Q2 2026 WW Grainger Inc Earnings Call

August 4, 2026

Speaker #1: Greetings, and welcome to the WW Grainger second quarter, 2026, earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Operator: Greetings. Welcome to the W.W. Grainger Second Quarter 2026 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. Thank you. You may begin.

Speaker #1: If anyone should require operator assistance, please press *0 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.

Speaker #1: Thank you. You may begin.

Speaker #2: Good morning. Welcome to Grainger's second quarter, 2026, earnings call. With me are D.J. McPherson, Chairman and CEO, and D. Merriwether, Senior Vice President and CFO.

Kyle Bland: Good morning. Welcome to Grainger's Q2 2026 earnings call. With me are D.G. Macpherson, Chairman and Chief Executive Officer, and Deidra Merriwether, Senior Vice President and Chief Financial Officer. 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 includes non-GAAP financial measures, which reflect certain adjustments in previous periods as noted in the presentation. There were no adjusting items in the Q2 2026 period. We have also included organic revenue adjustments in the presentation, which normalize sales growth to reflect our exit from the UK market, including the Cromwell divestiture and the closure of Zoro U.K., both of which were completed in the Q4 2025.

Kyle Bland: Good morning. Welcome to Grainger's Q2 2026 earnings call. With me are D.G. Macpherson, Chairman and Chief Executive Officer, and Dee Merriwether, Senior Vice President and Chief Financial Officer. 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 includes non-GAAP financial measures, which reflect certain adjustments in previous periods as noted in the presentation. There were no adjusting items in the Q2 2026 period. We have also included organic revenue adjustments in the presentation, which normalize sales growth to reflect our exit from the UK market, including the Cromwell divestiture and the closure of Zoro U.K., both of which were completed in the Q4 2025.

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.

Speaker #2: This morning's call includes non-GAAP financial measures, which reflect certain adjustments in previous periods as noted in the presentation. There were no adjusting items in the second quarter, 2026, period.

Speaker #2: We have also included organic revenue adjustments in the presentation, which normalize sales growth to reflect our exit from the UK market, including the Cromwell divestiture and the closure of Zoro UK, both of which were completed in the fourth quarter of 2025.

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.

Kyle Bland: Definitions and full reconciliations of our non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO. Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from US GAAP and is reported in our results one month in arrears. As a result, the numbers discussed will differ from MonotaRO's public statements. Now I'll turn it over to D.G.

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

Speaker #2: As a result, the numbers discussed will differ from monetaro's public statements. Now, I'll turn it over to D.G.

Speaker #1: Thanks, Kyle. Good

D.G. Macpherson: Thanks, Kyle. Good morning, everyone. Thanks for joining today. Building on our momentum from the start of the year, we delivered strong performance in the Q2 by executing well and delivering exceptional service to customers. Despite ongoing uncertainty, sales remained strong in both the High-Touch Solutions and Endless Assortment segments, and core operating profitability was in line with expectations. While the external landscape remains fluid, we're confident in our ability to manage the impact while remaining committed to our pricing tenets. We also saw continued strength in the demand environment during the period, with most end markets showing acceleration. As I spend time with customers, I can see this playing out in the way we serve them on-site and inside their operations. Recently, I visited several manufacturing customers where our teams are closely connected to the day-to-day work.

Speaker #3: Good morning, everyone, and thanks for joining today. Building on our momentum from the start of the year, we delivered strong performance in the second quarter by executing well and delivering exceptional service to customers.

Speaker #3: Despite ongoing uncertainty, sales remained strong, in both the high-touch and endless assortment segments, and core operating profitability was in line with expectations. While the external landscape remains fluid with confidence in our ability to manage the impact, while remaining committed to our pricing tenets.

Speaker #3: We also saw continued strength in the demand environment during the period, with most end markets showing acceleration. As I spend time with customers, I can see this playing out in the way we serve them on site and inside their operations.

Speaker #3: Recently, I visited several manufacturing customers where our teams are closely connected to the day-to-day work. We're helping them manage inventory in ways that fit their specific needs, and that is contributing to strong year-over-year growth at these locations.

D.G. Macpherson: We're helping them manage inventory in ways that fit their specific needs, that is contributing to strong year-over-year growth at these locations. More and more customers are asking us to help them run their operations more efficiently and solve specific challenges, including areas like safety. One customer, Safety Expertises, was the catalyst for accelerating that partnership. We're also seeing solid growth from our national accounts in both the US and Canada. Canada specifically, we have seen tremendous improvement over the past several years as the team stay focused on two things: serving customers well, and building a stronger, more profitable business. They've made great progress improving service, resetting their sales force, and revamping their website, while also diversifying their customer end markets and product offering. These efforts have driven strong sales growth and operating margin recovery to the highest levels we have seen in nearly a decade.

Speaker #3: More and more customers are asking us to help them run their operations more efficiently and solve specific challenges, including areas like safety. With one customer, our safety expertise was the catalyst for accelerating that partnership.

Speaker #3: We're also seeing solid growth from our national accounts in both the U.S. and Canada. On Canada specifically, we have seen tremendous improvement over the past several years, as the team stayed focused on two things: serving customers well and building a stronger, more profitable business.

Speaker #3: They have made great progress improving service, resetting their sales force, and revamping their website while also diversifying their customer and markets and product offering.

Speaker #3: These efforts have driven strong sales growth and operating margin recovery to the highest levels we have seen in nearly a decade. Now, turning to our second quarter results.

D.G. Macpherson: Turning to our Q2 results. We delivered another quarter of strong growth and profitability. Results benefited from ongoing operational execution across both segments and an improving market, which helped accelerate volume growth in the period. We are pleased with what we are seeing from our high-touch growth engine and from our efforts within the EA segment to continue propelling the flywheel. Total company reported sales for the quarter were up 10.3%, or 13.7% on a daily organic constant currency basis. Operating margin was strong at 16.1%, and diluted EPS finished the quarter up over 20% inclusive of the impact of IEEPA tariff refunds recognized in the period. Operating cash flow came in at USD 444 million, which allowed us to return a total of USD 341 million to Grainger shareholders through dividends and share repurchases.

Speaker #3: We delivered another quarter of strong growth and profitability. Results benefited from ongoing operational execution across both segments and an improving market, which helped accelerate volume growth in the period.

Speaker #3: We are pleased with what we are seeing from our high-touch growth engine and from our efforts within the EA segment to continue propelling the flywheel.

Speaker #3: Total company reported sales for the quarter were up 10.3%, or 13.7% on a daily, organic, constant currency basis. Operating margin was strong at 16.1%, and diluted EPS finished the quarter up over 20%, inclusive of the impact of IEPA tariff refunds recognized in the period.

Speaker #3: Operating cash flow came in at $444 million, which allowed us to return a total of $341 million to Grainger shareholders through dividends and share repurchases.

Speaker #3: Lastly, we are excited to announce that our new Northwest Distribution Center in Oregon began outbound operations in July. This new, technology-enabled building gives us another way to get more of the products customers need closer to where and when they need them.

D.G. Macpherson: We are excited to announce that our new Northwest distribution center in Oregon began outbound operations in July. This new technology-enabled building gives us another way to get more of the products customers need closer to where and when they need them. Overall, we're encouraged by the progress we've made across the business, after our strong H1 performance and continued momentum, we are increasing our outlook for the year. With that, I'll turn it over to Dee for a closer look at our financials from the Q2.

Speaker #3: Overall, we're encouraged by the progress we've made across the business, and after our strong first-act performance and continued momentum, we are increasing our outlook for the year.

Speaker #3: With that, I'll turn it over to D. for a closer look at our financials from the quarter.

Speaker #4: Thanks, D.G. Turning to slide 7, you can see the high-level results we had in the second quarter, with total company sales of 10.3%, or 13.7%, on a daily organic constant currency basis, which included strong growth across high-touch solutions and endless assortment.

Deidra Merriwether: Thanks, D.G. Turning to slide seven, you can see the high level results we had in the Q2 with total company sales of 10.3%, or 13.7% on a daily organic constant currency basis, which included strong growth across High-Touch Solutions and Endless Assortment. Gross margin for the quarter was healthy at 39.5%, up 100 basis points versus the prior year period, as we saw expansion in both segments and recognized a 90 basis point tailwind from IEEPA tariff refunds on products directly imported by Grainger. Operating margin was 16.1%, up 120 basis points year-over-year, as gross margins flow through and leverage in Endless Assortment contributed to results. Both gross margin and operating margin benefited from our exit of the UK market.

Dee Merriwether: Thanks, D.G. Turning to slide seven, you can see the high level results we had in the Q2 with total company sales of 10.3%, or 13.7% on a daily organic constant currency basis, which included strong growth across High-Touch Solutions and Endless Assortment. Gross margin for the quarter was healthy at 39.5%, up 100 basis points versus the prior year period, as we saw expansion in both segments and recognized a 90 basis point tailwind from IEEPA tariff refunds on products directly imported by Grainger. Operating margin was 16.1%, up 120 basis points year-over-year, as gross margins flow through and leverage in Endless Assortment contributed to results. Both gross margin and operating margin benefited from our exit of the UK market.

