Grainger Organic Sales & Profit Growth Continues as Endless Assortment Jumps

The MRO products giant expects gross margin to accelerate once it sells through its non-core pandemic-related inventory by the end of Q2.

Grainger I Stock

MRO products giant Grainger — No. 1 on Industrial Distribution's Big 50 List — reported its 2021 first quarter financial results on Friday, showing that the industrial distribution sector's biggest market mover saw continued solid year-over-year gains in both sales and profit margins amid economic recovery.

Lake Forest, IL-based Grainger posted total Q1 sales of $3.08 billion, up 2.7 percent year-over-year, with organic daily sales up 5.9 percent. That compares with Q4 2020 sales of $2.94 billion that were up 3.3 percent year-over-year with organic sales up 5.6 percent. Organic sales exclude Grainger's recent divestments of its Fabory (the Netherlands) and Grainger China businesses.

During Q1, year-over-year daily sales growth improved by 2.2 percent in January, 6.4 percent in February and 8.0 percent in March.

Grainger — which held a closed COVID-19 vaccination clinic at its Lake Forest headquarters on April 15, 16 and 21 — had a Q1 gross profit margin of 35.5 percent, down 190 basis points year-over-year, but up 60 basis points from Q4. Grainger said the year-over-year decline was largely due to an expected pandemic-related inventory adjustment in the US on certain non-core SKUs that are selling below cost due to current market-relevant pricing. The company expects to sell-through these non-core pandemic products by the end of Q2 and any remaining market-driven inventory adjustments.

Grainger also noted gross margin impact from significant revenue growth in its lower-margin Endless Assortment segment, where gross margin improved 35 basis points year-over-year to 28.1 percent, whereas margins fell 230 basis points in its High-Touch Solutions segment to 37.4 percent. Endless Assortment posted year-over-year daily sales growth of 27.4 percent in Q1 — far outpacing the 3.4 percent daily sales growth in High-Touch Solutions. Grainger said it expects to exit 2021 with gross profit rates as high or higher as pre-pandemic levels.

Grainger's Q1 operating profit of $348 million more than doubled the $159 million it had from a year earlier and was up from $275 million in Q4. Q1 operating margin of 11.6 percent also more than doubled the 5.3 percent it had a year earlier and gained from Q4's 9.4 percent.

Grainger's Q1 total profit of $238 million jumped 37.6 percent year-over-year and 41.7 percent from Q4.

The company said its strong Q1 performance allowed it to resume providing full-year outlook guidance. Grainger is now expecting full-year 2021 sales $12.7 billion to $13.0 billion, which would equate to daily sales growth of between 8.5 to 11.0 percent and organic daily sales growth of 10.0 to 12.5 percent. The company expects full-year gross margin of 36.1 to 36.6 percent, which would be growth of 20 to 70 basis points.

By end market, Grainger's Q1 sales performance was as follows:

  • Retail (including e-commerce): up low-twenties
  • Government: up mid-teens
  • Heavy manufacturing: up low-single digits
  • Light manufacturing: down low-single digits
  • Contractor: down low-single digits
  • Commercial (hospitality, restaurants, business services): down mid-single digits
  • Wholesale: down mid-single digts
  • Healthcare: down mid-single digits
  • Natural resources: down high-single digits
  • Transportation: down high-single digits
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