GWW - Earnings call transcript Q3 2020

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Operator

Hello and welcome to the W.W. Grainger Third Quarter 2020 Earnings Conference Call. [Operator Instructions]. It's now my pleasure to turn the call over to your host Irene Holman, VP, Investor Relations. Please go ahead.

Irene Holman

morning. Good Third Call. Grainger's XXXX Quarter to Earnings Welcome With D.G. me are CEO; Tom Chairman and CFO. Macpherson, SVP and Okray, and

materially of of As are GAAP today those any statements. at differ non-GAAP may tables reminder, detailed found be a a some filings. with forward-looking in Actual of in our financial results the Reconciliations uncertainties, measures risks measures and various our SEC comments as including result of may which end corresponding their focus QX our both other the in the earnings outlined this press website. XXXX, IR and and slide on of that exclude which for will available our in are release. This of presentation results third call our quarter are items restructuring on release, morning's adjusted

D.G. to over it turn I'll Now

Donald Macpherson

our you intent acting and do and edge team Grainger in members. keep provide and leverage for Grainger but I'm customer, further continue improved other. deepening principles, customers. of the world that we'll continue our execute our the Market continuing shared staying These we working. Good to the on challenges focused resilience behaviors urgency, to Amidst you Grainger in to well, the on and supporting challenging our with and relentlessly these includes Irene. the customers throughout with many and expect competing us of strategy remained purpose beyond. to to quarter focus responded of clarity our demonstrate so how we relationships joining with all as pandemic team have Thanks, third challenges, from strength. our pandemic weigh as I've the on this all conditions morning, edge starting to principles XXXX, And members aspiration, Grainger the the purpose, which framework, each we that today. define continued conditions thank proud with and including performed with

of overview and dive turning performance a our start Tom before brief off details. an So business it with let over the third me to update to quarter into

serve the well Grainger of our all pandemic, position. now team point. to by and the financial continue a update and we has side, Each on our business quick strong customers essential support has of operated of impacted the unique needs A remain each to through the businesses customers ensure how been effectively in members and in in first we and they On support pandemic. businesses. throughout a story on serving have managed our safety

e-commerce the been I'll trends there a and We in all and quarter, Sales strong remained them. revenue government we for have saw and in of the health pattern commercial businesses of improving address care, customers. to moment. manufacturing with

North find supply products Our world-class demand. supports high-touch secure assortment businesses platform, and endless and both American Zoro chain customer our has organization, which helped meet to integrated our

customer service. worked successfully scarce, throughout remains backlog sanitizers. pandemic. with have up orders continue level down catch Customer remain and some hand We for that our pandemic-related on laser-focused to and of work The has high of suppliers strong maintaining few categories most our a and on improving masks, team products, gloves been including feedback including to the

X% we layoffs For and overall of furlough. still our their uncertain have on well-being but of during to take we support challenges workforce not To their time. without major only steps XXXX our team members, to continue date, this managed safety currently have roughly the

and team balancing matters been a continue We've to we've financial support most. strong need invest serve our our while controlling members customers, position. diligent it where Importantly, costs maintained to in the

cash number us preservation with billion liquidity. available our strong containment, the approximately short-term of to relax exited over our Our We the $X.X cost performance X last solid actions. together quarter in enabled with a quarters, have

uncertainty. our on progress the short-term We continue strong make to growth strategic during priorities

moving our the end intend the execute We further capabilities last to as XXXX, quarter. our and of $X.X alone. result to and to By share drive that forward Marketing significant this on large product gain contributor new system enriched been information feedback we billion grainger.com, the quarters. and over search continued descriptions transform visualization content. year few experience has in including the of have Customer billion remerchandised new years. process, to improved X website product user a our the launched including merchandising accelerate significantly through product process these efforts management in a expect has of third our U.S. over our improvements past We have in $X.X to

advertising plan marketing in We in media both have improved search and invest returns. these strong given and paid effectiveness to further

relationships. Zoro Zoro, to in customers growth more We our And analytics of SKU revenue additions. and we our MonatoRO is service our X model, and Over deepen offerings the embedded customer the have products. multisite marketing endless continue million we to million with effectiveness, customer playbook or strategy or one offering to our and customers in We when successful X.X to one U.S. know initiative, assortment large pushing here to alone, U.S. KeepStock at executing are our and and generated of we from our that lastly, more deeper are longer-lasting our improvements its effectiveness. solution. within we our This SKUs added roughly XX% assortment enhancements embed making foster to relationships customers, sales with with year strides

We quarter. down X.X% the quarter. strong X% produced a up endless our the the Organic Turning in continued results MRO and underpinned whole, the was as market realized U.S. X% sales impressive we which daily in high-touch in U.S., quarterly operating performance by strong finished performance. to the third In quarter, growth to our outgrowth broader of model. in to our assortment business

as strong we to operating the gross and adjusted flow MonatoRO business Tom pandemic-related levels cash Our $XXX Overall will profitability. sales gains total trends while bit. The of improved sequentially meaningfully underlying we were of this remain model demonstrated in see to by to growth sales this of and margins. endless started some future cost business assortment to expanded flow points supported improved the growth COVID. continues continues free drive to by margin produce detail $XXX company control. also to trails in adopt third generating XX% stabilized disrupted We about At with with XX cash remain product business and the very new customers a and cash by durable as some nonpandemic customers deliver as we quarter, learnings margins excited level, basis still million from as flow a million. demand, we continue The operating business stabilizing stream activity activity. of pre-pandemic in

products on Slide this would X, our SKUs. chart at thought categorization of highlight trends pandemic to current based Looking the important I be it again with to and nonpandemic show underlying

beyond be goes Flexiglass safety an pandemic. example. to barriers the characterization Our include products product traditional during will with increases categories volume substantial

while the as sales of pandemic-related has numerous can new year-over-year. decreased since see, masks, has May, key you across customers This adjust and for to new sales As heightened reopen cleaning from of kept operating industries have demand elevated supplies, continued businesses and and demand including pandemic continued protocols. products multitude a existing come gloves products, to

