Good morning. Welcome to Grainger's first-quarter 2026 earnings call.

With me are DG Macpherson, Chairman and CEO, and Dee Merriwether, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements that are subject to various risks and uncertainties.

Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8-K and other periodic reports filed with the SEC. This morning's call includes non-GAAP financial measures, which reflect certain adjustments in previous periods as noted in the presentation.

There were no adjusting items in the first-quarter 2026 period. We have also included organic revenue adjustments in the presentation, which normalize sales growth to reflect our exit from the UK market, including the Cromwell divestiture and the closure of Zoro UK, both of which were completed in the fourth quarter of 2025.

Definitions and full reconciliations of our non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO.

Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from US GAAP, and is reported in our results one month in arrears. As a result, the numbers discussed will differ from MonotaRO's public statements.

Now, I'll turn it over to DG.

Thanks, Kyle. Good morning, everyone, and thank you for joining today.

We're off to a strong start in 2026, with both our business segments performing well. Despite the ongoing tariff uncertainty and the broader geopolitical climate, we are encouraged by the positive signals we're seeing in the demand environment.

By staying focused on what we can control, we continue to drive performance through solid execution and by consistently delivering value to our customers. I had the opportunity to experience this firsthand on a recent visit with a major agricultural customer.

While many of our large customers are complex, our approach is simple: start with the customer, stay curious about how their operation works, and then bring our full suite of capabilities to solve their MRO challenges end to end. What differentiated Grainger with this customer and with other contract customers where we are seeing growth is our ability to deliver highly coordinated capabilities beyond the products themselves.

That same coordinated approach was on display at our most recent Grainger sales meeting in March. This event showcased the breadth of our products, services, and solutions.

With more than 10,000 customer, supplier, and team member attendees, the event demonstrated the power of listening, asking good questions, and staying focused on the problem the customer is trying to solve. We invest in this meeting because it results in stronger teams, stronger partnerships, and ultimately improved performance.

Earning trust and building strong relationships is also at the core of how we approach our workplace and culture. While awards aren't the goal, they serve as useful signals that we're executing the right way.

In recent weeks, Grainger was once again recognized as a top workplace, this time being named one of the Fortune 100 Best Companies to Work For and a 2026 Platinum Employer on the Where Work Matters list, which is powered by the American Opportunity Index. We don't take recognition like this for granted, and we're proud that it reflects the experiences we create for team members and the outcomes we deliver to our stakeholders.

On the subject of team members, you may have seen that several of our senior leaders recently took on new roles within the organization. We are fortunate to have a broad and deep set of leaders at Grainger, a clear strategy, and a high-performing company.

Having such a strong foundation allows us to provide leaders with new experiences to develop for the future. Now, moving to Q1 results, we delivered a strong quarter of profitable growth, meaningfully outpacing the expectations we communicated for the company back in February.

Results benefited from healthy price realization, strong operational execution across both segments, and improved market demand. The broader MRO market showed positive momentum as we moved through the quarter and appears to have sustained that strength in April.

At the same time, our high-touch growth engines are gaining traction, and the EA segment is continuing to power the flywheel. Total company reported sales for the quarter were up 10.1% or 12.2% on a daily, organic, constant-currency basis.

Operating margin was strong at 16.7%, and diluted EPS finished the quarter up over 18%. Operating cash flow came in at $739 million, which allowed us to return a total $345 million to Grainger shareholders through dividends and share repurchases.

I also want to mention that we recently announced a 10% increase to our quarterly dividend, marking the 55th consecutive year of dividend increases. This reflects our continued commitment to returning cash to shareholders through a balanced and return-focused approach.

Overall, the quarter finished ahead of expectations, and we are increasing our 2026 guidance to reflect the strong start and continued momentum we are seeing. I will now turn it over to Dee.

Thanks, DG. As mentioned, we had a great start to the year, with total company sales up 10.1% or 12.2% on a daily, organic, constant-currency basis, which included strong growth across High-Touch Solutions and Endless Assortment.

