Q3 2025 WW Grainger Inc Earnings Call

Formal presentation, if anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce Kyle Bland Vice President Investor Relations. Please go ahead.

Good morning, welcome to <unk> third quarter 2025 earnings call with me are D. G Macpherson, chairman and CEO and deemed Meriwether 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 8-K and other periodic reports filed with the SEC.

This morning's call will focus on our non-GAAP adjusted results for the third quarter of 2025, which exclude the $196 million loss recognized from the pending sale of our UK based Cromwell business and the proposed closure of our zoro UK business.

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 our earnings release, both of which are available on our IR website.

We will also share results related to monetize so please remember that monetary or was a public company and <unk> Japanese GAAP, which differed from U S GAAP and as reported in our results one month in arrears.

Speaker #1: Greetings, and welcome to the WW Grainger 3rd Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

Kyle Bland: Greetings and welcome to the W.W. Grainger, Inc. Q3 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kyle Bland, Vice President, Investor Relations. Please go ahead.

As a result, the numbers discussed will differ from monetary public statements.

With that I'll turn it over to D. G.

Thanks, Kyle good morning, everyone and thank you for joining today's call.

Speaker #1: If anyone should require Operator Assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kyle Bland, Vice President, Investor Relations.

As headlined in the release, our third quarter results were fueled by consistently strong execution from our team. Despite the continued external uncertainty our customers remain focused on improving their operations through increased efficiency and productivity the value of the fundamentals of having inventory where and when they need it and a partner who understands their business and can bring the right solutions.

Speaker #1: Please go ahead.

Speaker #2: Good Good morning. Welcome to Grainger's 3rd Quarter 2025 earnings call. With me are DJ Macpherson, Chairman and CEO, and Deidra Merriwether, Senior Vice President and CFO.

Operator: Good morning. Welcome to Grainger Q3 2025 earnings call. With me are D.G. Macpherson, Chairman and CEO, and Deidra Merriwether, 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 8-K and other periodic reports filed with the SEC. This morning's call will focus on our non-GAAP adjusted results for Q3 2025, which exclude the $196 million loss recognized from the pending sale of our UK-based Cromwell business and the proposed closure of our Zoro UK business.

I spent time in the market with large customers. This past month these themes rang true.

Speaker #2: 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 8-K and other periodic reports filed with the SEC.

I was proud to see green to deliver the critical fundamentals that help our customers everyday.

Recently had great discussions with an aerospace customer and a municipality about how grangers deep rooted inventory management expertise can save them time and reduce costs.

I saw that when we deliver a great service experience customers take notice and it leads to more opportunities and deepen relationships.

Speaker #2: This morning's call will focus on our non-GAAP adjusted results for the third quarter of 2025, which exclude the $196 million loss recognized from the pending sale of our UK-based Cromwell business and the proposed closure of our Zorro UK business.

I also had the opportunity to speak with several experts focused on technology <unk> will continue to be an ongoing focus for grainger, enabling us to provide great solutions for customers and drive productivity in our operations. The promise of these new transformation technologies, that's ever been greater but the key will be leveraging our propriety data proprietary data and know how to build solutions that connect business processes.

Speaker #2: 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.

Operator: 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.com. Please remember that MonotaRO.com is a public company and files 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 MonotaRO.com's public statements. With that, I'll turn it over to D.G.

And create a more seamless user experience.

Speaker #2: We will also share results related to Monetara. Please remember that Monetara was a public company and follows Japanese GAAP, which differs from US GAAP and is reported in our results one month in arrears.

I'm excited about the work, we're doing to be more digital capabilities to both our customers and team members to make things better with every interaction.

Making things better and staying focused on what matters is core to how Grainger operates and we take that responsibility at heart and our communities as well last month at our annual bucket build in Lake Forest. When 500 range of team members came out to pack over 4000 disaster relief kits. This included filling five gallon buckets with essential cleaning supplies and hand tools that will help families individuals begin the <unk>.

Speaker #2: As a result, the numbers discussed will differ from Monetara's public statements. With that, I'll turn it over to DJ.

Speaker #3: Thanks, Kyle. Good morning, everyone, and thank you for joining today's call. As headlined in the release, our 3rd Quarter results were fueled by consistently strong execution from our team.

Donald Macpherson: Thanks, Kyle. Good morning, everyone, and thank you for joining today's call. As headlined in the release, our Q3 results were fueled by consistently strong execution from our team. Despite the continued external uncertainty, our customers remain focused on improving their operations through increased efficiency and productivity. They value the fundamentals of having inventory where and when they need it, and a partner who understands their business and can bring the right solutions. As I spent time in the market with large customers this past month, these themes ran true. I was proud to see Grainger deliver the critical fundamentals that help our customers every day. I recently had great discussions with an aerospace customer and a municipality about how Grainger's deep-rooted inventory management expertise can save them time and reduce costs.

Speaker #3: Despite the continued external uncertainty, our customers remain focused on improving their operations through increased efficiency and productivity. The value of the fundamentals of having inventory where and when they need it and a partner who understands their business and can bring the right solutions.

<unk> recovery after a natural disaster Grainger has a long standing commitment to emergency preparedness and response efforts and this is another reason I am proud of how the Grainger team as our principles everyday.

Now moving to our third quarter results, we delivered a solid performance at in total outpaced our August verbal guide, particularly on the gross margin line total company reported sales for the quarter were nearly $4 7 billion.

Speaker #3: As I spent time in the market with large customers this past month, these themes rang true. I was proud to see Grainger deliver the critical fundamentals that help our customers every day.

Speaker #3: I recently had great discussions with an aerospace customer and a municipality about how Grainger's deep-rooted inventory management expertise can save them time and reduce costs.

Up six 1% on a reported basis or five 4% on a daily constant currency basis.

Margins for the company were 38, 6% operating margins were 15, 2% and diluted EPS finished the quarter up 34 to.

Speaker #3: I saw that when we deliver a great service experience, customers take notice. And at least to more opportunities and deeper relationships. I also had the opportunity to speak with several experts focused on technology.

Donald Macpherson: I saw that when we deliver a great service experience, customers take notice and lead to more opportunities and deeper relationships. I also had the opportunity to speak with several experts focused on technology. Tech and AI will continue to be an ongoing focus for Grainger, enabling us to provide great solutions for customers and drive productivity in our operations. The promise of these new transformation technologies has never been greater, but the key will be leveraging our proprietary data and know-how to build solutions that connect to business processes and create a more seamless user experience. I'm excited about the work we're doing to bring more digital capabilities to both our customers and team members to make things better with every interaction. Making things better and staying focused on what matters is core to how Grainger operates, and we take that responsibility to heart in our communities as well.

$10 21.

Operating cash flow came in at $597 million, which allowed us to return a total of $399 million of greater shareholders through dividends and share repurchases.

Speaker #3: Tech and AI will continue to be an ongoing focus for Grainger, enabling us to provide great solutions for customers and drive productivity in our operations.

Speaker #3: The promise of these new transformation technologies has never been greater. But the key will be leveraging our proprietary data and know-how to build solutions that connect to business processes and create a more seamless user experience.

Our results continue to reflect tariff related LIFO inventory valuation headwinds.

System with what we discussed last quarter, but which came in lighter than expected in the period.

As Steve will discuss without this LIFO impact our operating margin would have increased year over year in the period.

Speaker #3: I'm excited about the work we're doing to bring more digital capabilities to both our customers and team members to make things better with every interaction.

Looking ahead, while we're continuing to see more cost in the market the cycle headwinds will eventually dissipate because inflation cools and our gross margin will recover to a run rate expectation.

Speaker #3: Making things better and staying focused on what matters is core to how Grainger operates. And we take that responsibility to heart in our communities as well.

As you likely saw we recently announced that we've entered into an agreement to sell our UK based Cromwell business and plan to fully exit the UK market.

Speaker #3: Last month, at our annual bucket build in Lake Forest, more than 500 Grainger team members came out to pack over 4,000 disaster relief kits.

Donald Macpherson: Last month, at our annual bucket build in Lake Forest, more than 500 Grainger team members came out to pack over 4,000 disaster relief kits. This included filling five-gallon buckets with essential cleaning supplies and hand tools that will help families and individuals begin the process of recovery after a natural disaster. Grainger has a longstanding commitment to emergency preparedness and response efforts, and this is another reason I'm proud of how the Grainger team lives our principles every day. Now, moving to our Q3 results, we delivered a solid performance that in total outpaced our August firmware guide, particularly on the gross margin line. Total company reported sales for the quarter were nearly $4.7 billion, up 6.1% on a reported basis or 5.4% on a daily constant currency basis.

Given the economic dynamics post Brexit, we had to alter our assumptions around the go forward potential in the region.

Speaker #3: This included filling five-gallon buckets with essential cleaning supplies and hand tools that will help families and individuals begin the process of recovery after a natural disaster.

With this planned divestiture, we are now focused entirely on greater in North America, and Japanese Japanese businesses, where we can deliver the greatest long term impact.

Speaker #3: Grainger has a longstanding commitment to emergency preparedness and response efforts. And this is another reason I'm proud of how the Grainger team lives our principles every day.

Overall, while it has been an eventful few months business continues to perform well and in line with expectations with this we are narrowing our earnings outlook, which Jim will outline in a few minutes. It is important to note. We factor in the October headwinds from last year's active hurricane season, and an estimated impact from the government shutdown as.

Speaker #3: Now, moving to our 3rd Quarter results, we delivered a solid performance that, in total, outpaced our August formal guide particularly on the gross margin line.

Speaker #3: Total company reported sales for the quarter were nearly $4.7 billion. Up 6.1% of the reported basis or 5.4% on a daily constant currency basis.

As we wrap up 2025, I'm confident that we will continue to serve our customers well deliver on our financial commitments and drive solid results for all stakeholders I will now turn it over to <unk> to go through the details.

Speaker #3: Gross margins for the company were 38.6%. Operating margins were 15.2%. Diluted EPS finished the quarter up 34 cents to $10.21. Operating cash flow came in at $597 million, which allowed us to return a total of $399 million to Grainger shareholders through dividends and share repurchases.

Donald Macpherson: Gross margins for the company were 38.6%, operating margins were 15.2%, and diluted EPS finished the quarter up $0.34 to $10.21. Operating cash flow came in at $597 million, which allowed us to return a total of $399 million to Grainger shareholders through dividends and share repurchases. Our results continue to reflect tariff-related LIFO inventory valuation headwinds, consistent with what we discussed last quarter, but which came in lighter than expected in the period. As Deidra Merriwether will discuss, without this LIFO impact, our operating margin would have increased year over year in the period. Looking ahead, while we're continuing to see more costs in the market, these LIFO headwinds will eventually dissipate as inflation cools and our gross margin recovers to our run rate expectation.

Thank you Gigi.

Turning to slide seven you can see the high level third quarter results for the total company, including $4 7 billion in sales.

Five 4% on the daily constant currency basis.

Speaker #3: Our results continue to reflect tariff-related LIFO inventory valuation headwinds consistent with what we discussed last quarter, but which came in lighter than expected in the period.

While gross margin finished ahead of our previously communicated expectations on a less than expected LIFO impact.

We were still down 60 basis point year over year and segment mix headwinds and tariff related cost impact within the high touch business weighed on results.

Speaker #3: As Dean will discuss, without this LIFO impact, our operating margin would have increased year over year in the period. Looking ahead, while we're continuing to see more costs in the market, these LIFO headwinds will eventually dissipate as inflation cools and our gross margin will recover, to our run rate expectation.

This led to total company operating margins of 15, 2% for the quarter down 40 basis points compared to 2024.

Speaker #3: As you likely saw, we recently announced that we've entered into an agreement to sell our UK-based Cromwell business and plan to fully exit the UK market.

Donald Macpherson: As you likely saw, we recently announced that we've entered into an agreement to sell our UK-based Cromwell business and plan to fully exit the UK market. Given the economic dynamics post-Brexit, we had to alter our assumptions around the go-forward potential in the region. With this planned divestiture, we are now focused entirely on growing our North America and Japanese businesses, where we can deliver the greatest long-term impact. Overall, while it has been an eventful few months, the business continues to perform well and in line with expectations. With this, we are narrowing our earnings outlook, which Deidra Merriwether will outline in a few minutes. It's important to note we factor in the October headwinds from last year's active hurricane season and an estimated impact from the government shutdown.

But 70 basis points ahead of our communicated expectations.

Diluted EPS for the quarter was $10 21.

Speaker #3: Given the economic dynamics post-Brexit, we had to alter our assumptions around the go-forward potential in the region. With this plan to vestiture, we are now focused entirely on growing our North America and Japanese businesses where we can deliver the greatest long-term impact.

A 30 413.

Three 4% higher than the prior year period.

Moving to segment level results the high Tech solutions segment delivered solid growth in the quarter.

Speaker #3: Overall, while it has been an eventful few months, the business continues to perform well and in line with expectations. With this, we are narrowing our earnings outlook, which Dean will outline in a few minutes.

In total sales were up three 4% on both a reported and daily constant currency basis.

Speaker #3: It's important to note we factor in the October headwinds from last year's active hurricane season and an estimated impact from the government shutdown. As we wrap up 2025, I'm confident that we'll continue to serve our customers well.

Results were driven by volume growth and price inflation for this segment with the latter improving as tariff costs continued to be passed.

Donald Macpherson: As we wrap up 2025, I'm confident that we'll continue to serve our customers well, deliver on our financial commitments, and drive solid results for all stakeholders. I will now turn it over to Deidra Merriwether to go through the details.

From an end market perspective, our indicators suggest that the MRO market remains muted and the heightened inflationary environment continued to weigh on demand for.

Speaker #3: Delivering on our financial commitments and driving solid results for all stakeholders. I will now turn it over to Dean to go through the details.

For <unk>, specifically, we saw strong performance with contractor and health care customers and improving results with manufacturing customers, which helped to offset slower growth in other areas of the business.