I the down X% airlines, improved have now October on been performance, will most Predicting pre-pandemic way. performance. since industries turn recovery or reverse, nonpandemic side, across improvement to nonpandemic comes it has sales and quarter's the the on virus hotels next for quarters This trends cruise any talk the lines. some obvious the forecast over whether X% we we their Tom? year-over-year. in with The to to through around segment sales finish and bottoming environment levels. remaining challenging. results that, include industries is in seen impact few over Based in a month-to-date the but improvements furthest the feel compete on well These will With level pandemic sales recent have about to positioned U.S. continued very us below big in up detail. path continue, On of of nonpandemic the the off April, that our out Tom with

Thomas Okray

share quarter. X.X% basis. strong for mix increase can U.S. which daily headwinds, divestitures Fabory a in assortment results Starting in but were impact currency represented we the on segment but the gains Margin business, total on continues the which growth prior These softness up XXX to a in second Thanks, our significant meaningfully in driven we the our you margin was This pressure for Slide experienced of over D.G. was -- China, where in the and assortment versus in offset sales, company below from XX% impressive and improvement business X, still pre-pandemic Canada levels. continued XXX endless we higher down unit U.S. unit quarter as decline. quarter. was basis by businesses, our in primarily well up continued remain our delivered Cromwell our constant Organic as driven by see basis year-over-year adjust primarily segment pandemic-related gains the quarter, saw point as in more year endless business. growth Gross points sales pandemic-related well be than sequentially

in SG&A in leverage and performance million with cost -- points actions improvement our drive margins the result endless third XX a margins in down stems from $XXX SG&A range were including gains point This basis solutions than across at assortment cost quarter. better came our result total leverage result tremendous cost a quarter, period. environment. divestiture of model, a our GP SG&A the company Our million was Fabory operating more for Incremental basis up $XXX than lower costs prudent in of the XX% quarter, overcame this in business. year-over-year, to XXX we $XX captured million. and million This $XXX the headwinds our communicated to as of SG&A reduction in high-touch

capital As generated of given the magnitude uncertain significantly of calculation to used vary the net continue invested quarter-to-quarter. Operating inventory and of flow and adjusted to cash was over on flow and to in capital margin $XXX mentioned which decremental shareholders. diminished of utility build swings from metric in customers incremental our operating appropriate last the XXX% the environment to XX%. cash year-to-date top this return earnings, is is return million, we invest the We support adjusted line can business, quarter, as

are announcing of trends underlying in dividend repaid payment the in business results Given with today program to our fourth couple our the repurchase stabilizing restart increased and combined facility, quarter. we activity, our last credit our intent revolving our share quarters, of fully solid

and actions. to with on will repurchases to we the several forward million move conditions months putting us that over accordingly. monitor market we last give in The confidence anticipate time hundred QX, While right these work the several optimize trends the amount dollars this is favorable

U.S. net volume, by product our primarily Daily quarter, driven is to the X.X% mix. which in unfavorable segment. Turning sales increased of

quarter, gross see to seen the that a the midsized customers, from in From in March. growing The improvement XXXX. inflation. as was customer and uptick the in headwinds -- side, sales saw Pandemic-related really the have pandemic lows. were but saw unfavorable point with as significant second to of basis a XXXX, the XXXX. year-over-year show customer large product product product gross the improved were but products remained X% but the unfavorable signs both to elevated, was the XX% down Gross X growth in and peak quarter, On sales from of the pandemic-related quarter, new buying. the points April elevated cost Nonpandemic product. quarter from of we points We've of we in sequentially basis XX.X% of margin improved basis second with we quarter, improvement by we compared quarter customer X% perspective, also repeat XXX the and headwinds meaningful in off from mainly acquisitions decline shown variance tariff-fueled saw of decline similar in an XXX of mix in to driven decline pandemic-related encouraging about products due some X% by earlier, margins year-over-year contributed up the to continue factors continued XXX tapered with lower-margin latter margin around down QX third

in lower shipping approximately favorable freight We to now, lapping face perspective, nonrecurring to quarter pressure we of both points was what headwinds went million with XX not primarily cost approximately year-over-year. dynamics by margin be SG&A continue quarter. cost freight these headwinds $XX we of will gained travel anticipate points efficiencies. year-over-year XXXX. we XX.X% into at Offsetting tariff fourth Operating in remained tailwind of year-over-year fully quarter Beyond into we From gross basis basis performance costs move leverage Slide impact, quarter decreased XX. a Drilling Based It partially costs capital expect year basis should factors two by these sales expect by labor-related XXXX. in on we will that we an the the leverage driven as noted subside and into the expenses, fourth operating was XX%. offset the on prior in related driven continue effect into was reduction margin XXX margin which headwinds. that flat of XX Return pandemic the quarter. driven tariffs general as drove the due to and to margin decreasing to a U.S. on that This gross continue timing. the the efficiencies healthy invested do know very our SG&A was decline. inflation, The points these

of was X% by basis of declined to in X outgrowth, selling XXXX. nonpandemic to months Despite the up sales, of Grainger year-to-date, pandemic-related sales and over estimate quarter, improving the the X% and between sales roughly XXX basis capture and we market the outgained market XXX have third fueled new customers U.S. by the U.S. able of While MRO points X.X% are product. daily first challenges segment MRO broader through points we XXXX,