Speaker #4: Growth margin for the quarter was healthy at 39.5%, up 100 basis points versus the prior year period, as we saw expansion in both segments and recognized a 90 basis point tailwind from IEPA tariff refunds on products directly imported by Grainger.

Speaker #4: Operating margin was 16.1%, up 120 basis points year over year, as growth margin flow through and leverage in endless assortment contributed to results. Both growth margin and operating margin benefited from our exit of the UK market.

Speaker #4: If you were to normalize for the tariff refund benefit realized in the period, operating margins were in line with our verbal guide, aided by better-than-expected top-line leverage.

Deidra Merriwether: If you were to normalize for the tariff refund benefit realized in the period, operating margins were in line with our verbal guide, aided by better than expected top-line leverage. Overall, results were strong for the quarter, and we delivered diluted EPS of $12.01, which was up over 20% versus the prior year period. Moving to segment-level results. The High-Touch Solutions segment delivered sales growth of 11.9% on a reported basis, or 11.7% on a daily constant currency basis. Results were driven by strong volume growth and healthy price contribution to revenue, and also benefited from some project-based spend. From an end market perspective, MRO market demand continued to improve in the period. For Grainger specifically, we saw broad-based acceleration across nearly all customer groups, with strong contributions from manufacturing and government sectors.

Dee Merriwether: If you were to normalize for the tariff refund benefit realized in the period, operating margins were in line with our verbal guide, aided by better than expected top-line leverage. Overall, results were strong for the quarter, and we delivered diluted EPS of $12.01, which was up over 20% versus the prior year period. Moving to segment-level results. The High-Touch Solutions segment delivered sales growth of 11.9% on a reported basis, or 11.7% on a daily constant currency basis. Results were driven by strong volume growth and healthy price contribution to revenue, and also benefited from some project-based spend. From an end market perspective, MRO market demand continued to improve in the period. For Grainger specifically, we saw broad-based acceleration across nearly all customer groups, with strong contributions from manufacturing and government sectors.

Speaker #4: Overall, results were strong for the quarter, and we delivered diluted EPS of $12.01, which was up over 20% versus the prior year period. Moving to segment-level results.

Speaker #4: The high-touch solutions segment delivered sales growth of 11.9% on a reported basis, or 11.7%, on a daily constant currency basis. Results were driven by strong volume growth and healthy price contribution to revenue, and also benefited from some project-based spend.

Speaker #4: From an end-market perspective, MRO market demand continued to improve in the period. For Grainger specifically, we saw broad-based acceleration across nearly all customer groups, with strong contributions from manufacturing and government sectors.

Speaker #4: This was alongside outsized growth in our contractor and retail end markets, which are both benefiting from data center activities as new facilities are stood up.

Deidra Merriwether: This was alongside outsized growth in our contractor and retail end markets, which are both benefiting from data center activities as new facilities are stood up. On profitability, gross profit margin finished the quarter at 41.8%, up 80 basis points versus the prior year. Results were driven by the benefit from IEEPA tariff refunds and slightly positive mix, although mix came in less favorable than expected on a higher volume of lower margin products and project-related spend. These impacts were partially offset by private label cost headwinds and unfavorable freight as we absorbed the higher cost in the period. Price cost was roughly neutral during the quarter. On SG&A, we delivered slightly year-over-year, as strong sales and productivity were offset by continued marketing investment and higher payroll and benefits expense, including higher incentive-based compensation, given our strong top-line results.

Dee Merriwether: This was alongside outsized growth in our contractor and retail end markets, which are both benefiting from data center activities as new facilities are stood up. On profitability, gross profit margin finished the quarter at 41.8%, up 80 basis points versus the prior year. Results were driven by the benefit from IEEPA tariff refunds and slightly positive mix, although mix came in less favorable than expected on a higher volume of lower margin products and project-related spend. These impacts were partially offset by private label cost headwinds and unfavorable freight as we absorbed the higher cost in the period. Price cost was roughly neutral during the quarter. On SG&A, we delivered slightly year-over-year, as strong sales and productivity were offset by continued marketing investment and higher payroll and benefits expense, including higher incentive-based compensation, given our strong top-line results.

Speaker #4: And profitability: gross profit margin finished the quarter at 41.8%, up 80 basis points versus the prior year. Results were driven by the benefit from IEPA tariff refunds and slightly positive mix, although mix came in less favorable than expected, on a higher volume of lower-margin products and project-related spend.

Speaker #4: These impacts were partially offset by private label cost headwinds and unfavorable freight, as we absorbed a higher cost in the period. Price cost was roughly neutral during the quarter.

Speaker #4: On SG&A, we delivered slightly year over year, as strong sales and productivity were offset by continued marketing investment and higher payroll and benefits expense, including higher incentive-based compensation, given our strong top-line results.

Speaker #4: Taking all of this together, operating margin for this segment finished at 17.3%, up 70 basis points versus the prior year quarter. All told, we are pleased with the continued strength across the high-touch segment, as we move into the second half of the year.

Deidra Merriwether: Taking all of this together, operating margin for the segment finished at 17.3%, up 70 basis points versus the prior year quarter. All told, we are pleased with the continued strength across the High-Touch segment as we move into the H2 of the year. Now focusing on Endless Assortment segment. Sales increased 13.5% on a reported basis, or 20.6% on a daily organic constant currency basis, which normalizes for the closure of our Zoro U.K. business and adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 18.4% on a daily basis, while MonotaRO achieved 24% growth in local days and local constant currency. At a business level, Zoro saw strong growth from its core B2B customers, along with higher customer retention rates as our marketing program, both targeted and efficiency, continued to improve.

Dee Merriwether: Taking all of this together, operating margin for the segment finished at 17.3%, up 70 basis points versus the prior year quarter. All told, we are pleased with the continued strength across the High-Touch segment as we move into the H2 of the year. Now focusing on Endless Assortment segment. Sales increased 13.5% on a reported basis, or 20.6% on a daily organic constant currency basis, which normalizes for the closure of our Zoro U.K. business and adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 18.4% on a daily basis, while MonotaRO achieved 24% growth in local days and local constant currency. At a business level, Zoro saw strong growth from its core B2B customers, along with higher customer retention rates as our marketing program, both targeted and efficiency, continued to improve.

Speaker #4: Now, focusing on endless assortment segment. Sales increased 13.5% on a reported basis, or 20.6%, on a daily organic constant currency basis, which normalizes for the closure of our Zorro UK business and adjusts for the impact of the depreciated Japanese yen.

Speaker #4: Zorro US was up 18.4% on a daily basis, while Monetaro achieved 24% growth in local days and local constant currency. On a business level, Zorro saw strong growth from its core B2B customers, along with higher customer retention rates as our marketing program, both targeted and efficiency, continued to improve.

Speaker #4: The team remains focused on delivering our core foundational capabilities to improve the assortment, search experience, pricing, and delivery. At Monetaro, sales were strong with continued growth from enterprise customers coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses.

Deidra Merriwether: The team remains focused on delivering our core foundational capabilities to improve the assortment, search experience, pricing, and delivery. At MonotaRO, sales were strong with continued growth from enterprise customers coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses. Additionally, MonotaRO benefited from customer pre-buying of certain petroleum-related products ahead of anticipated shortages due to the conflict in the Middle East. This behavior has fully subsided, and our updated guide reflects slower growth in the H2 of the year as this benefit moderates. On profitability, operating margins increased by 160 basis points to 11.5%, with favorability across the segment. MonotaRO margins were strong at 14% up 80 basis points, and Zoro margins improved to 7.6%, up 180 basis points, with both businesses benefiting from healthy top-line leverage. Overall, another great quarter for the Endless Assortment team.

Dee Merriwether: The team remains focused on delivering our core foundational capabilities to improve the assortment, search experience, pricing, and delivery. At MonotaRO, sales were strong with continued growth from enterprise customers coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses. Additionally, MonotaRO benefited from customer pre-buying of certain petroleum-related products ahead of anticipated shortages due to the conflict in the Middle East. This behavior has fully subsided, and our updated guide reflects slower growth in the H2 of the year as this benefit moderates. On profitability, operating margins increased by 160 basis points to 11.5%, with favorability across the segment. MonotaRO margins were strong at 14% up 80 basis points, and Zoro margins improved to 7.6%, up 180 basis points, with both businesses benefiting from healthy top-line leverage. Overall, another great quarter for the Endless Assortment team.

Speaker #4: Additionally, Monetaro benefited from customer pre-buying of certain petroleum-related products ahead of anticipated shortages, due to the conflict in the Middle East. This behavior has fully subsided, and our updated guide reflects slower growth in the back half of the year, as this benefit moderates.

Speaker #4: On profitability, operating margins increased by 160 basis points to 11.5%, with favorability across the segment. MonotaRO margins were strong at 14%, up 80 basis points, and Zoro margins improved to 7.6%, up 180 basis points, with both businesses benefiting from healthy top-line leverage.

Speaker #4: Overall, another great quarter for the endless assortment team. As we look to the back half of the year, I want to share a brief update on the inflationary environment.