Gross margin for the quarter was healthy at 40%, up 30 basis points versus the prior-year period, as we saw expansion in both segments. Operating margin was up 110 basis points year over year, as gross margin flow-through and leverage in both segments helped drive results.

Both gross margin and operating margin benefited from the exit of the UK market. Overall, we delivered diluted EPS for the quarter of $11.65, which was up 18.2% versus the first quarter of 2025.

Moving to segment-level results, the High-Touch Solutions segment delivered sales growth of 10.5% on a reported basis or 10% on a daily constant-currency basis. Sales growth included roughly equal contributions from price and volume.

From an in-market perspective, we believe that MRO market demand gained momentum in the period. This view is supported by various market indicators, as well as the activity we are seeing on the ground with customers.

For Grainger specifically, we saw broad-based acceleration across in-markets, with strong contributions from manufacturing, government, and contractor customers. On profitability, gross margin finished the quarter at 42.6%, up 20 basis points versus the prior year, as positive mix and freight were partially offset by the impact of the annual [clears throat] Grainger sales meeting.

We also continue to experience LIFO inventory valuation headwinds in the quarter. Relative to our verbal guide, gross margin results exceeded expectations for the quarter, as price/cost was roughly neutral, faring better than anticipated on stronger price realization.

Further, we saw cost-timing favorability compared to expectations on lower sell-through of certain SKUs within our private label inventory. We anticipate this cost pressure will now hit in the second quarter.

On SG&A, we gained nice leverage year over year as we benefited from strong sales productivity and a tailwind from the Grainger sales meeting. This more than offset continued marketing investment and higher payroll and benefits expense, including higher incentive-based compensation, given our strong start to the year.

This helped drive operating margin for the segment to 18.3%, up 60 basis points versus the prior-year period. All told, it was a great start for the High-Touch segment, and we're excited about the momentum we have as we move towards the rest of the year.

Now focusing on Endless Assortment segment. Sales increased 19.6% on a reported basis or 21.9% on a daily, organic, constant-currency basis, which normalizes for the closure of the Zoro UK business and the impact of foreign currency exchange.

Zoro US was up 18.7% on a daily basis, while MonotaRO achieved 24.3% in local days, local constant currency. At a business level, Zoro saw strong growth from its core B2B customers along with improving customer retention rates.

The team continued to deliver on core foundational capabilities, improving the customer experience across pricing, fulfillment, and website functionality. At MonotaRO, sales were strong with continued growth from enterprise customers, coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses.

Additionally, MonotaRO continued to benefit from an increase in web traffic stemming from a competitor cyber outage, which provided a meaningful tailwind to sales in the period. As expected, this impact waned as we moved through the quarter.

On profitability, operating margins increased 190 basis points to 10.6%, with favorability across the segment. MonotaRO margins remained strong at 12.9%, up 90 basis points, and Zoro margin improved to 7.3%, up 210 basis points, with both businesses benefiting from healthy top-line leverage.

Overall, another strong quarter for the Endless Assortment team. Before moving on, I wanted to share a brief update on the inflationary environment as we navigate tariffs and geopolitical cost pressures.

We continue to manage the business with the goal of maintaining price/cost neutrality over time. With this, we passed further price increases in January in response to previously delayed tariff inflation and to offset annually negotiated cost increases with our suppliers, which were largely in effect as of February 1st.

These actions were net of a partial rollback on certain Chinese tariffs announced at the end of last year. As it relates to the recent Supreme Court ruling on IEEPA tariffs, we are only anticipating a modest impact on the business since the tariff rate differential with prevailing Section 122 duties is minimal.

With this, our May pricing actions were net neutral in total. Where we have seen modest cost reductions, namely on products that Grainger is directly importing, we adjusted prices as part of our May update.