sales Moving the XX%, Zoro leverage, marketing the at helping results better Organic our both improvements strategies increased endless The continues to and or Zoro discounting approximately playbook drive to cost fueled all and during to at strong currency daily MonatoRO to improved execute Other basis. MonatoRO by on business effectiveness, performance. assortment XX.X% a grew with quarter. constant Businesses. XX.X%

declines. approximately second produced XXX remaining saw divestiture favorability XX significant businesses, in to The to impacted due the margins and be Other points profitability average which profit the basis by SG&A within a for we international or was year-over-year including Slide to compared price business, Operating decline continues Turning continue year. below with of its Although points, X.X% to most operating our incremental to XX. customer notably only in mix shutdowns MonatoRO which are X% system by pandemic-related partially leverage our basis improvement costs the across currency. comprised at roughly daily The constant Canada, in offset headwinds which both Mexico portfolio, assortment In freight Fabory was high-touch base. endless from This sales is headwinds, quarter, decreased the decline of driven do job sequential prior levering leverage China X.X% and of Cromwell our businesses cost X%. Businesses nice by and volume significant up margin is seeing gross

While volumes Canada higher-education slowdown, did manufacturing customers. with gaining the the be traction economic and to improve sequentially and hospitals, is in business continued by pandemic-driven impacted

at freight business pandemic-related mix are customer our As the margin points leverage driven progress the Canadian business by profit and are declined of year-over-year, SG&A Grainger margins Canada continues lower U.S. despite by basis in resources, XXX strong management and year-over-year, the partially points remains our $X with line to of we offset resulting challenges. basis basis making costs diversification efforts of pleased Cost points in XX integrate operating with with XX savings million forward. this Gross prior leverage. trajectory going up were versus year Total which top headwinds, the were quarter.

over is October endless in about U.S. anticipate cost year-over-year thinking Before basis. a during tailwind want month coupled the through pass third global couple constant at I the gross Further, it be currency providers D.G., in the we month-to-date our reflective inflation I you persist similar end margin pandemic-related growth in year-over-year as season. strong a growth on freight freight cost This solid we holiday assortment. October of The From total of perspective, with performance to for impacts shipping level in an fourth quarter. quarter. company sense to the quarter segment, busy perspective, previously as pressure mentioned, estimate as how sales estimate we our give will fall anticipate sales support the the the up continued continue gross X% headwinds of organic things back fourth margin quarters, already to a the headwinds surcharges to we're From fourth off. I into will last tariff-fueled the realized trends stretched onetime will turn quarter in and

support we fourth Given a million the $XXX million we growth the couple incremental these of seeing, factors technology over and SG&A anticipate down U.S. SG&A, based our on in some quarter. currently MonatoRO, to gross between $XXX are will to at to year-over-year. what With increases areas, expect will for see investments primarily to which to margins push be in estimated sequential respect basis points to XXX and we related

remain long-term and and when some always, to it to managing on focused growth, technology sense. in With while turn particularly As final makes that, back continuing we processes invest near-term I'll for people, thoughts. where in headwinds it D.G.

Donald Macpherson

Thanks, Tom.

for of and commitment quarter, to So the our their to for thank want I'm members service. proud team and customer our safety I results

open share, relationships, gained and marketing to remain our moving We committed while improved customer financial forward. flexibility have assortment and deepened to our improving Zoro merchandising significant at have margins our purpose can the with our purpose support We fulfilling as capabilities, expanded business throughout achieve the to for our of come. for as years questions. so working we this well continuing to up world pandemic this strategy, the that, keeping execute we line will And

Operator

Instructions]. [Operator

coming Our from first from Chris Oppenheimer. question is Glynn today

Christopher Glynn

customer going are I was strong regular you dynamics going the mentioned conversions trend curious, and well. to customer some still acquisition

it and outperformance early further view share could you dive if wondering of Just 'XX? topic that for informs into how

Donald Macpherson

Great. Chris. Thanks,

and bunch whole elevated of customer than as this starting so is to higher news the we rates So and had but new you through those given customers might as good purchasing a we've The the had acquisitions who customers past. guess, is regular -- had have frankly, repeat get Grainger period. much those much a MonatoRO, are be to sample similar yes, number the Zoro have past, funnel, we're have positions, we've that bigger The in to we and customers. repeated, inventory

this basis in So to acquisition through in business for we've very and our outgrowth seen for nice, helps customer think XX% future. we that higher confident number assortment, have and really now. but range expect This endless feel be and higher, the obviously the to the those in been would period, we've attractive reason U.S. XXX be in really well the XXX forward. change expectations for that U.S. range and in shoot to right moving than We We we bode no growth point that year, that the

Christopher Glynn

And Okay. then follow-up. for

using very the sales a think approximate still germaphobic? are anticipate -- would I rates proxy might sustainable as long in XQ run that is pandemic workplaces October way too you flux? that as Or as the

Donald Macpherson

is a elevated that's think and right seeing What I sales. anybody the interesting I pandemic think answer. now very question, has don't we're

And transmission. past. to when our and for to that after We think to similar is now, continue continue that we in seeing expect that case some treatments period vaccine to seen that we rate minds, have probably recently, expect to certainly, are in would the we've happens and which of of trends would the continue. But rates of conscious We safety question answer. better we some probably moderate, people through expect fall, all be to cleanliness fall. given a but more well. seen the we've rise, in would what as that we're and the impossible do for expect What going We as is to a that it's

Operator

Chris from from question today Dankert Our is Longbow Research. next coming

Christopher Dankert

in we'd pace helpful, investment of past, we really be investment I I Business on on I year, It what's mid-single-digit $XX get this status EBIT had in largely plus Are thoughts Other still I the mean the would off think. of guess, mentioned 'XX? off, rolls in to you to guess. 'XX. margin the first in investment in million there Zoro? Just

Donald Macpherson

Sure.

the -- 'XX those of heavy half of several a period had investments Zoro. technology. very we forms. One Many investment took back in and with those was 'XX So

of be able product in people talent destiny adds the their the to getting own was and to have in Another like. terms

in made see think operating start improved we're several we as positivity perspective next we've but investments. the to January, behind we've we investments to getting those operating Those is about We Zoro in starting business so still to single-digit margins for believe us. continue, Zoro. margin now. the And themselves we reason the discussed. This We in We'll are margin those year, no and from have long-term seen talk a be -- next won't leverage see path that years. is going a to think year that those high

the that's so that path And for business.