Speaker #4: Thank you, DG. Turning to Slide 7, you can see the high-level third-quarter results for the total company, including $4.7 billion in sales, up 5.4% on a daily constant currency basis.

Deidra Merriwether: Thank you, Deidra. Turning to slide seven, you can see the high-level Q3 results for the total company, including $4.7 billion in sales, up 5.4% on a daily constant currency basis. While gross margin finished ahead of our previously communicated expectations on a less-than-expected LIFO impact, we were still down 60 basis points year over year as segment mix headwinds and tariff-related cost impacts within the high-touch business weighed on results. This led to total company operating margins of 15.2% for the quarter, down 40 basis points compared to 2024, but 70 basis points ahead of our communicated expectations. Diluted EPS for the quarter was $10.21, up $0.34 or 3.4% higher than the prior year period. Moving to segment-level results, the high-touch solutions segment delivered solid growth in the quarter. In total, sales were up 3.4% on both a reported and daily constant currency basis.

For the segment gross profit margin finished the quarter at 41, 1% down 50 basis points versus prior year, driven by similar things to what we discussed last quarter.

Speaker #4: While gross margin finished ahead of our previously communicated expectations on a less-than-expected LIFO impact, we were still down 60 basis points year over year as segment mix headwinds and tariff-related cost impacts within the high-touch business weighed on results.

We saw negative, but improving price cost spread as we progressed negotiations with suppliers through the quarter and pass incremental price in September.

Speaker #4: This led to total company operating margins of 15.2% for the quarter, down 40 basis points compared to 2024, but 70 basis points ahead of our communicated expectations.

Further we pull through LIFO charges to reflect the impact of supplier cost increases, albeit less than expected and certain increases were pushed into later periods.

These two tariff related headwinds were only partially offset by mix and freight.

Speaker #4: Diluted EPS for the quarter was $10.21, up 34 cents or 3.4% higher than the prior year period. Moving to segment-level results, the high-touch solution segment delivered solid growth in the quarter.

I would note that if we excluded our LIFO headwind and wanted to compare across our peer set was report on FIFO or implied FIFO gross margin rate would have increased year over year.

Speaker #4: In total, sales were up 3.4% on both a reported and daily constant currency basis. Results were driven by volume growth and price inflation for the segment, with the latter improving as tariff costs continued to be passed.

On SG&A.

Margin improved in the period as continued investments in our seller initiatives and marketing were more than offset by productivity and sales leverage.

Deidra Merriwether: Results were driven by volume growth and price inflation for the segment, with the latter improving as tariff costs continued to be passed. From an in-market perspective, our indicators suggest that the MRO market remained muted as the heightened inflationary environment continued to weigh on demand. For Grainger specifically, we saw strong performance with contractor and healthcare customers and improving results with manufacturing customers, which helped to offset slower growth in other areas of the business. For the segment, gross profit margin finished the quarter at 41.1%, down 50 basis points versus prior year, driven by similar themes to what we discussed last quarter. We saw negative but improving price-cost spread as we progressed negotiations with suppliers through the quarter and passed incremental price in September.

Taking all this together operating margin for the segment finished at 17, 2% down 40 basis points versus the prior year quarter.

Now focusing on the endless assortment segment.

Sales increased 18, 2% on a reported basis or 14, 6% on a daily constant currency basis, which normalizes for the FX tailwind is realized in the period.

Laurel U S was up 17, 8%, while Minotaur achieved 12, 6% growth in local days local constant currency.

And the business level, we will continue this momentum driving efficiencies with marketing spend and working to further enhance the customer experience.

Including improved search better fulfillment and continued optimization of their assortment.

Deidra Merriwether: Further, we pulled through LIFO charges to reflect the impact of supplier cost increases, albeit less than expected as certain increases were pushed into latter periods. These two tariff-related headwinds were only partially offset by mix and freight. I would note that if we excluded our LIFO headwind and wanted to compare across our peer set, which report on FIFO, our implied FIFO gross margin rate would have increased year over year. On SG&A, margin improved in the period as continued investments in our seller initiatives and marketing were more than offset by productivity and sales leverage. Taking all this together, operating margin for the segment finished at 17.2%, down 40 basis points versus the prior year quarter. Now focusing on the endless assortment segment. Sales increased 18.2% on a reported basis or 14.6% on a daily constant currency basis, which normalizes for the FX tailwinds realized in the period.

Taken together these actions are driving strong growth from its core <unk> customers, along with improving customer retention rates.

Monitorial sales growth remained strong with with continued growth from enterprise customers, coupled with solid acquisition and repeat purchase rates with small and midsize businesses.

Profitability operating margins increased by 100 basis points to nine 8% with favorability across the segment.

Amount of Tyro margins remained strong at 13, 2% up 80 basis points and zero margin improved to five 8% up 150 basis points with both businesses benefiting from gross margin flow through and healthy top line leverage.

Overall, we had another strong quarter across endless assortment and we expect the team will carry this momentum forward as we wrap up the year.

Before moving into guidance I wanted to share a brief update on where we're at with tariffs.

In the third quarter, we remain engaged in active dialogue with our supplier partners and use our September price increases to help offset continued cost pressure.

Deidra Merriwether: Zoro.com U.S. was up 17.8%, while MonotaRO.com achieved 12.6% growth in local days, local constant currency. At a business level, Zoro.com continues its momentum, driving efficiencies with marketing spend and working to further enhance the customer experience, including improved search, better fulfillment, and continued optimization of their assortment. Taken together, these actions are driving strong growth from its core B2B customers, along with improving customer retention rates. At MonotaRO.com, sales growth remains strong with continued growth from enterprise customers, coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses. On profitability, operating margins increased by 100 basis points to 9.8%, with favorability across the segment. MonotaRO.com margins remained strong at 13.2%, up 80 basis points, and Zoro.com margin improved to 5.8%, up 150 basis points, with both businesses benefiting from gross margin flow-through and healthy top-line leverage.

While our initial pricing actions back in May only applied to a small portion of our products largely those were grains, our imports of the product directly.

The September increase was much broader and included initial pricing actions on supplier imported products.

We have finalized negotiations.

As we move into the fourth quarter, we're seeing inflationary pressure continuing to bill including impacts from the recent section 232 expansion.

As a result, we are taking some incremental pricing actions to better align price cost timing as the tariff landscape unfolds.

These actions are only modest in nature, but are in addition to the price pass earlier in the year.

On profitability expectations for the fourth quarter, we anticipate gross margins will improve sequentially with our normal seasonal recovery and improving price cost.

I'm profitability operating margins increased by 100 basis points to 9.8% with favorability across the segments.

The LIFO impact is expected to be roughly consistent quarter over quarter.

Looking ahead based upon what we're hearing from suppliers as part of our annual comp cycle, we expect further inflationary pressure into 2026.

Deidra Merriwether: Overall, we had another strong quarter across endless assortment, and we expect the team will carry this momentum forward as we wrap up the year. Before moving into guidance, I wanted to share a brief update on where we're at with tariffs. In Q3, we remained engaged in active dialogue with our supplier partners and used our September price increases to help offset continued cost pressure. While our initial pricing actions back in May only applied to a small portion of our products, largely those where W.W. Grainger, Inc. imports the product directly, the September increase was much broader and included initial pricing actions on supplier-imported products where we had finalized negotiations. As we move into Q4, we're seeing inflationary pressure continuing to build, including impacts from the recent Section 232 expansion.

monetarily margins remain, strong at 13.2% of 80 basis points, and zero margin improved, to 5.8% of 150 basis points with both businesses benefiting from gross margin flow, through and healthy Topline Leverage

Across endless assortment, we expect the team will carry this momentum forward. As we wrap up the year,

This assumes no further material changes to the current tariff landscape. We arent, we now anticipate the inventory accounting dynamics from LIFO will persist over the next couple of quarters until inflation pools.

Before moving into guidance, I wanted to share a brief update on where we're at with tariffs.

That being said consistent with our long term earnings framework, we anticipate gross margin will stabilize around 39% for the total company.

And the third quarter, we remain engaged in active dialogue, with our supplier partners and use our September price increases to help offset continued cost pressure.

Subject to normal quarterly seasonality.

While our initial pricing actions back in May only apply to a small portion of our products largely, those were Grainger Imports, the product directly.

While we expect while we will experience continued segment mix headwinds and some pressure within a subset of our private label.

Hortman these.

These will be offset as price cost normalizes back to neutral and the LIFO impact subsides.

the September increase was much broader and included initial pricing actions on supplier, imported products where we had finalized negotiations,

A LIFO specifically, we thought it would be helpful to provide a view of how inventory accounting dynamics impact our gross margin over time, especially because of how the cycle is playing out relative to 2022.

Deidra Merriwether: As a result, we are taking some incremental pricing actions to better align price-cost timing as the tariff landscape unfolds. These actions are only modest in nature but are in addition to the price passed earlier in the year. On profitability expectations for Q4, we anticipate gross margins will improve sequentially with our normal seasonal recovery and improving price costs. The LIFO impact is expected to be roughly consistent quarter over quarter. Looking ahead, based upon what we are hearing from suppliers as part of our annual cost cycle, we expect further inflationary pressure into 2026. With this, assuming no further material changes to the current tariff landscape, we now anticipate the inventory accounting dynamics from LIFO will persist over the next couple of quarters until inflation cools.

As we move into the fourth quarter, we're seeing inflationary pressure continuing to build, including impacts from the recent Section 232 expansion.

As a result, we are taking some incremental pricing actions to better align price-cost timing as the tariff landscape unfolds.

While LIFO expense is always a drag relative to implied FIFO margins is not typically a material impact in every period, depending on what else is impacting our gross margin results.

These actions are only modest in nature, but are in addition to the price passed earlier in the year.

On profitability expectations for the fourth quarter. We anticipate gross margins will improve sequentially with our normal seasonal recovery and improving price costs.

As you can see on slide 12 during periods of normal cost inflation, the LIFO headwind the difference between LIFO margin and the implied FIFO margin is roughly 20% to 30 basis points, reflecting the real time impact of higher cost flowing through our P&L.

The lifo impact is expected to be roughly consistent quarter over quarter.

Looking ahead, based on what we are hearing from suppliers as part of our annual cost cycle, we expect further inflationary pressure into 2026.

As we enter into a heightened inflationary cycle.

Like what we see in 2022 and like what we're seeing again today. This LIFO impact becomes more pronounced as the difference in Cogs divergence between the two inventory methodologies.

Deidra Merriwether: That being said, consistent with our long-term earnings framework, we anticipate gross margin will stabilize around 39% for the total company, subject to normal quarterly seasonality. While we will experience continued segment mix headwinds and some pressure within a subset of our private label assortment, these will be offset as price-cost normalizes back to neutral and the LIFO impact subsides. On LIFO specifically, we thought it would be helpful to provide a view of how inventory accounting dynamics impact our gross margin over time, especially because of how this cycle is playing out relative to 2022. While LIFO expense is always a drag relative to implied FIFO margins, it's not typically a material impact in every period, depending on what else is impacting our gross margin results.

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 quarters until inflation cools.

However, as inflation cools, the LIFO expense will normalize LIFO and FIFO margins will converge and as this happens and we passed the price our reported margin will recover.

That being said, consistent with our long-term earnings framework, we anticipate gross margin will stabilize around 39% for the total company.

Subject to normal quarterly seasonality.

With this we expect our total company gross margins will stabilize around 39% consistent with our long term earnings framework.

while we expend while we will experience continued segment, mixed headwinds, and some pressure within a subset of our private label assortment

Now moving to the updated outlook for the remainder of 2025 as D. G mentioned at the beginning of the call. We are nearing our full year 2025, adjusted EPS outlook, which reflects slightly lower sales to account for the Cromwell divestiture.

These will be offset as price cost normalizes back to neutral and the lifo impact subsides.

FX updates and the impact of the government shutdown, which we're assuming reaches a resolution by mid November.

A LIFO specifically, we thought it would be helpful to provide a view of how inventory accounting dynamics impact our gross margin over time, especially because of how this cycle is playing out relative to 2022.

These top line headwinds are offset by higher margins, resulting in an EPS midpoint consistent with the prior guide.

Deidra Merriwether: As you can see on slide 12, during periods of normal cost inflation, the LIFO headwind, the difference between LIFO margin and the implied FIFO margin, is roughly 20 to 30 basis points, reflecting the real-time impact of higher costs flowing through our P&L. As we enter into a heightened inflationary cycle like what we see in 2022, and like what we're seeing again today, this LIFO impact becomes more pronounced as the difference in COGS diverges between the two inventory methodologies. However, as inflation cools, the LIFO expense will normalize, LIFO and FIFO margins will converge, and as this happens and we pass further price, our reported margin will recover. With this, we expect our total company gross margins will stabilize around 39%, consistent with our long-term earnings framework. Now, moving to the updated outlook for the remainder of 2025, as D.G.

While lifo, expense is always a drag relative to implied fifo margins is not typically a material impact in every period depending on what else is impacting, our gross margin results,

In total the updated guide includes daily organic constant currency sales growth of between $4, four and five 1% and a diluted adjusted EPS range of $39 to $39 75.

If you squeeze to the annual Black Guy to get an implied fourth quarter. The revised revenue outlook implies a Q4 daily organic constant currency growth rate of 4% at the midpoint, which assumes more than three points of price contribution to revenue.

As you can see on slide 12 during periods of normal cost inflation. The lifo headwind the difference between lifo margin and the implied 5o margin is roughly 20 to 30 basis points, reflecting the real time impact of higher cost flowing through our p&l

Within the high Tech segment.

As we enter into a heightened inflationary cycle, like what we see in 2022 and like what we're seeing again today, this lifo impact becomes more pronounced as the difference in cogs diverges between the 2 inventory methodologies.

October growth is off to a slow start up approximately 1% on a preliminary daily constant currency basis, as we lapped a fairly significant hurricane related sales benefit in the first two weeks of the month and as we face current year headwinds from the government shutdown.

