CHICAGO—W.W.Grainger, Inc. reported lower sales but higher earnings for the second quarter, ended June 30, 2003. Net earnings increased 3 percent, to $56 million, from the previous year, and earnings per share were $0.60, increasing 5 percent from last year's $0.57. Sales in the 2003 second quarter were $1.173 billion, down 2 percent from $1.195 billion in the previous year.

"Despite the effect of a difficult economy, we reported improved earnings," said Richard L. Keyser, chairman and CEO of Grainger. "We remain committed to improving service to our customers as they continue to look for ways to reduce costs. Enhancements to our logistics network and local availability of the right products will provide higher levels of service. Our initiatives should accelerate sales growth as more customers experience this improved service."

During the quarter, Grainger opened two additional distribution centers, in Memphis and Kansas City, Mo.; centers representing the fifth and sixth centers in its redesigned logistics network — a key strategic initiative. When the final center is completed in 2004, the new network will comprise nine distribution centers, adding 1 million square feet of capacity, upgraded automation, $100 million less inventory and a 50 percent improvement in productivity.

More second quarter information included: sales in the branch-based distribution segment decreased by 2 percent in the 2003 second quarter; Lab Safety, one of the country's premier direct marketer of safety and industrial products, posted a 7 percent increase in sales; and sales for integrated supply were down 10 percent from the 2002 quarter.

As forecasted by the company last Dec., the project is expected to lower operating earnings by $15 million in 2003, but contribute $10 million in 2004 and $20 million in 2005.

As part of the rollout of the logistics project, Grainger incurred incremental costs in the quarter associated with the start up of the distribution centers and headcount reductions at several locations. Grainger also realized a gain of $2.6 million on the sale of a distribution center in Carol Stream, Ill., whose operations joined with Grainger's Chicago distribution center last year.

Last month, Grainger lowered its 2003 sales expectations to 1 to 3 percent and, given this range of anticipated sales growth, refined its 2003 earnings per share guidance to the lower end of its range of $2.50 to $2.65.