Q1 2023 Global Industrial Company Earnings Call

Speaker 4: in your group.

Speaker 5: Should you need a system, please signal a conference specialist by pressing the star key followed by zero.

Speaker 6: After today's presentation, there will be an opportunity to ask questions.

Speaker 7: To ask a question, you may press star than one on a touchstone phone. To withdraw your question, please press star than two. Please note, this event is being recorded. I'd now like to turn a conference over to Mike Smarjasi and Vesta Relations. Please go ahead.

Speaker 8: Thank you and welcome to the Global Industrial First Quarter 2023 earnings call. Leading today's call will be Barry Litwin, Chief Executive Officer and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question and answer session. Thank you.

Speaker 9: Today's discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statements caption and under risk factors in the company's end-of-report on Form 10K and quarterly reports on Form 10K.

Speaker 10: The press release is available on the company's website and has been filed with the SEC on a Form 8K. This call is the property of Global Industrial Company. I will now turn the call over to Barry. Thanks Mike. Good afternoon everyone and thank you for joining us. This quarter performance reflects a continuation of the recent demand environment.

Speaker 11: with average daily sales declining 3.7%. Price was neutral in the period and volume remained muted, reflecting cautionary purchase behavior, specifically within our core small and medium business customer base.

Speaker 12: These trends have continued into the second quarter. We recorded strong growth from our largest accounts in the quarter. In addition, customer retention remained healthy overall, which we believe reflects the value of our one-to-one managed sales organization. We were very pleased with gross margin performance of 35.9%.

Speaker 13: inventory flowing into our cost of sales.

Speaker 14: Our focus on the customer continues to drive our strategy, and we made further progress on operational excellence and digital transformation initiatives during the quarter.

Speaker 15: Recent e-commerce sales performance on our new web platform has been below our expectations.

Speaker 16: We have identified a number of user experience changes that are increasing friction while navigating our e-commerce site. We aggressively worked to address these issues. In this regard, we recently completed navigation enhancements on the product experience to enhance shoppability and additional optimization efforts are ongoing.

Speaker 17: With the current customer environment focus on value and price, we believe we are well positioned for the long term. Our position is centered on providing exceptional product and service solutions to customers.

Speaker 18: and through our leading exclusive brand assortment, strong national brand assortment, and our pricing analytics, we continue to provide significant value to customers while generating healthy gross margins.

Speaker 19: At the same time, we continue to make marketing investments to help increase customer acquisition and feed new business into our e-commerce and manage sales channels.

Speaker 20: In the quarter, we increased total marketing investment, and we expect to continue to make further target investments in an effort to support growth and market share gains.

Speaker 21: Looking forward, the customer demand environment remains challenged and our small and medium business base cautious. That said, we believe we have the tools and resources to navigate the current market conditions and remain committed to investing in key growth initiatives to drive our long-term success.

Speaker 22: Across the business, we are focused on delivering an exceptional customer experience.

Speaker 23: driving operational excellence, and proactively managing our cost structure.

Speaker 24: We believe we have a powerful customer growth model that allows us to efficiently migrate customers up our sales model while building deep and loyal relationships.

Speaker 25: Global industrial's private brand offering, one-to-one managed sales team, operational flexibility, and the efforts of our associates allow us deliver significant value to our customers.

Speaker 26: I will now turn the call over to test. Thank you, Barry. First quarter revenue was $273.8 million, down 5.1% over Q1 of last year. Average daily sales were off 3.7%. US revenue was down to 3.7%, while revenue in Canada was off 17.3% in local currency. Excluding the benefit of a large one-time deal last year, Canada sales declined approximately 6.4% in local currency. Price was neutral in the quarter, in contrast to pricing benefit recognized throughout most of 2022.

Speaker 27: We did see contraction in AOV in the quarter, primarily attributed to the lower number of large opportunities in the period.

Speaker 28: Demand softened as we move through the quarter and we have seen a continuation of this trend into the start of the second quarter.

Speaker 29: Overall, we believe customers remain guarded in their buying decisions and the pricing environment remains competitive.