For the remainder of our assortment, we're working with supplier partners to assess cost-reduction opportunities and will take subsequent pricing actions as warranted. Moving forward, the team is busy evaluating further inflationary pressures from recently announced tariff changes and the knock-on effects from the conflict in the Middle East.

On fuel, we're working with our supplier and transportation partners to minimize cost headwinds that have arisen as diesel prices remain pressured. We ultimately strive to pass these costs through to customers, but there is some leakage since a number of our customers don't fully pay for parcel shipping.

While currently only modest in total, these heightened costs are pressuring our margins, and this will likely continue until our next pricing window. We have included this fuel impact in our updated guidance.

On the recently announced Section 232 modifications, given the significant complexity, we are still working to understand what the full impact might be across our assortment, but our initial analysis suggests it is likely minimal. Separately, we're starting to see supply pressure from the conflict in the Middle East related to certain raw material inputs on some categories like nitrile-based gloves.

As of now, this is minimal on the US business, but we're starting to see more strain in the Japanese market given the region's reliance on energy inputs which move through the Strait of Hormuz. We will continue to assess the situation and are working with our suppliers and manufacturing partners to minimize supply impacts, including changing our sourcing strategy where needed.

Despite these challenges, we're not anticipating a step change in cost inflation from these pressures at this time, and thus have not included any impact in our updated guidance. However, if the conflict persists, these impacts could result in incremental costs for the business, and this would be felt more quickly in the US based on LIFO accounting.

Lastly, we're also monitoring for the potential recovery of previously paid IEEPA tariffs where Grainger is the importer of record, but the timing and the magnitude of any recovery remains uncertain at this time. As you might imagine, the broader inflationary landscape remains highly fluid, as it has been for the last several quarters.

Importantly, our team is staying agile, and we continue to be confident in our ability to maintain supply for our customers while adhering to our core pricing tenets. Now turning to our guide.

As a result of our strong start and continued momentum, we are raising our full-year 2026 guidance. On the top line, our new outlook includes expected daily, organic, constant-currency sales growth between 9.5% and 12%, reflecting first-quarter strength, continued strong execution, and improved MRO market demand.

Our operating margin expectations for the full year have ticked up slightly at the midpoint to incorporate our first-quarter outperformance. This is partially offset by headwinds from higher incentive-based compensation and leakage related to increased fuel costs.

While incremental margins remain healthy, you'll see that the added revenue dollars for the balance of the year are less profitable because of these transitory headwinds. Taking all this together, EPS is expected to be between $44.25 and $46.25, representing nearly 15% year-over-year growth at the midpoint.

This represents a $1.75 improvement at the midpoint versus the prior guidance range. We've also updated our supplemental guidance in the appendix, which includes an increase in total company operating cash flow compared to the prior guide.

We've continued our strong momentum into the second quarter, with preliminary April sales up north of 13% on a daily, organic, constant-currency basis. This start supports our expectations for the second-quarter sales north of $4.9 billion or approaching 12% on a daily, organic, constant-currency basis, which is 330 basis points lower on a reported basis when normalizing for the UK market exit and currency headwinds.

We expect operating margins will be down sequentially in the second quarter compared to the first quarter. Beyond normal seasonality, we expect this step-down will be exacerbated by headwinds from fuel costs along with increased costs on our private label inventory, the latter of which is in line with what we had expected to hit in the first quarter.

All told, we anticipate second-quarter operating margins will be in the low 15% range for the total company. With that, I'll hand it back over to DG for his closing remarks.

Thanks, Dee. Overall, we feel good about how the business is operating and are confident in our strategy.

I'm encouraged by our ability to continue to grow profitably in this ever-evolving environment while staying focused on creating value for the long term. Looking ahead, we will continue to focus on what matters most to our customers and earn their trust through strong execution, differentiated capabilities, and a consistent focus on doing the right thing.

We recognize the significant uncertainty in the macro, but will stay nimble to serve customers and perform well in any environment. With that, we'll open it up for Q&A.

