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Grainger Accelerates Pricing Actions After Q1 Sales Tick Up, Profit Slides

Thursday, April 20, 2017  
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Grainger — No. 3 on Industrial Distribution's Big 50 List — reported its 2017 first quarter financials on Tuesday, led by a slight increase in year-over-year sales and a modest decline in profit, while the company detailed plans to accelerate changes to its pricing structure.

The company posted Q1 total sales of $2.54 billion, up 1.4 percent year-over-year. Operating profit of $295.5 million was down 6.8 percent, while total profit of $174.7 million declined 6.4 percent. Those figures follow a Q4 in which Grainger's sales declined 0.3 percent, operating profit declined 30.8 percent and total profit declined 58.2 percent.

Grainger primarily attributed the Q1 profit declines to changes in strategic pricing, which the company first described last November and CEO D.G. Macpherson discussed in-depth during the company's annual Grainger Show March 13 in Orlando.

"Overall, the first quarter clearly fell short of our expectations, driven primarily by the stronger than anticipated customer response to our U.S. strategic pricing actions, with a greater volume of products sold at more competitive prices," Macpherson said in Grainger's earnings release Tuesday, adding that the company will now accelerate those pricing changes going forward.

"Based on the positive customer response thus far, we are pulling forward the remaining pricing actions originally scheduled for 2018 into the third quarter of this year," Macpherson said. "This decision requires a significant change to our earnings per share guidance for the year but should enable us to accelerate growth with existing customers and attract new customers sooner than planned."

Those pricing changes were primarily implemented during this past January and February. Grainger states those strategic pricing actions as follows:

  • Adjusting list prices across the board to make it easier for large customers to consolidate their purchases.
  • Introducing new web prices on about 450,000 SKUs to drive medium and large noncontract customer acquisition and growth.
  • Negotiating large customer contracts with more competitive pricing for infrequently purchased items. Most large customers already receive very competitive pricing on routine items through their contracts.

The company said results from the Q1 pricing actions showed that customers with access to lower pricing bought more than the company's expectations, providing confidence that those pricing actions were successful.

"The decision to accelerate the pricing actions is expected to enable faster growth through share gain with existing customers and acquisition of new customers," the company said.

Grainger said web pricing will be available on all SKUs in Q3.


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