W.W. Grainger, Inc.

Greetings, and welcome to the WW Grainger Fourth Quarter 2025 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You may be placed in the question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0. It's now my pleasure to introduce our host, Kyle Bland, Vice President, Investor Relations. Kyle, please go ahead.

Good morning. Welcome to Grainger's fourth quarter and full year 2025 earnings call. With me are DJ McPherson, Chairman and CEO, and Dean Merriweather, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements that are subject to various risks and uncertainties. ADDITIONAL INFORMATION REGARDING FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY IS INCLUDED IN THE COMPANY'S MOST RECENT FORM 8K AND OTHER PERIODIC REPORTS FILED WITH THE SEC THIS MORNING'S CALL INCLUDES NON-GAP FINANCIAL MEASURES WHICH REFLECTS CERTAIN ADJUSTMENTS IN PREVIOUS PERIODS AS NOTED IN THE PRESENTATION THERE WERE NO ADJUSTING ITEMS IN THE FOURTH QUARTER 2025 PERIOD We have also included organic revenue adjustments in the presentation, which normalize sales growth to reflect our exit from the UK market, including the Cromwell divestiture and the closure of Zorro UK. Definitions and full reconciliations of our non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to Monotaro. Please remember that Monotaro is a public company and follows Japanese GAAP. which differs from U.S. GAAP and is reported in our results one month in arrears. As a result, the numbers discussed will differ from Monetaro's public statements. Now I'll turn it over to DG.