Thank you. DG, Dee,

good morning.

First off, I appreciate that you finally moved away from the myopic quarter-to-quarter share gain discussion, particularly in a quarter where you could have taken a major victory lap, thanks for that. We'll draw our own conclusions.

My first question is on price. Could you just tell us in simple terms just what was price contribution by each segment and overall?

Good morning.

Generally we don't talk about the segment details. David, thank you for the question though.

I would say when you look at North America, we're about 5% or 5 points of price.

Okay. All right.

Thank you. Then Dee, maybe you could update us on the pacing of margins through the year.

When I look back to last quarter, you said seasonally gross margin would deviate from its normal pattern. You had LIFO, price/cost, and the show impacting that, and you said that first half gross margins would be at or slightly below the annual guide and then rebounding in the back half, and operating margins would follow a similar trajectory.

I was just wondering if you could give us an update on your view there.

I would say now we believe it's going to have more of a U-shape. Part of that is because Q1 performance we did very well from a price realization perspective as price continued to build based upon the changes that we made in 2025, and then of course the change we made in January.

I believe you heard in prepared remarks that we had expected to sell through more of our private label inventory in Q1, which would have created a drag. Not as much sold through.

We're starting to see that sell-through already in Q2, we expect that negative impact to then hit in the second quarter. Then we also have the normal seasonality decline that happens from Q1 to Q2 because we take a larger price increase in January, and that bleeds off through the year.

As you also heard us talk about the impact that we have related to fuel, we believe that is going to build. That was not necessarily anticipated in the original guide, so that is new news here that we've added to the guide.

The challenge that we have with the majority of our very large customers have free parcel shipping. As a result of that, it is more difficult for us to pass on accessorials and other fuel charges to them, and so that's going to take us some time.

We noted that we're going to have some leakage, and then we're going to have some timing implications. However, we are confident that we will find a way to work through that, i.e., the U-shape, and as the year goes on, we will have a means to pass some of that price on to those customers and some of our broader customers while still remaining competitive in the marketplace.

I think the other thing to just clarify is while we are mostly on LIFO, our private brand inventory is on FIFO. It adds a complexity here to things, and so that has always been the case.

It's just obviously in the last year, it's all that's become more clear and necessary to talk about. That's what we're talking about on the private brand.

We didn't sell through layers yet, and now we are that are higher cost.

That's very clear. Thank you both.

Thank you.

Hey, good morning, everyone.

Morning.

It might be a little too early to really see any impact here, but if we look at Japan, I think that's probably a blind spot for a lot of us on this call, but is the team at MonotaRO seeing anything to be concerned about? Because I know they've certainly borne quite a bit of the energy shock here.

Yeah.

You're right that certainly East Asia in particular bears more of the brunt here given most of their energy, most of their oil and natural gas, frankly, comes through the Strait of Hormuz. What we've seen is some price pressure with some products there, and then we have seen a little bit of buying at the end of the first quarter, they talked about in their call today, of those products that are potentially at risk.

It hasn't been material yet, but certainly it could become so depending on how long it goes.

That makes sense. Just on the private label side, I assume no news is good news, but I know that that was a potential concern last year.

Have you been able to adapt that business just given the tariff environment, it's kind of hard for us to know what all the moving pieces are there.

It's not a simple challenge either. What I would say is there have been some private label products where the cost spread between it and the national branded products have compressed, and so we have seen some impact there and some more buying of national brand versus private brand.

Some of that will probably work its way out over time, we think, and so we'll get back to having an appropriate gap and having very high-quality products at reasonable prices for customers in our private brand. I would also note we're having tremendous success with leveraging the Grainger brand for certain areas of our private brand as well, we're pretty excited about the path there.

Overall, we're still confident in our private brand path, but there has been some impact, for sure.

Great. Thank you, DG.

I'll pass it on.