Deidra Merriwether: As we look to the H2 of the year, I want to share a brief update on the inflationary environment. We continue to manage the business with the goal of maintaining price cost neutrality over time. With ongoing shifts in the tariff environment, we've had to remain nimble. With this, in the Q2, we adjusted prices to reflect the changing tariff landscape, including the rollback of IEEPA tariff pricing and offsetting Section 122 tariff impacts. While we made several changes across our assortment, our May pricing actions were net neutral in total. Also in the quarter, we recognized refunds from the federal government for previously paid IEEPA tariffs, where Grainger was the importer of record.

Dee Merriwether: As we look to the H2 of the year, I want to share a brief update on the inflationary environment. We continue to manage the business with the goal of maintaining price cost neutrality over time. With ongoing shifts in the tariff environment, we've had to remain nimble. With this, in the Q2, we adjusted prices to reflect the changing tariff landscape, including the rollback of IEEPA tariff pricing and offsetting Section 122 tariff impacts. While we made several changes across our assortment, our May pricing actions were net neutral in total. Also in the quarter, we recognized refunds from the federal government for previously paid IEEPA tariffs, where Grainger was the importer of record.

Speaker #4: We continue to manage the business with the goal of maintaining price-cost neutrality over time. With ongoing shifts in the tariff environment, we've had to remain nimble.

Speaker #4: With this, in the second quarter, we adjusted prices to reflect the changing tariff landscape, including the rollback of IEPA tariff pricing and offsetting Section 122 tariff impacts.

Speaker #4: While we made several changes across our assortment, our May pricing actions were net neutral in total. Also, in the quarter, we recognized refunds from the federal government for previously paid IEPA tariffs where Grainger was the importer of record.

Speaker #4: The majority of this benefit was recognized during the second quarter, as a reduction to our cost of goods sold, with a small remainder expected to flow through over the next couple of quarters.

Deidra Merriwether: The majority of this benefit was recognized during the Q2 as a reduction to our cost of goods sold, with a small remainder expected to flow through over the next couple of quarters. When considering these refunds, it's important to remember that they relate only to tariffs paid directly by Grainger and represent only a small portion of the many tariff costs that we faced over the last year and a half. Importantly, these refund proceeds and the price pass on these SKUs only partially offset the cost we absorbed in 2025 related to IEEPA. Separately, we continue to face inflationary pressures from rising freight and product costs due to the conflict in the Middle East. As these pressures persist, we expect to take additional pricing actions in September to help mitigate this impact.

Dee Merriwether: The majority of this benefit was recognized during the Q2 as a reduction to our cost of goods sold, with a small remainder expected to flow through over the next couple of quarters. When considering these refunds, it's important to remember that they relate only to tariffs paid directly by Grainger and represent only a small portion of the many tariff costs that we faced over the last year and a half. Importantly, these refund proceeds and the price pass on these SKUs only partially offset the cost we absorbed in 2025 related to IEEPA. Separately, we continue to face inflationary pressures from rising freight and product costs due to the conflict in the Middle East. As these pressures persist, we expect to take additional pricing actions in September to help mitigate this impact.

Speaker #4: When considering these refunds, it's important to remember that they relate only to tariffs paid directly by Grainger, and represent only a small portion of the many tariff costs that we faced over the last year and a half.

Speaker #4: Importantly, these refund proceeds and the price pass on these SKUs only partially offset the costs we absorbed in 2025 related to IEPA. Separately, we continue to face inflationary pressures from rising freight and product costs due to the conflict in the Middle East.

Speaker #4: As these pressures persist, we expect to take additional pricing actions in September to help mitigate this impact. Our September pricing actions will also reflect adjustments related to the recent Section 232 tariff modifications in addition to new Section 301 tariffs.

Deidra Merriwether: Our September pricing actions will also reflect adjustments related to the recent Section 232 tariff modifications, in addition to new Section 301 tariffs, though we anticipate that these tariff-related changes will be minimal. Following our September pricing actions, the majority of known cost increases will have been addressed. Although the situation remains highly fluid, our team continues to stay focused on adhering to our two core pricing tenets, to maintain market-relevant pricing and to achieve price cost neutrality over time. Now turning to our guide. We are raising our guidance to reflect the strong sales momentum along with the impact of tariff refunds. On the top line, this translates to expected daily organic constant currency sales growth between 11.5% and 13%, reflecting our Q2 performance and expectations for continued solid MRO market demand in the H2.

Dee Merriwether: Our September pricing actions will also reflect adjustments related to the recent Section 232 tariff modifications, in addition to new Section 301 tariffs, though we anticipate that these tariff-related changes will be minimal. Following our September pricing actions, the majority of known cost increases will have been addressed. Although the situation remains highly fluid, our team continues to stay focused on adhering to our two core pricing tenets, to maintain market-relevant pricing and to achieve price cost neutrality over time. Now turning to our guide. We are raising our guidance to reflect the strong sales momentum along with the impact of tariff refunds. On the top line, this translates to expected daily organic constant currency sales growth between 11.5% and 13%, reflecting our Q2 performance and expectations for continued solid MRO market demand in the H2.

Speaker #4: Though we anticipate that these tariff-related changes will be minimal. Following our September pricing actions, the majority of known cost increases will have been addressed.

Speaker #4: And although the situation remains highly fluid, our team continues to stay focused on adhering to our two core pricing tenets: to maintain market-relevant pricing and to achieve price-cost neutrality over time.

Speaker #4: Now, turning to our guide. We are raising our guidance to reflect the strong sales momentum along with the impact of tariff refunds. On the top line, this translates to expected daily organic constant currency sales growth between 11.5 and 13%, reflecting our second quarter performance and expectations for continued solid MRO market demand in the second half.

Speaker #4: All right. Updated operating margin range has increased versus the prior guide to 15.8% to 16.2%. This includes the tariff refund benefit, most of which was recognized in the second quarter, and improved sales leverage but is partially offset by anticipated mixed headwinds, and cost timing pressures, as inflation builds ahead of our September pricing round.

Deidra Merriwether: Our updated operating margin range has increased versus the prior guide to 15.8% to 16.2%. This includes the tariff refund benefit, most of which was recognized in the Q2, and improved sales leverage, but is partially offset by anticipated mixed headwinds and cost timing pressures as inflation builds ahead of our September pricing round. Lastly, rounding out our guide, you can see EPS is expected to be between $45.50 and $47.25, or up over 17% year-over-year at the midpoint. This represents an improvement of over $1 at the midpoint versus the prior guidance range. We've also updated our supplemental guidance in the appendix, which includes a slight increase in total company operating cash flow at the midpoint compared to the prior guide. We've continued our strong momentum into the Q3 with preliminary July sales up north of 13% on a daily organic constant currency basis.

Dee Merriwether: Our updated operating margin range has increased versus the prior guide to 15.8% to 16.2%. This includes the tariff refund benefit, most of which was recognized in the Q2, and improved sales leverage, but is partially offset by anticipated mixed headwinds and cost timing pressures as inflation builds ahead of our September pricing round. Lastly, rounding out our guide, you can see EPS is expected to be between $45.50 and $47.25, or up over 17% year-over-year at the midpoint. This represents an improvement of over $1 at the midpoint versus the prior guidance range. We've also updated our supplemental guidance in the appendix, which includes a slight increase in total company operating cash flow at the midpoint compared to the prior guide. We've continued our strong momentum into the Q3 with preliminary July sales up north of 13% on a daily organic constant currency basis.

Speaker #4: Lastly, rounding out our guide, you can see EPS is expected to be between $45.50 and $47.25, or up over 17% year-over-year at the midpoint.

Speaker #4: This represents an improvement of over $1 at the midpoint versus the prior guidance range. We've also updated our supplemental guidance in the appendix, which includes a slight increase in total company operating cash flow at the midpoint compared to the prior guide.

Speaker #4: We've continued our strong momentum into the third quarter, with preliminary July sales up north of 13% on a daily, organic, constant currency basis. This start supports our expectation for third-quarter sales north of $5 billion, or up over 12% on a daily, organic, constant currency basis, which is 380 basis points lower on a reported basis when normalizing for the UK market exit and currency headwinds.

Deidra Merriwether: This start supports our expectation for Q3 sales north of $5 billion or up over 12% on a daily organic constant currency basis, which is 380 basis points lower on a reported basis when normalizing for the UK market exit and currency headwinds. We expect operating margins will be down sequentially in Q3 compared to Q2, largely driven by the lack of tariff refunds. With this, we anticipate Q3 operating margins will be in the mid 15% range for the total company. I'll now hand it back over to D.G. for his closing remarks.

Dee Merriwether: This start supports our expectation for Q3 sales north of $5 billion or up over 12% on a daily organic constant currency basis, which is 380 basis points lower on a reported basis when normalizing for the UK market exit and currency headwinds. We expect operating margins will be down sequentially in Q3 compared to Q2, largely driven by the lack of tariff refunds. With this, we anticipate Q3 operating margins will be in the mid 15% range for the total company. I'll now hand it back over to D.G. for his closing remarks.

Speaker #4: We expect operating margins will be down sequentially in the third quarter compared to the second quarter, largely driven by the lap of tariff refunds.

Speaker #4: With this, we anticipate third-quarter operating margins will be in the mid-15% range for the total company. I'll now hand it back over to DG for his closing remarks.