Thanks, Kyle. Good morning, everyone, and thank you for joining. Despite the macroeconomic uncertainty and challenging environment in 2025, the Grainger team continued to execute against our strategy, delivering exceptional service and a best-in-class experience for our customers. During 2025, we made strong progress. We leveraged our technology capabilities and our know-how to strengthen our competitive advantage in each segment. We streamlined our portfolio by exiting the U.K. market. We invested a new supply chain capacity to extend our service leadership. We lived the greater edge each day to foster a workplace environment where team members can build a rewarding career, and we delivered on our financial commitments for the year. Overall, this progress positions us well as we move into 2026. Before I dive into these 2025 accomplishments in more detail, I thought it would be helpful to reiterate our go-to-market strategy and how each of our operating models addresses the needs of MRL customers, providing a flawless experience and delivering tangible value. This context is important as it drives most of the incremental investment we are making across the business and prioritizes the work our team does every day. Over the last several years, we have invested heavily to build market-leading data and technology capabilities. This includes core product and customer information assets, which has taken on even greater importance as AI accelerates and creates new opportunities to unlock additional value. These data assets underpin our five strategic growth engines and fuel our ability to gain share within our high-touch solution segment. In 2025, we make great progress across these five areas. In merchandising, we have consistently gained share through this important initiative that focuses on building a highly curated product assortment. This includes continued work across our category review process, and expanded use of the Grainger brand name within our private label offer. Our category reviews focus on improving product search, organization, and content, and have more recently had an increasing emphasis on new product introductions, including expansion into new categories. Recent examples include efforts to build out a relevant offer to support data center customers, as well as an expanded breadth of factory automation products such as sensors, machine controls, and actuators. In total, our merchandising efforts in 2025 resulted in net assortment growth of over 85,000 SKUs, our largest net SKU growth for the high-tech segment in nearly a decade. In marketing, the team remains focused on delivering strong returns while also finding ways to improve program effectiveness to deliver better outcomes for the dollars we're spending. During 2025, we found new and creative ways to further leverage our advantage information assets to increase personalization and improve our marketing investment strategy. On the latter, we are leveraging our know-how and machine learning to optimize investment at the SKU level based on our knowledge of relative pricing, product availability, and customer lifetime value. The success we continue to see across this space supports further incremental investment in 2026 and beyond. Pivoting to our seller coverage initiative, we continue to leverage our improved customer data to expand our sales force with a focus on underserved business locations. After slowing our pace and adjusting our approach with this initiative in 2023 and 2024, We added around 110 new sellers across two geographies in 2025. This brings our total program expansion to over 300 sellers across six geographies since 2022, more than a 10% increase in our U.S.-based sales team. The collective performance to date of these geographies has been in line with expectations, and we have planned to address two more regions in 2026. Our sellers are crucial to providing value for our customers and generating demand, and we remain committed to investing in tools and resources to increase their effectiveness. In 2025, we saw strong usage of our new Seller Insights platform. As you may recall, this platform integrates with existing Grainger data sources to provide sellers with a one-stop shop for customer insights. In 2026, we'll leverage AI on this platform to deliver actionable insights, identify new customer contacts, and strengthen leader coaching opportunities. We're just scratching the surface of our potential in this area, and we're excited about the path ahead. Lastly, we continue to see increased demand for value-added services as labor scarcity and cost savings initiatives become customer imperatives. In KeepStock specifically, this has resulted in new customer installations and product category expansions, driving further embeddedness and deeper share of wallet. Additionally, the KeepStock team made progress over the past year, further developing customer-facing tools, and we anticipate a broader rollout of these new capabilities to begin in 2026. These tools provide customers access to enhanced data and insights aimed at improving their user experience and driving procurement cost savings. While it's already a critical part of our offer, we expect KeepStock to become even more valuable going forward. We're excited about the progress we've made across these five strategic growth engines and remain confident in our ability to drive share gain as we execute against these important initiatives. Now, given the critical role that technology is playing in our space, I thought it would be helpful to provide a few use cases of how we are leveraging AI and machine learning across the business. While the ramp curves differ by initiatives, as these efforts mature, they can help increase productivity, enhance service, and create revenue opportunities over time. We have broad experience applying AI in machine learning, and when underpinned by our differentiated data assets, we can create tremendous value. I've already touched on how machine learning is optimizing our marketing investment strategy, and how AI is helping us improve seller effectiveness. On the slide, you can see several other areas of the business where these new technologies are fueling advancements. The point here is to show how prevalent these powerful tools have become, and to highlight how we can leverage our data assets to create solutions that add real value to our customers or to our bottom line. We've learned a great deal in the past two years about AI and feel well-positioned to accelerate these efforts moving forward. Moving to Endless Assortment segment, we made great progress propelling both businesses forward in 2025. At Zorro, the team has regained its growth momentum, focusing on driving improved purchase rates through an enhanced customer experience. Their progress during the year included optimizing the assortment to improve delivery times, launching Zorro-branded private label products, improving the quality of customer acquisitions to enable better repeat rates, enhancing direct marketing capabilities through better analytics, and improving the customer experience through more accurate delivery communication. These actions help reaccelerate sales growth back into the high teams for the full year. At Monotaro, the team continues to execute well, driving strong results, including 25% growth with enterprise customers. They continue to improve and expand their distribution capabilities by extending the reach of same-day shipping to regions beyond Tokyo and Osaka while also planning for the future with the groundbreaking of the new Mito DC outside Tokyo. Similar to Hightouch, we have also progressed our AI and ML capabilities across both EA businesses. It's still early innings, but we are using these technologies to drive productivity and accelerate our momentum across the flywheel, and we have included a few examples on this slide. All told, we've delivered great results across the Ambulance Assortment segment of 2025 and are positioned well to continue this momentum into the new year. Turning to slide nine, I'm very pleased with the continued progress we're making across our distribution network as we stay focused on extending our industry-leading ability to deliver next-day complete orders to customers across both segments. Notably, we've made meaningful progress on three new facilities across the U.S. and Japan. The Northwest DC, which is located outside of Portland, is set to start full outbound operations later this year. This building will improve our service and reduce transportation costs throughout the Northwest. We also continue to make great progress with our Houston Distribution Center, and expect inbound operations to begin in the second half of 2027, with outbound following a few quarters later. In Japan, Monotaro is making great progress on their new, highly automated DC and METO, scheduled to open in 2028. This facility, when complete, will nearly double the shipping capacity that Monotaro has in the country. Outside of new capacity investments, the spy chain team has also worked hard to leverage inventory and transportation solutions to improve service in certain markets, including Florida and Canada. Overall, we continue to invest across our supply chain to make sure that we maintain and extend our leading position in customer fulfillment. Part of our organization remains our people who work hard every day to fulfill our purpose to keep the world working. As you can see on slide 10, our culture was again recognized externally during 2025. We were recertified as a great place to work in the US, Canada, and Mexico, affirming our commitment to being an employer of choice and a place where every team member feels valued and empowered. We were honored for the first time as one of the world's most ethical companies, named once again as one of Fortune's most admired companies and recognized by Glassdoor as the best place to work. These recognitions are a testament to the culture we've built over almost a century in this industry. Granger will always be a place where every team member can have a fulfilling, meaningful career if they are willing to work hard to serve our customers. Now turning to our full-year financials, 2025 certainly had its share of challenges between shifting tariff dynamics, soft MRL market demand, and the government shutdowns. Despite these challenging macro headwinds, we still delivered total company sales growth at 4.5% on a reported basis, or 4.9% on a daily organic constant currency basis, with total sales finishing the year at $17.9 billion. Growth for the year included continued share gain from our high-tech solutions U.S. business, which finished the year with roughly 250 basis points of outgrowth on a volume basis. In this assortment, the segment showed significant top-line improvement with daily organic constant currency sales up 15.6%. Both Soro and Monotaro continue to win with their core B2B customer base and drive improved repeat purchase rates, positioning them well for the future. Alongside the solid top line, the team also did a nice job managing strong margins despite lifelong headwinds, with operating margin finishing at 15% for the year. We delivered adjusted EPS growth of 1.3%, or $39.48 per share. ROIC finished at 39.1%, and operating cash flow was $2 million. which allowed us to return $1.5 billion to Grainger shareholders through dividends and share repurchases. Overall, I'm proud of what we accomplished in 2025. We continue to focus on improving in core areas of the business to perform well over the long term. With that, I will turn it over to Dee to review our fourth quarter results.