Hey, everyone. Nice job this quarter.

First question is just on the demand environment. DG, what was the surprise for you on revenue in the quarter?

Was it just better end-market demand, or is the company-specific story also a part of it?

I think it's a bit of three things. One is the end-market demand did flip.

It's been negative for several years now. We think the volume growth in the market, most signals would suggest, it turned slightly positive, so that's a benefit for sure.

Our price realization has been higher than we had anticipated to start the year, so that's a benefit for sure. Then our share gain has been strong as well.

I think all of that has conspired to create a really strong demand environment for us.

Got it. That's great.

Okay. Then second questions on gross margin, I guess for Dee.

You did 40%. I think you thought it would be 39%.

Is all of the beat sort of this mix, timing, and I guess my question is what drove the mix timing? Then can you unpack why in the second quarter the cost increase in the private labels a negative?

Thank you.

Good. Let me start with the first part of that, which is why we, my words, overmade versus where we thought we would be in the first quarter.

DG talked about some of this, but we did achieve better price realization in the first quarter than what we had anticipated based upon some of the SKUs that customers were purchasing. That was very helpful to us.

The other side of that relates to the private label inventory. We had assumed that with some of this growth, we would be selling through much more of our lower-cost private label inventory and have that impact in Q1.

We sold through a whole lot less of that than what we anticipated. When we now move to the second part of your question related to Q2, that negative impact we can start seeing it come through already in our April results will hit in the second quarter.

That's the difference between those two pieces of that. In the second quarter, as we have normal seasonality with gross margin because of the price increase that we take, of course, in January that then normally subsides as we go through the year and into second quarter, we're planning for that to continue to occur as well.

I think the other thing to just clarify is while we are mostly on LIFO, our private brand inventory is on FIFO. It adds a complexity here to things, and so that has always been the case.

It's just obviously in the last year, that's become more clear and necessary to talk about. That's what we're talking about on the private brand.

We didn't sell through layers yet, and now we are that are higher cost.

All right, very helpful. I'll pass it on.

Thanks.

Thank you. I appreciate the question.

Could you just maybe talk about the impact that the leading on the price/cost, I guess primarily on the private brands, how much of an impact did that have to Q1 gross margin?

About 20 basis points in the first quarter.

Thank you. I I really appreciate that.

Then if I could just maybe follow up on some of the price conversation, just to make sure I'm understanding all of that right. It sounds like you guys did the typical January start-of-the-year price increase.

Then it sounds like there's was another round that came, I I think in in May, you you said, Dee, I guess just in response to the all the inflation we're seeing now between, metal, freight, tariffs, everything. I just want to make sure I have that right.

If you could provide any relative sizing for either of those two, just to help us calibrate the models. Thank you.

Chris, just to be clear, January 1, May 1, and September 1 are our normal price cycles, the May 1 wasn't in response to anything in particular. We just happen to ponder some of the things going on in that price cycle.

That's the timing at which we can take it. I point you to slide 11, but I'll talk a little bit more about it.

Again, as you noted, January incorporated any lag we had from being able to take tariff actions from 2025, plus what we were negotiating late in the year that would impact us in 2026. That was a January price, and that was a slightly positive pricing action that we took because it was also net of certain Chinese tariff changes that were announced, basically rollbacks in November.

Then, as DG was just noting, in May, which is a normal time where we can take pricing actions, we did. That was really a net-neutral price for corrections or things like that that we might need to take as related to January, also incorporated Section 122 actions, and it was offset by IEEPA rollback for our private label products that we directly source, because we know what those standard price changes should be.

That was net neutral.

Thank you.

Thanks. Good

morning.

You've talked about in the past few quarters kind of an elevated backdrop for a chunkier contract cycle. Just curious what pace you're seeing those kind of rolling into the out-growth and the length of the tail of, I guess what we're calling a more elevated cycle for chunkier wallet share pickup.

