GLOBAL INDUSTRIAL Co Q4 FY2024 earnings call

• Richard welcomed Anesa Chaibi as the new CEO, highlighting her experience in B2B and industrial distribution. - In 2024, revenue was $1.3 billion, up 3.3% due to the Indoff acquisition, but the fourth quarter was the weakest with a 5.6% revenue decline. - Gross margin was 33.8% in the fourth quarter, in line year-over-year but down sequentially due to increased transportation costs. - Made progress on customer-centric strategy: 20% reduction in damage claims in 2024, launched account-based marketing program for managed accounts, implemented Salesforce for U.S. sales team with marketing and customer service modules to go live in summer 2025. - Initiatives for 2025 include focus on pricing analytics, driving e-procurement, enhancing customer experience, and aligning sales resources.

In the fourth quarter, revenue was $302.3 million, down 5.6% year-over-year. U.S. revenue was down 5.9% and Canada revenue was up 4.1% in local currency. E-commerce and broader digital sales were the leading channel, representing more than 60% of total annual order volume in the core global industrial business. Private brand demand remained robust, with private brand in the low 40% range as a percentage of total sales in 2024.

• First quarter revenue is pacing in line with fourth quarter results. - SG&A levels are expected to remain elevated in the first quarter primarily due to CPC inflation. - Declared a quarterly dividend of $0.26 per share, marking the 10th consecutive year of dividend increase. - 2025 has four extra selling days in December in both U.S. and Canada, with a very modest sales impact expected from these additional days.

• Volatile ocean freight costs and higher parcel fulfillment costs impacting gross margin. - Potential tariff shifts affecting sourcing relationships with Canada and Mexico, which could rapidly change. - CPC inflation impacting marketing spend and sales performance.

Q: Good afternoon, everyone. And thanks for taking the questions. And welcome aboard, Anesa. Look forward to working with you. So I guess, first, as far as the fourth quarter, just curious whether you guys saw any meaningful changes in the business after the election? Or was it more or less kind of consistent throughout the quarter?

A: Yeah, I'll jump right in there. So during the quarter, we definitely saw revenue results move up and down. They were volatile, and that's continued a little bit in. So really in the more recent periods, as you know, we're halfway through the first quarter. We're seeing some positive customer sentiment, but overall, we are trending still in line with where we reported our fourth quarter results.

Q: Yeah, and then so in terms of the positive consumer -- customer sentiment. Is that mostly still on the kind of larger accounts that you're seeing that? Or are you seeing some from your core SMB clients?

A: Yeah. Again, I think that's also a little bit of a mixed signal. But again, our biggest customers, we are seeing some of those larger orders, some of those capital budgets seem to be opening up a little bit, which gives us confidence. I mean, again, looking at some of those industry metrics such as PMI and others. We've seen some positive trends in that really into January in 2025, so that's begun to tick up after being stagnant for some time. And again, I think we see that manifest itself in some of the customer behaviors. On the smaller customer segment, again, we're seeing good retention and gain good customer satisfaction. But that's an area that's a little bit sticky and that's an area that we're continuing to focusing strategic efforts to continue to reignite that revenue channel.

Q: And you talked about the recent rollout of Salesforce. Just overall, when do you think that will be fully implemented and when you can start to see some tangible results from that initiative?

A: Yeah. So it's a major CRM rollout for our organization. We ultimately were able to roll that out to our entire sales team, the sales personnel by the end of 2024. And really, as we move into the summer of 2025, that's when we're really going to be able to bring our marketing and our customer service and really the broader customer-facing side of our team onto the one unified platform. So again, it's an area that we believe that we'll be close to kind of that full rollout over the summer and should start seeing that the positive benefit of the integration and collaboration that, that brings to the table as we move throughout the course of the year.

Q: And then it looks like your inventory was up slightly from 3Q. Did you guys bring in any inventory ahead of tariffs? Or just -- and while on the subject of tariffs, I know Tex, you spoke about that a little bit. But overall, it sounds like you are better prepared versus 2018. But yeah, if you could just talk about the inventory, the health of the inventory, quality of that? How you feel about that?

A: Sure. I mean the inventory as we kind of brought those into Q4, obviously, at that point, there had been no specific designations of what tariffs may or may not happen in 2025. But overall, it was really managing inventory ahead of the Lunar New Year and making sure we had all the product in, the seasonal product in advance. The other piece, as you've heard us talk throughout the course of the year, ocean transit costs are -- have been up throughout 2024. That cost of the inbound transportation product into the U.S. distribution centers that ultimately gets capitalized into cost of the inventory. So that's really been 1 of the drivers of some of that increased inventory valuation would come from the higher transit cost into that portfolio. And as you mentioned, from a tariff perspective, obviously, it's something that 2019 really brought a lot of -- kind of opened our eyes as a company to really invest in both pricing and technology to really make sure that we really understand the different external inputs into the cost structure. Clearly, we dealt with a lot of tariffs throughout 2018, 2019. And then again, leading into 2020, '21, '22, we saw significant inflation in ocean freight costs, which really impact that same product set in a very similar way. Actually -- it was actually a little bit more impactful than that first round of tariffs. So again, while it's something that is third-party impact, a lot many of our competitors in the broader industry are all facing challenge. And it's an area that, again, I think we have the right people, the right technology and the right team in what we're doing, how we're managing our costs, how we're working with our suppliers. And then ultimately, passing that price through if it makes sense, depending on the individual products set and what the competitive set is doing. So again, I do think we're well prepared. Clearly, there's a lot of information coming at us. But again, we're not unique to the situation. And we're not the only people there. So we're really focused on managing what we can and being ready when those cost changes do come through.

Q: And then lastly, I guess, as far as the gross margins, I know there were some factors affecting the performance. But overall, it was up 10 basis points for the year in '24. Just how should we think directionally about the gross margin? I know there's a lot of moving pieces, but just overall, what is the expectation for gross margins going forward?

A: Yeah. Again, I'll continue to take that one. So again, it's an area that we spend a lot of time focusing on, really managing both again, you have two sides of the gross margin equation, price and cost. So again, both sides of the house, our sales team, our pricing team and then ultimately, our supplier relationship team is really focused on managing our cost down and our price up. We know that transportation is a large component of our cost of sales, both the inbound transportation costs as well as delivering goods. As you know, we talked about our big and bulky product set. So there's a heavy mix of LTL and other costly transportation in there. So it's managing that profile. Again, we're generally confident in our ability to manage that margin. Clearly, as you know, we have our private brand and our exclusive brand products, which bring a higher margin profile to our composite mix. So we're continuing to focus on mixing into those products where it makes sense while, again, not -- making sure we're lifting all boats and focusing on our national suppliers as well. But the private brand does give us a different gross margin profile that helps us mitigate some of the pricing pressure in the market. So it's an area that, again, it's been fairly steady, but we're confident in being able to continue to manage that. And again, our focus is whenever possible how do we capture a little bit more gross margin is always a focus of the company.