Sales to both large and mid-sized clients were stronger than expected, and online businesses continued to drive “strong growth and profitability,” CEO D.G. Macpherson says.

W.W. Grainger Inc.’s new lower-pricing policy is paying off better than expected among both large and mid-sized customers, helping to drive sales up 9% in the first quarter, CEO D.G. Macpherson says.

Grainger’s online businesses, he adds, “continue to grow very strongly, and continue to have strong margins” with the lower prices the distributor of business and industrial supplies introduced last year.

We're pleased that pricing changes are resulting in strong growth with gross margin rates above expectations.
D.G. Macpherson, CEO
W.W. Grainger Inc.

 

D.G. Macpherson, CEO, W.W. Grainger

Grainger didn’t immediately respond to a request for its overall e-commerce sales, though it has said that 56% of its 2017 total revenue came in through its e-commerce channels, including websites, KeepStock vending inventory service and e-procurement systems. At that rate, its Q1 e-commerce sales would come in at $1.55 billion. Grainger is No. 32 in the B2B E-Commerce 300.

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“We’re pleased that pricing changes are resulting in strong growth with gross margin rates above expectations,” Macpherson said yesterday on a conference call with stock analysts, according to a transcript from Seeking Alpha. “I think we’re probably most pleased with the fact that we’re really developing stronger relationships with customers and all different types of customers.”

“Large-customer gross profit was better than we expected; we’re not having to deeply discount any frequently repurchased items as much, as customers get more comfortable with our pricing level,” he said, adding: “Our customers are starting to trust that our prices are relevant and understand the value that we provide.”

A particular benefit of more competitive pricing, he added, is more growth opportunity with mid-sized companies. “We feel like there is a long runway of mid-size customers to acquire and to build relationships with,” he said.

Macpherson noted that Grainger—a distributor of maintenance, repair and operations (MRO) equipment and supplies that companies, government agencies and institutions use to operate their facilities—realized its strongest sales gains in the quarter to retailers and construction contractors.

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Grainger said Q1 sales were particularly strong—rising 24% year over year—at Zoro.com and Japan-based MonotaRO.com, which it refers as its “single-channel” online businesses. Zoro specializes in selling to tradesmen and other small businesses.

Grainger had a tougher time in the quarter in Canada, where sales fell 6% in local currency. The sales decline combined with restructuring expenses to result in an operating loss of $20 million. Nonetheless, price increases introduced in Canada late last year helped to improve gross profit margin there by 3.3 percentage points. “This is going to be a smaller but more profitable business,” Macpherson said on the conference call. Grainger’s Canada operations include Acklands Grainger and a Zoro section on eBay Canada.

For the first quarter ended March 31, Grainger reported:

  • Sales of $2.766 billion, up 8.9% from $2.541 billion;
  • Operating earnings of $334.83 million, up 14.5% from $292.50 million;
  • Net earnings of $231.54 million, up 32.5% from $174.74 million.

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