I'm not sure I would describe it necessarily as a lot chunkier than the past. I think our contract business has been net positive to start the year.

We've had a number of successes in implementations. I think we are seeing a lot of customer demand to serve them on-site in ways that are really important to them.

I think secularly there's just less labor with many of our customers, and so getting asked to do more things and we are doing more things on-site with our customers and providing more services than we have historically. I don't think it's necessarily a significant departure from the past, but I do think that we've had some success in terms of growing our large customer volume in the last 6 months.

Okay. Just curious what now you're seeing in terms of most productive use cases for AI?

I think there's many, many, many use cases. I would highlight a few.

I think I would put them in a couple of categories. There are AI use cases that we have that are implemented in areas that drive productivity in the business.

We have AI use cases in customer service that are working with our customer service reps to make sure we provide great service and do it faster and easier. There's a lot of work in finance, in the back office, that we've put in AI solutions, or putting AI solutions in our supply chain to drive more one-piece flow in our warehouses, for example.

There's a lot of things going on with AI. Then I think there's a number of use cases around the customer experience that are absolutely critical for us for long-term success.

Investing in category search, investing in proving merchandising capabilities are examples of that. I would say it's pervasive in terms of where we're using it and will become more so.

I think pointing it at the right things is really critical and making sure we create advantage through the efforts in addition to driving productivity is really important.

Thanks. If I could sneak in one more and might build off that prior answer, but from Zoro you talked about website functionality as a driver, just kind of curious what those, it sounds like maybe early days talking about that, but as that normalizes the implications for margin and out-growth from Zoro with the website work

and

lessons learned.

Yeah. I think that the website changes and improvements are in process.

We probably haven't seen too much benefit yet from those. We've seen a lot of benefit from getting repeat business with customers, improving the quality of our acquisitions, and the business improved both margins and growth rate as a result of those things.

The website improvements will be fast off that and drive a lot of benefit, we think, too. We're excited about what they're doing.

Great. Thank you.

Yeah. Can you hear me?

Yes, we can.

Excellent. Just a question in terms of guidance range.

It seems that a lot of debate on the stock has been about your ability to push pricing, and I think gross margin then this quarter reflects quite a bit of success in doing that. At the same time, most of the raise reflects the beat in the quarter, and maybe I appreciate some of the headwinds in the second half.

How should we think about sort of sustainability of this pricing momentum into the second half?

The way I'd describe it is that that debate has not been happening internally. It's been happening with others.

The reality is we always said as we went through the tariffs that we would lag in terms of getting the price/cost neutrality. We did it.

You see that in the first quarter. Now there's some things that may cause us to, as Dee said, go through a U-shape and do it again.

Generally the fundamental, and that's partly because we're on LIFO, that the fundamental of price/cost is perfectly strong with the business, very stable, and has been for some time.

What about not flowing through for the second half of the year? Is it just being conservative?

No, it's the things we talked about. It's potential fuel cost.

It's the private brand costs coming through. It's just the basics, basically, and some seasonality.

Really there's nothing there that isn't very explainable. You could argue whether we're being conservative or not on increased fuel cost.

There's just so much uncertainty with that one, right? Who knows?

Obviously if the conflict ended today and the Strait opened up next week, which is unlikely to happen, that would be great. We'd love for that to happen, but what we're forecasting now is some challenge with fuel, and that's just the reality.

Just a question, could you just size the LIFO impact this quarter relative to other quarters, just directionally?

LIFO, as we kind of talked about, never goes down, right? It kind of normalizes and subsides.

When we went from Q4 to here at the total company level, in Q1 we think it's about 70 bps [clears throat] on the total company.

Terrific, and I hope you get your voice back. I appreciate you doing this call.

Thanks, Andrew.

I'll try to answer what I can. [laughter]

Sorry.

Great. Good morning, everybody, and I'll ask a couple of growth questions and maybe save Dee's voice a little as well.