Christopher Dankert

just the helps mean, it. parts were then I I that that guidance in And what Got on Got it. compared the quarter even cut missed to My again, third the in coming apologies SG&A was, what below of kind about it, SG&A, what you thinking number range. key if moving but lower here?

Thomas Okray

Yes. Thanks.

Donald Macpherson

Tom, that? do take you to want

Thomas Okray

Yes, Thanks, sure. Chris.

to pandemic cost team of going First our really the that conscious, this with down I But this just about is but $XX the dated And was win across then upped takes from of I control. in to by bit services, a we've Everything forward million. real and the and think supply, great entertainment, efficiency divestiture, a we've things really one where had been was cleaning of travel way. continue and with in good game. we're terms just million that of operating always And there $XX good cost the just real focus efficiency board. going professional security, the we all, Fabory the it's little think mode

just across while to technology, for cost spend the really important and are good continuing us. control So board which in advertising to summarize,

Christopher Dankert

a it's certainly. broad-based Got it. hear savings, to that Glad it

congrats the quarter. So on again

Operator

question is Research. next coming Adam from Uhlman from today Cleveland Our

Adam Uhlman

SG&A the third pretty out for interesting. quarter fourth dynamics quarter and are with pointed freight the the I question, Sticking you the guess that

ballpark base you a it's and be Or As transition into meaningful help And customers well. other to not some us that? just just headwind that rate about a maybe for discuss could to how perhaps charge but believe kind I headwind, pay, levers most could maybe could wondering you how us freight. rate pull the of don't remind increases, customers XXXX? surcharge I'm that of offset for you if have you as

Donald Macpherson

would customers large largest They often some contract Most that referring question. customers for pay really it's to don't will customers for large of -- The pay say we packages I a or surcharge shipments. that the and and LTL parcel. Tom that. So our often peak during great around for was season, charge is

We We that expect expect next year. what into of recoup have happens to doesn't some don't that. to recoup much all And of that. do with to

end So happened necessarily we'll we we'll seen I this that. we'll the of say, people's and that houses, about given talk obviously, forward, number going strained, the pressure. though actions And not forward, think translate to talk and going has certainly, the got surcharges at next we've to the but shipments we've after about does year. that mean become year, quarter. business, would so That of fall some the mitigate in the initiatives talk and that that about help moving freight

Adam Uhlman

deteriorates if Okay. then Great. further? working the might on in good that all the of inventory building starts concerned market assumptions pandemic And company about absorbing the pricing some capital any term? your And taking and secondly, good be I secondly, luck if up at to you roll one, if off have you was are pandemic been and And we losses could has inventory to medium and inventory. then hear. That's here you talk curious,

Donald Macpherson

Yes.

Tom, those. miss you if add me let anything. can I And to take you So them think

continue the terms we've X so where in to there's the of we'll inventory, year. So areas do and part built through of inventory, really latter

XXXX. of Louisville is is The one starting full we the up DC in are sort which first normal,

obviously building. as part That's of that And stocked you've fully we what becomes seen. now, partially and so stocked as more through, but that a that's comes go stock on, we

of We the embeds have some we is pandemic that for part with write-downs. about whole excess we question on our of product. -- of obsolescence positions sure terms the of make terms height already in serve with what other to you obviously, us part your in see at say pandemic. I risk of would bunch customers, GP pandemic-related a could took product, The in to do products pre-buys

of And some those, changed. price/cost the has

position. seeing and been Some we already In seen a is of good those, very very know which us the take we're haven't well. messiness think has product, that really, build, know of in rates you're been of We be seeing lot seen product it's GP in serve is bad. but really that that But customers, really in movement, some to in gone ahead important, in we've We that. winter the will really, product of any that to know and case to that out has those, Most suppliers, we inventory sell the risk. clear, pre-buys we we movement. that low of has on case, think trying you're the fall get that

in most risk the that certainly, in of seen speculative normal. And already of terms higher the than and things we some of buys some not heart the pandemic, in is of GP. you've that of through so But took come

Thomas Okray

bit just add And and more inventory a cash. on Yes. color to little

by days. last overall that cycle which few an invest a is in very efficient and down healthy of And that on very year-over-year conversion cash the our cycle, been we've you've seen cash, quarter. to of management that specifically, favorable things the conversion allowed DSO DPO us our days, our this is a and more cash our of actually is One year in is couple than inventory. actually More keep has versus

the an our business way play essential to. we need support the role So and we can as customers

pandemic billion. $XXX the of Inventory that. invested million. working said, did And we inventory We've $XXX as right. mean, capital. you're I all is at approximately you're So of to going up up not on in put since quarter X% the X,XXX the of year, It's million. And bat spend beginning in D.G. $X.XX

way the through but the I normal is we're go And aggressive financially. I very would guess describe it we So process. E&O operationally, very conservative

the to right thing doing So reserve.

