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    GWW
    Earnings call· Sep 2025(Q3 FY25)

    W.W. GRAINGER, INC. GWW

    Oct 31, 2025 Source

    Executive summary

    W.W. Grainger Q3 FY25 — Strong Execution Outpaces Guide Amidst UK Exit and LIFO Headwinds

    Grainger delivered solid Q3 FY25 results, outperforming its August guide, driven by strong execution and digital capabilities. The company is narrowing its full-year EPS outlook, reflecting the planned exit from the UK market and the impact of the government shutdown, while navigating persistent tariff-related LIFO headwinds. Management remains confident in its long-term earnings framework and ability to pass through cost increases.

    Highlights

    5

    • Total company reported sales were nearly $4.7 billion, up 6.1% on a reported basis or 5.4% on a daily constant currency basis.

    • Gross margins finished ahead of expectations at 38.6%.

    • Diluted EPS finished the quarter up $0.34 to $10.21, representing a 3.4% increase year-over-year.

    • Operating cash flow came in at $597 million, enabling $399 million returned to shareholders.

    • Endless Assortment segment sales increased 18.2% on a reported basis or 14.6% on a daily constant currency basis.

    Concerns

    5

    • Gross margins were down 60 basis points year-over-year due to segment mix headwinds and tariff-related LIFO impact.

    • Operating margins were 15.2%, down 40 basis points compared to the prior year.

    • High-Touch Solutions gross profit margin finished at 41.1%, down 50 basis points versus prior year.

    • The Q4 implied daily organic constant currency growth rate is 4% at the midpoint, with October starting at approximately 1% due to hurricane comps and government shutdown impacts.

    • The company recognized a $196 million loss from the pending sale of its U.K.-based Cromwell business and proposed closure of Zoro U.K.

    Guidance & targets

    7
    CategoryTargetConfidence
    Full-year 2025 Adjusted EPS
    $39.00 to $39.75
    high materiality
    High
    Full-year 2025 Daily Organic Constant Currency Sales Growth
    4.4% to 5.1%
    high materiality
    High
    Q4 Implied Daily Organic Constant Currency Growth Rate
    4%
    medium materiality
    High
    Q4 Implied Operating Margins
    around 14.5%
    medium materiality
    High
    Total Company Gross Margins
    stabilize around 39%
    high materiality
    High
    Inventory Accounting Dynamics from LIFO
    persist over the next couple of quarters
    medium materiality
    High
    Inflationary Pressure
    expected further into 2026
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    High-Touch Solutions
    Sales growth was driven by volume growth and price inflation. Gross profit margin was down 50 basis points year-over-year due to negative but improving price/cost spread and LIFO pull-through. SG&A margin improved due to productivity and sales leverage.
    Gross profit margin: 41.1%MRO market remained mutedStrong performance with contractor and healthcare customersImproving results with manufacturing customers
    		$3.4B3.4%—17.2% operating margin
    Endless Assortment
    Strong sales growth and improved operating margins, benefiting from gross margin flow-through and healthy top-line leverage. Zoro focused on enhancing customer experience and assortment, driving B2B growth and retention. MonotaRO saw continued growth from enterprise and SMB customers.
    Daily constant currency growth: 14.6%Zoro U.S. sales growth: 17.8%MonotaRO sales growth: 12.6% (local days, local constant currency)MonotaRO operating margin: 13.2% (up 80 bps)Zoro operating margin: 5.8% (up 150 bps)
    		$1.3B18.2% reported—9.8% operating margin

    Operational metrics

    15
    Total Company Reported Sales
    $4.7Bup 6.1%
    Q3 FY25

    Outpaced August formal guide.

    Total Company Gross Margin
    38.6%down 60 bps YoY
    Q3 FY25

    Finished ahead of previously communicated expectations on a less-than-expected LIFO impact.

    Total Company Operating Margin
    15.2%down 40 bps YoY
    Q3 FY25

    Impacted by gross margin decline, but ahead of expectations.