However, as inflation cools the lifo, expense will normalize life, on 5-foot? Margins will converge. And as this happens, and we pass for the price, our reported margin will recover.

However, if we just looked at the last two weeks of the month.

With this, we expect our total company gross margins to stabilize around 39%, consistent with our long-term earnings framework.

Which exclude the prior year Hurricane impact October total company sales are up in the 4% to 5% range on a daily constant currency basis more in line with what we saw in the third quarter, but still reflecting the impact of the government shutdown, which is weighing on public sector sales.

Deidra Merriwether: Macpherson mentioned at the beginning of the call, we're nearing our full year 2025 adjusted EPS outlook, which reflects slightly lower sales to account for the Cromwell divestiture, FX updates, and the impact of the government shutdown, which we're assuming reaches a resolution by mid-November. These top-line headwinds are offset by higher margins, resulting in an EPS midpoint consistent with the prior guide. In total, the updated guide includes daily organic constant currency sales growth of between 4.4% and 5.1%, and a diluted adjusted EPS range of $39.00 to $39.75. If you squeeze to the annual guide to get an implied Q4, the revised revenue outlook implies a Q4 daily organic constant currency growth rate of 4% at the midpoint, which assumes more than three points of price contribution to revenue within the high-touch solutions segment.

Now, moving to the updated outlook for the remainder of 2025. As DJ mentioned, at the beginning of the call, we're nearing our full year 2025, adjusted, EPS Outlook, which reflects slightly lower sales to account for the crown. Well, dear FX updates and the impact of the government shutdown.

Yes.

Which we're assuming reaches a resolution by mid November.

Annual margin expectations have increased from our previous guide due to improved price cost and LIFO timing.

If you were to squeeze the implied operating margins from the updated annual guide and focus on the fourth quarter. It shows a sequential step down in the fourth quarter to around 14, 5% at the midpoint.

These topline headwinds are offset by higher margins, resulting in an EPS midpoint consistent with the prior guides.

While the puts and takes are different the sequential movement is roughly in line with normal seasonality.

In total the updated guide includes daily, organic constant currency sales, growth of between 4.4 and 5.1%, and the diluted adjusted EPS, range of 39 to $39.75.

Overall, despite the tariff related noise over the last couple of quarters, we remain poised to deliver a solid year.

Before I hand, it back to D G.

I thought it would be important to reiterate our long term earnings firm in light of the recent tariff uncertainty and as we look ahead.

More than three points of price contribution to revenue.

Deidra Merriwether: October growth is off to a slow start of approximately 1% on a preliminary daily constant currency basis as we lapped a fairly significant hurricane-related sales benefit in the first two weeks of the month and as we face current year headwinds from the government shutdown. However, if we just looked at the last two weeks of the month, which exclude the prior year hurricane impact, October total company sales are up in the 4% to 5% range on a daily constant currency basis, more in line with what we saw in Q3, but still reflecting the impact of the government shutdown, which is weighing on public sector sales. Annual margin expectations have increased from our previous guide due to improved price-cost and LIFO timing.

Within the high-tech segment.

While we have made some minor edits to capex to the risk to reflect the latest estimates around our global DC expansion.

The core tenets of our framework remain solidly intact.

We remain confident we can drive share gain in the U S.

Well the EA business in the teens stable.

October growth is off to a slow start of approximately 1% on a preliminary daily constant currency basis. As we lapped a fairly significant hurricane-related sales benefit in the first two weeks of the month, we face current year headwinds from the government shutdown.

Stabilized total company gross margins around 39%.

however, if we just looked at the last 2 weeks of the month,

And grow SG&A slower than sales through process improvements and technology.

Taken together these actions will drive attractive returns.

And we remain well positioned to deliver great results for our shareholders for the years to come.

With that I'll turn it back to D. G for some closing remarks.

Excluding the prior year and hurricane impact, October total company sales are up in the 4% to 5% range on a daily constant currency basis. This is more in line with what we saw in the third quarter, but still reflecting the impact of the government shutdown, which is weighing on public sector sales.

Thanks, Steve as we head into the final months of the year. Our team will continue to navigate the complex environment and deliver value for our customers our communities and our shareholders and as Dave mentioned, we continue to work through this inflationary environment and the challenges from the government shutdown.

Deidra Merriwether: If you were to squeeze the implied operating margins from the updated annual guide and focus on Q4, it shows a sequential step down in Q4 to around 14.5% at the midpoint. While the puts and takes are different, this sequential movement is roughly in line with normal seasonality. Overall, despite the tariff-related noise over the last couple of quarters, we remain poised to deliver a solid year. Before I hand it back to Deidra, I thought it would be important to reiterate our long-term earnings framework in light of the recent tariff uncertainty and as we look ahead. While we have made some minor edits to CapEx to reflect the latest estimates around our global DC expansion, the core tenets of our framework remain solidly intact.

Annual margin expectations have increased from our previous guide due to improved price costs and lifestyle timing.

While there is some short term noise, we remain confident in our ability to pass through cost increases and achieved the core tenets of our long term earnings framework will continue to stay focused on driving strong execution, providing industry, leading service and building innovative capabilities to deliver on what matters most to our stakeholders and with that we will open it up to Q&A.

If you were to squeeze the implied operating margins from the updated annual guide and focus on the fourth quarter, it shows a sequential step down in the fourth quarter to around 14.5% at the midpoint.

While the puts and takes are different. The sequential movement is roughly in line with normal seasonality.

Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star 100 telephone keypad, a confirmation tone will indicate your line is in the question queue.

Overall, despite the tariff-related noise over the last couple of quarters, we remain poised to deliver a solid year.

Before I hand it back to DJ.

Press Star two to remove your question from the queue for participants using speaker equipment may be necessary to pick up the handset before pressing the star keys.

I thought it would be important to reiterate our long-term earnings firm in light of the recent, tariff uncertainty. And as we look ahead,

One moment, please while I pull for questions.

While we have made some minor edits to capex to the, to reflect the latest estimates around our Global DC expansion.

Deidra Merriwether: We remain confident we can drive share gain in the U.S., grow the endless assortment segment business and the teams, stabilize total company gross margins around 39%, and grow SG&A slower than sales through process improvements and technology. Taken together, these actions will drive attractive returns, and we remain well-positioned to deliver great results for our shareholders for the years to come. With that, I'll turn it back to Deidra for some closing remarks. Thanks, Dee. As we head into the final months of the year, our team will continue to navigate the complex environment and deliver value for our customers, our communities, and our shareholders. As Dee mentioned, we continue to work through this inflationary environment and the challenges from the government shutdown.

The core tenants of our framework remains solidly intact.

We remain confident, we can drive share gain in the US.

Thank you. Our first question is from David <unk> with Baird.

Grow the EA business and the teams.

Alright, thank you.

Stabilize total company growth margins around 39%.

Very clear presentation of the business. Thanks for outlining all of that data.

And grow sgna slower than sales through process improvements and Technology.

Question on the 2025 guidance and the Cromwell. So promos held for sale as of September 30, So I assume you're taking any assumption out for that and just ballpark ish or are we talking about $75 million to $80 million I'm guessing.

Taken together. These actions will drive attractive returns.

And we remain, well positioned to deliver great results for our shareholders for the years to come.

With that, I'll turn it back to DG for some closing remarks.

And then from an operating income standpoint.

Those Cromwell operating losses are pretty immaterial is that all correct.

Yeah, So two things that point yet.

Deidra Merriwether: While there is some short-term noise, we remain confident in our ability to pass through cost increases and achieve the core tenets of our long-term earnings framework. We'll continue to stay focused on driving strong execution, providing industry-leading service, and building innovative capabilities to deliver on what matters most to our stakeholders. With that, we will open it up to Q&A. Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the Star keys. One moment, please, while we pull for questions. Thank you. Our first question is from David Manthey with Baird. All right.

Thanks. As we head into the final months of the year, our team will continue to navigate the complex environment and deliver value for our customers, our communities, and our shareholders. And as you mentioned, we continue to work through this inflationary environment and the challenges from the government shutdown.

We kind of adjust it for the Cromwell impact.

And you know if you go back to the press release that we issued around our proposal to exit the U K in total and incorporate it both that impact as well as the impact of that.

And while there is some short-term Noise, We remain confident in our ability to pass through cost increases and achieve the core tenants of our long-term earnings framework.

We'll continue to stay focused on driving strong execution, providing industry-leading service, and building innovative capabilities to deliver on what matters most to our stakeholders. And with that, we will open it up to Q&A.

That's being proposed for Zoro U K.

So in total is about 40.

That's that's $40 million in revenues for Cromwell, and Zoro UK as a held for sale in the fourth quarter.

Thank you. Well, now we conduct any question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

You may press *2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Correct.

Okay.

1 moment, please, while we pull for questions.

Alright, and then.

On the on the pricing actions that you've taken thus far in the fourth quarter of 2025 should we assume that those are in the endless assortment. I think you said your next opportunity to adjust contract pricing on high touch customer should be Jan one.

Thank you. Our first question is from David Manche with Beard.

Deidra Merriwether: Thank you. That was a very clear presentation of the business. Thanks for outlining all of that data. Question on the 2025 guidance and Cromwell. Cromwell is held for sale as of September 30, so I assume you're taking any assumption out for that. Just ballpark-ish, are we talking, what, $75 million, $80 million, I'm guessing? From an operating income standpoint, those Cromwell operating losses are pretty immaterial. Is that all correct? Yeah. Two things I'd point you at. We adjusted for the Cromwell impact. If you go back to the press release that we issued around our proposal to exit the UK in total, it incorporated both that impact as well as the impact that's being proposed for Zoro UK. In total, it's about $40 million. That's $40 million in revenues for Cromwell and Zoro UK as held for sale in Q4? Correct. Okay. All right.

All right. Thank you. Um, that was a very clear presentation of the business. Um, thanks for outlining all of that data.

So is that another bite at the Apple when we turn the page to 2026.

No. We obviously that the actions we've taken over September one those that flowed into the fourth quarter and that that was a normal price cycle increase in November one.

Now, we're taking another one and that will flow into contracts as well as non contract business. That's all high touch related.

Zoro has had good price inflation this year based on some strategic changes isn't it.

Um, question on the 2025 guidance and the Cromwell. So, Cromwell's held for sale as of September 30th. So, I assume you're taking any assumption out for that and just ballpark it, shall we? Talk in what, $75 million, $80 million, I'm guessing? Um, and then from an operating income standpoint, those Cromwell operating losses are pretty immaterial. Is that all correct?

Um,

Okay.

Thank you very much.

You think that point yet? You know we, um,

Our next question is from Christopher Snyder with Morgan Stanley.

We kind of adjusted for the crown, well impact. Um, and you know, if you go back to the press release that we issued around our proposal,

Oh, sorry, I was on mute.

You guys said that.

I guess ex LIFO. The gross margin would have been up year on year, which I guess implies a LIFO headwind of something at least 70 basis points.

To exit, uh, the UK in total and Incorporated, both that impact, you know, as well as the impact. Um, that's being proposed for Zorro UK.

So in total it's about 40.

I guess my question is you guys are kind of.

Saying youll maintain a roughly 39% gross margin through these LIFO headwinds.

So I guess as the LIFO headwinds go away does that 39 go to something closer to 40, just assuming that we're in a 70 bps LIFO headwind backdrop. Thank you.

That's that's 40 million, in revenues, for Cromwell, and Zoro, UK as uh held for sale in the fourth quarter, correct?

Deidra Merriwether: On the pricing actions that you've taken thus far in Q4 of 2025, should we assume that those are in endless assortment? I think you said your next opportunity to adjust contract pricing on high-touch customers would be January 1. Is that another bite at the apple when we turn the page to 2026? No. Obviously, the actions we've taken were September 1. Those have flowed into the Q4, and that was a normal price cycle increase. In November 1, now we're taking another one, and that will flow into contracts as well as non-contract business. That's all high-touch related. Zoro.com has had good price inflation this year based on some strategic changes they've made. Yep. Okay. Thank you very much. Our next question is from Christopher Snyder with Morgan Stanley. Oh, sorry. I was on mute.

Okay.

Thanks for the question Greg So.

As we've noted during this period of time when we are comparing our result versus those who may be reporting on FIFO.

We do have.

More of a negative impact directly related to the LIFO impact on gross margins and so what we attempted to do here with our information is to recast and imply FIFO.

And then, um, on the, on the pricing actions that you've taken thus far in the fourth quarter of 2025, should we assume that those are in Endless? Assortment, I think you you said your next opportunity to adjust contract, pricing on high-touch. Customers would be Jan 1 to the Apple. When we turn the page to 2026,

Hmm.

Gross margin number for Grainger for more easily compare easy comparability.

But as you note as we go through the cycle and.

No, we, uh, obviously the actions we take into September 1st into the fourth quarter, and that was a normal price cycle increase. And then, on November 1, uh, now we're taking another one, and that will flow into contracts as well as non-contract business, and that's all high touch related. Um, Zoro has had, uh, good price inflation this year based on some strategic changes they've made.

Other eat through the.

Yep. Okay.

The less expensive FIFO layers.

Thank you very much.

And we're already there with LIFO.

Our next question is from Christopher Snider with Morgan Stanley.

We believe gross margins will become a little bit tougher for them and we as we.

Deidra Merriwether: You guys said that, I guess, ex-LIFO, the gross margin would have been up year on year, which I guess implies a LIFO headwind of something at least 70 basis points. My question is, you guys are kind of saying you'll maintain a roughly 39% gross margin through these LIFO headwinds. As the LIFO headwinds go away, does that 39 go to something closer to 40, just assuming that we're in a 70-bps LIFO headwind backdrop? Thank you. Thanks for the question, Chris. As we've noted during this period of time when we are comparing our results versus those who may be reporting on FIFO, we do have more of a negative impact directly related to the LIFO impact on gross margins. What we attempted to do here with our information is to recast and imply a FIFO gross margin number for Grainger for more easy comparability.