Speaker #1: Thanks, Dee. To wrap things up, we feel good about how the business is operating, and we're confident in our strategy. I'm encouraged by our ability to continue growing profitably in this ever-evolving environment.

D.G. Macpherson: Thanks, Dee. To wrap things up, we're confident in our strategy. I'm encouraged by our ability to continue growing profitably in this ever-evolving environment while staying focused on creating value over the long term. Before I turn it over to Q&A, I want to take a minute to acknowledge the news we shared yesterday that Deidra Merriwether has made the personal decision to step down to pursue another opportunity, effective 4 September 2026. On behalf of the company, I want to thank Dee for her many contributions to Grainger. Dee has been a trusted advisor, guiding us with deep knowledge and sound judgment during her tenure. With this transition, Lori Thompson, VP Controller, and Principal Accounting Officer, has been appointed Interim CFO, effective 5 September. She will also maintain her existing controllership responsibilities.

D.G. Macpherson: Thanks, Dee. To wrap things up, we're confident in our strategy. I'm encouraged by our ability to continue growing profitably in this ever-evolving environment while staying focused on creating value over the long term. Before I turn it over to Q&A, I want to take a minute to acknowledge the news we shared yesterday that Dee Merriwether has made the personal decision to step down to pursue another opportunity, effective 4 September 2026. On behalf of the company, I want to thank Dee for her many contributions to Grainger. Dee has been a trusted advisor, guiding us with deep knowledge and sound judgment during her tenure. With this transition, Lori Thompson, VP Controller, and Principal Accounting Officer, has been appointed Interim CFO, effective 5 September. She will also maintain her existing controllership responsibilities.

Speaker #1: Most thanks focused on creating value over the long term. Before I turn it over to Q&A, I want to take a minute to acknowledge the news we shared yesterday that Deidra Merriwether has made the personal decision to step down to pursue another opportunity.

Speaker #1: Effective September 4, 2026. On behalf of the company, I want to thank Dee for her many contributions to Grainger. Dee has been a trusted advisor, guiding us with deep knowledge and sound judgment during her tenure.

Speaker #1: With this transition, Lori Thompson, VP Controller and Principal Accounting Officer, has been appointed to interim CFO, effective September 5th. She will also maintain her existing controllership responsibilities.

Speaker #1: Lori brings strong financial expertise and guidance, and I'm confident in her leadership. The transition has no impact on our day-to-day operations, and Dee and Lori will partner in a smooth transition over the next couple of weeks.

D.G. Macpherson: Lori brings strong financial expertise and guidance. I'm confident in her leadership. The transition has no impact on our day-to-day operations. Dee and Lori will partner on a smooth transition over the next couple of weeks. We will begin a search process for the next CFO immediately. We wish Dee all the best in the future. I look forward to working with Lori in the interim. With that, we'll open it up for Q&A.

Speaker #1: We will begin a search process for the next CFO immediately. We wish Dee all the best in the future, and I look forward to working with Lori in the interim.

Speaker #1: And with that, we'll open it up for Q&A.

Speaker #2: Thank you. And at this time, we’ll conduct the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator: Thank you. At this time, we'll conduct the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Your first question comes from David Manthey with Baird. Please state your question.

Speaker #2: A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker #2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions.

Speaker #2: And your first question comes from David Manthey with Baird. Please state your question.

Speaker #3: Yeah. Thank you. Good morning, DG, and Dee, thank you. And best of luck. First question is on the refunds, of course. One thing you mentioned in the slide deck, I think you said the majority of refunds are reflected in the second quarter, but you didn't say all.

David Manthey: Yeah, thank you. Good morning, D.G., and Dee, thank you, and best of luck. First question is on the refunds, of course. One thing you mentioned in the slide deck, I think you said the majority of refunds are reflected in Q2, but you didn't say all. I'm just wondering if there's any kind of estimate you can give us on Q3 and Q4 potential refund benefits there so we can anticipate those.

Speaker #3: So, I'm just wondering if there's any kind of estimate you can give us on third quarter and fourth quarter potential refund benefits there, so we can anticipate those?

Speaker #4: Yeah. Again, the vast majority, as we know, that would be have been approved for and/or received. And so in the back half, we think it's going to be fairly immaterial, based upon that.

Deidra Merriwether: Yeah. Again, the vast majority, as we noted, have been approved for and/or received. In the H2, we think it's going to be fairly immaterial based upon that, and it was very hard to estimate from a quarterly perspective. We focused mostly on what we could estimate and what we felt was probable at this time, and that's what we booked in Q2.

Dee Merriwether: Yeah. Again, the vast majority, as we noted, have been approved for and/or received. In the H2, we think it's going to be fairly immaterial based upon that, and it was very hard to estimate from a quarterly perspective. We focused mostly on what we could estimate and what we felt was probable at this time, and that's what we booked in Q2.

Speaker #4: And it was very hard to estimate from a quarterly perspective. So we focused mostly on what we could estimate and what we felt was probable at this time, and that's what we booked in Q2.

Speaker #3: Okay. And then thinking about the guidance relative to what you reported this quarter and the benefit from the refund, could you just talk about you mentioned a few of these things.

David Manthey: Okay. Thinking about the guidance relative to what you reported this quarter and the benefit from the refund, could you just talk about You mentioned a few of these things. I know we're splitting atoms here, but could you talk about the offsetting factors that caused you to raise full-year gross margin by less than the benefit that you got from the Q2 refunds alone?

Speaker #3: I know we're splitting atoms here, but could you talk about the offsetting factors that caused you to raise full-year gross margin by less than the benefit that you got from the second quarter refunds alone?

Speaker #4: Sure. You're talking about kind of decomposing the guide a little bit, right? As it relates to gross margins?

Deidra Merriwether: Sure. You're talking about kind of decomposing the guide a little bit, right? As it relates to gross margin?

Dee Merriwether: Sure. You're talking about kind of decomposing the guide a little bit, right? As it relates to gross margin?

Speaker #3: Yes.

Speaker #4: And so yeah. So if you kind of really just start with where we're at, we noted that the impact in the quarter was about 90 basis points, but if you look at it on a full-year basis, the tariff refunds account for, call it, 23 basis points on the year.

David Manthey: Yes.

Deidra Merriwether: If you start with where we're at, we noted that the impact in the quarter was about 90 basis points. If you look at it on a full-year basis, the tariff refunds account for call it 23 basis points on the year. That was offset by what you hear us talk about higher volume on lower gross margin products or project-based sales that we're incurring with some of our new large customers as we ramp. That offsets that. That nets to about 15 basis points. We see some continued net headwinds as we go through the year, mostly related to fuel and freight related to the crisis. Secondly, we do expect to have less of a mix benefit in H2. We expect that to have some headwinds.

Dee Merriwether: If you start with where we're at, we noted that the impact in the quarter was about 90 basis points. If you look at it on a full-year basis, the tariff refunds account for call it 23 basis points on the year. That was offset by what you hear us talk about higher volume on lower gross margin products or project-based sales that we're incurring with some of our new large customers as we ramp. That offsets that. That nets to about 15 basis points. We see some continued net headwinds as we go through the year, mostly related to fuel and freight related to the crisis. Secondly, we do expect to have less of a mix benefit in H2. We expect that to have some headwinds.

Speaker #4: That was offset by what you hear us talk about, higher volume on lower gross margin products or project-based sales that we're incurring with some of our new large customers as we ramp.

Speaker #4: That offsets that. So that nets to about 15 basis points. And then we see some continued net headwinds as we go through the year, mostly related to fuel and freight, related to the crisis, and then secondly, we do expect to have less of a mixed benefit in the second half, so we expect that to have some headwinds.

Speaker #4: And so then that nets down the benefit that we're receiving from the tariff refunds.

Deidra Merriwether: That nets that benefit down that we're receiving from the tariff refund.

Dee Merriwether: That nets that benefit down that we're receiving from the tariff refund.

Speaker #3: And I would just add that I think the mixed benefits, oftentimes we see if you look historically, when we are in really hot market times, big projects come through.

D.G. Macpherson: I would just add that I think the mix benefits oftentimes we see, if you look historically, when we are in really hot market times, big projects come through. We've seen quite a bit of that actually from customers, those tend to be at lower gross margin. They're strong contribution margin. We expect that's a big part of the change actually that we're talking about and a bit of a drag on gross margin, but not on profitability overall. The freight. If you thought about how we managed tariffs last year, we didn't increase price immediately. We were patient with customers. We started raising them in September substantially, and we got sort of price-cost neutral by January. We're actually price-cost neutral in the quarter this time, but that same pattern will play out in September.

Speaker #3: We've seen quite a bit of that, actually, from customers. And so those tend to be at lower gross margin. They're strong contribution margins. So we expect that to that's a big part of the change, actually, that we're talking about.

Speaker #3: And a bit of a drag on gross margin, but not on profitability overall. And then, with the freight, if you think about how we managed tariffs last year, we didn't increase price immediately.

Speaker #3: We were patient with customers. We started raising them in September substantially, and we got sort of price-cost neutral by January. We're actually price-cost neutral in the quarter this time, but that same pattern will play out in September when we start to recover some of the headwind we're seeing from freight and Middle East products.

D.G. Macpherson: We'll start to recover some of the headwind we're seeing from freight and Middle East products.