    Diluted EPS
    $10.21up $0.34 or 3.4% YoY
    Q3 FY25

    Reflects solid performance despite headwinds.

    Capital Returned to Shareholders
    $399M
    Q3 FY25

    Supported by strong operating cash flow.

    LIFO Headwind on Gross Margin
    60 bpsYoY decline
    Q3 FY25

    Contributed to the year-over-year decline in gross margin, but was lighter than expected.

    Implied FIFO Gross Margin Rate
    increased year-over-yearincreased YoY
    Q3 FY25

    If LIFO headwind was excluded, for comparability across peer set reporting on FIFO.

    LIFO Headwind (Normal Period)
    20 to 30 bps
    Normal cost inflation

    Reflecting the real-time impact of higher costs flowing through P&L during normal cost inflation.

    Price/Cost Spread
    negative but improving
    Q3 FY25

    As negotiations with suppliers progressed and incremental price was passed in September.

    October Total Company Sales Growth
    approximately 1%
    October FY25

    Slow start to the fourth quarter.

    October Total Company Sales Growth (Last 2 Weeks)
    4% to 5%
    Last 2 weeks of October FY25

    More in line with Q3 performance, but still reflecting government shutdown impact.

    Return on Invested Capital (ROIC)
    north of 40%lower than prior year
    Q3 FY25

    Despite being lower than prior year, still strong, reflecting investments in DC capacity.

    High-Touch U.S. Midsize Customer Growth
    7%
    Q3 FY25

    Majority of the increase due to softer prior-year comparisons.

    MRO Market Volume
    down 2%
    Q3 FY25

    Reflects the overall market trend.

    Grainger Volume
    1% to 2%
    Q3 FY25

    Company's volume growth in the High-Touch segment.

    Industry KPIs

    5
    MetricValueDetails
    Daily sales rate5.4%%
    End market growth mix—
    ROIC capital intensitynorth of 40%%
    Market volume mro market benchmarkdown 2%%
    Digital vending managed inventory penetration—

    Deals & partnerships

    2
    CromwellSale of UK-based Cromwell business

    Agreement entered to sell the UK-based Cromwell business. This is part of a broader strategy to exit the UK market and focus on North America and Japan.

    Zoro U.K.Proposed closure of Zoro U.K. business

    Plan to fully exit the U.K. market, including the proposed closure of Zoro U.K. business, due to post-Brexit economic dynamics.

    Risks & headwinds

    6
    Tariff-related LIFO inventory valuation headwindsNext couple of quarters

    60 bps YoY decline in gross margin in Q3 FY25; normal drag of 20-30 bps; expected to persist for next couple of quarters.

    Mitigation: Implementing broader price increases (September, November) to offset cost pressures; expecting gross margins to stabilize around 39% long-term as price/cost normalizes.

    Government shutdown impact on salesQ4 FY25

    Estimated 1 point or more impact on total business per day; weighing on public sector sales; contributed to October sales starting at ~1% daily constant currency.

    Mitigation: Factored into narrowed full-year EPS outlook; monitoring resolution by mid-November.

    Lapping prior year hurricane-related sales benefitQ4 FY25 (October)

    Approximately $30 million to $40 million benefit in October of prior year; contributed to October sales starting at ~1% daily constant currency.

    Mitigation: Factored into Q4 sales outlook; last two weeks of October showed 4-5% growth excluding this impact.

    Segment mix headwindsOngoing

    Contributed to 60 bps YoY decline in total company gross margin in Q3 FY25.

    Mitigation: Expected to be offset by price/cost normalization and LIFO impact subsiding in the long-term gross margin stabilization around 39%.

    Further inflationary pressureFY26

    Expected into 2026.

    Mitigation: Continuing active dialogue with supplier partners; taking incremental pricing actions to align price/cost timing.

    Pressure within a subset of private label assortmentOngoing

    Not quantified, but noted as a challenge due to tightening price difference between private and national brands.

