Grainger Reports Results For The First Quarter 2021

First Quarter Financial Highlights
*Delivered sales of $3.1 billion, up 2.8%, and up 5.9% on an organic, daily, constant currency basis compared to the first quarter 2020 (excluding divestitures and foreign exchange)
*Expanded reported and adjusted operating margins by 630 and 20 basis points, respectively
*Generated $294 million in operating cash flow and returned $256 million to shareholders through dividends and share repurchases
*Provides full year guidance: Total company daily revenue growth of 8.5-11.0% and earnings per share of $19.00-20.50 (growth of 17.5% to 26.5%)

Grainger (NYSE: GWW) today reported results for the first quarter 2021 with sales of $3.1 billion, up 2.8% and up 5.9% on an organic, daily, constant currency basis compared to the first quarter 2020 driven by strong performance in both the High-Touch Solutions North America (N.A.) and Endless Assortment segments.

“The Grainger team served customers exceptionally well and delivered strong results in the first quarter as the economy continued to recover. In our High Touch Solutions (N.A.) segment, we are seeing sequential revenue improvement in nearly all end markets, recovery in non-pandemic product volume, and stabilizing gross profit margins after adjusting for non-core pandemic inventory. Our Endless Assortment segment continues to deliver over 20% top line growth and improved earnings as expected. Our strong performance in the first quarter gives us the confidence to now provide guidance for the full year,” said DG Macpherson, Chairman and Chief Executive Officer.

Sales for the quarter increased 2.8% as compared to the first quarter of 2020. Excluding revenues from the now divested Fabory and China businesses from the prior year results, and removing the impact from foreign currency translation, daily sales increased 5.9% as compared to the first quarter of 2020. Sales growth was fueled by both the High-Touch Solutions (N.A.) and Endless Assortment segments. In the High-Touch Solutions (N.A.) segment, despite challenging comparisons starting in mid-February with the accelerated pandemic sales of 2020, sales were up 1.8%, and 3.4% on a daily basis versus the prior year quarter. In the Endless Assortment segment, both Zoro U.S. and MonotaRO continued to drive strong customer acquisition throughout the quarter, resulting in a combined 27.4% daily sales growth compared to the first quarter of 2020.

Foreign exchange contributed a 1.1% favorable impact during the first quarter of 2021 compared to the first quarter of 2020. There were 63 sales days in the first quarter of 2021 versus 64 sales days in the first quarter of 2020.

Gross margin for the first quarter of 2021 was 35.5%, a 190 basis point decline over the prior year quarter. The unfavorable variance was driven almost entirely by a pandemic-related inventory adjustment in the U.S. business on certain non-core SKUs, which are selling below cost based on current market-relevant pricing. As noted on the fourth quarter 2020 earnings call, this inventory adjustment in the first quarter of 2021 was expected and by the end of the second quarter, the company expects to sell-through these non-core pandemic products and complete any potential remaining market-driven inventory adjustments. Absent this inventory adjustment, gross margin would have been nearly flat compared to the prior year. The Endless Assortment segment expanded gross profit margin 35 basis points in the first quarter and continues to deliver incremental gross profit dollars. The significant revenue growth in this lower-margin segment had an expected, dilutive impact to total company gross profit margin of approximately 30 basis points.

Reported operating earnings for the first quarter of 2021 of $358 million were up 126% versus the first quarter of 2020, primarily due to charges taken in the first quarter of 2020 related to the now divested Fabory business. On an adjusted basis, operating earnings for the quarter of $358 million were up 4% versus the first quarter of 2020.

In the first quarter of 2021, operating margin of 11.6% increased 630 basis points on a reported basis, 20 basis points on an adjusted basis, versus the first quarter of 2020. The increase in adjusted operating margin was driven by 210 basis points of selling, general, and administrative (SG&A) expense leverage achieved through prudent cost control in the High-Touch Solutions (N.A.) segment and strong expense leverage in Endless Assortment.
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