I'm curious, your slide 19 where you kind of show the various end markets, pretty nice inflection in a lot of these. Would you say, DG, that any of these were sort of specifically benefiting from share gains or more than the others, or is it sort of a more broad-based approach?

Good morning. Good morning.

I think that it's more broad-based in terms of share gain. Share gain for us typically are providing great service, helping customers make sure they can find our product, providing on-site support for inventory management.

It's a set of core things that we do. Generally those things impact most segments at the same time if we're performing well, and I think that's really what's reflected here.

Okay. Then any potential that you saw some customers kind of buying a little extra inventory given all the uncertainty around price and availability and so forth?

Not in the US. We have not seen that in the US.

We've also not seen customers stop projects given the uncertainty really. I think we've seen things just kind of in normal status here in the US.

We mentioned before that in Japan, at the end of the first quarter, we saw a little bit of maybe buying ahead just to make sure that customers could secure products that are petroleum-based, but not in North America, we haven't seen that.

Great, I appreciate that. Then finally, just competitively, we hear pockets of sort of availability issues, and I'm just wondering are you seeing any of your competitors do sort of more or less pricing, or be able to pass through diesel maybe or not, or having issues getting anything?

I think it's too early for us to really know that. We in North America, we don't anticipate having challenges, the fuel impact.

If there were challenges, it would be things going on in Southeast Asia that we'd all be procuring the same things. Generally that's what we've seen in the past, but so far we haven't seen trouble getting product in the US, and we haven't seen any unusual competitor behavior.

Super. Thank you, I'll pass it on.

Thank you. Good morning, everyone.

Good morning.

Good morning.

Hey, not sure you gave this data point yet, but what was the benefit to margin in the quarter from the two European exits, and what would be the benefit for the year?

I'll start with the last part of that, [clears throat] which is about the same as the total, but year over year is about 45 basis points, equally split between gross margin [clears throat] and SG&A. Then as it relates to top line, of course, Cromwell sales that's about a 210 basis point impact on total company and 110 basis point impact on EA for Zoro UK exit.

Got it. All right, and then for DG, just is this free shipping on the parcel shipments, is that a non-negotiable?

Is that just part of the service that you need to offer free shipping on that? What is that impact?

Is that on your total fuel costs, is this a small sliver or is it meaningful? That's

it's a meaningful portion of portion of the total. It's a it's very common to build free parcel shipping into contracts with large customers in our space.

That's not an unusual thing to do. We would we would face similar things.

We we have the ability to to do certain things to to to mitigate this, and we'll we'll over time depending on how long this goes. We're not concerned about it.

It's just in the short term, it creates it creates a headwind. Part of part of the issue with with large customers is their average order value is significantly higher, and so parcel costs are as a portion of the overall is pretty small relative to to smaller customers.

Got it. Thank you.

Hi, good morning. Excellent results, congratulations.

Thank you.

Just one for DG, and then just kind of a quick aside for Dee. You've probably had like 6 months now, if you include April, of good trading, maybe better than expected, and you're guiding double-digit organic growth this year.

DG, does that give you a little bit of room for maybe investing more for organic growth into terms of market share gains, or do the inflationary pressures that you guys have alluded to kind of preclude that, that you've set your marketing budget or your investment for this year and it's probably not going to move upwards, or is that subject to change?

I would say if we have the ability to invest profitably for growth, we will do it. We don't have a cash problem.

I don't expect our budgets this year to change all that much, given we set our budgets based on what we've seen from cause-and-effect basis in areas like marketing and sales force coverage and things like that. In general, I don't think that our added growth means we will invest more, and in difficult times, you often won't see us investing much less either, because if something's worth doing for the long term, we will go ahead and do it to be successful through any cycle.

Just for Dee, on the SG&A growth, 6%, is that a sensible number to use for the rest of the year, that sort of growth rate? [clears throat]

Yeah, 5.5%, I think, is kind of what we kind of look at, 5.5% to 6%. I think for the rest of the year, that's a fair number.

