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Grainger Explains Poor 2Q Earnings Results

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On the heels of its 2Q earnings report, Grainger CEO D.G. Macpherson explained that while the numbers did not look great in April, May, and June, there is a plan for improvement for the rest of the year. “To be clear, we are in the midst of a substantial transformation in the business,” Macpherson said during the Grainger earnings conference call. “This business has scale and should be quite profitable. We're still on track to exit 2017 in a break-even run rate.”

Part of the plan included closing 59 of Grainger's 144 branches in Canada, which meant a drop in revenue. But, Macpherson told reporters that Grainger performed as expected in the second quarter, and the strategy behind the closing will be off-set by a more strategic pricing program for customers. “We are hearing very positive comments or more customer groups about the changes we are making,” Macpherson announced. “Customers recognize that we still have a premium price, with that we will be more competitive. That makes sense to customers given the value that we provide.

“We see growth that is significantly higher than we've seen in the past in areas that are directly affected by pricing and that's what gets us comfortable, particularly mid-sized customers, where we were double-digit negative last year,” Macpherson added. “We've estimated the market to be growing a couple of percent this year with volume of 5% in the U.S. Certainly, we feel like we're gaining volume share and most of that is probably reaction to our pricing at this point.”

Pricing will be a key issue for Grainger for the rest of this fiscal year, as a number of questions from reporters during the conference call focused on price competition. “We're looking at the competitive environment very closely,” Macpherson explained. “We're not setting our web prices to be near the bottom on the stat. One thing I would say is, we actually spent a little bit of marketing money in the quarter on customer acquisition. At those put for items that we already changed on web prices and we had a very good response on small volume.”

“And so I think we've shown and proved to ourselves that we can acquire customers at a price that is not low. It's competitive, but it's not low. And so, we don't feel like we're going to have to – we know we're not going to have to be lowest price and we feel like we're positioning the price virtually,” Macpherson said.

Grainger announced it is still expecting to see a 6-8% volume growth over the rest of the year.

 

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