Fortune partnered with Great Place to Work to analyze survey feedback representing nearly 62,000 U.S. employees.

Best Workplaces_Chicago_Large_2025-Grainger_US1__67fd6226d94556dd4465c985_2

Employees say:"For me Grainger is an amazing place to work. I can honestly say that both my team and manager care about me, they want to see me succeed at work and my personal life. My team is like an extension of my family. There are so many opportunities for employees here at Grainger—you can move up, move over, or move around to find that position that works best for you. My job/career means a lot to me, and this is where I plan to work until I retire. I tell my friends and family how great it is here and if they are ever looking for a new career/job to come work here because they will also love it as much as I do."

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GPTW-Millennials-Large-2024-Grainger

Employees say:"Our culture is one that is very special and not like other places I've worked. From our opportunities for advancement, a culture of recognition, individual team cultures, the collaborative nature, the focus on DEI, BRG involvement, and volunteer opportunities, it's my home."

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Industries included in the sector are diversified, electronics, and food and grocery.

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GPTW 2024 Chicago Large-Grainger_US1__20240410151431_3

Employees say: "Everyone here makes you feel like you are family - This is something the other companies "try" to achieve but Grainger makes it happen from the get-go. I am VERY proud and blessed to be working with my Grainger Family."

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100 Best Companies 2024-Grainger

Grainger is the country’s leading distributor of maintenance, repair, and supplies for industries like hardware, lighting, and plumbing. Established in 1927, the company now operates the 11th largest online e-commerce site by revenue. &nbsp;Grainger is building two new distribution centers in the U.S., and is adding 3.5 million square feet to its supply chain network for a more than 35% increase in overall warehouse space. &nbsp;In 2022, the company trained all of its team members in a DEI learning course, focusing on unconscious bias and how it emerges in day-to-day work. It aims to have half of its senior leadership roles filled by women by 2030. Currently, its CEO’s leadership team is 43% women while 29% is racially diverse.&nbsp;

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100 BEST COMPANIES 2023-Grainger

This long-standing industrial supply company is adapting to the changing times with an emphasis on diversity. 
<ul> 
 	<li>In the last year, Grainger implemented a technology tool to remove noninclusive language from over 400 job postings; after the revisions went live, the pool of female applicants increased by 15%.</li> 
 	<li>A mandatory e-learning course for leaders tackles unconscious bias, including how it may emerge in day-to-day work and behaviors for managing it.</li> 
 	<li>Senior leadership values transparency, holding monthly calls with all employees to address questions ranging from business operations questions to U.S. Supreme Court decisions to employee compensation.</li> 
 	<li>“Every team member I have encountered during my time at Grainger so far is caring and willing to help each individual succeed,” said one worker. “You are welcomed with open arms, work together as one team, and [colleagues are] willing to help you develop professionally and personally.”</li> 
</ul>

The 300 companies on this list are transforming industries from the inside out.

GPTW Chicago 2023-Grainger

Employees say: 
 
"Grainger does a fantastic job of making sure everybody is able to show up as their true selves. There are multiple BRGs that people can join to feel more connected and informed. Grainger also does a really awesome job of supporting individuals' desires to grow professionally, and offers numerous courses that you can take to grow in your skillset while gaining new knowledge."

The companies on this annual list make a conscious effort to be supportive, inclusive workplaces.

GPTW Women 2023-Grainger

Employees say: 
 
"Grainger is the best company I've ever worked for. They go above and beyond to be inclusive to all of our team members. They genuinely seek out feedback from their team members and actually take action on that feedback whenever possible. We're provided more benefits than most other companies and are also paid fairly for the work we do."

100 Best Large Workplaces for Women

Fortune partnered with Great Place to Work to analyze survey feedback representing nearly half a million U.S. employees.

GPTW Millennial Large 2023-Grainger

Employees say: 
 
"Senior leadership invests a lot of time in being transparent about the company’s direction. They strive to foster an inclusive environment, and they genuinely care about the employees. This culture has led to a stronger frontline leadership team. That makes all the difference in wanting to remain with Grainger and knowing it is a great place to work!"

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100-Best-2022-Grainger

This industrial supplies company has appeared on the Best Companies list five times thanks to its emphasis on employee training and its focus on corporate inclusivity. From each team member’s first day, Grainger offers a variety of professional learning opportunities, skills training courses, and leadership programs. Employees spent an average of six hours last year on these supplemental trainings. “I feel that the company never lacks development opportunities,” says one staffer. “It is a main focus of every manager I have worked with so far, having been offered the opportunity to participate in classes and get involved with projects that align to my interests.” Additionally, the company is invested in its diversity efforts, conducting pay equity audits each year and aiming for 50% of its leadership team to be women by 2030.