Paths continue to pass price.

Our gross margins will continue to elevate as you noted however, there are more things besides lifestyle that impacts gross margin.

Oh, sorry. Yeah, I was on mute. Um, so you guys said that, um, you know, I guess XL LIFO. The gross margin would have been up here on the year, um, which I guess implies a LIFO headwind of something in at least 70 basis points.

Product mix.

Freight and other areas, where we receive we're gaining some favorability.

um I guess my question is you guys are kind of um saying you'll maintain a roughly, 39% gross margin through these lifo headwinds

We deem that though some of those things.

It may not be as favorable in the future.

As price becomes more favorable and so that's why we stick to our longer range outlook of around 39 <unk>.

So I guess as the lifo headwinds go away, does that 39 go to something closer to 40? You know just assuming that we're in a 70 dips, lifo headwind backdrop. Thank you.

Around the area of 39 that doesn't mean, you can't be a couple of basis points better than that in the future. We just don't want to project out too much because all the information we have today around tariffs and other cost inflation is what we have to use to project from this point.

Uh, thanks for the question, Chris. So, um, you know, as we've noted during this period of time when we are, uh, comparing our results versus, uh, those who may be reporting on FIFO.

Thank you I appreciate that and that was helpful.

I guess, if we look at the Q4 guide overall company up four so high touch I guess would be below that maybe something more like three.

We do have um more of a negative impact uh directly related to the lifo impact on Gross margins. And so what we attempted to do here with our information is to recast and imply fifo. Um

Which is effectively all price. So it seems like the guide is calling for no volume growth within high touch and I know the backdrop has been challenged for a while but that business has continued to grow volumes, even if modestly through.

Deidra Merriwether: As you know, as we go through the cycle and others eat through the less expensive FIFO layers, and we're already there with LIFO, we believe gross margins will become a little bit tougher for them. As we continue to pass price, our gross margins will continue to elevate, as you noted. However, there are more things besides LIFO that impact gross margin: product mix, freight, and other areas where we're gaining some favorability. We deem that some of those things may not be as favorable in the future as price becomes more favorable. That's why we stick to a longer range outlook of around 39, or around the area of 39. That doesn't mean it can't be a couple of basis points better than that in the future.

Growth margin number, uh, for Grainger for more easily comparable.

But as you note, as we go through the cycle and um, others eat through the less expensive, uh, fifo layers.

Through the first three quarters of the year. So is that step down in Q4, So maybe zero just all because of these governments.

And, you know, we're already there with LIFO. We believe gross margins will become a little bit tougher for them.

<unk> contracts and the risk associated with that or is there also maybe macro softening alongside that any color there.

And we, as we continue to pass price.

It would be helpful. Thank you. Thank.

In Q4, we have two challenges one of which you called out which is the impact to our business related to the government shutdown.

Uh, our gross margins will continue to elevate as you noted. However, there are more things uh, besides litho that impacts gross margin.

And the other one is related to the benefit that received.

In the prior year in October related to the Hurricane we range bound that last year of about $30 million to $40 million in the month of October. So that's also a challenge that we're cycling in Q4.

Product mix, you know, Freight and other areas where we receive. We're, we're gaining some favorability. Um, we deemed that though, some of those things may not be as favorable in the future, um, as price becomes more favorable.

One thing I'd also point out is if you look at October by segment, which we don't typically talk about that government has obviously impacted substantially everything else looks normal.

Deidra Merriwether: We just don't want to project out too much because all the information we have today around tariffs and other cost inflation is what we have to use to project from this point. Thank you. I appreciate that. That was helpful. If we look at the Q4 guide, overall company up 4, so high-touch, I guess, would be below that, maybe something more like 3, which is effectively all price. It seems like the guide is calling for no volume growth within high-touch. I mean, I know the backdrop's been challenged for a while, but that business has continued to grow volumes, even if modestly, through the first three quarters of the year. Is that step down in Q4 to maybe 0 just all because of these government contracts and the risk associated with that? Is there also maybe macro softening alongside that? Any color there would be helpful.

Effectively so it is it is mostly it is entirely just the government impact that we're seeing from both.

And so that's why we stick to a longer range Outlook of around 39, um, or around the area of 39. That doesn't mean it can't be a couple basis points better uh, than that in the future. We just don't want to project out too much because all the information we have today around tariffs and other cost insulation. Um is what we have to use to project from this point.

The hurricane which affect state government three states that obviously in the south southeast that were hit hardest last year and then the federal government the government shutdown.

Thank you I appreciate that.

Our next question is from Jacob Levenson with Smelliest research.

Good morning, everyone.

Alright, good morning.

I realize there are some.

Advantages on the tax fronts, using a LIFO inventory spread.

Wanted to ask if there has been a discussion in terms of.

Thank you. I I appreciate that. That was helpful. Um, you know, I guess if we look at the Q4 guide, you know, overall company Up 4. So, you know, High touch. I guess what would be below? That may maybe something more like 3 um, which is effectively all price. Um, so it seems like the guide is calling for no volume growth within High touch. I mean, I know the backdrop been challenged for a while but but that business has continued to grow volumes. Even if modestly um, you know, through the first 3 quarters of the year so is that step down in Q4 to maybe

Shifting the FIFO. It just seems like the last couple of years, we're seeing a lot of companies that had LIFO accounting actually moving a FIFO just Kevin maybe a stickier inflation backdrop.

Deidra Merriwether: Thank you. In Q4, we have two challenges, one of which you called out, which is the impact to our business related to the government shutdown. The other one is related to the benefit that we received in the prior year in October related to the hurricane. We rangebound that last year at about $30 million to $40 million in the month of October. That's also a challenge that we're cycling in Q4. The one thing I'd also point out is if you look at October by segment, which we don't typically talk about, government has obviously been impacted substantially. Everything else looks normal, effectively. It is entirely just the government impact that we're seeing from both the hurricane, which affects state governments, three states, and obviously in the Southeast that were hit hardest last year, and then the federal government given the shutdown. Thank you. I appreciate that.

Yeah, Yeah. So we obviously have talked about it evaluated.

You need to probably realizes if you make that change you end up having a cash payment not an earnings statement that our cash payment effectively for the accumulated taxes you saved at whatever tax rate is today. So it's not an inconsequential number so we need to weigh that versus the benefit of being on FIFO and having easy compares.

Right now, we're not going to make that change we might in the future.

Okay.

Makes sense and then just on the government shutdown. It arrives these are unfortunately, becoming more regular occurrence of the spread in your experience is there normally.

Everything else looks normal?

Some catch up in demand once the shutdowns whatever because I would imagine a lot of these facilities that was mothballed right mouse. Once you ramp backdrop remember there was some pent up demand there.

Um, effectively. So, um, it is mostly, it is entirely just the government impact that we're seeing from both.

Yeah. So you know what I would say is the nature of the shutdown and this one in particular obviously.

The hurricane, which affects state governments, hit three states. That obviously impacted the Southeast, which was hit hardest last year. And then, uh, the federal government, given the shutdown.

Thank you, I appreciate that.

Some of the non military entities that we would serve are completely shut down typically you wouldn't see much of a catch up from those but we also are seeing this impact given the lack of that of a few people who are furloughed.

Deidra Merriwether: Our next question is from Jacob Levenson with Melius Research. Hi. Good morning, everyone. Morning. I realize there are some advantages on the tax front to using LIFO inventory valuation, but I wanted to ask if there's been any discussion in terms of shifting to FIFO. It just seems like the last couple of years we've seen a lot of companies that had LIFO accounting actually moving to FIFO, just given maybe a stickier inflation backdrop. Yeah. We obviously have talked about it, evaluated it. The thing you need to probably realize is if you make that change, you end up having a cash payment, not an earnings payment, but a cash payment effectively for the cumulated taxes you've saved at whatever tax rate is today. It's not an inconsequential number. We need to weigh that versus the benefit of being on FIFO and having easy compares.

Our next question is from Jacob Levenson with Mellie's Research.

Hi, good morning, everyone.

Bye morning.

And purchasing people are furloughed, what we're seeing a little bit of slowdown in military and other areas as well and so.

Some of that May come back, but typically it wouldn't all come back and see a little bit of it maybe come back if there's catch up projects they stopped doing that.

But we would expect something between zero and something not huge to come back on that.

Okay perfect I appreciate the color. Thank you.

Uh, I realized there are some, uh, advantages on the tax front using LIFO and inventories, but I wanted to ask if there's been any discussion in terms of, uh, shifting to FIFO. It just seems like the last couple of years we've seen a lot of companies that had LIFO accounting actually moving to FIFO, just given the maybe stickier inflation. Back up.

Our next question is from Ryan Merkel with William Blair.

Hey, everyone and thanks for the question just sticking with the government did you guys size what the impact you expect in <unk> is from the government shutdown.

Yes, I mean basically the way to think about that is every day.

Point or more impact on our total business.

Deidra Merriwether: Right now, we're not going to make that change. We might in the future. Okay. That makes sense. Just on the government shutdown, I realize these are unfortunately becoming more regular occurrences. In your experience, is there normally some catch-up in demand once the shutdown's over? Because I'd imagine a lot of these facilities are just mothballed right now. Once we ramp back up, maybe there's some pent-up demand there. Yeah. What I would say is the nature of the shutdown, and this one in particular, obviously some of the non-military entities that we would serve are completely shut down. Typically, you wouldn't see much of a catch-up from those. We also are seeing this impact given the lack of the number of people who are furloughed and purchasing people who are furloughed. We're seeing a little bit of slowdown in military and other areas as well.

And so if it goes.

Yeah, yeah. So we we obviously have have talked about it evaluated at. I mean, the thing you you need to probably realize is if you make that change, you end up having a cash payment, not an earnings payment, but a cash payment effect would be for the accumulated taxes. You saved at whatever tax rate is today. So it's not in inconsequential number. So we, we need to weigh that versus the, the the benefit of being on fifo and, and having easy Compares. Um, right now we're not going to make that change. We might in the future.

Six weeks it'll be Catholic point, if it goes all time, it'll be a point or more impact than what we've seen so far.

I would say that you know if it doesn't get resolved it could become even even bigger.

If it goes on a long time, but thats, what thats, what we typically would see and expect to see now.

Okay got it.

Okay, that makes sense. And then and then, just on the, the government shutdown I realized these are unfortunately becoming more regular occurrences but in your experience is, is there normally some catch-up in demand once the shutdown's over? Because I I'd imagine a lot of these facilities are just mothballed right now. So once we ran back up, maybe there's some kind of demand there.

And then it sounds like you've put through another price increase in four Q and that would be off cycle for you, which I think I thought you were trying to stick to the national account timing. There. So is that sort of a change in how you're doing things or why the off cycle price increase.

Yes, I think I think a lot of this is just probabilistic so when when tariffs firstly, we actually didn't know how they would play out and we didn't want to get out in front of it so we've been.

Deidra Merriwether: Some of that may come back, but typically, it wouldn't all come back. You'd see a little bit of it maybe come back if there's catch-up projects they stop doing. We would expect something between 0 and something not huge to come back on that. Okay. Perfect. Appreciate the color. Thank you. Our next question is from Ryan Merkel with William Blair. Hey, everyone. Thanks for the question. Just sticking with the government, did you guys size what the impact you expect in Q4 is from the government shutdown? Yeah. Basically, the way to think about that is every day a point or more impact on our total business. If it goes six weeks, it'll be half a point. If it goes the whole time, it'll be a point or more impact. That's what we've seen so far.

Actually taking price increases when we have cost increases as opposed to speculatively.

And.

There's been over 1000 negotiations with our suppliers at this point locked in la that's not normal for the record.

Yeah. So you know what? I would say is the nature of the, the shutdown. And this 1 in particular, obviously, some of the non military entities that we would serve, are completely shut down. Typically you wouldn't see much of a catch up from those. But we also are seeing this impact, given the lack of the, number of people who are furloughed, uh, and purchasing people are furled, we're seeing a little bit of slowdown in Military and other areas as well. And so, um, some of that may come back but typically it wouldn't all come back. You'd see a little bit of it, maybe come back. If there's, there's ketchup projects that they stop doing, but we would expect something between, you know, zero and something, not huge to come back on that.

Okay. Perfect, appreciate the color. Thank you.

So what we saw was a number of cost increases come in after between the time, we set the nylon prices.

And the timing of it.

Now until we've done is we've raised price to compensate for that and we think it's the right thing to do and our customers understand that.

Our next question is from Ryan Merkel with William Blair.

And I would just add you know.

Well a lot of that is.

Hey everyone, thanks for the question. Um, just sticking with the government, did you guys size what the impact you expect in Q4 is from the government shutdown?

<unk> changes and corrections based upon what we're seeing in the marketplace.

Yeah, I mean basically the way to think about that is every day.

A point or more impact on, on our total business.

And assume that that change was as big as like a you know the five one change as an example.

Um, and so, you know, if it goes...

Deidra Merriwether: I would say that if it doesn't get resolved, it could become even bigger if it goes on a long time. That's what we typically would see and expect to see now. Okay. Got it. It sounds like you put through another price increase in Q4, and that would be off-cycle for you, which I think I thought you were trying to stick to the national account timing there. Is that sort of a change in how you're doing things or why the off-cycle price increase? I think a lot of this is just probabilistic. When tariffs first hit, we actually didn't know how they would play out, and we didn't want to get out in front of it. We've been actually taking price increases when we have cost increases as opposed to speculatively. There's been over 1,000 negotiations with our suppliers at this point. Lots and lots.

Got it okay. Thank you.

Thanks Ryan.

Our next question is from Stephen Volkmann with Jefferies.

Great. Thank you.

6 weeks, it'll be half a point. If it goes all the time, it'll be a point or more impact. That's what we've seen so far. Um, you know, I, I would say that, you know, if it doesn't get resolved, it could become even even bigger, uh, if it, if, if it goes on a long time. Uh, but that's what, that's what we typically would see, and expect to see now,

Apologize for beating this dead horse D G, but the price increase in November.