Speaker 30: Gross profit for the quarter was $9.4 million down 8.7% from last year.

Speaker 31: Gross margin was solid at 35.9%, a slight decline from sequential quarter results, but off from the record 37.4% in the prior year. The year-ago period benefited from strong price realization and lower cost playful inventory sell-through, both of which have fully waned. Product margin trends improved as we moved through the quarter as we benefited from...

Speaker 32: maintaining our margin profile in the current environment. However, we expect continued variability throughout 2023 as we navigate seasonality, work through select categories of inventory that maintain a higher cost profile, manage the increasingly competitive pricing environment, and look to continue to drive value for our customers through competitive price initiatives.

Selling distribution and administrative spending for the quarter was $80.6 million or 29.4% of sales.

an increase of 230 basis points from last year. SD&A primarily reflects the fixed cost nature of the business, including compensation expense, which included the impact of our previously announced reduction in force, planned marketing investment, and the expansion of our DC network.

We continue to maintain strong cost controls and will evaluate additional steps to optimize our structure.

Operating income from continuing operations was $17.8 million in the first quarter and operating margin was 6.5%. With a strong commitment to invest in our long-term growth initiatives and fixed cost of leveraging given the current demand environment, operating margin is likely to remain challenged near term.

Total depreciation and amortization expense in the quarter was $1.1 million, while capital expenditures were $0.7 million. We expect 2023 capital expenditures in the range of $6 to $8 million, which includes primarily maintenance-related investments and equipment within our distribution network. Let me now turn to our balance sheet. We have a strong and liquid balance sheet with a current ratio of 2.2 to 1. As of March 31st, we had over $48 million in cash and no debt. We ended the quarter with approximately $116.6 million of availability under our $125 million credit facility. The continued improvement in our debt position reflects decreased working capital needs as inventory levels normalize.

If at any time your question has been addressed and you would like to to ask your question, please press star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Anthony Levison's Keith with Sedoti. Please go ahead.

Thank you and good afternoon and thanks for taking the questions.

So, yeah, appreciate the color as far as you know talking about the Large account segment and an SMB as well So but just just curious, you know within the SMB business were there any particular vertical markets that stood out one way or the other or was the

weakness that you saw kind of broad base across your core customer group.

Yeah, it's a great question, Anthony, and thanks for joining. I would say that we have, from an SMB perspective, I would say this offness was fairly broad across the whole network. And obviously we play in the, you know, everything from retail to manufacturing, logistics, and some of the new markets that we're in as well. So I would say it was fairly broad.

Yeah, you know anything meaningful.

Yeah, those two segments Anthony's you know when we've talked about that for some time Those are fairly new segments for us to grow into both Hospitality and health care so they're kind of at a early stage in terms of growth So I would I would be pressed to say that there was really any material impact on of some of the newer markets I think in terms of some of our

you talked about identifying a number of user experiences, changes as far as navigation and so on. So can you go into a little bit more depth as to what happened there and what you've done to improve the situation? Sure, sure, it's a great question.

You know, in Q1, we saw some data trends that we really didn't like in the product navigation shopping experience and browse experience. And I would tell you, Anthony, this was really an event during the period and not an ongoing concern. We addressed it aggressively in the first quarter with a number of navigational experience changes. And I believe at this point that it's cured with some of the trends.

gross margin really well. We were pleased with kind of the strong performance at 35.9. You know as we mentioned during the call I think you know supply chain issues have really retreated at this point and we're enjoying some of the benefit of lower landed cost you know relative to ocean freight reductions.

I think we're spending some, I think, a really good effort around price and diligence to keep us competitive in this market. I mean, it's the backdrop of no price appreciation, you know, really in our revenue. I think the customer market for the most part is turn more to value and price.

I think we're managing that well and have shown good discipline in overall margin management. I think we're definitely going to look at going forward and part of our plan now is to focus on COGS improvement, both out of our private brand and strategic supplier relationships. I think that's going to be important to our overall margin expansion going forward.