    Mitigation: Working through how to strategically treat these cases.

    What to watch in Q4 FY25

    5

    LIFO impact normalization

    Next couple of quarters
    CurrentPersisting, caused 60 bps YoY gross margin decline in Q3
    TargetDissipation of headwinds, gross margin recovery

    Why it matters

    Normalization of LIFO headwinds is key for gross margin recovery and achieving the long-term 39% target.

    With this, assuming no further material changes to the current tariff landscape, we are -- we now anticipate the inventory accounting dynamics from LIFO will persist over the next couple of quarters until inflation cools.

    Q&A highlights

    5

    Clarification on the sales and operating income impact of the Cromwell divestiture and Zoro U.K. closure for Q4 FY25.

    Management clarified that the combined sales impact for Cromwell and Zoro U.K. in Q4 FY25 is approximately $40 million, and the annualized operating margin improvement for the total company from exiting the UK is around 20 basis points.

    “So in total, it's about $40 million. ... And the 20 basis points impact is for total company on an annualized basis.”

    asked by David Manthey · answered by Deidra Merriwether

    2 min read6 chapters

    Detailed Narrative

    01

    UK Market Exit

    Grainger announced an agreement to sell its UK-based Cromwell business and plans to exit the UK market entirely, including the proposed closure of Zoro U.K. This strategic decision was driven by post-Brexit economic dynamics, leading the company to focus entirely on North America and Japanese businesses where it can deliver the greatest long-term impact. The exit is expected to positively contribute to profitability, with an estimated $40 million sales impact in Q4 FY25 and a 20 basis points operating margin improvement for the total company on an annualized basis.

    02

    LIFO Accounting and Gross Margin Dynamics

    The company continues to experience tariff-related LIFO inventory valuation headwinds, which were lighter than expected in Q3 FY25. Management anticipates these LIFO impacts will persist for the next couple of quarters until inflation cools. While LIFO expense is a drag, especially in heightened inflationary cycles, Grainger expects its total company gross margins to stabilize around 39% long-term as price/cost normalizes back to neutral and the LIFO impact subsides, despite continued segment mix headwinds.

    03

    Pricing Strategy and Inflation Management

    Grainger implemented a broader price increase in September and another in November for its High-Touch segment to offset continued cost pressures, including impacts from the recent Section 232 expansion. These actions are aimed at aligning price/cost timing, as the company expects further inflationary pressure into 2026. Management noted that these price increases are reactive to observed cost increases, not speculative, and customers generally understand the necessity given broader market trends.

    04

    Endless Assortment Segment Momentum

    The Endless Assortment segment, comprising Zoro U.S. and MonotaRO, delivered strong sales growth and improved operating margins. Zoro U.S. saw 17.8% growth, driven by enhanced customer experience, improved search, fulfillment, and assortment optimization, leading to strong B2B growth and improved customer retention rates. MonotaRO achieved 12.6% growth in local days, local constant currency, with continued expansion among enterprise customers and strong acquisition/repeat rates with small and midsized businesses.

    05

    Impact of Government Shutdown and October Sales

    October sales started slow, with approximately 1% daily constant currency growth, primarily due to the lapping of a significant hurricane-related benefit in the prior year and the current government shutdown. The government shutdown is estimated to impact the total business by 1 point or more per day, mainly affecting military and federal-linked entities. However, excluding the hurricane impact, sales in the last two weeks of October were up 4% to 5% daily constant currency, indicating a more normalized trend despite the shutdown.

    06

    Technology and AI Investments

    Grainger is actively leveraging technology and AI to enhance customer solutions and drive internal productivity. The company is investing heavily in digital capabilities, proprietary data, and improving user experience, focusing on both commercial advantage and cost-to-serve efficiency. Early applications include back-end processing and customer service, with a strategic emphasis on creating solutions that connect to business processes and provide seamless user experiences.

    AI-generated summary of the company’s earnings call. Not investment advice.