Winning workplaces in Chicagoland earned high marks from employees when it comes to leadership.

GPTW Chicago Large 2022-Grainger

Employees say: 
 
“They provide tremendous resources that encourage growth and development—leaders want us to succeed. The company authentically celebrates and champions diversity, inclusion, and equality. The company also memorialized a 10-year commitment to reduce greenhouse gas emissions.” 
 
Read the Great Place to Work review .

GPTW Women 2022-Grainger

Employees say: 
 
“Grainger is unique in that it celebrates all of its employees, all the way from the CEO to the warehouse team members. Everybody is represented and respected here. The pay is above average, not just for the industry but in general. The benefits offered are excellent and add great value to working here. Grainger values talent and ideas at all levels and in my experience has made great strides in growing based on ideas from Team Members or management. There is a great potential for growth within Grainger and I would highly recommend it to anyone looking for a career to grow into.”

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F500-2021-258-W.W. Grainger

Typically selling to other businesses rather than retail, the supply company sells industrial tools and equipment for heavy machinery, plumbing, tools, and other business needs.

For an astounding 13th straight year, Apple claims the top spot in Fortune’s annual ranking of corporate reputation, based on a survey of almost 3,800 executives, directors, and analysts.

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F500-2020-278-WW-Grainger

The industrial supply company distributes maintenance, repair, and operating equipment to businesses around the world.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Best Companies

Rank last year

Years on list

U.S. employees

U.S. job openings

Year founded

Benefits

100% health coverage

Subsidized childcare

Compressed work weeks

Option to work remotely

Minimum requirement in-office attendance (days per week)

Percentage of health care premiums covered

Mental health coverage

Free mental health sessions (per year)

Free backup childcare time off (days)

Maximum $ amount covered for fertility services

Fully paid maternal leave (days)

Fully paid paternal leave (days)

Fully paid adoptive leave (days)

Maternal leave in addition to regular time off (days)

Paid days off for volunteering

Sector

Industry

Current All-Star Rank

Previous All-Star Rank

Industry Rank

Previous Industry Rank

Overall Score

Innovation

People Management

Use of Corporate Assets

Social Responsibility

Quality of Management

Financial Soundness

Long-Term Investment Value

Quality of Products/Services

Global Competitiveness

Culture rank

Process rank

Product rank

Previous rank

Key Financials (last Fiscal Year)

Revenues ($M)

Profits ($M)

Assets ($M)

Total Stockholder Equity ($M)

Profit Ratios

Profit as % of Revenues

Profits as % of Assets

Profits as % of Stockholder Equity

Earnings Per Share (last Fiscal Year)

Earnings Per Share ($)

EPS % Change (from prior fiscal year)

EPS % Change (5 year annual rate)

EPS % Change (10 year annual rate)

Total Return

Total Return to Investors (last year)

Total Return to Investors (5 year, annualized)

Total Return to Investors (10 year, annualized)

Best Workplaces In Chicago

Founded

Sites

Grainger is an industrial-supply distribution company, focused on safety, security, and storage equipment, along with cleaning, metalworking, and hand tools. As of 2025, it offers over 30 million products to some 4.5 million customers worldwide, but its services are primarily in North America, Japan, and the United Kingdom. The company was founded in 1927.

Q2 2025

Q1 2025

Q4 2024

W.W. Grainger (GWW): Company Profile, Stock Price, News, Rankings

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W.W. Grainger

w.w. grainger

Greetings, and welcome to the W. W. Grainger Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Please note that this conference is being recorded. I will now turn the conference over to your host, Kyle Bland, Vice President, Investor Relations. Thank you. You may begin.

Good morning. Welcome to Grainger's second quarter twenty twenty five earnings call. With me are D. J. Macpherson, Chairman and CEO and Dee Meriwether, Senior Vice President and CFO.

As a reminder, some of our comments today may include forward looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form eight ks and other periodic reports filed with the SEC. Results for the second quarter of twenty twenty five are consistent on both a reported and adjusted basis, but will be compared to adjusted results from the prior year period, which were normalized for restructuring costs incurred in the 2024. Definitions and full reconciliations of our non GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO.

Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from U. S. GAAP and is reported in our results one month in arrears. As a result, the numbers discussed will differ from MonotaRO's public statements. Now, I'll turn it over to DG.