Yeah.

Hi, good morning. Sorry, Dee, this is one for you probably, but when when you're looking at the sequential move in in margin into the I guess 15% range for the second quarter, is that is is is all of that decline coming from the gross margin sequentially?

If you could piece for us, like the the the bridge for us kind of the drivers there between, seasonal versus all the things you've talked about, private label costs, or fuel costs, or Grainger meeting timing, etcetera, I don't know, any any pieces you can help bridge that 150 basis point decline sequentially would would be helpful.

Sure, I'll talk about some of the numbers we've talked about already. [clears throat] And so it's about a point difference on gross margin, and we talked about the 60 basis points, which is what we believe is normal seasonality, and we've also talked about the increased costs related to the private label inventory moving from Q1 to Q2 being about 20 basis points.

Then you just have a little bit left from that, which is really the leakage that we expect that we're going to experience on this increased fuel cost. Really, and some of that is timing because fuel is going to hit, and we're not in a pricing cycle right now to go after that, it may be the next pricing cycle that we start to recoup some of that back.

That gets you to about a point of the difference between the 40% gross margin and about the 39%. Then when you move that down to operating margin, we have normal seasonality there as well as it relates to merit and stock comp, where we delever as we move from Q1 to Q2, and that gets you about there.

That would imply that your SG&A growth goes from kind of 6% to kind of high single digits, and I think you just said you expect it to stay kind of 5.5% to 6%. What's the difference there?

Balance of the year, as we continue to grow, we still have investments that we're making through the year. That's why the last caller when they said, I think he said 6%, 5.5%, I said 5.5% to 6% in that range on average.

Got it. Okay.

Then what's embedded now for the guide for the year in terms of market outlook and for price? That's all I have.

Thank you.

Market outlook is 0% to 1%-ish, somewhere in there. We think it's going to be positive for the year for volume growth, and price probably moderates and goes down from maybe 5% in the first quarter to 4% for the year.

Yep.

Morning, and thank you for taking my questions.

Morning.

DG, you made some comments at the annual shareholder meeting last week I wanted to follow up on. First was just on the sales force adds.

I think you added 110 last year across the two geographies. Two-part question: is that a gross or a net add number, and what do you have baked in for this year?

Net, that's a net number. We've been adding fairly consistently over the last several years, probably between 60 and 120 every year, and we expect this year to be in the same general area.

Some of the value we've had from having better data, better customer data in particular has allowed us to identify places where we can fill in coverage. We've been doing it region by region.

Really by next year, we should be done with those changes is the expectation, '27 we should be done by in '27 mostly, we're well into that. Those are net adds and we've been adding probably 3%, 4% of the sales force every year.

A related point on your distribution network, last week you just commented on the progress in Houston and in the Northwest facility. Looking ahead, are there other big geographies where you're contemplating a greenfield opportunity or a substantial increase in an existing footprint?

Portland is going live this year. It's ramping up as we speak, and so that's already exists.

Houston will go live in 2028. It's a very big building which expands our capacity in the Texas market, which is important.

I would say as we go forward based on our growth, there may be other areas where we add to existing positions or scale from mid-sized to much larger positions. We aren't really missing geographies at this point.

There'll still be investments we make, but they won't be kind of fully new greenfield, move a building from one location to another, expand capacity, or find ways to expand capacity in those markets, more likely.

Thank you, DG. That's all I've got.

I'll turn it back.

Thank you, appreciate it.

I'd just say thank you for joining the call, really appreciate your time. We feel good about the way things are going.

Obviously there's a bunch of uncertainty in the world, but our job is to perform through that uncertainty and to make sure we're building for the future, and we are focused on doing those things, and we feel like we're a business that is very resilient and we're in good shape, we're pretty optimistic about where we're headed. Thanks again, and hope you have a great rest of the week.

Thank you.