the thanks for question. So

Operator

is Our next from UBS. coming from Chris question Snyder today

Christopher Snyder

target investment single-digit expect a as assortment follow-up to incremental this But wanted with just business back-office there top there's high to the like endless could of continues understand of line out margins. kind what I for I margins longer-term we ramp? slowing, on for Zoro. kind the

Thomas Okray

incremental good Yes. really We business. supply so the don't synergies It's the chain broader the with question. the on margins is at assortment in specifically business intertwined look a just endless because

the as overall So look incremental entity. we at margin the business the for really

Donald Macpherson

if Tom, marketing at XX% with talking MonatoRO, I variable would add. XX%, you which mean, cost. just GP just you're about I typically, minus to mean, margins is I the incremental a look

like Zoro. see And what so I something think. in But to MonatoRO, at to time over get that's I we that would expect typically us

Christopher Snyder

Appreciate up that. And on just MonatoRO. then following

the Tokyo like is view I Can in strategically last like Grainger? business So checked. about XXX% you just of talk how kind year-to-date at you stock that

Donald Macpherson

both business So and high-touch what assortment to do. the Suzuki, we model we endless leader absolutely Masaya core of who's now, leads the that as view solutions the also Zoro.

analytics best X working business we're and to ensure and across that our progress sharing businesses well. are practices as actually together those making and We the Zoro U.K. in

the right business a future. team of building And we're to as we terms of whole the in Zoro MonatoRO getting it what do for leverage core from in So now. and view lot we absolutely that learnings

tightly are at we running together point. So very, those this very

Operator

RBC is from Capital today Dray question next coming Our Deane Markets. from

Deane Dray

pandemic core margin the down there I would color out what gross of the on on sales? what any sense We're we color a to versus you -- bps. be. can additional the parse sales gross get just guidance trajectory for quarter fourth non way Is trying be hoping was might pandemic the margin get some the XXX

Thomas Okray

Yes.

and points the it, pandemic think XX and cost look said had for XX. quarter, is the is onetime the we way we guy, point of unfavorable to I freight the XXX other bad basis impact is basis Deane, at this

the XXX. from to you if remove So you XXX get the and the XX, XX

that throw the likely as might think we to Now XXX. above will Obviously, very at surcharges, in your gets get we XX% XXX-ish. the you end it's And improvement volatile. as around of the the headwinds then and think you pandemic your improve. freight you gets year, Say that discussed, D.G. experience we a inflation as on the that well that with cost pandemic, you roughly

Deane Dray

some additional get the to hoping color was October I on then And helpful. sales. real That's

anything mix, Just helpful the anything be help think be a to else would that sizes, extent big about regarding customer geographic, would that here. you that you the can,

Donald Macpherson

August, if seen sales looked Deane, months. little off very, very of difference those July, be you'd nonpandemic. September, revenue across of you a those the trend But much, October, been to pandemic We've see across all in and a months. has much little pretty hard tail think, performance at pressed in similar a I improvement

continuing trends October we -- saw at to in second the the performance the to quarter just be and this quarter appears seen point. So be in third the in we've appears really

Deane Dray

spot Got And business observation. heard adds in an brand lastly, frequently I've certainly Grainger on building. it. pretty just the radio the

guess I pretty So effective.

Operator

Research. from Our Nigel is Coe Wolfe next coming today question from

Nigel Coe

want XQ to on up guidance. that pick I margin gross

to So quarter from last XX% be roughly which gets would down XXX this it about quarter. basis points XX%, from up

XQ. gross holds percentage margin sequential So we're what I make kind for wanted still to normal in just that, of be sure from pickup fairly that looking math that would a

Donald Macpherson

that take to want you one? do Tom,

Thomas Okray

to be is I think should comparison our it's similar And to gross look year, bump XXX. the absolute going another at just margin prior when it then QX. to to way it you at over very look

I the way that's at So it. other would look

Nigel Coe

that's type quarter. in we're the impressive X low-touch, ones, we you e-commerce the maybe mean a model. of I'm some a we supply more seeing fair. distribution there lot seeing I a ship especially growth of your wondering competitors, No, sales larger midsize very And just anything towards small -- and high-touch last the curious, perhaps And nice switch a pretty in market? employ I'm customer and if direct see from consolidation? And X and competitors obviously, saw Okay. swing what are was then

Donald Macpherson

would digital Well, sales say more through we've seen the pandemic. certainly yes, I

been that customer seen actions. industry say from actions digital would almost growth every inside that no ours in and different. has we've think I we also in midsize What but seeing improvements are sales I is from

but that points. more is we're nice across of growth of both a So touch, those seeing contact

are digital, more yes, digital. through it's would all actions touch. as also seeing to growth characterize not some but nice We're more of some so other our I And high that say fair

Operator

coming question Stanley. from Pokrzywinski is Our next today Josh from Morgan

Joshua Pokrzywinski

just endless for negative, and broadly, But look Just one in for? ongoing matter, is want not you we like mind. I some mix. MonatoRO, if on up And of I pandemic of be stuff a like that have model? more guess, leverage but of Tom, that with talk Obviously, mix the there. clearly just don't good to pandemic, Zoro But ground the covered sure benefit, can a anything inside assortment, may than does -- buying thing or different normally middle that products. was couple about positive lot safety are people tuned wondering on, happening or some of already, that I if questions. happening is

Thomas Okray

Yes.

please only seeing of we're the out think the in and that add, other than D.G., ordinary. thing customers that, But I pandemic. would BXB more say, then, I the than nothing BXC is customers probably

Donald Macpherson

Yes.

of one been sometimes, in people consumer of the from that's to pandemic And with things that home things buying may blur. bit of people and to the delivering it's I've be so I home. business sometimes for the many listened terms businesses, bunch calls. a results contact the would to working a center home, a has there's muddled their lot So fascinating but that little say tends at of also

business seen think Grainger. what strong those consumer remarket more we've And than been Zoro to that had And acquisition is very so bit as of attractiveness do as in every the And very past. don't strong. We has acquisition consumers, know or whether we the customers we've solid, customer has normal. in we been the

us. sort the of we're of to key business that business, [indiscernible] -- for consumer besides with the happy has through very sort and been sift been that's So having strong, business,

Joshua Pokrzywinski

sounds you marketing, Got on going be And this of here that a is like maybe effect lead. based customer so That's to it then close can helpful. Deane the future it.