Speaker #3: Thank you. I appreciate the detail.

David Manthey: Thank you. I appreciate the detail.

Speaker #2: Your next question comes from Jacob Levinson with Melius Research. Please state your question.

Operator: Your next question comes from Jacob Levenson with Melius Research. Please state your question.

Operator: Your next question comes from Jacob Levinson with Melius Research. Please state your question.

Speaker #5: Hi, good morning, everyone. And Dee, best of luck in your new role. I appreciate your help over the last couple of years.

Jacob Levenson: Hey, good morning, everyone. Dee, best of luck in your new role. I appreciate your help over the last couple of years.

Jacob Levinson: Hey, good morning, everyone. Dee, best of luck in your new role. I appreciate your help over the last couple of years.

Speaker #4: Thank you.

Deidra Merriwether: Thank you.

Dee Merriwether: Thank you.

Speaker #5: Maybe just following up on David's question a little bit, I'm just trying to think about maybe putting a finer point on the pricing actions because I know there's a lot of moving pieces between product prices going up and down, and I'm sure there's surcharges in there as well.

Jacob Levenson: Maybe just following up on David's question a little bit. I'm just trying to think about maybe putting a finer point on your pricing actions, because I know there's a lot of moving pieces between product prices going up and down, and I'm sure surcharges in there as well. Can you help us understand where we're going to shake out in Q3 and into Q4? Because I'd imagine you're going to be exiting the year at a bit of a higher rate maybe than where we are today.

Jacob Levinson: Maybe just following up on David's question a little bit. I'm just trying to think about maybe putting a finer point on your pricing actions, because I know there's a lot of moving pieces between product prices going up and down, and I'm sure surcharges in there as well. Can you help us understand where we're going to shake out in Q3 and into Q4? Because I'd imagine you're going to be exiting the year at a bit of a higher rate maybe than where we are today.

Speaker #5: But can you help us understand where we're going to shake out in the third quarter and into the fourth quarter? Because I'd imagine you're going to be exiting the year at a bit of a higher rate.

Speaker #5: Maybe than where we are today.

Speaker #3: Yeah. So Dee talked about the pushes and takes of May, and we basically had zero price change overall for May. We had some ups and downs.

D.G. Macpherson: Yeah. Dee talked about the push and takes of May, we basically had zero price change overall for May. We had some ups and downs. What we're doing in September will add about 1 point annually, less than that, obviously, for the balance of the year, maybe 40 basis points or something like that. For the whole year, we'll be around 4%. We originally said 3% to 4%. We're going to be high end of that given those increases.

Speaker #3: What we're doing in September will add about a point annually, so less than that, obviously, for the balance of the year—maybe 40 basis points or something like that.

Speaker #3: And for the whole year, we'll be around 4%. We originally said 3% to 4%. We're going to be at the high end of that, given those increases.

Speaker #5: Okay. That's helpful. And I guess it was just a matter of time before you mentioned data center as a tail end for your folks.

Jacob Levenson: Okay, that's helpful. I guess it was just a matter of time before you mentioned data center as a tailwind for you folks, but I'm just trying to get a sense of the materiality of that market over time, because I'm sure there's a construction phase, and then after that, you've got those facilities that are going to be around for a long time. I'm not even sure how you would think about sizing that potential over time.

Jacob Levinson: Okay, that's helpful. I guess it was just a matter of time before you mentioned data center as a tailwind for you folks, but I'm just trying to get a sense of the materiality of that market over time, because I'm sure there's a construction phase, and then after that, you've got those facilities that are going to be around for a long time. I'm not even sure how you would think about sizing that potential over time.

Speaker #5: But I'm just trying to get a sense of the materiality of that market over time, because I'm sure there's a construction phase, and then after that, you've got those facilities that are going to be around for a long time.

Speaker #5: So I'm not even sure how you would think about sizing that potential over time. Is that?

Speaker #3: Yeah. So let me start with, it shows up in maybe strange places. If you look at our comps, retail will include data centers because some of those companies actually have retail operations, even though the data centers aren't very retail-esque.

D.G. Macpherson: Yeah. Let me start with, it shows up in maybe strange places if you look at our comps retail. We'll include data centers because some of those companies actually have retail operations, even though the data centers aren't very retail-esque. Our exposure to data centers directly is probably less than 1%. We're seeing obviously strong growth there. It's having a bigger impact on the ecosystem, I think for everybody. It's probably having a bigger impact and can be seen in construction, different types of construction. We maybe see it a little bit in the general strength of manufacturing. It's hard to quantify, though. The direct exposure is pretty small, but the exposure overall is probably bigger than that as far as we can tell.

Speaker #3: Our exposure to data centers directly is probably less than a percent. We're seeing, obviously, strong growth there, but it's having a bigger impact on the ecosystem, I think, for everybody.

Speaker #3: It's probably having a bigger impact and can be seen in construction, different types of construction. We maybe see it a little bit in the general strength of manufacturing—hard to quantify, though.

Speaker #3: So the direct exposure is pretty small, but the exposure overall is probably bigger than that, as far as we can tell.

Speaker #5: Helpful colored digital. I'll pass it on. Thank you.

Jacob Levenson: Helpful color, D.G. I'll pass it on. Thank you.

Jacob Levinson: Helpful color, D.G. I'll pass it on. Thank you.

Speaker #2: Your next question comes from Ryan Merkel with William Blair. Please state your question.

Operator: Your next question comes from Ryan Merkel with William Blair. Please state your question.

Speaker #6: Hey, everyone. Thanks for the questions. I want to start on gross margin for the quarter. It looks like X, the tariff refund, it was a little bit below what you guys expected.

Ryan Merkel: Hey, everyone. Thanks for the questions. I want to start on gross margin for the quarter. It looks like ex the tariff refund, it was a little bit below what you guys expected. Was the surprise the fuel and the freight? Maybe you could quantify what that impact was? It also sounds like maybe large projects and mix was the other reason.

Speaker #6: So was the surprise the fuel and the freight, and maybe you could quantify what that impact was, and then it also sounds like maybe large projects and mix was the other reason.

Speaker #3: Yeah, I'd say it's more mix, actually, than freight, but it's a little bit of both. So both of those were the complete driver of that.

D.G. Macpherson: Yeah, I'd say it's more mix actually than freight, but it's a little bit of both. Both of those were the complete driver of that. The other thing is, arguably, we knew the tariff refunds were coming in. We did not want to get aggressive with freight increases because that doesn't make sense competitively. We're holding that purposely, and we'll make that up as we go through the balance of the year. Mix is the bigger part of it actually with really big projects and product sales.

Speaker #3: The other thing is, arguably, we knew the tariff refunds were coming in. We did not want to get aggressive with freight increases because that doesn't make sense competitively.

Speaker #3: So we're holding that on purpose, and we'll make that up as we go through the balance of the year. But mix is the bigger part of it, actually, with really big projects and product sales.

Speaker #6: Interesting. Okay. Thanks for that. And then SG&A, and I'm focusing on high touch, but it didn't lever in the quarter. And it sounds like maybe incentive comp is the main reason there.

Ryan Merkel: Interesting. Okay, thanks for that. SG&A, and I'm focusing on high touch, it didn't lever in the quarter, and it sounds like maybe incentive comp is the main reason there. That's the first part of the question. Should you see better SG&A leverage in H2? It looks like that's implied in the guide, but just want to know how you're thinking about it.

Speaker #6: So the first part of the question, and then should you see better SG&A levers in the second half? It looks like that's implied in the guide, but just want to know how you're thinking about it.

Speaker #3: Yeah, so any year when we get the forecast incorrect and the market's stronger than we expect, or we perform better than we expect, we have headwinds in both management bonus and commissions.

D.G. Macpherson: Yeah. Any year when we get the forecast incorrect and the market's stronger than we expect or we perform better than we expect, we have headwinds in both management bonus and commissions. We also spent more on marketing in the quarter. We're seeing good returns on that. Those are the three SG&A elements that were higher than we would've expected to start the year. None of them are concerning, to be frank. In the back of the year, we expect some moderation in the outsized cost there, and we expect to be more in line.

Speaker #3: We also spent more on marketing in the quarter. We're seeing good returns on that. So those are the three SG&A elements that we're higher than we would have expected to start the year.

Speaker #3: None of them are concerning, to be frank. In the back half of the year, we expect some moderation in the outsized costs there, and we expect to be more in line.

Speaker #6: Got it. All right. Thanks. Best of luck, Dee.

Ryan Merkel: Got it. All right. Thanks. Best of luck, Dee.

Speaker #4: Thank you.

Deidra Merriwether: Thank you.

Dee Merriwether: Thank you.

Speaker #2: Your next question comes from Chris Schneider with Morgan Stanley. Please state your question.

Operator: Your next question comes from Chris Snyder with Morgan Stanley. Please state your question.

Speaker #7: Thank you. I was just hoping for maybe a little bit more color on the sequential bridge from Q1 to Q2, just to better understand some of the moving parts.

Chris Snyder: Thank you. I was just hoping for maybe a little bit more color on the sequential bridge from Q1 to Q2, just to better understand some of the moving parts. I guess it was down maybe 140 basis points sequentially, ex, if we kind of adjust out the tariff refund, if my math's right. Just kind of wondering, the seasonality on that mix. Anything you could just help us as we kind of think about the recovery opportunity into the H2. Thank you.