Was there any aspect of that would that would be I think your word was speculative did you try to get ahead of any of this.

No it's not speculative it's just matching what we're seeing and what we're seeing in the market.

We're sticking to our pricing tenants, which are basically to price to market.

Okay. Got it. And then it sounds like you put through another price increase in Q4, and you know, that would be off cycle for you. Which, you know, I thought you were trying to stick to the national account timing there. So, is that sort of a change in how you're doing things, or why the off cycle price increase?

At this point.

Okay great.

And then I think you also talked about it in your private label business.

Some headwinds competitive kind of headwinds how does that play out or what can you do to sort of address that going forward.

But we don't think were uniquely exposed or in a competitive disadvantaged and private brand of what has happened with some of the larger tariffs is the difference between a private brand product in some cases in the national brand product can become very tight and so then we have decisions to make as to how much price we take in those situations and so.

Deidra Merriwether: That's not normal, for the record. What we saw was a number of cost increases come in between the time we set the 9-1-1 prices and the time we would now. What we've done is we've raised price to compensate for that, and we think it's the right thing to do. Our customers understand that. I would just add, a lot of that is price changes and corrections based upon what we're seeing in the marketplace. I wouldn't assume that that change was as big as the 5-1 change as an example. Got it. Okay. Thank you. Thanks, Ryan. Our next question is from Stephen Volkman with Jefferies. Great. Thank you. Apologies for beating this dead horse, DG. The price increase in November, was there any aspect of that that would be—I think your word was speculative—that did you try to get ahead of any of this? No.

I think, I think a lot of this is just probabilistic. So, when when terrorists first hit, we actually didn't know how they would play out, and we didn't want to get out in front of it. So we've been, um, actually taking price increases when we have cost increases as opposed to speculatively. Um, and, you know, there's been over a thousand negotiations with our suppliers at this point. Lots and lots. That's, that's not normal, uh, for the record. Uh, and so what we saw was a number of cost increases come in after between the time we set the 91 prices and and

The time we would now. And so what we've done is we've raised price to compensate for that and we think it's the right thing to do our customers, understand that

We're still working through all of that it's a subset of our private brand and thought that's not all of them. It's not a huge portion of them, but for some of those cases, we have to decide how we treat those strategically.

and and I would just add, you know,

A lot of that is.

Understood. Okay. Thank you guys.

Thanks.

Price changes and Corrections based upon what we're seeing in the marketplace. So I wouldn't assume that that change was as big as like

Our next question is from Christopher Glynn with Oppenheimer <unk> company.

You know, the 51 change as an example.

Got it. Okay, thank you.

Thanks, Happy Friday happy Halloween.

That's right.

So you know.

I appreciate the comments at the beginning on.

Our next question is from Stephen folkman Jeff.

How youre looking at AI and adopting new technology, you've always been very tech, Florida investing at scale.

And so I'm curious what you are envisioning with that from both sides commercially layering into the outgrowth algorithm versus.

Deidra Merriwether: It's not speculative. It's just matching what we're seeing and what we're seeing in the market. We're sticking to our pricing tenets, which are basically price to market at this point. Okay. Great. I think you also talked about in your private label business some headwinds, competitive kind of headwinds. How does that play out, or what can you do to sort of address that going forward? We don't think we're uniquely exposed or at a competitive disadvantage in private brand. What has happened with some of the larger tariffs is the difference between a private brand product in some cases and a national brand product can become very tight. Then we have decisions to make as to how much price we take in those situations. We're still working through all of that. It's a subset of our private brand. It's not all of them.

Number, uh, was there any aspect of that with that would be? I think your word was speculative that. Did you try to get ahead of any of this?

The cost to serve side and margin potential.

No, it's not speculative. It's it's just matching what we're seeing and what we're seeing in the market.

Yes.

So what I would say is it's going to require all of the above to be successful long term, we think and.

We're sticking to our pricing tenants, which are basically priced to Market.

At this point.

We have been out in front and in certain areas with AI thinking about back end processing and <unk>.

For service in those areas that are kind of obvious to attack.

Okay, great. Um, and then, I think you also talked about in your private label business, uh, some headwinds competitive kind of headwinds. How does that play out or what can you do to sort of address that going forward?

I don't.

Everybody is going to be doing those things is my opinion, my expectation and so creating advantage probably going to be more on the commercial side and leveraging our data and our product and our customer data to create solutions that that provide better experiences for customers and so we are we are.

Vesting heavily there as well and we think both areas are going to be critical to our success.

Great. Thanks for that and then last quarter, you mentioned elevated bidding activity for new large business.

Deidra Merriwether: It's not a huge portion of them. For some of those cases, we have to decide how we treat those strategically. Understood. Okay. Thank you, guys. Thanks. Our next question is from Christopher Glynn with Oppenheimer and Company. Thanks. Happy Friday. Happy Halloween. I appreciate the comments at the beginning on how you're looking at AI and adopting new technology. You've always been very tech-forward and investing at scale. I'm curious what you're envisioning with that from both sides, commercially layering into the outgrowth algorithm versus the cost-to-serve side and margin potential. Yeah. I think what I would say is it's going to require all of the above to be successful long-term, we think. We have been out in front in certain areas with AI, thinking about back-end processing and customer service and those areas that are kind of obvious to attack.

I'm curious how that pipelines playing out.

Well, we don't think we're, we're uniquely exposed or competitive disadvantaged in, in private brand. But what has happened with some of the larger tariffs is the, the, the difference between a private brand product, in some cases of the national brand product can become very tight. And so then we had decisions to make as to how much price we take, uh, in those situations. And so, we're, we're still working through all of that. It's a subset of our private brand, it's not, it's not all of them. It's not a huge portion of them. But for some of those cases, we have to decide how we treat those strategically.

We think of that as incrementally constructive to the outgrowth algorithm, perhaps for interim period.

Understood. Okay, thank you guys.

Thanks. Thanks.

Yes, we think we think we're doing while I don't know I don't know that I'd say its constructive for the outgrowth at this point, but we think things are going well on that front.

Our next question is from Christopher Glenn with Oppenheimer & Company.

And you probably know in our business you know, having big contracts and getting all the volume is are two different things, sometimes and so you.

You got that you have to have the contracts and then you have to win at the local level and we know that and so that's really how we can how we construct our business and our focus.

Great. Thank you thank.

Thank you.

Our next question is from Ken Newman with Keybanc capital markets.

Uh, thanks. Happy Friday and happy Halloween. Um, so, you know, I appreciate the comments at the beginning on, um, you know, how you're looking at AI and adopting new technology. You've always been very tech-forward and investing at scale. Um, and so I'm curious what you're envisioning with that, uh, from both sides, you know, commercially layering into the outgrowth algorithm versus the cost to serve side and margin potential.

Hey, good morning, guys.

Good morning, maybe.

Maybe.

Maybe first just to clarify sorry, if I missed this in response to Dave's first question.

Any help on just how to think about the operating profit or loss in the other segment not the Cromwell is divested.

Deidra Merriwether: I don't—everybody's going to be doing those things is my expectation. Creating advantage is probably going to be more on the commercial side and leveraging our data, our product data, and our customer data to create solutions that provide better experiences for customers. We are investing heavily there as well. We think both areas are going to be critical to our success. Great. Thanks for that. Last quarter, you mentioned elevated bidding activity for your new large business. Curious how that pipeline's playing out. Should we think of that as incrementally constructive to the outgrowth algorithm, perhaps, for an interim period? Yeah. We think we're doing well. I don't know that I'd say it's constructive for the outgrowth at this point, but we think things are going well on that front. You probably know in our business, having big contracts and getting all the volume are two different things sometimes.

Yeah. I think you know so what I would say is it's going to require all of the buff to be successful long term we think and uh you know we we have been um out in front and in certain areas with AI thinking about back in processing and and customer service. And those those areas that are kind of obvious to attack

Is that segment can be profitable in <unk> or just how do you think about that normalize into next year.

Okay.

The exiting the U K it shows up in two areas. It shows up in other kind of word chromo wasn't that the vast majority of it in a little bit in EBITDA, because that was the zoro U K business.

I don't, you know, everybody's going to be doing those things is is my opinion is my my expectation. And so creating Advantage is probably going to be more on the commercial side and leveraging our data, our product in our customer data, to create solutions, that that provide better better experiences for customers. And so we are, we are investing heavily there as well. We think both areas are going to be critical to Our Success.

That will positively contribute.

Once we close the deal from a profitability perspective.

And it's like in the teens from a operating.

Not in the teens.

Great. Thanks for that. And then last quarter, you mentioned elevated bidding activity for new large business. I'm curious how that pipeline's playing out and, you know, should we think of that as incrementally constructive to the outgrowth algorithm, perhaps for the interim period?

20, or so basis points improvement.

<unk> operating margin.

Okay. That's helpful. I appreciate that.

And then.

Deidra Merriwether: You have to have the contracts, and then you have to win at the local level. We know that. That's really how we construct our business and our focus. Great. Thank you. Thank you. Our next question is from Ken Newman with KeyBank Capital Markets. Hey. Good morning, guys. Maybe first, just to clarify, I'm sorry if I missed this in response to Dave's first question, but any help on just how to think about the operating profit or loss in the other segment, now that Cromwell's divested? Is that segment going to be profitable in Q4, or just how do you think about that normalizing to next year? Okay. Exiting the UK shows up in two areas. It shows up in other, kind of where Cromwell was, and that's the vast majority of it, and a little bit in EA because that was the Zoro UK business.

For the follow up here it looks like there was a pretty sizable increase and midsize customer growth and high touch U S. This quarter.

Is that primarily a price versus volume mix and then maybe just any color on how you think about how sustainable midsize customer growth can be going forward and its impact on mix.

Yeah, we think we're we think we're doing well, I don't know, I don't know that it's say, it's constructive for the outgrowth at this point, but we think things are are going well on that front. Um, and and you probably know in our business, you know, having big contracts and getting all the volume is are 2 different things sometimes and so, um, you know, you have to, you have to have the contracts and then you have to win at the local level and and, and we know that. And so that's really how we can how we construct our business and our Focus.

Great. Thank you. Thank you.

Yeah. So we believe you know.

Our next question is from Ken Neumann with KeyBanc Capital Markets.

We're doing really well with midsized customers, but the majority of the difference in the increase I believe at 7% and the noted fly is really due to some softer comps in the prior year.

Good morning, guys.

And I would say.

I I would just add that I think we have.

A lot of opportunity with mid sized customers and where we're learning and I think we'll continue to do better but it is it's a it's not immediate so to to display.

Good morning. Um, maybe morning maybe first uh just to clarify sorry if I missed this uh in response to Dave's first question. Um, but any help on just how to think about the operating profit or loss in the other. Segment knot that Cromwell is De vested? Um is that segment going to be profitable uh in 4 to you or just how do you think about that normalize into next year?

Okay.

Got it.

Deidra Merriwether: That will positively contribute once we close a deal from a profitability perspective. It's like 20 or so basis points improvement in operating margin. Okay. That's helpful. I appreciate that. For the follow-up here, it looks like there was a pretty sizable increase in midsize customer growth in high-touch U.S. this quarter. Is that primarily a price versus volumes mix? Maybe just any color in how you think about how sustainable midsize customer growth can be going forward and its impact to mix? Yeah. We believe we're doing really well with midsize customers. The majority of the difference in the increase, I believe it's 7% in the noted slides, is really due to some software comps in the prior year. I would just add that I think we have a lot of opportunity with midsize customers, and we're learning.

Our next question is from Sabrina Abrams with Bank of America.

Hey, good morning, everyone.

Alright.

So the gross margins in the quarter were I guess, a lot better than expected and I know you've spoken to some stuff around LIFO expense timing, but it was a pretty big Delta just wanted to understand if there were any benefits from bringing down inventories quarter over quarter or anything about LIFO layers and maybe if you could give.

Okay. So the, um, the exiting, the UK, it shows up in 2 areas, it shows up, uh, in other kind of where Chrome or was, and that's the vast majority of of it and a little bit in EA because that was the Zorro UK business. So that will positively contribute. Um, you know, once we close a deal, um, from a profitability perspective,

Um, and it's like, in the teens from an operating, not in the teens. Um, um,

20 or so, basis, points Improvement. And operating margin

Okay, that's helpful. I appreciate that.

More color on exactly what happened with the LIFO timing did suppliers Tuesday increases thank.

Thank you.

Yeah, Thanks for the questions and bring that so it's really around the fact that you know.

And then uh, for the follow-up here, um, it looks like there was a pretty sizable increase in midsize customer growth and high touch us. This quarter.

LIFO is really difficult to estimate.

Cuz based upon your inventory purchase and the specific changes.

Um, is that primarily a price versus volume mix? And then maybe just any color on how you think about how sustainable midsize customer growth can be going forward, and how it's impacting mix.

On the costs you have to be able to estimate that by SKU and then whatever you sell you have to go back in prior periods and pull those adjustments and make a very good estimate for your prior year inventory at the same time. So we do the best we can at trying to estimate.

We're doing really well with midsize customers, but the majority of the difference in the increase, I believe, is 7%. The noted slides indicate that this is really due to some software comps in the prior year.

Pretty complicated.

And I would say that, I think I would just add that. I think we have.

A quantification of LIFO impact.

Deidra Merriwether: I think we'll continue to do better, but it's not immediate to D.G. Macpherson's point. Got it. Our next question is from Sabrina Abrams with Bank of America. Hey. Good morning, everyone. Morning. The gross margins in the quarter were, I guess, a lot better than expected. I know you've spoken to some stuff around LIFO expense timing, but it was a pretty big delta. Just want to understand if there were any benefits from burning down inventories quarter over quarter or anything about LIFO layers. Maybe if you could give more color on exactly what happened with the LIFO timing. Did suppliers choose to eat increases? Thank you. Yeah. Thanks for the question, Sabrina. It's really around the fact that LIFO is really difficult to estimate because based upon your inventory purchase and the specific changes on the cost, you have to be able to estimate that by SKU.