Donald Macpherson

He's not that. can assure segment, you target the I

Joshua Pokrzywinski

the about something that in the question. that that Understood. of at know uncommon margin? is I And little inventory historically, impacting a down into on just be that you that seasonally in thinking that on quarter build about may usually, Just the playing And inventory gross or then kind fourth liquidation the that there. that someone on at inventory all? build dynamic fourth you're all quarter the earlier earlier? dragging the planning asked sequentially. happened -- Is Anything

Thomas Okray

bit. a playing little it into It's

want on inventory right we been for an operationally thing As previous hand, to we've available question, from said conservative the other been the to we've our financially. aggressively do, it's the product and we the customers. have perspective very because But on

margin exactly is some thread the headwind, the buys that So that the part up gross you've seen in cleaning an E&O didn't needle. of of deterioration QX

when of We'll most have in bit that that's behind then QX in be us XXXX, a And QX. see tried we've do So to to going that little we believe well. then as some going we'll into to product And we'll a of be available reserves reserved unwind as serve we that tailwind customer. products right if we have our for have potentially will the the anything, those sale.

Operator

John Our from question from coming today is Gordon next Inch Haskett.

John Inch

sales costs would have And what Assuming this guys prospectively control. back this flip of normalized of that an Kind of more the as in of PPE right, I to about into other far. roll could for kind -- thinking are next have strong the come had represent? you of mean, to to going think kind a sort to year you volume from market saturated PPE happen you naturally lower, trend been what you discussion thus heard of a kind has are trajectory products? headwind OpEx to absolute don't I which I've assume, as we continued as sales very XXXX, kind

Donald Macpherson

April. think a is since Well, really saw call sort in I we've I we And almost XXX% project -- puts product, volumes just difficult it's sort down John. that X to seen come say what the April, to seen -- that. than of of up PPE there's normal pandemic pandemic of PPE question, consistently takes hard we And since it's trend. those would we What lot we've that saw April, that in more what time. We together that lots includes PPE. XX% and in there's

a also to really results, what business on And matter, but PPE need any many, few to your and haven't to better a think it how and And comes something that's probably GP, been the we and there we little really you if focus about product, think doesn't that manage do definitely matters. in down SG&A, we've things focus, focused get frankly. one environment. a which helps good control it have I any We forward is helps nonpandemic impact pandemic, bit really is things SG&A forces we the can on So think been on helps take that we I SG&A. continue drive of

answer forward. we all give just to the a like So this as never on PPE before. to ball going timing going I we're to because anything going seen be do think you that what's crystal of and and behavior, the it people's can't with to able virus we've happen depends

John Inch

Because on D.G., some and thinking are Right. this quantifiable furloughed, Or of I'm it to merit bit maybe of bleed that X% basis? you Tom, have at and that. people travel SG&A point? the But of kind sense, do you early to have how too about are do SG&A little back any it? presumably you tell going sorry, headwinds Is have of -- the a to increases like you're a stuff facing what what sort

Donald Macpherson

about certainly had about talk mean as we'll looking. -- No. this merit forward that year. at talk we we took increases We I year-end

business. with can come back sales down. elevated. what GP virus. that's been yes, the -- point, given So X has SG&A so will that into not the we're be, has some me been headline I be have back. we nice pandemic for depressed the think we think, that growth. seeing we've been has But would seen given Travel next clearly, costs modest, come At will for the months,

we you get into I the think, back bit later. as business. and can that GP moderates, talk about of over cost a just better there little added dynamic And time, that a there's

John Inch

I understand.

Thomas Okray

to as upside reinforce we're is, positioned to And be well. I Yes. to the we're well businesses product economy and come lot we'll the a and D.G. to always I'm the ride mentioned wave D.G. sorry, And that going would margin would up, said, control, pandemic going the SG&A I it's I front, broader going also, we're only as be that efficiency that up those that's imagine, pop opens is The think that to see PP&E have I on as there's goes that. going down. obviously thing handle gross speculation, sales opening from of into as well. which going see the to as about to be

So I sort any tailwind as headwind. it than more a see of a

John Inch

what pretty can D.G., answer just business. point intertwined and its indicated you and MonatoRO, is so implicit important stands in lastly, Zoro forth. to think on Zoro At own like on MonatoRO still the stock to monetizing of Zoro that MonatoRO, your take let's you might It's do say, to that position need to half done fantastic, down be we to you position has X%? our XX%, don't or the in XX%, own something a strategically where hey, even

Donald Macpherson

need a I'd Well, would more it's to to probably like One given we're you to to timing, things we projecting of that. get what get it. X probably couple years, where say is Zoro

a long connected the to a be tissue got for it's So strong really really performer time.

shooting that's that what for. things. point, of John. At that, of so we're kinds we obviously, And could There's all implications tax do

all need that that through we to at point. think so And

years, we X us. as Zoro MonatoRO to well. of about really We're we think we're it need the thinking get path, focus performing that's excited right For business now, the and for the next for

Operator

Baird. Our next from Manthey question is David from coming

David Manthey

back you quarter and was you you said when about a statement? were that and fourth I'm But talking above confused, margin go to have Or XXXX? I'll your walking gross XXX, were review Tom, commentary. into