Speaker #7: I guess it was down I guess maybe like one 40-bip sequentially X. If we kind of adjust out the tariff refund, if I'm maths right, so just kind of wondering the seasonality on that mix.

Speaker #7: Is there anything you could share to help us as we think about the recovery opportunity in the back half? Thank you.

Speaker #4: Yeah. If we look at the gross margin specifically, we saw normal seasonality. From a gross margin perspective, related to price running off. But as we've kind of talked about, we've had some leakage related to fuel costs.

Deidra Merriwether: Yeah. As it relates to gross margin specifically, we saw a normal seasonality from a gross margin perspective related to price running off. As we've kind of talked about, we've had some leakage related to fuel costs. That also was a factor from Q1 gross margin to Q2, as well as additional private label inventory costs. We've had, as D.G. kind of articulated and as we talked about on the call, a lot of moving pieces as it relates to that. That also was a negative impact. As you noted, the tariff refunds were not known at the time. That was a benefit, but then that was offset by mix. That gets us down about 50 basis points Q1 to Q2.

Dee Merriwether: Yeah. As it relates to gross margin specifically, we saw a normal seasonality from a gross margin perspective related to price running off. As we've kind of talked about, we've had some leakage related to fuel costs. That also was a factor from Q1 gross margin to Q2, as well as additional private label inventory costs. We've had, as D.G. kind of articulated and as we talked about on the call, a lot of moving pieces as it relates to that. That also was a negative impact. As you noted, the tariff refunds were not known at the time. That was a benefit, but then that was offset by mix. That gets us down about 50 basis points Q1 to Q2.

Speaker #4: So, that also was a factor from Q1 gross margin to Q2, as well as additional private label inventory costs. We've had, as Deidra kind of articulated and as we talked about on the call, a lot of moving pieces as it relates to that.

Speaker #4: So that was also a negative impact. As you noted, the tariff refunds were not known at the time. And so that was a benefit.

Speaker #4: But then that was offset by mix, and so that gets us down about 50 basis points from Q1 to Q2.

Speaker #7: Thank you, I appreciate that. And then just any color, and I don't know if you talked about this when you were talking about some of the Q3 moving parts.

Chris Snyder: Thank you. I appreciate that. Just any color, and I don't know if you talked about this when you were talking about some of the Q3 moving parts, but just any color on the Q3 versus Q4 gross margin? Just as we kind of think through the, I guess Q3's behind on price cost, Q4 catches up. I would imagine some of the mix headwinds get better as the year goes on, just given the hard to predict nature of that. Would appreciate any color on just kind of that H2 gross margin. Thank you.

Speaker #7: But just any color on the Q3 versus Q4 gross margin? Just as we kind of think through the, I guess, Q3 is behind on price cost, Q4 catches up.

Speaker #7: I would imagine some of the mix headwinds get better as the year goes on, just given the hard-to-predict nature of that. But just kind of I appreciate any color on just kind of that back half gross margin.

Speaker #7: Thank you.

Speaker #4: Yeah. As we talked last time, we expect the U-shape to continue with our gross margins. And don't forget, we won't have the tariff impact in Q3 that we have now.

Deidra Merriwether: Yeah. As we talked last time, we expect the U shape to continue with our gross margins. Don't forget, we won't have the tariff impact in Q3 that we have now. Then we'll pick up and have stronger supplier rebates as we end the year.

Dee Merriwether: Yeah. As we talked last time, we expect the U shape to continue with our gross margins. Don't forget, we won't have the tariff impact in Q3 that we have now. Then we'll pick up and have stronger supplier rebates as we end the year.

Speaker #4: And then we'll pick up and have stronger supplier rebates as we end the year.

Speaker #7: Thank you.

D.G. Macpherson: Thank you.

Speaker #4: Yeah.

Deidra Merriwether: Yeah.

Dee Merriwether: Yeah.

D.G. Macpherson: Yeah.

Speaker #2: Your next question comes from Christopher Glynn with Oppenheimer and Company. Please state your question.

Operator: Your next question comes from Christopher Glynn with Oppenheimer and Company. Please state your question.

Speaker #8: Thanks. Good morning, everybody. I was wondering about how the private label headwinds in the cost of goods is phasing here. Is it sort of a steady state from here?

Christopher Glynn: Thanks. Good morning, everybody. Was wondering about how the private label headwinds in the cost of goods is phasing here. Is it sort of a steady state from here? I know that there was an adverse bridge in Q2 from Q1. Just curious how long that lasts, if that starts to phase better later in the year.

Speaker #8: I know that there was an adverse bridge in the second quarter compared to the first. Just curious how long that lasts and if that starts to phase better later in the year.

Speaker #3: Yeah. So it'll still be a headwind. It won't be much different than it was in the first quarter. First half of the year. It's the issue is, of course, to some degree, private brand has been hit by tariffs, but it's also compressed some of the cost.

D.G. Macpherson: Yeah. It'll still be a headwind. It won't be much different than it was in the H1 of the year. The issue is of course, to some degree, private brand has been hit by tariffs, but it's also compressed some of the cost. I would say we've launched the Grainger brand, and that has shown good growth. We're excited by what we're seeing in terms of private brand going forward with many of our products converting to Grainger brand items.

Speaker #3: I would say we've launched the Grainger brand, and that has shown good growth. We're excited about what we're seeing in terms of private brand going forward, with many of our products converting to Grainger-branded items.

Speaker #8: Yeah. DG, could you spend a little bit more another minute about that? What private label brands are being retired? Is this more of a margin play or a incremental growth play?

Christopher Glynn: Yeah. D.G., could you spend another minute about that? Like, what private label brands are being retired? Is this more of a margin play or an incremental growth play?

Speaker #3: Yeah. It's probably more of an incremental growth play, to be fair. But we've had 14 brands previously that were sort of historical built over decades and decades and decades, I guess.

D.G. Macpherson: Yeah. It's probably more of an incremental growth play, to be fair. We had 14 brands previously that were sort of historical, built over decades, I guess. Some of them didn't have customer appeal or even didn't even know that they were Grainger related. Brands like Dayton will certainly remain, but a lot of the other categories will shift to Grainger, and we'll probably end up with four or five brands at the end of this process. We're well into that shift at this point.

Speaker #3: Some of them didn't have customer appeal or even didn't even know that they were Grainger related. And so brands like Dayton will certainly remain but a lot of the other categories will shift to Grainger and will probably end up with four or five brands at the end of this process.

Speaker #3: But we're well into that shift at this point.

Speaker #8: Okay, great. And what's the latest on the cadence of supplier price increase announcements? Have those stabilized?

Christopher Glynn: Okay, great. What's just the latest on the cadence of supplier price increase announcements? Have those stabilized?

Speaker #3: Yeah, I mean, those are consistent. And we'll start to get an idea about what the price requests are for next year now, so that is coming in.

D.G. Macpherson: Yeah, those are consistent, we'll start to get an idea about what the price requests are for next year now. That is coming in. We'll start to have a little more visibility. We won't talk about that until February, but there hasn't been huge changes. There's been certain categories where we've seen significant increases that are kind of Middle East centric in terms of where the raw materials come from. Generally, it's been pretty stable the last couple of months.

Speaker #3: So we'll start to have a little more visibility. We won't talk about that until February, but there hasn't been there hasn't been huge changes.

Speaker #3: There have been certain categories where we've seen significant increases that are kind of Middle East-centric, in terms of where the raw materials come from. But generally, it's been pretty stable over the last couple of months.

Speaker #8: Thank you.

Christopher Glynn: Thank you.

Speaker #2: Your next question comes from Dean Dre with RBC Capital Markets. Please state your question.

Operator: Your next question comes from Deane Dray with RBC Capital Markets. Please state your question.

Speaker #7: Thank you. Good morning, everyone. And I'll add my best wishes to Dee.

Deane Dray: Thank you. Good morning, everyone, I'll add my best wishes to Dee.

Speaker #4: Thanks.

Speaker #3: Thank you.

Deidra Merriwether: Thanks.

Dee Merriwether: Thanks.

D.G. Macpherson: Thank you.

Speaker #7: Hey, can we just circle back on the pre-buy impact for Zora and Monetaro? Can you size it for us? And to be fair, you flagged this last quarter, so it shouldn't be surprising.

Deane Dray: Hey, can we just circle back on the pre-buy impact for Zoro.com and MonotaRO? Can you size it for us? To be fair, you flagged this last quarter, so it shouldn't be surprising. Maybe the magnitude might be different, just how did it play out, and did you see any pre-buy elsewhere, let's say, in the US?

Deane Dray: Hey, can we just circle back on the pre-buy impact for Zoro and MonotaRO? Can you size it for us? To be fair, you flagged this last quarter, so it shouldn't be surprising. Maybe the magnitude might be different, just how did it play out, and did you see any pre-buy elsewhere, let's say, in the US?

Speaker #7: Maybe the magnitude might be different, but just how did it play out? And did you see any pre-buy elsewhere—let's say, in the U.S.?