And so our team here was all always continuing to negotiate with suppliers and based upon where those negotiations landed.

Um, a lot of opportunity with midsize customers and we're we're learning and I think we'll continue to do better but it is. It's uh it's it's not immediate so to to these point,

Got it.

Some of those cost increases are being pushed into the prior period.

And so.

Based upon that.

Our next question is from Sabrina Abrams with Bank of America.

That is some of the LIFO charge improvement.

Hey uh, good morning everyone.

In addition to that we have some benefit from price costs as well that impacts gross margin and then also we also had benefits from favorable mix and freight.

um,

Okay.

Got it thank you.

And maybe if you could talk a little bit about the market growth has been in your daily sales growth has been very stable. This year with the exception of I guess, what's happening in Q4, and you've already explained that but barring that just any early thoughts on how youre thinking about that growth and.

The so the gross margins in the quarter were, um, I guess a lot better than expected and I know you've spoken to some stuff around lifo, expense timing, but it was a pretty big Delta. Just want to understand if there were any benefits from burning down inventories quarter over quarter or anything about lifo, layers and maybe if you could give more color on exactly what happened with. Uh, the lifo timing, uh, did suppliers choose to eat increases. Um, thank you.

2026 are you thinking it will be similar to this year. Thank you.

So we will provide that information at the end of the year in January we typically don't provide that.

Deidra Merriwether: Then whatever you sell, you have to go back in prior periods and pull those adjustments in and make a very good estimate for your prior year inventory at the same time. We do the best we can at trying to estimate a pretty complicated quantification of LIFO impact. Our team here was always continuing to negotiate with suppliers, and based upon where those negotiations landed, some of those cost increases are being pushed into prior periods. Based upon that, that is some of the LIFO charge improvement. In addition to that, we have some benefit from price cost as well that impacts gross margin. We also have benefits from favorable mix and freight. Okay. Got it. Thank you.

We do expect to have.

A significant price rollover as you might guess and so and we still expect to continue to gain share at our charter rate. So.

But we will we will have more more more news on what we think the market will do as we get to that point.

Thank you.

Yeah, thanks for the question, Sabrina. So it's really around the fact that, you know, lifo is really difficult to estimate um, because you know, based upon your inventory purchase and the specific changes uh on the cost. You have to be able to estimate that by SKU. And then whatever you sell, you have to go back and prior periods and, and pull those adjustments in and make a very good estimate for your prior year inventory. He had the same time, so we do the best we can at trying to estimate a, a pretty complicated. Um,

Thanks.

a quantification of lipo impact.

Our next question is from Neal Burk with UBS.

Hey, Thanks, Sir Thanks for the question.

Wanted to ask about.

And um and so uh our team here was all always continue to negotiate with suppliers and based upon where those negotiations landed.

Asking the price question in another way, we hear about some price fatigue with respect to customers in the industrial channel.

Uh, some of those cost increases are being pushed into prior periods.

Can you talk about your conversations with your suppliers I think you mentioned over 1000 negotiation. So is there a sense that they are not fully passing on cost inflation.

And so, um, you know, based upon that, uh, that is some of the LIFO charge improvement.

He is a bit below a bit below market.

I don't know if it's a bit below market, what I would say is that for manufacturer they have decisions to make about whether they pass a percent or $1.

Uh, in addition to that, uh, we have some benefits from price costs, uh, as well, uh, that impact gross margin. Also, we have benefits from favorable mix and freight.

Deidra Merriwether: Maybe if you could talk a little bit about the market growth and your daily sales growth has been very stable this year, with the exception of, I guess, what's happening in Q4. You've already explained that. Barring that, just any early thoughts on how you're thinking about the growth in 2026? Are you thinking it will be similar to this year? Thank you. We'll provide that information at the end of the year in January. We typically don't provide that. We do expect to have a significant price rollover, as you might guess, and we still expect to continue to gain share at our target rate. But we will have more news on what we think the market will do as we get to that point. Thank you. Thanks. Our next question is from Neil Burke with UBS. Hey. Thanks for the question.

And I would say that a lot of them are past.

Somewhere between that two and.

In many cases so.

Because the headline is 20% tariff increase they may not passed 20% in all cases, and so we've seen really a mix of things in a wide range of things from from our suppliers on that front.

Okay. Thanks, and I know, we'll get more on the phone in January but like any any kind of initial thoughts on 2026, not so much on the top line, but you mentioned.

Okay, uh, got it, thank you. Um, and maybe if you could talk a little bit about, um, you know, the market growth has been, I think, and your daily sales growth has been very stable, uh, this year, um, with the exception of, I guess, what's happening in Q4, and you've already explained that. Uh, but barring that, um, just any early thoughts on how you're thinking about the growth in 2026? Uh, are you thinking it will be similar to this year? Um, thank you.

Gross margins around 39%, so any kind of puts and takes when we think about how that drops through to operating profit.

I mean, I would just I would just point to two things that that probably set us up well one as a lifestyle thing we've been talking about that will should improve as youre getting a lot of the others.

So we'll, we'll provide uh, that information at the end of the year January. We typically don't provide that, um, you know, we we do expect to have um, you know, significant price rollover as you might guess. And so and we still expect to continue to gain share, uh, at our Target rate. So, uh, but we will we will have more more, more news on what we think the market will do as we get to that point.

Thank you.

Thanks.

Exiting the U K market, if we can execute a market that will help too. So I would only point to those two things at this point, we'll talk about others, we get to the end of the year.

Our next question is from Neil Burke with UBS.

Deidra Merriwether: I wanted to ask about asking the price question another way. We hear about some price fatigue with respect to customers in the industrial channel. Can you talk about your conversations with your suppliers? I think you mentioned over 1,000 negotiations. Is there a sense that they're not fully passing on costs since the inflation you see is a bit below market? Yeah. I don't know if it's a bit below market. What I would say is that for a manufacturer, they have decisions to make about whether they pass % or dollars. I would say that a lot of them have passed somewhere in between that too in many cases. Just because the headline is 20% tariff increase, they may not pass 20% in all cases. We've seen really a mix of things and a wide range of things from our suppliers on that front. Okay. Thanks.

Great. Thank you.

Hey, thanks for the question. Um, I wanted to ask about um,

Yes.

Our next question.

With RBC capital markets.

Thank you good morning, everyone.

Good morning.

I was hoping as we close the books on Comm, well DJ you can share some of the lessons. This was not the first time Granger had tried to expand in Europe. There was also favorably.

Uh asking the price question, another way we hear about some price fatigue, with respect to customers in the industrial Channel. Um can you talk about your conversations with your suppliers? I think you mentioned over a thousand negotiations. So is there a sense that they are not fully passing on costs? And so the inflation you see is a bit below a bit below Market.

So what does not work with the MRO model and Europe.

Mood now I think but then more importantly don't you still have all kinds of opportunity to outgrow North America and you know it's still highly fragmented so isn't that saw the growth.

Um, yeah, I don't know if it's a bit below Market. What I would say is that for manufacturer, they have decisions to make about whether they pee pass a percent or dollars.

<unk> so bad.

And um I would say that a lot of them have passed uh somewhere in between that too in many cases. So uh you know just because the headline is 20%

Yeah, Yeah yeah.

The second one is really easy so yeah. We do you think the opportunities to grow in North America and <unk>.

And in Japan, with monetary or we've got great growth opportunities there, yes I'd.

Tariff increases—they may not pass—20% in all cases. And so we’ve seen really a mix of things in a wide range of things from our suppliers on that front.

Deidra Merriwether: I know we'll get more on this in January, but any kind of initial thoughts on 2026? Not so much on the top line, but you mentioned gross margins around 39%. Any kind of puts and takes when we think about how that drops through to operating profit? I would just point to two things that probably set us up well. One is the LIFO thing we've been talking about that should improve as the year goes on. The other is exiting the UK market. If we can exit the UK market, that will help too. I would only point to those two things at this point. We'll talk about others as we get to the end of the year. Great. Thank you. Our next question is from Deane Dray with RBC Capital Markets. Thank you. Good morning, everyone. Morning.

I would say favoring N and Cromwell very different experiences I think Cromwell is very good business.

We bought it right before Brexit happened.

We thought we had an opportunity to learn and build off that platform for Zoro U K and then potentially think about expansion and learn about the European market.

Okay. Thanks and um, I know we'll get more on this on in January, but like any, any kind of initial thoughts on 2026, not so much on the top line, but you mentioned um gross margins around 39%. So any kind of like puts and takes when we think about how that drops through to operating profit

That turned out to not be true, obviously, when Brexit happened and at some point it becomes clear that you've got a mid sized business that isn't really material to our portfolio and we want to make sure that our attention goes to things that really matter for Matt that can move the needle for us and so that's why we made the decision. We do think crumbles of good business and will continue to be a good business going forward.

You know, probably set us up. Well, 1 is a life. I think we've been talking about that will improve as you go on, and the other is, um, exiting the UK market. If we can exit the UK market, that will help too. So I would only point to those two things at this point. We'll talk about others as we get to the end of the year.

Great. Thank you.

Our next question.

Good to hear and then just to clarify on the government shutdown and I. Appreciate how you sized it is there been any difference in behavior demand I mean between federal state local I mean this is the.

Thank you. Good morning everyone.

Deidra Merriwether: I was hoping as we close the books on Cromwell, D.G., can share some of the lessons. This was not the first time Grainger had tried to expand in Europe. There was also FABRY. What doesn't work with the MRO model in Europe? That's kind of moot now, I think. More importantly, don't you still have all kinds of opportunity to outgrow North America and it's still highly fragmented. Isn't that still the growth opportunity? Good questions there. The second one's really easy. We do think the opportunity is to grow in North America and in Japan with MonotaRO.com. We've got great growth opportunities there. I'd say FABRY and Cromwell are very different experiences. I think Cromwell is a very good business. We bought it right before Brexit happened.

Good morning.

Our focus is on the federal shutdown, but what's been the ripple effect across the rest of your government business.

Little actually I think the state state businesses down in October only because of the hurricane basically so if you look to renew the hurricane from the three states that had big Hurricane events last year state would be on a good path local hasnt really been impacted that much. So from a government shutdown perspective, it's really the military so far that's been had in hand and thing.

Like VA hospitals that are linked to federal but that has slowed down as well.

I appreciate that thank you. Thank you.

Our next question is from Nigel Coe with Wolfe research.

Deidra Merriwether: We thought we had an opportunity to learn and build off that platform for Zoro UK and then potentially think about expansion and learn about the European market. That turned out to not be true, obviously, when Brexit happened. At some point, it becomes clear that you've got a midsize business that isn't really material to our portfolio. We want to make sure that our attention goes to things that really matter that can move the needle for us. That's why we made the decision. We do think Cromwell is a good business and will continue to be a good business going forward. Good to hear. Just to clarify on the government shutdown, and I appreciate how you sized it, has there been any difference in behavior demand, I mean, between federal, state, local?

Thanks, Good morning.

I appreciate the attempt to teach in on LIFO accounting.

I don't know Katherine by training and.

Hey, it was hoping as we close the books on comwell, DG can share some of the lessons. This was not the first time Granger had tried to expand in Europe. There was also favored, um, so what doesn't work with the mro model in Europe? That's kind of moot now, I think. But then more importantly, don't you still have all kinds of opportunity to outgrow North America in, you know, it's still a highly fragmented so isn't that still the the growth opportunity? So few questions here. Yeah. Yeah. So and that and the second 1's really easy. So yeah, we do think the opportunities to grow in North America and, and in Japan with monitor we've got great growth opportunities there, you know, I'd say, you know, favor in in in scrum more, very different, uh, experiences. I think Cromwell is a very good business. Um, it, you know, we bought it right before brexit happened. Uh, we thought we had an opportunity to learn, uh, and build off that platform for zero UK and then,

It fries my brain, so [laughter], but could add widespread good effort. We've had so many whiteboard sessions over the last few months it's ridiculous.

I know it but the more you dig into it the more confusing becomes but.

Just on I don't know if you quantified the D, but we calculate about 52 million.

This.

This this quarter is just the change in the LIFO reserve I'm, assuming that's the the charge and then I think the PR talks about still some some impacts in the first half of <unk> by mid 2006, I think it was the wording.

Potentially think about expansion and learn about the European market, um, that turned out to not be true. Obviously, when brexit happened, and at some point, it becomes clear that you've got a midsize business, that doesn't really material to our portfolio and we want to make sure that our attention goes to things that really matter uh, from a that can move the needle for us. And so that's why we made the decision. Uh we do think Cromwell is a good business and will continue to be a good business going forward.

We expect more moderate.

<unk> in the first half of next year.

Deidra Merriwether: The focus is on the federal shutdown, but what's been the ripple effect across the rest of your government business? Very little, actually. I think the state business is down in October only because of the hurricane, basically. If you remove the hurricane from the three states that had big hurricane events last year, state would be on a good path. Local hasn't really been impacted that much. From a government shutdown perspective, it's really the military so far that's been hit and things like VA hospitals that are linked to federal that have had slowdown as well. Appreciate that. Thank you. Thank you. Our next question is from Nigel Koh with Wolfe Research. Thanks. Good morning. I appreciate the attempt to teach in on LIFO accounting. I'm an accountant by training, and it fries my brain, so good effort.

So yes, your math is right and what I will say about next year is that we're right in the middle of the cost cycle for 2026, which is why it's so difficult for us to talk about 2026 outlook, because we're not done with that so but what we do know is more cost is coming into the year.

Good to hear. And then just to clarify on the government shutdown, and I appreciate how you sized it: has there been any difference in behavior or demand? I mean, between federal, state, and local? I mean, the focus is on the federal shutdown, but what's been the ripple effect across the rest of your government business?