Thomas Okray

just The math. it at quarter, is Dave. Fourth way I'm looking simple

guy If of bad you look with QX, a XXX bps at gross XX margin onetime on freight.

up, just take to you that if bps XX you the XXX. gets So

we we going surcharges talked better in assume or bit the Now us framework QX. But to about XXX, bring get that to XXX which back during so the for remarks down will is above that is to season, then little inflation, that the freight going the get below. holiday as is a prepared see back pandemic we cost the

mean, framework for said having just guys fluid. It's it's some I very model. But we're you to to give predict. trying your that, Now hard

David Manthey

very That's Yes. helpful. Okay.

don't thinking picture we're so margin question. low these know, hard XX just obviously up is lined we're days. extremely in I model And Gross if moving like, the which where And I'll big XXXX, XXs. to ask -- from looks parts

thinking were moving big we just XXXX that move could up go are main what to XXXX you from parts the down? If as or picture, that

Thomas Okray

to more forward. We'll about lot have that going say a Yes.

of to longer One just Because though, customers mix you how be obviously, of about. pandemic-related depressed the the last? things think be we're couple think, more would the give and type the a I pandemic the long going lasts, with is selling pandemic to going to we're to. to

of So spikes pandemic fully that's lapped the tailwind as see number one. natural inflation related less will product. in cost see we tariff-related terms in Number we have probably should two, well we'll terms the cost to a of inflation as

So But those are to later. of talk that again, have We'll to it's for detail. the be X XXXX. premature time plenty for big ones tailwinds about, in them of should think and both

David Manthey

And making color. of That's then second, that up on revenues. about solutions great these talk Got XX% you KeepStock it. and embedded

via you embedded what put that today? context, the those percentage in could that that mechanisms recognizing represent? via of would solutions are several obviously that you directly percentage buy of talk customers customers sales And about what to from Just provide, then --

Donald Macpherson

Well, try me to so let that. take

sort customers and of have embedded inventory complex will of EDI solutions. KeepStock both well. a Pro they'll largest most connected management digital So our have solution And typically, solution as

the revenue, XX% that. don't Don't something that I of over EDI KeepStock have like front the me it, quote believe. in up Pro of something right and so make numbers like in And would our on me, I that. it's direct

inventory obviously, And own customers, those be to they can of have customers own pricing, have buying our fewer But embedded because their pseudo they grainger.com. call typically, can grainger.com. wouldn't on their may more have number they solutions. They're it that I -- way, own the midsized although of their by on they have terms management. In of embedded, have workflow

will but a from those that the an there, in fewer will number complex general. customers be much embedded count, of so customer largest in all customers have the solution in XX% than And

Operator

from today McGinn next is Wells coming Michael Our from question Fargo.

Michael McGinn

talk or any -- frequently substitute low-touch products impactful recommendations, the If the and I forward? could for per tangible just count Can going will of packaged or what visit SKU sell-through move what's SKU site far most been that's you to what improvement be segment. rate the about and other and so

Donald Macpherson

Zoro about assortment talking you Are business? business, endless the the

Michael McGinn

assortment. Yes. Yes, the endless

Donald Macpherson

Yes. Yes.

things impactful. So SKU I'd there's count. that mean, I have been say is One really three

and those So past. made we -- adds now SKUs. X productive months add, look like look we've over hit at we've we've and the looks X as productivity We're in the maybe last of last made X, more the are years even added million of The it we points. X kind that now we've productive SKU the in as than every the

well for growth. So that bodes pretty future

the piece growth. So important that's the of probably most

is analytics other customer The one marketing. and

then So analytics to third, getting second, we're all fourth getting the is there customers, with The repeat of that kinds big, traction acquisition. but is order and key. doing customers customer And get marketing there. to and things really funnel real pretty to get starting

far away and of track, those important both the progress are endless most business we're So seeing with on two those. assortment we and things the that

Michael McGinn

what's And how the site trend and does it correlate kind per to visit of there? sales been

Donald Macpherson

Sales visit. site per

website on and revenue coming per visit? mean to what's site You customers the the

Michael McGinn

assortment that guess And I with model? you the this what's improvement been metrics benchmarking of within Yes. level to and industry this what are investment?

Donald Macpherson

looking thing sufficient. on would things interesting, customer not is The look most spend, important that is So at at ad businesses we other at at. value. look return but The

customer the lifetime customer acquisition value. And so at looking and

link all And each rates, that a rates, so customer to customer new repeat value at NPV and understand the ad. we to look of acquisition model customer we

that's time. we the track so all what And

Michael McGinn

there On you of branches CapEx that out year. this right. well All more you question, second looks my -- trending years it. transition to pretty in less mean, level it I targeting normalized like the a Is you're there from assortment? Got Is as be endless CapEx. would

there's this or into there's year Just if a beyond? underspent if catch-up you wondering -- year next and

Thomas Okray

don't... I Yes.

Donald Macpherson

Tom. ahead, Go

Thomas Okray

things. some think Yes. similar we're even $XX you to any that in bit hit, big be spend to don't first was the if if there's levels. you catch-up. the roughly we've a I -- spent going we to which look back I last mean, million at, year. belts When generation, tightened But had confidence little deferred the pandemic normal in the given and cash our we quarter,

So be in that future anything see ordinary. I any years out wave big coming would of the don't

Operator

from next Jefferies. question Hamzah Mazari coming from Our today is

Hamzah Mazari

other business out is to just today? the profitable? are revenue, sort resegment take money over have segment, in those business, now they Or the assortment My to you was the question losing XX% businesses the endless you that? at if then look endless that? right of where of that are other assortment is way And Or not

Donald Macpherson

to need that So evaluating we'll or end talk are the our the with second -- any and think we next on on at that about of position your about year. year question, segmentation, and the

So make we we sure work that, evaluating we requirements. are to with and our understand auditors

that's So come. still to

in types out you other different of lot are when there's not So that businesses there's them. take a but assortment, endless of

customer in year last. pretty that's of There's they're there's unprofitable So good Cromwell, less there's Puerto Cromwell a terms and Mexico, experience, is that's but Rico, And now, money profitable. profitable. this service than losing year having and

be So and X not of working in and believe are slightly would profitable those on unprofitable, but is total, I one. them that X

Operator

Justin Bergner next from coming Research. is from Our question G.