Thanks, Kyle. Good morning, everyone, and thank you for joining today. In the second quarter, the external environment continued to present a degree of uncertainty. What we're observing in the field though is largely business as usual, with a sharp focus on execution. Customers are seeking reliable partners who can help them manage the current complexity and Grainger is proud to be that partner.

I recently spent some time with manufacturing and industrial customers in Salt Lake City. These conversations consistently focused on how Grainger can help them drive efficiencies, lowering their purchasing costs and improving inventory management. In times of uncertainty, our role becomes even more important. We are uniquely positioned to help our customers strengthen their purchasing processes and overall operations. To that end, we continue to collaborate closely with our supplier network to uphold our standard of getting customers the right products when and where they need them.

We've built a strong foundation anchored by a world class supply chain and enhanced by strategic investments in product information and digital capabilities. These efforts combined with our scale, deep supplier relationships and ability to provide alternative product solutions allow us to deliver unmatched value in any environment. Beyond serving our customers' operations, we also recognize our broader responsibility to the communities we serve. In times of need, we remain steadfast in our commitment to supporting local communities with emergency response and recovery efforts. It's a part of who we are and how we show up every day.

I am proud of the resilience and dedication demonstrated across our organization and remain confident that our team will continue to deliver value for our customers, our communities and our shareholders. In the second quarter, we delivered solid results that in total were largely in line with our May verbal guide. Total company reported sales for the quarter were nearly $4,600,000,000 up 5.6% or 5.1% on a daily constant currency basis. Operating margins for the company were 14.9% and diluted EPS finished the quarter up $0.21 to $9.97 Operating cash flow came in at three seventy seven million which allowed us to return a total of $336,000,000 to greater shareholders through dividends and share repurchases. Importantly, while the headline results for the second quarter played out largely as expected, they do reflect our estimate of tariff related LIFO inventory valuation headwinds.

As Dee will discuss, without this LIFO impact, our operating margin would have been flat year over year in the period. As we look ahead, we anticipate that continued LIFO headwinds along with further price cost timing pressures will impact our performance in the back half of the year. And as a result, we are updating our earnings outlook for 2025, which Dee will detail in a moment. Importantly, these accounting and timing impacts are mostly transitory. And our expectation is that gross margin will begin to recover over time as we work back toward our price cost neutrality target.

And with that, I'll turn it over to Deeve to go through the details.

Thank you, DG. Turning to slide seven, you can see the high level second quarter results for the total company including $4,600,000,000 in sales, up 5.1% on a daily constant currency basis. Within the period, we saw gross margin softness from segment mix and from the aforementioned tariff related impacts within the high touch business including noise from LIFO inventory accounting. This led to total company operating margins of 14.9% for the quarter, down 50 basis points compared to 2024, but roughly in line with our communicated expectations. Diluted EPS for the quarter of $9.97 was up $0.21 or 2.2% higher compared to the prior year period.

Moving to segment level results. The High-tech Solutions segment delivered solid growth in the quarter. In total, sales were up 2.5% on a reported basis or up 2.8% on a daily constant currency basis with growth across all geographies and local days local constant currency. Results were driven by continued volume growth and modest price inflation in the segment. From an end market perspective, our indicators suggest the MRO market remained muted but was softer than expected.

We saw strong performance with contractor and healthcare customers, which helped to offset slower growth in other areas of the business. For this segment, gross profit margin finished the quarter at 41%, down 70 basis points versus prior year. In the quarter, we saw a negative price cost spread as we progressed negotiations with suppliers and elected to not pass any off cycle price increases on to our customers. This caused timing related lumpiness in the period. However, as pricing catches up, starting with our regular September cycle, we expect price costs will begin to recover.

Further, because we are on LIFO, we had to pull through the current estimated impact of all effective cost increases known to date, putting further pressure on margins in the quarter. These two tariff related impacts were only partially offset by favorable mix in freight in the period. And I would note that if we were not on LIFO, our gross margin rate would have been flat compared to the prior year quarter. On SG and A, we slightly delevered in the quarter as we continue to invest in marketing. These costs along with our annual merit increases that went live to start the quarter were only partially offset by productivity gains and sales leverage.

Taking all of this together, operating margin for this segment finished at 16.6%, down 90 basis points versus the prior year quarter. Now focusing on endless assortment segment. Sales increased 19.7% or 16.3% on a daily constant currency basis, which normalizes for the FX tailwinds realized in the period. Zoro U. S.

