10-KPeriod: FY2019

W.W. GRAINGER, INC. Annual Report, Year Ended Dec 31, 2019

Filed February 20, 2020For Securities:GWW

Summary

W.W. Grainger, Inc. (GWW) reported net sales of $11.5 billion for the year ended December 30, 2019, representing a 2.5% increase over the prior year. This growth was primarily driven by volume increases in the U.S. business, attributed to market share gains, and continued double-digit growth in its "endless assortment" businesses, Zoro and MonotaRO. Operating earnings saw a healthy 9% increase year-over-year, reaching $1.26 billion, which indicates improved operational efficiency and cost management, particularly in the Canadian market turnaround and SG&A leverage in the U.S. Despite overall positive financial trends, the company faced challenges including a decrease in gross profit margin due to the growth of lower-margin "endless assortment" businesses and impacts from contract renegotiations and customer mix in the U.S. Additionally, restructuring and impairment charges, particularly related to the Cromwell business in the UK, affected reported net earnings, although adjusted figures show a more stable performance. Grainger continues to invest in its supply chain and digital capabilities, positioning itself for future growth in the MRO industry while managing risks associated with economic volatility, competition, and supply chain disruptions.

Financial Statements
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Key Highlights

  • 1Net sales increased by 2.5% to $11.5 billion in 2019, driven by U.S. market share gains and strong growth in 'endless assortment' businesses (Zoro and MonotaRO).
  • 2Operating earnings grew by 9% to $1.26 billion, reflecting operational improvements and cost efficiencies, especially in Canada and U.S. SG&A.
  • 3Gross profit margin slightly decreased to 38.3% from 38.7% in 2018, primarily due to the higher proportion of sales from lower-margin 'endless assortment' businesses.
  • 4The U.S. segment showed robust performance with a 2.5% net sales increase and a 4% rise in operating earnings, driven by volume and SG&A leverage.
  • 5The Canada segment demonstrated a significant turnaround, moving from operating losses in 2018 to a $3 million operating profit in 2019, attributed to cost reduction and efficiency gains.
  • 6Significant restructuring and impairment charges, totaling $126 million in 2019, impacted reported net earnings, although adjusted figures indicate stable core performance.
  • 7Grainger continues strategic investments in its supply chain, digital capabilities, and inventory management solutions to support future growth and customer service.

Frequently Asked Questions

The primary drivers of W.W. Grainger's net sales growth in 2019 were increased volume in the U.S. business due to market share gains and strong double-digit growth in its 'endless assortment' businesses, Zoro and MonotaRO. These factors contributed to an overall 2.5% increase in net sales.

Grainger focused on managing operating expenses, with Selling, General, and Administrative (SG&A) expenses decreasing by 2% year-over-year. This was achieved through cost-take-out actions in Canada and improved SG&A leverage in the U.S. business. Excluding restructuring and impairment charges, adjusted SG&A remained flat compared to the prior year.

Grainger recorded significant restructuring and impairment charges in 2019, totaling $126 million. These charges, notably related to intangible asset impairment at the Cromwell business in the UK, impacted reported net earnings. However, when these non-recurring items are excluded, adjusted operating earnings and net earnings showed more stable or modest growth, indicating the underlying operational performance.

For 2020, Grainger's strategic priority is to expand its leadership in the MRO space by being the preferred partner for customers. Key objectives include driving top-line growth through market share gains, focusing on differentiated sales and services in the U.S., continuing the turnaround and market share growth in Canada, and expanding the endless assortment businesses. The company also aims for continuous cost structure improvement and investments in digital marketing, technology, and supply chain infrastructure.