W.W. Grainger, Inc. (NYSE:GWW) Q3 2023 Earnings Call Transcript

D.G. Macpherson: Yes. I mean we still think that it’s going to be a real strong growth driver for the company. We’re going to — like I said, we’re running some tests here in the fourth quarter. We’re going to learn more, and we’ll continue to communicate with you what we think the go-forward growth is as we move forward.

Operator: And our next question comes from Deane Dray with RBC Capital Markets.

Deane Dray : Question on destocking because it’s — I’m not sure it’s an issue for you. Certainly not — it’s not coming up on the call here and in your remarks. Any issues with customer destocking, maybe they’re lightening up on some of their working capitals, lead times on products and just all sort of the post-COVID normalization. Is that at all impacting your volumes?

D.G. Macpherson: No. That really never comes up in customer visits. I was out in Northern California last week. And I would say for our types of products, customers just generally don’t ever have like overstock of our inventory, they’re buying when they need it. And frankly, a lot of our value proposition is helping them not have too much. So we really pride ourselves in making sure that customers have what they need to keep the business running, and that’s really all they have.

Deane Dray : Good. All right. That’s — I like hearing that. And then maybe I’m just more aware of it now, but is there a bigger push on brand building, both in advertising, TV and radio because I’m certainly hearing it a lot more. And how do you measure the returns on that I’m certainly — it helps on brand building. It helps some of your outgrowth, but do you have any other precision around that?

D.G. Macpherson: Yes. Certainly, we’ve talked about it before, marketing has been a big part of what’s helping us gain share. In terms of media advertising, we generally measure returns based on A/B tests where we test in certain markets and understand what the actual pull-through is from those. And so we — I would say our marketing area is probably the — as well in measured areas you could possibly imagine. So we can tell you with a lot of precision what’s working and what’s not, and that helps us figure out what to do.

Operator: And our next question comes from Chris Snyder from UBS.

Chris Snyder : I wanted to ask on the project-related value-added services. I guess first, just to confirm, it sounds like that was a 60 basis point boost to high such gross margin in Q3? And then I guess kind of just higher level, can you just talk a little bit about what are these project-related value-added services that the company is providing? And what makes them 1 time or transitory in nature?

Dee Merriwether: So thanks for the questions. So — we go to market with our customers to help them solve problems, and those problems are solved with a combination of products, as you know, but also services. We have over 400 what we classify as value-added service providers that help us solve those customers’ problems. And this is an ongoing revenue stream for us. However, what we have attempted to call out in this quarter and then also it impacted us in Q2 is that we had a larger number of projects in the services area that we do not believe will repeat. Some of those projects include things that are more steady state for us that we have been working with our customers on over the longer period of time are things like lighting retrofits, roofing projects, safety certifications to help them ensure that they are investing in the right products as well as capabilities to ensure that they can pass safety audits, et cetera.