Was up 20%, while Monitaro achieved 16.4% growth in local days local constant currency. At a business level, Zoro continues its strong momentum driven by growth from its core B2B customers along with improving customer retention rates. At MonotaRO, sales growth remained strong with continued growth from enterprise customers coupled with solid acquisition and repeat purchase rates with small and mid sized businesses. On profitability, operating margins for the segment increased by 200 basis points to 9.9%, with both businesses contributing to the favorability. MonotaRO's margins remained strong at 13.2 as they continue to gain operating leverage.

At Zoro, operating margins accelerated sequentially and were up three eighty basis points year over year to 5.8%, aided by gross margin flow through and strong top line leverage. As sales comps become more pronounced for Zoro in the back half of the year, we do anticipate this margin outperformance will moderate slightly as the year continues. Beyond the results, you will see in the appendix that the team took steps in the period to optimize Zoro's assortment. Specifically, net SKUs declined by 1,100,000 in the quarter, driven by the elimination of some low volume, low service items. This near term reduction is part of an ongoing effort to further improve the customer experience at Zoro and has no impact on our go forward strategy or expected financial performance.

Looking forward, our optimization efforts will continue over the next several quarters, but we expect net assortment growth for the business over time. Overall, we had an exceptional first half across endless assortment and we remain confident in the team's ability to continue delivering strong results going forward. As we look to the back half of the year, I thought it would be helpful to share a brief update on where we are with tariffs. As we shared during our first quarter earnings call, we took initial pricing actions in May primarily related to Section two thirty two and the first wave of announced tariffs on China. These initial pricing actions only apply to a small portion of our products, largely those where Grainger is importing the product directly.

As part of this initial weigh, we did not take any pricing action on the reciprocal escalations. Consequently, we expect our initial pricing actions to hold as they relate to tariff levels that remain in place today. At this point, it's a bit early to get an accurate elasticity read, but as the full competitive set takes price through the cycle, we still expect these May price actions will approach the previously discussed one to 1.5% net annualized price inflation run rate for the high touch business. On the vast majority of our remaining products where Grainger is not the direct importer, we continue to work with our supplier partners regarding tariff related cost increases. We've finalized negotiations on a number of impacted SKUs, but expect conversations to be iterative throughout the balance of the year as the tariff environment remains highly fluid.

Looking ahead to the third quarter, we expect to adhere to our regular cycle with our next pricing action slated to go live in early September. This round will include some further increases on products directly imported by Grainger to reflect current tariff rates, which are higher than what we passed in May. The September cycle will also include initial pricing actions on supplier imported products where we have finalized negotiations. The pass price from this round is expected to result in net annualized incremental price of 2% to 2.5% on a run rate basis for the HITUCH business. Note that these run rate price figures are annualized and on a cumulative basis will lay across the full year 2025 to deliver close to 1% price in total for the high touch business.

As we wait on pricing actions until September, we do anticipate continued headwinds from price cost and further LIFO inventory valuation impacts in the third quarter. But as we pass price, we expect gross margin will recover to more normal levels over time. The team continues to stay nimble as the cost environment evolves, and we take actions as needed over the remainder of the year and into 2026. Despite the anticipated lumpiness, we remain focused on adhering to our two core pricing tenets to remain price competitive and to achieve price cost neutrality over time. Now moving to the updated outlook for the remainder of 2025.

First, we're adjusting our sales outlook to reflect both the latest FX rates and the aforementioned pricing actions, the latter of which we expect will contribute around one percent in total for the HITUCH business in 2025. These tailwinds are partially offset by the softer than expected MRO market we've seen to date, which we don't expect will recover in the back half of the year. More notably, as DG mentioned at the beginning of the call, we're updating our outlook to reflect the tariff related price cost timing headwinds and our current full year estimate for the LIFO valuation impact. Consequently, we've lowered our gross margin guide with the total company now expected to be between 38.638.9% were down 80 basis to 50 basis points year over year. Our SG and A outlook remains largely unchanged and therefore this gross margin pressure will flow through to operating margins where we now expect the total company will finish between 14.715.1%.

This all translates to earnings per share between $38.5 and $40.25 up roughly 1% year over year at the midpoint. Updates were also made to our supplemental guidance, which included $100,000,000 increase in expected capital expenditures due to timing of DC network investments and a related offset to our share repurchase outlook. This updated outlook assumes no changes to the effective tariff schedule as of July 31. The third quarter is off to a solid start with preliminary total company July sales up slightly north of 6% on a daily constant currency basis aided by softer comps in the prior year period. We expect growth will moderate as the quarter goes on and anticipate total company sales for the third quarter to be up north of 5% on a daily constant currency basis.