Speaker #3: Yeah. No, we did not see any pre-buy in the US. We did not see any pre-buy for Zora. It's all Monetaro. Given their reliance on the Middle East, there was a run on mostly PP and natural growth-type products.

D.G. Macpherson: Yeah. No, we did not see any pre-buy in the US. We did not see any pre-buy for Zoro.com. It's all MonotaRO. Given their reliance on the Middle East, there was a run on mostly PPE nitrile glove type products. It's roughly $45 million. That was the total magnitude. You never know with the pre-buy how much of that actually plays out going forward. People can continue to buy even after pre-buy. You just never know. That's sort of the rough magnitude.

D.G. Macpherson: Yeah. No, we did not see any pre-buy in the US. We did not see any pre-buy for Zoro. It's all MonotaRO. Given their reliance on the Middle East, there was a run on mostly PPE nitrile glove type products. It's roughly $45 million. That was the total magnitude. You never know with the pre-buy how much of that actually plays out going forward. People can continue to buy even after pre-buy. You just never know. That's sort of the rough magnitude.

Speaker #3: It's roughly 45 million US that was the total magnitude. You never know what the pre-buy how much of that actually plays out going forward.

Speaker #3: People can continue to buy even after pre-buying. You just never know. But that's sort of the rough magnitude.

Speaker #7: Good. But were you able to size it?

Deane Dray: Good. Were you able to size it?

Speaker #3: Yeah. 45 million.

D.G. Macpherson: Yeah, $45 million.

Speaker #7: 45. Okay. Good. And then the second question, can you expand a bit on the project versus MRO? I mean, when we talk to investors, the differentiation for Grainger is you're primarily an MRO-focused model.

Deane Dray: $45. Okay, good. Then, the second question, can you expand a bit on the project versus MRO? When we talk to investors, the differentiation for Grainger is you're primarily an MRO-focused model. When and how do the projects come up? Could you ever enter projects in a more deliberate way? It would end up being a margin drag, we know, but increased volume. Just like, what are the dynamics there on how you look at the project opportunity?

Speaker #7: When and how do the projects come up? Could you ever enter projects in a more deliberate way and it would end up being a margin drag?

Speaker #7: We know, but increased volume. And just what are the dynamics there, and how do you look at the project opportunity?

Speaker #3: Yeah. So the way that typically plays out is that there's a customer that we have a relationship with and are actually providing MRO, and they have a product project.

D.G. Macpherson: Yeah. The way it typically plays out is if there's a customer that we have a relationship and are actually providing MRO and they have a product project, they will ask for help, and sometimes we provide that help. Like I mentioned, in times when there's a lot of activity in the market, like there is right now, demand's strong, and particularly around data centers, we've seen significant projects and project business come through. It's been a tailwind on revenue. It's been a headwind on gross margin. That typically doesn't sustain at these levels. I would not say we are going to shift to be a project-focused company. We do serve customers in a lot of different ways, and we're always doing projects for customers. This year, it's just a bit more given some of the market dynamics.

Speaker #3: They will ask for help, and sometimes we provide that help. Like I mentioned, in times when there's a lot of activity in the market—like there is right now—demand is strong, particularly around data centers. We've seen significant projects and project business come through.

Speaker #3: And so it's been a tailwind on revenue. It's been a headwind on gross margin. That typically doesn't sustain at these levels. I would not say we are going to shift to be a project-focused company.

Speaker #3: But we do serve customers in a lot of different ways, and we're always doing projects for customers. This year, it's just a bit more, given some of the market dynamics.

Speaker #7: That's really helpful. Thank you.

Deane Dray: That's really helpful. Thank you.

Speaker #3: Thank you.

D.G. Macpherson: Thank you.

Speaker #2: Your next question comes from Guy Hardwick with Barclays. Please state your question.

Operator: Your next question comes from Guy Hardwick with Barclays. Please state your question.

Speaker #6: Hi, guys. Good morning. I was wondering if you could maybe expand a little bit more on the impact of large projects. I mean, does that give you more second-half visibility on the top line?

Guy Hardwick: Hi, guys. Good morning.

D.G. Macpherson: Hi.

D.G. Macpherson: DG, I wonder if you could maybe expand a little bit more about the impact of large projects. I mean, does that give you more H2 visibility on top line? Does it give you some visibility on next year? If that's the case, is that a headwind to gross margin, but maybe the cost to serve those contracts is less to SG&A? Maybe are they neutral to EBITDA margin or enhancing to EBITDA margin, or they would still be diluted?

Guy Hardwick: DG, I wonder if you could maybe expand a little bit more about the impact of large projects. I mean, does that give you more H2 visibility on top line? Does it give you some visibility on next year? If that's the case, is that a headwind to gross margin, but maybe the cost to serve those contracts is less to SG&A? Maybe are they neutral to EBITDA margin or enhancing to EBITDA margin, or they would still be diluted?

Speaker #6: Does it give you some visibility on next year? And if that's the case, is that a headwind to gross margin, but maybe the cost to serve those contracts is less in SG&A?

Speaker #6: So maybe are they neutral to EBITDA margin or enhancing to EBITDA margin, or they would still be diluted?

Speaker #3: No, yeah, you've got it right. They're dilutive to gross margin, but they're not dilutive to operating margin. Part of the reason we're raising revenue—and I think maybe a lot of people are raising revenue right now—is because of the project spend and just the race to get a lot of data centers up and get the electrical infrastructure built.

D.G. Macpherson: No. Yeah, you've got it right. They're diluted to gross margin, but they're not diluted to operating margin. Part of the reason we're raising revenue, and I think maybe a lot of people are raising revenue right now, is because of the project spend and just the race to get a lot of data centers up and get the electrical infrastructure built. We are certainly seeing a part of that. Like I said, it's not really our focus, but we do support our customers in those efforts. It will be a tailwind from revenue for the remainder of this year, and I would argue maybe further than that, given the cycle that this is going to take.

Speaker #3: And so we are certainly seeing a part of that. Like I said, it's not really our focus, but we do support our customers in those efforts.

Speaker #3: It will be a tailwind for revenue for the remainder of this year, and I would argue maybe even further than that, given the cycle that this is going to take.

Speaker #6: And Deidra, it looks like the full-year guidance implies maybe a 6% increase in SG&A, which in turn suggests about 5% growth in the second half.

Guy Hardwick: Deidra, it looks like the full year guidance implies maybe a 6% increase in SG&A, which kind of implies maybe 5% growth in H2. What are the risks to achieving that 5%? I know you have an easy comparative to Q4 because you have some unusual healthcare expenses, but can maybe you could expand a little bit on the dynamics for H2 OpEx trends?

Guy Hardwick: Dee, it looks like the full year guidance implies maybe a 6% increase in SG&A, which kind of implies maybe 5% growth in H2. What are the risks to achieving that 5%? I know you have an easy comparative to Q4 because you have some unusual healthcare expenses, but can maybe you could expand a little bit on the dynamics for H2 OpEx trends?

Speaker #6: What are kind of the risks to achieving that 5%? I know you have an easy comparative to Q4 because you have some unusual healthcare expenses, but can maybe you could expand a little bit on the dynamics of the second half OPEX trends?

Speaker #4: I will say there are two things that we feel really comfortable with in the guide. One of which you noted; the other one is, we recall we also had some slowdown in government business last year.

Deidra Merriwether: I would say there's two things that we feel really comfortable with the guide, one of which you noted. The other one is, as you recall, we also had some slowdown in government business last year. We don't expect that because of the shutdown. We don't expect that to happen again this year or have no view of that in our guide. That will also help us from a leverage perspective.

Dee Merriwether: I would say there's two things that we feel really comfortable with the guide, one of which you noted. The other one is, as you recall, we also had some slowdown in government business last year. We don't expect that because of the shutdown. We don't expect that to happen again this year or have no view of that in our guide. That will also help us from a leverage perspective.

Speaker #4: And so we don't expect that because of the shutdown. We don't expect that to happen again this year, or have any view of that in our guide.

Speaker #4: And so, that will also help us from a leverage perspective.

Speaker #6: Thank you.

Guy Hardwick: Thank you.

Speaker #2: Thank you. And a reminder to the audience, to ask a question, press star one. To remove yourself from the queue, press star two. Your next question comes from Chris Dankert with DA Davidson.

Operator: Thank you. A reminder to the audience, to ask a question, press star one. To remove yourself from the queue, press star two. Your next question comes from Chris Dankert with D.A. Davidson. Please state your question.

Speaker #2: Please state your question.

Speaker #7: Hey, morning. Thanks for taking the question. I guess the point of clarification, Dean, apologies if I missed it, but on the third quarter guidance for top line perspective, can you just give us a sense for how July was trending on a preliminary basis versus that growth rate?

Chris Dankert: Hey, morning. Thanks for taking the question. I guess just a point of clarification, Dee, and apologies if I missed it, but on the Q3 guidance from a top-line perspective, can you just give us a sense for how July was trending on a preliminary basis versus that growth rate?

Speaker #4: Yeah, we kind of noted on the call that we expect July to be up 13%, and then, for the quarter, to be up around 12%.

