million for the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026, compared to $156.3$253.5 million for the twenty-sixthirty-nine weeks ended MarchMay 1,31, 2025. The decrease was primarily due to the following:
•an increase in the change of inventories in the current fiscal year relative to the prior year due to inventory management countermeasures in response to tariffs and to support sales growth;
•an increase in the change of prepaid expenses and other current assets in the current fiscal year due primarily to an increase in vendor rebate receivables and IT-related prepayments;
•a decrease in the change of accounts payable and accrued liabilities as compared to the prior year period due primarily to a decrease inas the annualcurrent year payroll and incentive compensation accrual declined compared to an increase in the prior year; partially offset by
•a decrease in the change of accounts receivable in the current fiscal year primarily attributable to the RPA amendment; and
Working capital and current ratio decreased as of FebruaryMay 28,30, 2026 compared to MarchMay 1,31, 2025 and August 30, 2025, primarily due to higher Current portion of debt including obligations under finance leases and lower Accounts receivable, partially offset by higher Inventories and Prepaid expenses and other current assets. Working capital increased as of February 28, 2026 compared to Augustboth 30,comparable 2025 primarily due to higher Inventories and higher Prepaid expenses and other current assets, partially offset by lower Accounts receivable and Accrued expenses and other current liabilities balances.periods.
Days’ sales outstanding as of FebruaryMay 28,30, 2026 decreased modestly compared to both August 30, 2025 and MarchMay 1,31, 2025. The improvement in days’ sales outstanding was2025 driven by both improved collections from our national account customers and the RPA amendment in the second quarter of fiscal year 2026.
Inventory turnover as of FebruaryMay 28,30, 2026 increased compared to both August 30, 2025 and MarchMay 1,31, 2025. Inventory turnover continues to improve due to category management efforts and supply chain efficiencies to optimize inventory levels. The recent higher balance of Inventories is due to inventory management countermeasures in response to tariffs and to support recent sales growth.
Net cash used in investing activities for the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026 and MarchMay 1,31, 2025 was $42.5$63.3 million and $50.7$41.6 million, respectively. The use of cash for both the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026 and MarchMay 1,31, 2025 was primarily due to expenditures for property, plant and equipment mainly related to vending programs and other infrastructure and technology investments. Cash used in investing activities for the prior year period was partially offset by the net proceeds received from the sale of the Columbus CFC.
Net cash used in financing activities was $91.3$144.3 million for the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026, compared to $93.1$169.6 million for the twenty-sixthirty-nine weeks ended MarchMay 1,31, 2025, primarily due to the following:
•$13.7$13.9 million, or 160162 thousand shares, in aggregate repurchases of Class A Common Stock during the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026, compared to $30.5$39.1 million, or 377494 thousand shares, in aggregate repurchases of Class A Common Stock during the twenty-sixthirty-nine weeks ended MarchMay 1,31, 2025;
•$97.2$145.8 million of regular cash dividends paid during the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026, compared to $94.9$142.3 million of regular cash dividends paid during the twenty-sixthirty-nine weeks ended MarchMay 1,31, 2025;
•net borrowings of $25.0$20.0 million under our credit facilities and private placement debt during the twenty-sixthirty-nine weeks ended FebruaryMay 28,30, 2026, compared to net borrowings of $30.3$12.5 million during the twenty-sixthirty-nine weeks ended MarchMay 1,31, 2025; and
MSM insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-10-03 | Mcisaac Martina |
Option exercise | 1,173 | — | — |
| 2026-10-03 | Mcisaac Martina |
Option exercise | 188 | — | — |
| 2026-10-03 | Mcisaac Martina |
Shares withheld for tax | 481 | $130.12 | $62.6K |
Well-known investors holding MSM (13F)
None of the 59 investors we track reported a position in their latest 13F.