As discussed, gross margin will see further pressure in the quarter, driving a sequential decline in total company operating margin to around 14.5%. With that, I'll turn it back to DG.

Thanks, Dee. Overall, I'm encouraged by how the team continues to manage through this uncertain and evolving environment. Although we did slightly lower our 2025 outlook, it is primarily the result of the softer than expected market and transitory impacts on gross margin, neither of which change our view of how the business is operating overall. I remain confident in our strategy and our ability to drive long term value for all stakeholders. And with that, we'll open it up for Q and A.

Thank you. And your first question comes from David Manthey with Baird. Please state your question.

Thank you. Good morning, everyone. First question on LIFO accounting and the operating income impact. Looks like it was about, I don't know, 50 basis points or something. And I guess the question that's out here is, if you were on average cost for accounting here in book, would your second half outlook have changed at all?

Or is this just the timing factor of the LIFO and price increases, etcetera?

So our performance if we were on FIFO would have been different, as you noted. However, as it relates to the outlook, our outlook would not have included the negative impacts of LIFO. But our underlying operations, I will say, are still very similar when you look at our ability to estimate the price increases outside of the LIFO impact and the timing of our cost changes. Those things, I believe, will have remained the same. So the only real difference is that we would not have had this LIFO accounting impact flow through COGS and through the P and L in the way it is flowing through today.

When you look at specifically our EPS year over year just comparing ourselves to ourselves instead of being up 2%, EPS would have been up north of six

Yes. That makes sense. And then as we're looking forward, Dee, you gave us some insight into third quarter. I think you said gross margin would step down again in the third quarter and operating income would come in at 14.5%, if I heard you correctly. Could we think about the progression from there?

So I know operating income usually takes a step down seasonally in the fourth quarter, but not necessarily gross margin. So anything directionally you can talk to us about how the P and L is going to move from the third quarter to the fourth quarter just so we incorporate that correctly?

Yes. I do believe seasonally stepping from Q3 to Q4, we will still see the revenue trend through normal seasonality. But the point you make related to pricing, pricing will continue to build with our September pricing change heading into the fourth quarter. And so we will start to see improvement in gross margins and expect to exit the year with improved price cost. And that's what helps with Boeing operating earnings at the end of the year.

Great. That's very helpful. Thanks a lot, Dee.

Your next question comes from Tommy Moll with Stephens. Please state your question.

Good morning and thank you for taking my questions.

It sounds like there was a judgment call made on the timing of when you're going to push through the second batch of inflationary factors here. And I think you referenced that you're just going to take it on the normal cycle in September. I'm just curious what went into that decision making process? Did you consider pushing in a more real time fashion? Have you seen others do that in the marketplace?

What were some of the gives and takes there on arriving at the decision you did?

Yes. So we considered all kinds of different options here. We decided to keep our price increase on a normal schedule. We think it's the best thing from a customer stability point standpoint and we're hearing very good things from our customers about that decision. We will be a little bit upside down in price cost, but there are other factors that are actually moving sort of positively as well.

And as Dee discussed, really the LIFO impact is the biggest impact on our GP right now. And so we felt like ex stat, we could manage this by going to 9.1 and awaken another.

Following up on Zoro, good update this quarter. It sounds like you did some pricing optimization and then also reduced the SKU count. If you can bring us into that decision making process, how long have those initiatives been under consideration? And what's the lay of the land there as we go forward? Thank you.

Yes. And I the pricing decision has been in the works for the better part of a year. We've been considering that and made some changes and have learned our way into what we actually did. It's a bit different tilt on pricing, which provides a better experience for customers. The SKU count one, when you have millions and millions and millions of products, 12,000,000, 13,000,000 products, it's healthy to go through and say which products are actually noise and not creating a great customer experience.

So we basically identified a set of products, a fairly large set of products that we got rid of. We will continue to expand the assortment, but want to make sure we do it in ways that actually improve the customer experience. So that's really what that was all about.

Thank you for the insight. I'll turn it back.

Your next question comes from Chris Snyder with Morgan Stanley. Please state your question.

You. D. C, in your opening remarks, you talked about how in times of uncertainty customers lean more heavily on Grainger. And we certainly saw that through COVID and all the supply chain disruption that followed. But it doesn't seem like we're seeing that same impact here in this current period of disruption.