Deidra Merriwether: Yeah. We kind of noted on the call that we expect July to be up 13%, and then on the quarter be up around 12%. Some of that is normal seasonality, as we flow through a particular quarter on the top-line basis, but we expect Q3 to still continue our strong performance. That's on a daily constant currency basis, so the numbers that I just provided to you.

Dee Merriwether: Yeah. We kind of noted on the call that we expect July to be up 13%, and then on the quarter be up around 12%. Some of that is normal seasonality, as we flow through a particular quarter on the top-line basis, but we expect Q3 to still continue our strong performance. That's on a daily constant currency basis, so the numbers that I just provided to you.

Speaker #4: Some of that is normal seasonality as we flow through a particular quarter, on a top-line basis. But we expect Q3 to still continue our strong performance.

Speaker #4: And that's on a daily constant currency basis to note the numbers that I just provided to you.

Speaker #7: Perfect. Thanks for the clarification there. Appreciate it. And then just on if we could move to Zoro, the SKU optimization that we did about a year ago now, notice the SKU count is kind of drifting back up.

Chris Dankert: Perfect. Thanks for the clarification there. Appreciate it. Just on, if we could move to Zoro, the SKU optimization that we did about a year ago now. Noticed the SKU count is kind of drifting back up. Are we continuing to prune at the same time? Are we trying to keep that assortment optimized or is this kind of just creep? Maybe just give us some color on the SKU count over at Zoro.

Speaker #7: Are we continuing to prune at the same time? Are we trying to keep that assortment optimized, or is this kind of just—maybe just kind of—give us some color on the SKU count over at Zoro?

Speaker #3: Yeah, so a lot of the SKU pruning was around items that just never sold and weren't going to sell, and that were not really core to what we're trying to do.

D.G. Macpherson: Yeah. A lot of the SKU pruning was around items that just never sold and weren't going to sell, and that were not really core to what we're trying to do. We are in a constant pruning period now. We're growing SKU count not nearly as fast as we have at times in the past, but we expect it to continue to grow for the next couple of years, but just more modestly.

Speaker #3: We are in a constant pruning period now. We're growing SKU count—not nearly as fast as we had at times in the past, but we expect it to continue to grow for the next couple of years, just more modestly.

Speaker #7: Understood. Well, thanks for the color and best of luck, Dean.

Chris Dankert: Understood. Well, thanks for the color, and best of luck, Dee.

Speaker #4: Thank you.

Deidra Merriwether: Thank you.

Dee Merriwether: Thank you.

Speaker #2: Your next question comes from Tommy Mull with Stevens. Please state your question.

Operator: Your next question comes from Tommy Moll with Stephens. Please state your question.

Speaker #6: Good morning, and thank you for taking my questions.

Tommy Moll: Good morning. Thank you for taking my questions.

Speaker #3: Hi, Tommy.

D.G. Macpherson: Hi, Tommy.

Speaker #6: Deidra, I wanted to ask about some of the September pricing, specifically around freight and fuel. Should we think of this as part of the regular cadence of negotiations you have with customers, or are these surcharges that may require some kind of force majeure discussion here?

Tommy Moll: D.G., I wanted to ask about some of the September pricing, specifically around freight and fuel. Should we think of this as part of the regular cadence of negotiations you have with customers, or are these surcharges that may require some kind of force majeure discussion here?

Speaker #6: I know typically.

Speaker #3: These are mostly going to be normal course discussions, price increases with our customers. It's not going to be a force majeure.

D.G. Macpherson: These are mostly going to be normal course discussions, price increases with our customers. It's not going to be a force majeure.

Speaker #6: Okay. And then, on the competitive environment and share—understood, we're not going to split hairs on how many bips of share in any given quarter, but I did just want to circle back in light of some of the strong top-line performance.

Tommy Moll: Okay. On the competitive environment and share, noted we're not going to split hairs on how many bips of share in any given quarter. I did just want to circle back in light of some of the strong top-line performance. Any anecdotes or update you could give us on how you think your share is trending, how the competitive marketplace has been, particularly on the high touch side? Thank you.

Speaker #6: Any anecdotes or update you could give us on how you think your share is trending, and how the competitive marketplace has been, particularly on the high-touch side?

Speaker #6: Thank you.

Speaker #3: Yeah. I mean, we think that we've gotten benefit on the top line from pricing, from market demand, and from share gain. And we think all of those have been reasonably strong year-to-date.

D.G. Macpherson: Yeah. We think that we've gotten benefit on the top-line from pricing, from the market demand, and from share gain, and we think all of those have been reasonably strong year-to-date. We would expect that to continue through the balance of the year. The market has turned from negative for several years to clearly positive and maybe low single digits, but maybe not so low single digits now. It's almost like you're trying to figure out where the puck's moving, but certainly it has gotten much stronger as the year has gone along.

Speaker #3: We would expect that to continue through the balance of the year. The market has turned from negative for several years to clearly positive. And maybe the low single digits, but maybe not so low single digits now.

Speaker #3: And it's almost like you're trying to figure out where the puck's moving, but certainly it has gotten stronger as the year has gone on.

Speaker #6: Yep. Thank you for the insight. I'll turn it back.

Tommy Moll: Yep. Thank you for the insight. I'll turn it back.

Speaker #3: Thank you.

D.G. Macpherson: Thank you.

Speaker #2: Thank you. This is Connor Serniglia with Bernstein. Please state your question.

Operator: Thank you. Our next question comes from Connor Cerniglia with Bernstein. Please state your question.

Speaker #5: Great. Thank you for having me. Earlier in the call, you mentioned that the IEPA tariff was a small impact, I guess, in the total tariff cost you've experienced.

Connor Cerniglia: Great. Thank you for having me. Earlier in the call, you mentioned that the IEEPA tariff was a small impact, I guess, on the total tariff cost you've experienced. Is that more of a hint that you could see more refunds in the future beyond the $43 million you mentioned this quarter and I guess the next two quarters? I know it's probably pretty difficult to size, but do you expect more refunds from IEEPA going forward?

Speaker #5: Is that more of a hint that you could see more refunds in the future beyond the 43 million you mentioned this quarter and I guess the next two quarters?

Speaker #5: I know it's probably pretty difficult to size, but do you expect more refunds from IEPA going forward?

Speaker #3: No, no. We think that was more just a point to make the point that the overall tariff increases were much larger than that.

D.G. Macpherson: No. We think that was more just to make the point that the overall tariff increases were much larger than that we've taken. It's a small portion of the total that we took, but we don't think there's going to be a lot more refunds.

Speaker #3: ...that we've taken. So, it's a small portion of the total that we took, but we don't think there's going to be a lot more refunds.

Speaker #5: Okay, helpful. And I guess, switching back to data center large capital projects, have you all tried to attempt to size the projects? Is it just too small to size it, or can you provide any color or refining points on what the actual contribution to volume for data centers could be? That would be helpful.

Connor Cerniglia: Okay. Helpful. I guess switching back to data center and large capital projects, have you all tried to attempt to size the contribution from a volume perspective from these large projects? Is it just too small to size it or kind of any color or refining points on the actual contribution to volumes for data centers could be helpful. Thank you.

Speaker #5: Thank you.

Speaker #3: Yeah. I mean, we think the project spend this year has increased our growth rate by about 90 basis points. High-Touch—not for the company, but for High-Touch—we don't see project spend really at Zoro.

D.G. Macpherson: Yeah, we think the project spend this year has increased our growth rate about 90 basis points. High Touch, not for the company, but for High Touch, we don't see project spend really at all. Yeah, that's the sizing of it at this point, and like I said, we always look at overall profitability on those projects. We want to make sure it's profitable, so that's sort of looking at a net margin perspective, and they generally are.

Speaker #3: So, yeah, that's the sizing of it at this point. And like I said, we always look at overall profitability on those projects. We want to make sure that they're profitable, so that's sort of looking at it from a net margin perspective, and they generally are.

Speaker #5: Great, that's it for me. Thank you so much.

Connor Cerniglia: Great. That's it for me. Thank you so much.

Speaker #3: Thank you.

D.G. Macpherson: Thank you.

Speaker #2: Thank you. There are no further questions at this time, so I'll hand the floor back to Deidra McPherson for closing remarks. Thank you.

Operator: Thank you. There are no further questions at this time, I'll hand the floor back to D.G. Macpherson for closing remarks. Thank you.

Speaker #3: All right, thank you. I appreciate everybody being on the call. I'll just reiterate: we think that we are taking the right actions and making the right moves to continue to grow, gain share, and grow profitably.

D.G. Macpherson: All right. Thank you. Appreciate everybody being on the call. I'll just reiterate, we think that we are taking the right actions and making the right moves to continue to grow, gain share, grow profitably. There's always gives and takes in the external environment, but generally, we try to focus on the long term. We continue to invest in creating better solutions for customers, and that's going to be our focus. I'd like to thank Dee once again for her time and wish her luck, and I hope everybody has a great rest of this hour. Thank you.

Speaker #3: There are always puts and takes in the external environment, but generally, we try to focus on the long term. We continue to invest in creating better solutions for customers, and that's going to be our focus.

Speaker #3: And I'd like to thank Deidra once again for her time and wish her luck. I hope everybody has a great rest of this hour.

Speaker #3: Thank you.

Operator: Thank you. This concludes today's call. All parties may disconnect. Have a good day.

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