Grainger 4Q Sales Grew 5.1% as 2023 Reached $16.5B - Modern Distribution Management

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Grainger 4Q Sales Grew 5.1% as 2023 Reached $16.5B

The figures reflected a broader industrial supply demand slowdown, though Grainger's 4Q growth deceleration was less than most public firms that have reported so far. Get our full breakdown here.

MRO and industrial supplies distribution giant Grainger reported its 2023 fourth quarter and full-year financial results on Feb. 2, showing a modest sequential deceleration in sales growth and gross margin for the October-December period.

Chicago-based Grainger posted total 4Q23 sales of $4.0 billion, up 5.1% year-over-year, with daily, organic sales up 5.5%. Reflecting the broader industrial supply demand slowdown, that overall growth figure trailed 3Q23’s 6.7%, 2Q23’s 9.0% and 1Q’s 12.2%.

Grainger’s 4Q23 gross margin was 39.1%, down 50 basis points year-over-year and down 20 bps from 3Q and 2Q. The company’s 4Q23 operating profit of $557 million was up 2.4% year-over-year and trailed 3Q’s $667 million, while 4Q23 operating margin of 13.9% was down 40 bps year-over-year and down 200 bps from 3Q. 4Q adjusted operating profit of $583 million was up 11.5% year-over-year, with adjusted operating margin of 14.6% was up 80 bps.

Grainger had a 4Q23 net profit of $395 million, down 2.9% year-over-year and trailed 3Q’s $476 million. Adjusted net profit of $417 million was up 14.5%.

The adjusted results exclude Grainger’s loss related to its 4Q divestiture of subsidiary E&R Industrial Sales.

In an initial view of Grainger’s 4Q23 financials, Baird’s Industrial Distribution Equity Research unit noted: “Overall, we continue to like the company-specific momentum at Grainger, while cyclical tailwinds also augment so no change to our positive thesis.”

For the full year, Grainger totaled sales of $16.5 billion, a company record, which was up 8.2% year-over-year. Daily, organic sales grew 9.5%. The company’s 2023 gross margin of 39.4% was up 100 bps from 2022. Operating profit of $2.57 billion was up 15.8% (18.1% adjusted) and operating margin of 15.6% was up 110 bps. Grainger’s 2023 net profit of $1.83 billion jumped 18.2% (21.2% adjusted).

“Our strong 2023 performance was driven by the team’s focused execution against our long-term strategy in a normalizing demand market,” Grainger Chairman and CEO D.G. Macpherson said in the company’s financials release. “We strengthened our advantage in both our High-Touch Solutions and Endless Assortment segments and achieved record annual sales and earnings by remaining committed to our purpose, ‘We Keep the World Working.’”

By Grainger Business Segment in 4Q23

  • High-Touch Solutions N.A. sales of $3.22 billion (80.5% of total) were up 4.7% year-over-year, with growth across all geographies amid positive, but decelerating price contribution. 
    • Gross margin of 41.4% fell 50 bps year-over-year on negative price/cost spread and year-end inventory cost adjustments (including lap of 4Q22’s LIFO benefit), partially offset by sustained freight and supply chain efficiencies. 
    • Operating margin of 16.4% grew 90 bps, aided by lapping one-line items in 4Q22.
  • Endless Assortment sales of $709 million (17.7% of total) were up 6.0% year-over-year, with organic sales up 8.2%. 
    • At emarketplace platform Zoro, sales grew 2.6% on a daily basis, while growth was 9.9% at Japan-based MonotaRO on a locally daily & currency basis.
    • Gross margin of 29.6% fell 60 bps as unfavorable product mix at Zoro was partially offset by freight efficiencies at MonotaRO.
    • Operating margin of 7.8% grew 50 bps — Zoro’s fell 250 bps on unfavorable gross margin and slower than expected top-line growth, while MonotaRO’s increased 240 bps on higher gross margin and SG&A leverage, aided by lapping one-line items in 4Q22.

2024 Outlook

In providing its initial 2024 outlook, Grainger issued a full-year sales guidance range of $17.2-$17.7 billion, which would be up 4.3-7.3% vs. 2023. The company expects daily, organic sales growth of 4.0-7.0%.

The outlook includes 2024 gross margin of 39.1-39.4% and operating margin of 15.3-15.8%. Operating margin in High-Touch Solutions N.A. is forecasted at 17.4-17.9%, and 7.3-7.8% at Endless Assortment.

Other 4Q23 Grainger Notes

Grainger’s 4Q23 financials were issued one day after the company announced plans for a 1.2-million-square-foot distribution center near Houston that is projected to open in 2026 and staff about 400 employees within a year after. The company is currently building a 525,000-SF bulk warehouse in Pineville, NC that is set to open later this year, while a 535,000-SF DC in Gresham, OR is on track to open in 2025.

Also during 4Q23:

  • Grainer’s Zoro emarketplace platform held the grand opening of its new headquarters offices in downtown Chicago on Jan. 18.
  • Grainger appointed former Fortune Brands Executive Chairman and CEO Chris Klein to the company’s Board of Directors on Dec. 13.
  • Also on Dec. 13, Grainger announced the aforementioned divestment of its E&R Industrial subsidiary (Sterling Heights, MI) — a distributor of industrial equipment that it acquired in 2013 — to private equity firm Paradigm Equity Partners.
  • In mid-November, Grainger hired Cecelia Myers as Group Product Manager, where she will lead the company’s strategy to custom-build technology capabilities aimed at customer experience management.

Grainger frequented MDM’s 2023 Top Distributors Lists, including at No. 1 for Industrial distributors, No. 1 for MRO, No. 5 for HVACR, No. 5 for Plumbing, No. 6 for Fluid Power, No. 7 for Power Transmission/Bearings and No. 16 for Electrical.

Grainger will host its Grainger Show customer event over Feb. 11-13 at the Orange County Convention Center in Orlando, FL.

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