Outgrowth remains sluggish. There seems maybe a little bit of less conviction in pushing price to get value for that supply chain partner status. So I guess, I mean, maybe you would disagree with that. But why do you think, maybe we're not seeing those tailwinds that we saw in other times of disruption?

Well, I think the pandemic disruption was very much a supply disruption, which is less the case this time. I think there hasn't been many as many challenges getting supply. So we may have seen some tailwinds there. I would say a couple of things. One is, I don't think we have any, lack of confidence in passing price.

I think we're just trying to time it correctly for customers and marry it up so it actually makes sense. And so we still feel like we're going to be able to pass price through this period. We may not see as much cost as others as well. So our price headline prices might not be as big, but there's mix issues and all kinds of things that drive that. And in terms of share gain, actually the second quarter looked better from a high touch share gain and we continue to see significant disruption between our internal metric and the one unit metric, the external one.

And the internal one would suggest we gain quite a bit of share in the second quarter. And there's been surveys from your peers that have suggested the market was down two or three even in the quarter. So I think actually share gain we feel pretty good about again. So I don't know that we feel like we're not gaining share. We do feel like we're gaining share.

Thank you. Appreciate that. And then I guess just on the gross margin, the 50 basis points guide down. Could you just kind of maybe talk about how that splits between the LIFO pressures, which it sounds like are higher than were expected in April despite general de escalation versus how much of that pressure is just from price cost timing into the back half? Thank you.

So I just want to step back a little bit. So thanks for that question. I think it ties back to the last question too a little bit, which is back in Q1 when we were looking at the guide, there was information in the market related to tariffs. One piece of information was like China tariff was like at 135%, which it is nowhere near today. And so when DG talked about being really prudent about the timing of when we're going to take price, this is what we mean.

Like if we would have taken that assumption, which was very high level, very hard to measure at that point in time and then roll that through our estimates, we would have had some jarring changes And then now having had a whole quarter of better information, a little bit more certainty around tariffs and then being able to actually estimate their near term impacts, I think has put us in a better position. And then that has also allowed our pricing team to take that information and then make better pricing decisions with our customers at this time. Back to your question related to how much is LIFO versus how much is price cost. The vast majority of the impact to us or like as an example to high touch in this quarter is the LIFO impact, like 80 basis points.

And so there is impact to price cost, but much smaller than the impact of LIFO. And we believe that will continue to be the case as we move through the year because as we've noted, we will, in September, be then updating for the incremental increase that had been announced on aluminum and steel plus some of the other changes that have occurred. And so that will also continue to flow through as subsequent LIFO adjustments. But as it relates to gross margin, none of that reverts unless we have deflation, which we don't see any coming. But gross margin will improve since we're on LIFO because pricing will start to take hold.

And so if there's one thing to walk away with those of us that are on LIFO have a hotter impact or more negative impact to gross margin at the beginning of these cycles because we restate our entire inventory to the latest price or cost of goods and that flows through the P and L immediately. Over time, as pricing takes hold and that LIFO impact normalizes, our gross margin starts to recover and improve. Different than those on FIFO, who have the opportunity to flow through their lower cost inventory while they're taking price, leading to higher gross margin that then starts to mitigate through the cycle. So over time, our gross margins will become much more comparable to others based upon the differences in our accounting treatment. So we expect our gross margin and specifically our price cost, which is not the biggest impact here, it is a timing difference, to moderate as we go through the 2025 and into early twenty twenty six as we continue to take price.

Your next question comes from Jacob Levinson with Melius Research. Please state your question.

I realize these tariffs are a moving target. But if you've got if you have a 30% tariff on China today and obviously different rates than some of the other major manufacturing centers, does is the economics of private label really changing versus the branded side? Because I assume it's probably not necessarily straightforward because you've got branded stuff that's also being made in China or Vietnam. But I'm just trying to get a sense of whether there's been a real shift in terms of economics of private label.

Yes. So I guess, first of all, I would say that we do have a lot of U. S. Private label production, so that is not affected. Certainly, China component of private brand is could be impacted.

It really depends without sort of giving you a direct answer here, it really depends on the SKU level analysis. So there are some SKUs for which a 30% tariff might make them much less competitive to the national brand. And there's many where it doesn't matter, you're still more competitive coming from China. So really it's happening at the SKU level. We're watching it very closely.

I suspect once we get through the next quarter, we'll have a lot more to say about what we're seeing. It's still really, really early, in terms of what we're seeing from the cost increases on our private brand. But it's going to vary dramatically by SKU and we'll have a better perspective over time.

W.W. Grainger (GWW) Q2 2025 Earnings Call Transcript

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