The prominent distributor of industrial supplies reported “significant share gains” in the U.S. fueled by sales of pandemic-related products. But it also noted that those same products led to a drop in gross profit margin.

It was a mixed second quarter for W.W. Grainger Inc., as the prominent, ecommerce-focused distributor of maintenance, repair and operations products reported a 1.9% drop in net sales along with a “significant” gain in U.S. market share on strong sales of pandemic-driven products like personal protection equipment.

“We gained significant share in a down market, fueled by elevated levels of pandemic product sales and improving trends in non-pandemic product sales throughout the quarter,” CEO D.G. Macpherson said today. “On the cost side, we achieved significant leverage and generated over $75 million of sequential cost reductions contributing to strong operating cash flow and allowing continued investment in the business.”

Sales increase at Zoro.com and MonotaRO.com

But as sales of PPE and other pandemic-related products increased 71% year over year in the second quarter ended June 30, sales of non-pandemic MRO equipment and supplies that companies use to maintain and operate their businesses fell by a relatively 17% before improving in July, Grainger said. And with the profit margins on many of its pandemic-related products lower than non-pandemic-related industrial supplies, Grainger posted a 9% drop in gross profit.

Strong sales in Grainger’s “endless assortment” product lines at the company’s Zoro.com and Japan-based MonotaRO.com web-only businesses also contributed to the drop in gross profit margin, Grainger said.

Grainger, which also reported market share gains in the prior quarter, didn’t break out ecommerce figures for the quarter, but in prior statements, it has said digital commerce accounts for well over half of all sales.

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In the annual 10K financial statement it filed with the U.S. Securities and Exchange Commission for its 2019 fiscal year, Grainger noted the following shares of total orders from its three groupings of digital channels: websites including its flagship Grainger.com, 30%; EDI and e-procurement, 25%; and its KeepStock inventory management services, 16%. That comes to 71% of orders through its digital channels, with the remaining 29% received through its physical branch network and via the telephone. The company reported total 2019 sales of $11.5 billion, with the 71% digital share amounting to $8.2 billion.

In a Q2 conference call with investment analysts Thursday, Macpherson said Grainger is taking several steps to continue to improve how it serves customers with digital technology and strategies, according to a transcript of the call from Seeking Alpha. “We continue to invest in digital technology for our website” and “we’ve reinvigorated our KeepStock and on-site solutions for customers,” he said, adding, “We think that almost every large, complex customers has either a digital solution that works for them or we help to manage inventory.”

Grainger’s combination of digital and in-person services, he said, is “leading to a strong share gain within the U.S. business.” Grainger notes on its website that it has a U.S. market share of 6%.

On the conference call, Macpherson said Grainger estimates that the U.S. MRO market, “while extremely difficult to predict in this environment,” declined “between 14% and 15% in the second quarter.”

He added: “It should be noted that, despite the pandemic, [Grainger’s] year-to-date daily sales are up 1.6%, and we have gained over 900 basis points of share.” (A basis point is one-hundredth of 1%.)

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For the second quarter ended June 30, Grainger reported:

  • Net sales in the second quarter fell by 1.9% to $2.837 billion.
  • Gross profit fell by 9.3% to $1.016 billion, resulting in a gross profit margin on 35.8%, down from 38.7%;
  • Net earnings decreased by 56.2% to $114 million.

For the six months ended June 30, Grainger reported:

  • Net sales increased year over year by 2.5% to $5.838 billion;
  • Gross profit margin fell by 3.6% to $2.137 billion, resulting in a gross profit margin of 36.6%, down from 38.9%.
  • Net earnings dropped by 41.2% to $314 million.

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