The 2020 Mid-Year Economic Update_long

Grainger to Close 59 Branches in Canada

CEO: Action needed to 'speed the path of profitability.'

Now that Grainger's realignment of its U.S. branch network has been completed, the Chicago, IL-based MRO distributor is turning its attention north. The company announced last week that it would shutter 59 of its 144 branches in Canada.

"To be clear, we are in the midst of a substantial transformation in the business," said President & CEO DG Macpherson in a call to discuss the company's second-quarter results.

The Canadian market has been challenging for Grainger over the last few years, with the segment recording a sales decline of 11 percent in the fourth quarter of 2016. While that figure was much smaller in the latest results – down just 3 percent overall, and up 2 percent in local currency – "our long-term guidance for Canada of 2 percent to 4 percent is not good enough," Macpherson said.

"Our actions in Canada are intended to speed the path of double-digit profitability for the business," he said. "…We are really focused on getting the business reset to a place where it can grow profitably."

Companywide, Grainger continued to see margin compression due in large part to its ongoing price restructuring in the U.S., its largest market. Profit fell 43.6 percent during the quarter. U.S. segment sales were up 1 percent, driven by a 5-percent increase in volume.

"We are seeing positive signs where we want to see positive signs," Macpherson said. "Most notably, reversing trends with midsize customer volume and large customer spot-buy volume." Midsized customer volume grew for the first time in more than five years.

About 25 percent to 35 percent of Grainger's online SKUs have been repriced since the beginning of 2017.

But the company expects the initiative to continue having a negative impact on gross profit through 2018. "In 2019, our price should stabilize, and that volume growth in 2019 should be positive for GP dollars," Macpherson said.

But analysts and investment companies remain divided on the outlook. Stock prices fell to just above the 52-week low the day the second-quarter results were released.

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