CHICAGO — Grainger today reported results for the first quarter of 2023 with sales of $4.1 billion, up 12.2%, or 14.5% on a daily, constant currency basis, and diluted EPS of $9.61, up 36.0% compared to the first quarter of 2022.
“The team continues to perform well amidst a resilient demand environment. Both segments delivered strong growth and expanded margins, while we continued to invest in our growth engines and provide exceptional customer service,” said D.G. Macpherson, Chairman and CEO. “Given the strong, profitable growth in the quarter, we are raising our earnings outlook for the full year 2023.”
Revenue
Sales in the quarter, on a reported and daily basis, increased 12.2% as compared to the first quarter of 2022. Excluding the unfavorable foreign exchange impact of 2.3%, sales on a daily, constant currency basis were up 14.5% compared to the first quarter of 2022.
In the High-Touch Solutions N.A. segment, daily sales were up 14.5% compared to the first quarter of 2022, primarily due to strong price realization and continued volume growth. In the Endless Assortment segment, daily sales were up 3.8% or 14.0% on a daily, constant currency basis compared to the first quarter of 2022. Revenue growth was driven by core small business growth with new and repeat customers at Zoro U.S., as well as new customer acquisition, repeat business and enterprise customer growth at MonotaRO. Revenue growth in the first quarter at MonotaRO was negatively impacted by winter weather and a slower return to work after the New Year holiday.
Gross Profit Margin
Gross profit margin for the first quarter of 2023 was 39.9%, a 200 basis point increase compared to the first quarter of 2022. The increase was driven by favorability in both segments.
In the High-Touch Solutions N.A. segment, gross profit margin expanded by 195 basis points over the prior year first quarter primarily due to freight and supply chain efficiencies, as well as continued favorable product mix. In the Endless Assortment segment, gross profit margin expanded by 140 basis points versus the prior year first quarter driven by strong price realization, continued freight efficiencies and favorable business unit mix.
Earnings
Operating earnings for the first quarter of 2023 were $680 million, up 27.4% versus the first quarter of 2022. Operating margin in the quarter was 16.6%, an increase of 200 basis points over the first quarter of 2022 driven by the expanded gross profit margins in both segments. SG&A leverage was flat year over year.
Diluted earnings per share of $9.61 in the first quarter of 2023 increased 36.0% compared to the first quarter of 2022 due primarily to the strong operating performance.
Tax Rate
The first quarter 2023 effective tax rate was 23.3%, compared to 25.5% in the first quarter of 2022. The decrease in the effective tax rate was primarily due to increased stock compensation tax benefit.
Cash Flow
During the first quarter of 2023, the Company generated $454 million of cash flow from operating activities, as net earnings were partially offset by working capital investments in the period. The Company invested $98 million in capital expenditures, resulting in free cash flow of $356 million. During the quarter, the Company distributed $229 million to Grainger shareholders through dividends and share repurchases.
Guidance
Given the strong first quarter results and expectations for the remainder of the year, the Company is updating its full year 2023 guidance ranges as noted below, including an increased outlook for diluted EPS, operating cash flow and share repurchases:
