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.