Justin Bergner

customer closed catching unable how then a quarter up going pandemic-related or businesses being that to to in sort of and growth in Quick clarification of the second product negative those of then question. open-ended third get sort to The more medium-sized X%, from X% quarter? question, the related much being

Donald Macpherson

businesses closed. One may going some and more two is on. there those things been are of So impacted were have

have May, in the to the product happened I and that was particular, the issue supply needed way pandemic didn't able for we customers base. became in pandemic products in think and funnel given pandemic April, the more bigger products customers. we we summer, heat of product the available the open And to, relaxed to product were to that up we those constraint in customer available that as for that

growth we've able so being growth strong issue product seen I for release since as customers, the that's is seen that happened. to the probably And midsized nice and very result. bigger we've just think And

Justin Bergner

open-ended question. then And Great. the

grouping showed talk Maybe unusual nice anything XXXX? levers government and a in recurring is just the of Looking look customer the could going of Grainger view, it acceleration outgrowth trend sort or as in you into maybe materializing to that at sort the and from anew point about just of that retail may you general be end of channels. year potentially of sustain towards and context that the this

Donald Macpherson

Yes.

needs retail think distribution retail I to business. needs. centers customer. of do that and to important sort of sort obviously don't what more lot is centers mostly go a distribution that We're it's understand of is. safety walk-in the other more direct have Retail We

that an as growing So as has obviously industry the has been pandemic happened.

And supporting been we've there customers so our that. through

So as was continue that that other we -- the I'm was sorry, we believe a move forward. the segment what is will trend mentioned? What you other

Justin Bergner

would sort sales of being surprising Government in accelerating, decelerating. pandemic light which be of

Donald Macpherson

time. been been to strong, during yes, a as find this to their Well, government and has lot the that sales support product governments have pandemic communities try of

for been lot And as to tried so very federal. as of that's of busy But okay state fight have and each been has government possible. we've there them as pandemic, as trying governments well to much the state has very, help been a certainly, Military business.

Operator

Patrick from JPMorgan. coming Baumann from is today question next Our

Patrick Baumann

there's quantify to wanted [Technical and said have just I way on share terms of that there's a But a to you of good from basis if quick pretty XXX of points. pandemic I check issues ones just year. the to into sales gains expect that major in be a see headwind sounds if any you still next here. you couple the like next wondering Difficulty] front year. could XXX It pandemic to amount to for revenue just

Donald Macpherson

about case going to we're counts, like said elevated the winter, seeing with pandemic with we we definitely in That talk and sales results, before. the and now, fall what I would into our head to winter. think January I we're expectation. Right Well, be into be given the as through expect that our

that up much profit that and as think mean a pandemic go we what nonpandemic sales if gross really understand and reevaluate overall probably puts when rates. takes And we our that go forward isn't will happens down, are. will We problem. again, helps as But to profitability sales because would of the pandemic go the

we really don't So know.

be impossible that's a At to headwind, some think with I will what's expectation. products. headwind, tell won't things then other to going be a it's it pandemic but our point, happen and

Patrick Baumann

any want I year-to-date, that then Zoro. Yes. or you get Are are on revenue in owned differences the the Makes margin see more mix And third-party check ship since inventory. of if or report direction, there in the added last quick big sense. real you're how when one versus and related? to the type you skewing Grainger you just that SKUs is margin all And third-party

Donald Macpherson

Yes.

adds Grainger of are are third party, lot new a the supply the chain. So product some through

capabilities. to Third-party we're high-quality time, most be gross working that of the But good lower lower -- margin companies tend have with and items margin. SG&A fulfillment slightly very

one actually so sorts that's important add of we our And assortment. to develop as partners our that

a going be part continue difference to for to big So what third-party doing. and We're a to is us it's of really shippers, factor going forward. no going in that's how it, we bigger add report it but we're

Thomas Okray

would Yes. I doing or The add, accounting whether minor agent when but not that's the is party, thing an you're only third a is nuance. you're difference Patrick,

for the thanks So question.

Operator

question-and-answer reached floor like end I'd to for the to turn session. We've comments. back or further of the our over management closing any

Donald Macpherson

right. All

So this is D.G.

a Really the prospects. So evolve. ton Obviously, good more market it. there's probably not. results us, good We thanks, but for to our everyone, anybody, of we'd be really pandemic know the it's how like appreciate in uncertainty terms of the going to feel is for quarter. than about We forward we us. behind joining our And about feel in

going make sure during for that we like position succeed performance the first both we the through for we're to make long we of feel and to we That's we're sure term. going to most And and both going important and members, do do. to And of care sure support the our to good but we're things the business our thing customers take beyond. we're really are taking the prudent, we're pandemic this. make in to team continue so and right actions current going And

all for hope you today, safe. thanks us joining stay and So

Operator

you. Thank That today's conclude does teleconference.

You time, wonderful participation may thank this We today. you have at and your disconnect your lines a day. for

W.W. Grainger (GWW) 22 Oct 202020 Q3 Earnings call transcript