Grainger April Sales Up 12% - Analyst Blog


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W.W. Grainger ( GWW ) reported year-over-year sales growth of 12% in April 2012. Growth slackened from 17% in January, 18% in February and 15% in March this year because of sluggish customer end markets.

Acquisitions added 5 percentage points to growth and organic sales increased 7% with higher volume contributing 5 percentage points and pricing another 3 percentage points. However, a 1-percentage point dip from unfavorable foreign exchange was a partial offset.

Geographically, daily sales in the United States increased 7%, with 4% contribution from volume and 3% from price. As per end markets, Reseller was up in the low double digits followed by Heavy Manufacturing, Light Manufacturing, Retail, Commercial and Natural Resources, which were up in the high single digits. Government increased in the low single digits while Contractor remained flat. E-Commerce sales in the United States sustained its pace of growth at approximately two times the rate of other channels, contributing 31% of total U.S. sales.

Canada saw an increase of 9% due to volume (12%) and price effects (1%) which were offset by negative foreign exchange (4%). In local currency, sales increased 13% driven by growth in the Commercial, Light Manufacturing and Oil and Gas end markets.

Daily sales at the company's Other businesses, which include operations in Europe, Japan, Mexico, India, Puerto Rico, China, Dominican Republic and Panama, increased 79%, primarily due to incremental sales from Fabory. Excluding acquisitions, sales in other businesses increased 20%, driven by strong growth in Japan and Columbia. However, Fabory sales were weak due to the scenario in Europe.

April 2012 had 21 selling days, the same as April 2011. Looking forward, May will have 22 selling days compared with 21 last year; the second quarter of fiscal 2012 will have 64 selling days, the same as the prior-year quarter.

Grainger's first quarter 2012 earnings increased 19% year over year to $2.57 per share, and revenues went up 16% to $2.193 billion. For 2012, the company envisions sales growth in the range of 12% to 14% and earnings per share between $10.40 and $10.80.

Grainger remains focused on expanding its product offerings and growing the share of its private label brands. The company's recent catalog, issued in February 2012, offers 413,000 facilities maintenance and other products, up from 350,000 products in the February 2011 issue. Grainger has a long-term vision to expand the count to 500,000 products by 2015. The company has historically seen growth of approximately 2% per year on sales from products added through the program.

Currently, 23% of Grainger sales are from private label, but the company expects to increase that to 40% over time. Private label has been a significant driver of sustainable margin expansion over the past few years, especially in the globally sourced product category.

Grainger also focuses on expansion programs for strengthening its businesses in each of its operating regions, mainly in Asia and Latin America. The primary areas of focus for international growth are sales and earnings growth in the existing markets, selective expansion into new markets in a phased approach and ongoing development of the global infrastructure.

E-commerce is one of Grainger's most efficient channels as it is reportedly growing twice as fast as the other channels. There is scope to drive it up to 50% of revenues in the next five years. This channel also carries higher margins as it requires lower selling, general and administrative costs.

Despite the momentum slipping in the most recent month, we believe Grainger is solidly placed to push sales growth thanks to its in-place initiatives. Currently, the shares of Grainger have a Zacks #2 Rank, implying a short-term "Buy" recommendation. It competes with companies like Applied Industrial Technologies Inc. ( AIT ) and WESCO International Inc. ( WCC ).

Illinois-based Grainger is a leading North American distributor of material handling equipment including safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, etc. The company's services comprise inventory management and energy efficiency solutions.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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