W.W. Grainger’s Weak February Not Shocking Given Weather


W.W. Grainger’s February average daily sales (ADS) were up 3%, versus our 4% forecast. Although weather was disruptive during the month, the impact was partly offset by increased sales of seasonal products. Still, the comparison was 100 basis points easier than January, and we were hopeful Grainger would match our forecast. U.S. volume growth improved slightly to 3%, but Canadian volumes remain lackluster, due to the soft economy.

Adding back 100 basis points for net-weather U.S. volume was up a solid 4% in what still appears to be an overall sluggish demand backdrop. Pricing was neutral in February, which was a surprise following a 2% price increase in January. While timing of the catalog price increase was the primary factor, we thought there would be at least 1% price. Fastenal’s (FAST $48.40; Outperform) growth acceleration in February on a tougher comparison looks even better after Grainger’s report.

March growth is trending slightly above February. March will benefit from the timing of Good Friday, which impacted March 2013, but is in April this year. Grainger’s business in Canada and Latin America is closed for Good Friday, and the U.S. typically experiences softer traffic. We estimate the impact could be an additional half selling day, representing about two percentage points of sales growth. We reduced our March estimate from 7.0% to 6.0%.

The pricing situation has confused investors in recent months. It is our understanding that January benefited from an easy price comparison, because the annual February price increase was pulled forward one month. With a more-difficult comparison in February pricing was flattish year-over-year. Management still expects to achieve 1% price in 2014, as the second half of 2014 will have an easier price comparison, as price in 2013 degraded as the year progressed due mainly to mix. It is unclear to us why price erosion will be less of an issue in 2014 than it was in 2013.

Underlying volume improved 100 basis points sequentially with all three geographies accelerating. Grainger and customer facility closures due to weather disruptions were a 200-basis-point headwind in the period. This was somewhat offset by a 100-basis-point benefit from higher sales of seasonal products.

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