Year end. So therefore, we're going to have additional LIFO impact.

Enter the year and so you know without having you know Chris numbers to lay out at this point, we know we're going to have a lifestyle impact.

Very, very little actually, I think, you know, the state state business is down in October only because of the hurricane basically. So, if you look remove the hurricane from the 3 states, that had big hurricane events last year, state would be on a good path. Local hasn't really been impacted that much. So, from a government shutdown perspective, it's really the military so far that's been hit and, and, and things like VA hospitals that are linked to, to, to Federal. But that, you know, have had slowed down as well.

We know we're going to have additional cycles of of.

Appreciate that. Thank you.

Price to path you know as a result.

Into 2026, but as it relates to actually sizing the incremental things that havent been locked down right now.

Our next question is from Nigel Co. with Wolfe Research.

Hmm.

It's really hard to do.

But we do think we get through the back half of next year.

Thanks, good morning. Uh, the I appreciate the attempt to teach in on lifo, accounting. Um, I'm an accountant by training and, uh, I it fries my brain. So

Deidra Merriwether: We've had so many whiteboard sessions in the last few months. It's ridiculous. I know. The more you dig into it, the more confusing it becomes. I don't know if you quantify it, Dee, but we calculated about $52 million impact this quarter, just the change in the LIFO reserve. I'm assuming that's the charge. I think the PR talks about still some impact in the first half of, or by mid-2026, I think is the wording. Would you expect more moderate impact in the first half of next year? Yeah, your math is right. What I will say about next year is that we're right in the middle of the cost cycle for 2026, which is why it's so difficult for us to talk about 2026 outlook because we're not done with that. What we do know is more cost is coming into the year.

We'll be in a good position because we would have had multiple pricing cycles.

Um, but we've had so many whiteboard sessions the last few months. It's ridiculous.

To catch up on any impacts on new costs that come through.

Right Okay. Thanks.

And then obviously good news on.

The price is down to two.

To come through here.

How do we think about price elasticity in the spirit of the question is there is a.

Sort of a vague kind of off price fatigue out there with some companies.

I'm just curious how the customers are responding to these.

I know but the movie dig into it that that the more confusing it comes but um, just don't I don't know if you qualify as D but uh we calculated our 52 million impact. This um this this quarter is just the change in the life of our reserve and I'm assuming that's the the charge. And then I think the pr talks about still some, some impact in in the first half of or by mid 2026, I think is the wording. Uh, would you expect more moderate uh, you know, impacts in the first half of next year?

Price increases and how do you think about elasticity of demand, especially if the white label goods.

Yeah. So so.

We are having very good conversations with our customers they are seeing everybody come to them with.

What we're talking about generally.

So we haven't really seen price fatigue, and we've been very measured in how we've done this.

Deidra Merriwether: Therefore, we're going to have additional LIFO impacts into the year. Without having crisp numbers to lay out at this point, we know we're going to have a LIFO impact. We know we're going to have additional cycles of price to pass as a result into 2026. As it relates to actually sizing those incremental things that haven't been locked down right now, it's really hard to do. We do think we get through the back half of next year, we'll be in a good position because we would have had multiple pricing cycles to catch up on any impacts and new costs that come through. Right. Okay. Thanks, Dee. Obviously, good news on the price has started to come through here. How do we think about price elasticity?

I guess, there could be a point where that might be a challenge, but certainly.

So, yeah, your math is right. And, um, what I will say about next year is that we're right in the middle of the Class Cycle for 2026, which is why it's so difficult for us to talk about 2026 outlooks because we're not done with that. But what we do know is more cost is coming into the year, and so therefore, we're going to have additional LIFO impacts.

For most of what we sell to a very small portion of our customers' expense and so we find that as long as our prices are competitive we are usually in a good shape.

Okay. Thanks D G.

Our next question is from Tommy Moll with Stephens, Inc.

Good morning, and thanks for taking my question.

Good morning.

Um uh into the year and so you know without having you know Chris numbers to lay out at this point we know we're going to have a a lifo impact. Uh we know we're going to have additional cycles of of of of price to pass, you know, as a result uh into 2026 but as it relates to actually sizing those incremental things that haven't been locked down right now. Um,

I wanted to tighten up my understanding here on the U K.

Two part question.

The $40 million sales impact that was over what timeframe and then the 20 basis points of operating margin impact just want to clarify you meant to say or what you meant was.

It's really, you know, hard to do. Um, but we do think if we get through the back half of next year, you know, we'll be in a good position because we would have had multiple pricing cycles, um, to, uh, catch up on any impacts and new costs that come through.

I'm assuming the.

Exit.

<unk> that would be the uplift.

Elevated company margins.

Deidra Merriwether: The spur of the question is, there is a sort of vague kind of aura of price fatigue out there with some companies. I'm just curious how the customers are sort of responding to these price increases. How do you think about elasticity of demand, especially for the white-label goods? Yeah. We are having very good conversations with our customers. They are seeing everybody come to them with what we're talking to them about generally. We haven't really seen price fatigue, and we've been very measured in how we've done this. I guess there could be a point where that might be a challenge. Certainly, for most of what we sell, it's a very small portion of our customers' expense. We find that as long as our prices are competitive, we are usually in good shape. Okay. Thanks, Dee. Our next question is from Tommy Moll with Stevens Inc.

Yes, so yes, the $40 million is just tied to Q4.

And in the 20 basis point.

Impact is for total company on an annualized basis.

Okay, and the $40 million.

Uh that that the price has done to to to to come through here. Um, how do we think about price elasticity and, and the spirit of the question is there is a sort of a vague kind of Aura of price fatigue out there with with some companies. And I'm just curious, you know how the customers are sort of responding to these uh price increases and and how do you think about elasticity of demand the specially for the white label Goods?

As for the entirety of Q4 correct.

So we're estimating that we will be able to close on the Cromwell deal.

By the end of November early December.

And that's the $40 million at that point effectively.

After that point in time, yes, right okay.

And that's both that's both Cromwell and what we would expect to happen it's already a case well combined perfect. Okay. We're clear now thank you.

Yeah, so so you know, we we are having very good conversations with our customers there, seeing everybody, come to them with with what we're talking about, generally. Uh, so we haven't really seen price fatigue and, and we've been very measured and how we've done this. Uh, you know, I guess there could be a point where that might be a challenge. But certainly, uh, for most of what we sell, it's a very small portion of our customers expense. And so, we, we find that, um, as long as our prices are competitive, we are usually in a good shape.

Okay. Thanks. TJ.

And then.

Just on high touch and the exit rate on pricing.

Deidra Merriwether: Good morning, and thanks for taking my questions. Good morning. I want to tighten up my understanding here on the UK exit. Two-part question. The $40 million sales impact, that was over what timeframe? The 20 basis points operating margin impact, just want to clarify you meant to say, or what you meant was, assuming the exits go as planned, that would be the uplift to consolidated company margin. Yes. The $40 million is just tied to Q4, and the 20 basis points impact is for total company on an annualized basis. Okay. The $40 million, Dee, is for the entirety of Q4, correct? We're estimating that we will be able to close on the Cromwell deal by the end of November, early December. That's the $40 million from that point, effectively. After that point in time? Yes. Right.

No, our next question is from Tommy Mall with Stevens Inc.

For the fourth quarter I think you said.

Somewhere north of three point and then also that there are continuing supplier conversations, suggesting there's probably doesn't need to be more pushed.

Good morning, and thanks for taking my questions. Good morning.

Let's call it first half 'twenty five.

So as we just think about the ramp here.

Excuse me first half 'twenty six.

We think about the ramp I mean could we end up in a world where 2026 pricing on high touch.

I want to tighten up my understanding here on the UK exit. Um, 2-part question, the $40 million sales impact that was over what time frame. And then the, the 20-bit points of operating margin impact. Just want to clarify you. You meant to say or or what you meant was.

Four points or better.

If we just put all these data points.

One after the other.

Um, assuming the S6 exits go as planned, that would be the uplift to consolidated company margins.

Yeah, I mean, we're estimating rapidly.

Close to three so.

Yes, so yeah, the $40 million is just tied to Q4.

Since we don't know that that number is highly likely that it's going to be north of three.

And the and the 20s.

Yes for next year.

Impact is for the total company on an annualized basis.

Yes, okay.

Thank you all I appreciate the insight and I'll turn it back.

Okay. And the $40 million D is for the entirety of Q4, correct?

Thanks.

Yeah.

Our next question is from Guy Hartwig with Barclays capital.

Hi, good morning, good morning.

Uh, so we're estimating that we will be able to close on the Cromwell deal.

Yes.

Yeah.

Uh, by the end of November, early December.

Most of my questions have been answer.

Quick one for me.

Looking at the sales growth by customer end market for high touch solutions U S. Warehousing is down mid teens.

And that's the 40 million from that point. Yeah. Effectively

Deidra Merriwether: That's both Cromwell and what we expect to happen at Zoro UK as well. Perfect. Okay. We're clear now. Thank you. Just on high touch and the exit rate on pricing for the fourth quarter, I think you said somewhere north of 3 points. Also, there are continuing supplier conversations suggesting there's probably going to need to be more pushed, let's call it first half 2025. As we just think about the wrap here—excuse me—first half 2026. As we think about the wrap, could we end up in a world where 2026 pricing on high touch is, I don't know, 4 points or better if we just put all these data points one after the other? Yeah. We're estimating the wrap will be close to 3. Since we don't know the other numbers, it's highly likely that it's going to be north of 3 for next year. Yep. Thank you.

After that point in time. Yes, right.

As sharply against the kind of trend slightly up slightly down the last few quarters can you can you explain that.

Okay, and that's both Cromwell and what we expect to happen is our UK as well. Perfect. Okay, we're clear now. Thank you. And then, um,

Yes, sure that's entirely.

Around one customer where there was a shift that's what I would say.

Just on high touch and the exit rate on pricing.

Um, for the fourth quarter, I think you said.

I'm, sorry that I lost contracts or close those closure of a facility that sort of change.

Change.

Just just just a contract adjustment.

Somewhere north of 3 points. And then also that there are continuing supplier conversations suggesting there's probably going to need to be more pushed.

Thank you.

Uh, let's call it first half 25.

Our next question is from Patrick Baumann with Jpmorgan.

Hi, I had a couple of quick ones here.

John.

Hi, Patrick.

So, as we just think about the wrap here, uh, excuse me. First half 2026. So, as we think about the wrap, I mean, could we end up in a world where 2026 pricing on high touch is, I don't know, 4 points or better?

The MRO market volume.

If we just put all these data points together,

In the third quarter and in context for that.

Uh, 1 after the other.

Could you touch on if you're still happy with.

The returns Youre getting on your investments.

Share gain investments yeah.

Yes.

Roughly 2% on volume for the debt.

Yeah, I mean we're estimating the wrap to be close to $3. So, since we don't know the other numbers, it's highly likely that it's going to be north of $3.

Debt to below 2% and volume for the quarter or.

Yeah, for next year.

Deidra Merriwether: I appreciate the insight, and I'll turn it back. Thanks. Our next question is from Guy Hardwick with Barclays Capital. Hi. Good morning. Good morning. Most of my questions have been answered, but just a quick one for me. Looking at the sales growth by customer and market for high touch solutions in the U.S., warehousing is down mid-teens, which is sharply against the kind of trend of slightly up, slightly down each of the last few quarters. Can you explain that? Yeah, sure. That's entirely around one customer where there was a shift, is what I would say. Was that a lost contract or a closure of facility, that sort of change? Just a contract adjustment. Thank you. Our next question is from Patrick Baumann with JP Morgan. Oh, hi. I had a couple of quick ones here. Touch on the volume transit, high touch again.

2%.

Yep. Okay.

Mark you talked about vault bar volume.

Uh, thank you. I appreciate the insight, and I'll turn it back.

Martin.

Thanks.

Market market from a market a market would have been down 2%. That's correct I am sorry, I thought youre, asking what our volume with our volume, but they don't want to do.

Our next question is from Guy Hardwick with Barclays Capital.

Hi, good morning.

In the quarter and yes. The short answer is yes, we are seeing significant.

Good morning.

Significant returns on our investments.

Getting more effective and more efficient in some of those investments. So yeah, we're pretty we're pretty bullish on what we're seeing from what we're investing right now yes.

Yeah, and I would just point you to.

Our return on invested capital is still north of 40.

Um, I missed my questions being answered, but just a quick one for me. Looking at the sales growth by customer and market for High Touch Solutions, U.S. warehousing sound mid-teens, which is sharply against the kind of trend of sliding up, slightly down each of the last few calls. Can you explain that?

It was lower than prior year. However, the main impact from that is just us continuing to build assets and in this case build networking assets relate it to them.

Yeah, sure, that’s entirely, um, around one customer where there was a shift. That’s what I would say.

a lost contract, or a closure of a facility that sort of

Change.

A lot of investments that we're making in DC capacity to ensure that we have a great service and availability.

Just a contract adjustment.

Okay and then my follow up is on.

On the margin side again, so the LIFO charge I get it's hard to size for 26, so we can make our own.

No, our next question is from Patrick Bowman with JP Morgan.

Assumptions around how much of that 80 to 90 basis point drag.

Deidra Merriwether: What do you estimate the MRO market volume did in the third quarter? In context of that, can you touch on if you're still happy with the returns you're getting on your investments, your share gain investments? Yeah. Yes. Roughly 2% on volume for the—below 2% on volume for the quarter. 2%. Market. No, you're talking about our volume. Market. Market. Market. Our market would have been down 2%. That's correct. I'm sorry. I thought you were asking what our volume was. Our volume would have been a 1 to 2 in the quarter. Yes, the short answer is yes. We are seeing significant returns on our investments, getting more effective and more efficient in some of those investments. We're pretty bullish on what we're seeing from what we're investing right now. I would just point you to our return on invested capital is still north of 40.

To add back as a starting point, but.

The slide mentions price cost as being negative as well can you can you size that.

Oh hi. Um, I had a couple quick ones here. Um, touch on the um line Transit High touch again. What was the U.S. made ML Market volume in the third quarter? And in context for that, you know? Uh, can you touch on if you're still happy with?

That's incremental to that 80 to 90 basis points.

And then as you sit in front of the whiteboard.

The returns you're getting on your investments, uh, your share gain investments.

And game theory.

If if the tariffs are illegal.

Roughly 2% on volume for the debt due below, 2% on volume for the core, and 2%.

Mechanically how do you guys think about that in terms of the flow through.

Market, know you're talking about bar volume.

Market.

Two results.

So I'll start and <unk> can kind of kind of focus.

As we look at our when we look at next year, we're still gonna have LIFO impact right, that's still going to exist the difference will be all.

Our price will continue to build.

Market Market Market. Oh, Market would have been down 2%. That's correct. I'm sorry. I thought you were asking about our volume was our volume up to 1 to 2, uh, in the, in the quarter. And yes, the short answer is. Yes we are seeing, um, significant Returns on our investments, um, getting, uh, more effective and more efficient in some of those Investments. So, yeah, we're pretty, we're pretty bullish on what we're seeing from what we're investing right now.

And so we will see gross margin from our Granger perspective improve into next year as it relates to that now the piece that we don't and that's based upon our now today right.

Deidra Merriwether: It was lower than prior year. However, the main impact from that is just us continuing to build assets, and in this case, build networking assets related to a lot of investments that we're making in DC capacity to ensure that we have great service and availability. Okay. My follow-up is on the margin side again. The LIFO charge I get is hard to size for 2026, so we can make our own assumptions around how much of that 80 to 90 basis point drag to add back as a starting point. The slide mentions price cost as being negative as well. Can you size that? I assume that's incremental to that 80 to 90 basis points.

We're working on additional cost increases while we start the year you know generally we based upon the cost negotiations we pushed through.

Cost increases in line with the negotiations that we have completed.

Yeah, and I would just point you to, you know, our return on invested capital is still north of 40. It was lower than the prior year. However, you know, the main impact from that is just us continuing to build assets, and in this case, field networking assets related to, you know, a lot of investments that we're making in DC capacity to ensure that we have great service and availability.

And so the cycle kind of we'll start again and those details we don't have to share, but usually LIFO weighs heavily.

Okay. Um, and then my follow-up is on, um,

On our business at the beginning of the year and then again, we catch up from a price perspective.

On the margin side again. So the LIFO charge, I get it’s hard to size for 2026, so we can make our assumptions around how much of that 80 to 90 basis point drag?

Through our cycle of increases so LIFO will not be going away.

It will normalize.

What we're experiencing this year what normalized but then we will be on a path where price will continue.

Deidra Merriwether: As you stood in front of the whiteboard and game theory, if the IEPA tariffs are ruled illegal, mechanically, how do you guys think about that in terms of the flow through to results? I'll start, and then DeeDee can focus. As we look at next year, we're still going to have LIFO impact, right? That's still going to exist. The difference will be our price will continue to build, and we will see gross margin from a Grainger perspective improve into next year as it relates to that. Now, the piece that we don't—and that's based upon all we know today, right? We're working on additional cost increases. When we start the year, generally, based upon the cost negotiations, we push through cost increases in line with the negotiations that we have completed. The cycle will start again. Those details we don't have to share.

To build and that's why we feel pretty confident that you know as we get to that second half of next year just like we're ending this year. If you look at the midpoint of the guide that we're going to be at about 39%.

Uh, to add back, um, as a starting point. But, you know, the slide mentions price cost as being negative as well. Can you size that? Uh, I assume that's incremental to that 80 to 90 basis points. Um, and then, as you sit in front of the whiteboard, you know, and gain theory, um,

If the IPA tariffs are ruled illegal mechanically, how do you think about that in terms of the flow-through?

Uh, to results.

Your second question is probably more theoretical at this point, which is it tariffs or if they go what would happen.

Uh, so I'll start and then DG can kind of...

focus.

First of all you know we.

Had followed.

The guys.

Guys like our own guidelines here that we only do things that actually are happening and so we would have to actually see what the law change will look like and figure out what would happen.

So, as we look into a follow-up, when we look at next year, we're still going to have LIFO impact, right? That's still going to exist. The difference will be our price will continue to build.

I'd say two things one is we have worked closely with suppliers to tag what the tariff cost increases are so we could and we would know how to unwind. Those if that was in fact required we could do that.

And certainly as that happened we would then of course get a benefit because when we do that.

Lower golf product and then we had the reverse of what way.

And so we will see gross margins from a Grainger perspective improve into next year. As it relates to that, now the piece that we don't— and that's based upon all we know today, right? Um, we're working on additional cost increases when we start the year. You know, generally we, uh, based upon the cost negotiations, we push through cost increases in line with the negotiations that we have completed.

um,

But I don't know how big of a benefit that would be so we'd have to come back to your model all of that if that in fact happened.

Deidra Merriwether: Usually, LIFO weighs heavily on our business at the beginning of the year, and then we catch up from a price perspective through our cycle of increases. LIFO will not be going away. It will normalize. What we're experiencing this year would normalize, but then we will be on a path where price will continue to build. That's why we feel pretty confident that as we get to the second half of next year, just like we're ending this year, if you look at the midpoint of the guide, we're going to be at about 39%. Your second question is probably more theoretical at this point, which is if tariffs are illegal, what would happen? First of all, we have followed the guide, our own guidelines here, that we only do things that actually are happening.

Thanks.

Our next question is from Chris Danker with loop capital markets.

Hey, good morning, Thanks for taking the questions.

I guess focusing on endless assortment here.

Nice results, maybe can you comment on how much of that is being driven by the more targeted selection continues but provide some benefits how much of that is kind of the the customer acquisition flywheel, just larger invoice sizes, maybe just any commentary on kind of what we're seeing in terms of trends inside of <unk>.

Yes, so what I would say is that most of the improvement we've seen.

And so the cycle kind of will start again. And those details we don't have to share but usually life always heavily uh, on our business at the beginning of the year. And then again, we catch up from a price perspective, um, through our cycle of of increases, so lifo will not be going away. Um, it some it will normalize. What? We're what we're experiencing this year, what normalize, but then we will be on a path where price will continue uh, to build. And that's why we feel pretty confident that, you know as we get to the second half of next year, just like we're ending this year. If you look at the midpoint of the guide that we're going to be at about a 39%,

I'll start I'll focus on zoro, because or has been a pretty big shift in terms of performance.

Your second question is probably more theoretical at this point: what would happen in a terrorist or illegal scenario? Um, first of all, you know, we have followed...

Has been improved fundamentals on getting more attractive customers and then getting them to buy frequently.

Deidra Merriwether: We would have to actually see what the law change would look like and figure out what would happen. I'd say two things. One is we have worked closely with suppliers to tag what the tariff-related cost increases are. We could, and we would know how to unwind those if that was, in fact, required. We could do that. Certainly, as that happened, we would. Of course, get a benefit because when we took the lower-cost product in, we'd have the reverse of what's happened with us in some way. I don't know how big a benefit that would be. We'd have to come back to you and model all that if that, in fact, happened. Thanks. Our next question is from Chris Danker with Loop Capital Markets. Hey, morning. Thanks for taking the questions. I guess focusing on endless assortment here. Nice results.

Average order size hasn't really changed at all it's all been a frequency of orders when you look at it that's been the driver and that's been <unk>.

Customer acquisition tool.

Acquiring customers with the right products that gives us a higher probability of actually getting the re Fi and it's also just doing better at marketing to those customers and creating a relationship in a digital through digital needs.

The um the the guy she got her own guidelines here, that we only do things that actually are happening. And so, you know, we would have to actually see what the law change would look like, and figure out what would happen. Uh, I, I'd say 2 things 1 is we have worked closely with suppliers to tag what the Tariff cost increases are so we could and we would know how to unwind those. If that was an in fact required uh we could do that and and certainly as that happened we would

So really the fundamentals that have improved a lot and we've seen a repeat rates go way up we've seen them do things as a business with pricing that has helped in the D C and service so.

So all of those things contributed to improved performance.

Then of course get a benefit because when we took the lower cost product in then we have the reverse of what's happening with this in some way. But I don't know. I don't know how big of benefit that would be so, um, we we'd have to come back to you and model all that, if that, if that happened,

Got it thanks for the color there and I guess as a follow up I mean, we're seeing better drop through now on the <unk>.

thank you.

G&A leverage are there any additional investments similar to the Tokyo D C or anything else, we should keep in mind into 'twenty 'twenty six 'twenty seven that would impact kind of that drop through rate or should we expect pretty good incremental margins in EMEA going forward from here.

Our next question is from Chris Danker with Loop Capital Markets.

Deidra Merriwether: Maybe can you comment on how much of it's being driven by the more targeted selection, continuing to provide some benefits? How much of that is kind of the customer acquisition flywheel, just larger invoice sizes? Maybe just any commentary on kind of what we're seeing in terms of trends inside of EA? Yeah.

Hey, good morning. Thanks for taking the questions. Um, I guess focusing on, uh, endless assortment here.

Other than Mito I don't know of any other investment that it's on the horizon. They they would have.

A lot of capacity in both Osaka, and Tokyo, after Mito and that would be the expectation for a while.

Nice results. Maybe you can comment on how much of that is being driven by the more targeted selection, which continued to provide some benefits. Um, how much of that is kind of the customer acquisition flywheel, you know, just larger invoice sizes? Maybe just any commentary on what we're seeing in terms of trends inside of EA.

Donald Macpherson: would say is that most of the improvement we've seen in—I’ll focus on Zoro.com because Zoro.com’s been a pretty big shift in terms of performance—has been improved fundamentals on getting more attracted customers and then getting them to buy frequently. Average order size hasn't really changed at all. It's all been frequency of orders when you look at it. That's been the driver, and that's been better customer acquisition. Acquiring customers with the right products gives us higher probability of actually getting a repeat. It's also just doing better at marketing to those customers and creating a relationship through digital means. Really, the fundamentals have improved a lot, and we've seen repeat rates go way up. We've seen them do things as a business with pricing that have helped, and we've seen service improve on Zoro.com. All those things have contributed to improved performance.

Got it thanks, so much thank you.

So, what I would say is that most of the improvement we've seen,

Yes.

Yeah.

Thank you there are no further questions at this time I'd like to hand, the floor back over to management for any closing comments.

Great. So thanks for joining the call today.

One thing I'd highlight is that I think the underlying business trends are really good and they were doing a lot of great things to improve the customer experience to prepare to improve our cost structure. I think continue to work on building technology and building building service capabilities through through the right network changes on the distribution Center network. So while we spent a lot of.

Time talking about LIFO.

You get the sense that that's not really what we're focused on as a business. We're focused on actually underlying performance in fact in my performance is pretty good.

With that I wish you, all a safe and happy Halloween.

Thanks for joining the call today.

In I'll start I'll focus on Zorro because Zoro has been a pretty big shift in terms of performance. Uh has been improved fundamentals on getting more attractive customers and they get in them to buy frequently. Um average order size hasn't really changed at all. It's all been frequency of orders when you look at it that's been the driver and that's been better. Customer acquisition. So Phi, you know, acquiring customers with the right products that gives us higher probability of actually getting a repeat and it's also just doing better at marketing to those customers and creating a relationship on a digital through digital means. Uh, so really the fundamentals have improved a lot and we've seen uh repeat rates go way up. Uh we've seen um them do them do things as a business with pricing that have helped and we we've seen service improve on tomorrow. So all those things have contributed to improved performance

Kyle Bland: Got it. Thanks for the color there. I guess as a follow-up, I mean, we're seeing better drop-through now on the SG&A leverage. Are there any additional investments similar to the Tokyo DC or anything else we should keep in mind into 2026, 2027 that would impact kind of that drop-through rate, or should we expect pretty good incremental margins in EA going forward from here?

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Got it. Thanks for the the color there and I guess as a follow-up. I mean, we're we're seeing better drop through now on, uh, on The sgna. Leverage, are there any additional Investments similar to to the Tokyo DC or anything else? We should keep in mind into 2026 2027, that would impact kind of that drop through rate or should we expect?

Pretty good incremental margins. In EA, going forward from here.

Donald Macpherson: Other than Meadow, I don't know of any other investment that is on the horizon. They would have a lot of capacity in both Osaka and Tokyo after Meadow, and that would be the expectation. They would be good for a while.

Other than Meato, I don't know of any other investment that is on the horizon that they would have.

Kyle Bland: Got it. Thanks so much.

Um, a lot of capacity in both Osaka and Tokyo after Mido, and that would be the expectation. They would have it for a while.

Donald Macpherson: Thank you.

Got it. Well, thanks so much. Thank you.

Operator: Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Donald Macpherson: Great. Thanks for joining the call today. One thing I'd highlight is that I think the underlying business trends are really good, and that we're doing a lot of great things to improve the customer experience, to prepare to improve our cost structure, to continue to work on building technology and building service capabilities through the right network changes on the distribution center network. While we spent a lot of time talking about LIFO, I hope you get the sense that that's not really what we're focused on as a business. We're focused on actually underlying performance, and we feel like the underlying performance is pretty good. With that, I wish you all a safe and happy Halloween, and thanks for joining the call today.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Great. So, um, thanks for joining the call today. You know, 1 thing I'd highlight is that, you know, I think the underlying business Trends are are really good, and we're doing a lot of great things to improve the customer experience, to prepare to improve our our cost structure. I think it's a deep work on Building Technology and building building building the service capabilities through through the right, uh, Network changes on the Distribution Center Network. So while we spend a lot of time, talking about lifo, um, I hope you get get the sense that, uh, that's not really the what we're focused on as a business. We're focused on actually underlying performance and we fit in line. Performance is pretty good. Um, with that, I wish you all a safe and happy Halloween, uh, and thanks for joining the call today.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.