W.W. Grainger, Inc. Q1 FY2022 Earnings Call

Good morning. Welcome to Grainger's first quarter 2022 earnings call. With me are DG MacPherson, Chairman and CEO; and Dee Merriwether, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements. Actual results may differ materially as a result of various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures with their corresponding GAAP measures are found in the table at the end of this presentation and in our Q1 earnings release, both of which are available on our IR website. This morning's call will focus on our first quarter 2022 results, which are consistent on both the reported and adjusted basis for all periods presented. We will also share results related to MonotaRO. Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from U.S. GAAP, and is reported in our results one month in arrears. As a result, the numbers disclosed will differ somewhat from MonotaRO's public statements. Now, I'll turn it over to DG.

Thanks, Kyle. Good morning, and thank you for joining us. Today, I'll provide an overview of our first quarter performance, and then pass it to Dee to walk through the financials in detail. I'll begin by quickly highlighting our strategic operating framework, the Grainger Edge. I am proud of our team members as we embrace the edge at every level of the organization and in everything we do day in and day out. This framework serves as the basis for our culture and defines how we work together to serve our customers and communities. I'm excited to share that earlier this month, we were recognized as one of Fortune's 100 Best Companies to Work For. This award is attributed to team members across the organization. Turning to Slide 5. Not unlike the past two years, the first quarter of 2022 threw us some challenges, including the ongoing impacts of the pandemic, heightened inflationary pressures, supply chain and labor challenges, and now the Russian war in Ukraine. I'd like to spend a few minutes on how we are managing through these challenges. First, we continue to manage through the highest inflationary period in our careers. On the cost side, we are leveraging our purchasing scale and working closely with our supplier partners to chart a shared path forward. Despite high inflation, our goal remains to be price competitive while targeting price/cost neutrality. On the supply chain front, we continue to work with our supplier and transportation partners to ensure products are available and delivered to customers on a timely basis. U.S. customer service levels are starting to improve as carrier capacity increases. Overseas freight remains pressured with delays, port congestion, and container challenges, and when coupled with increasing fuel prices, is pushing costs higher than historical trends. We expect these costs to remain elevated throughout the year. We remain focused on securing product for our customers as we navigate through the continued product shortages and delays. We expect the ongoing COVID-related shutdowns in Shanghai and broader China will further challenge supply chains over the coming months. We have been increasing our inventory position since the middle of last year to maintain service levels and continue to monitor developments to stay ahead of the game. In my visits to our customers in Q1, I continue to hear that we are performing well, relative to the market, on securing product. We also continue to stay focused on hiring and maintaining competitive payroll and benefits to ensure we attract, engage and retain high-performing teams. This is especially important for customer-facing and support roles within our distribution and contact centers. We continue to receive feedback that Grainger is a great place to work, and our team members still value as they work to support our customers each day. We continue to invest in our strategic initiatives like marketing, remerchandising, KeepStock, and technology. These efforts, coupled with our advantaged service, have allowed Grainger to have strong outgrowth versus the broader MRO market. Switching gears to our financials, demand remained robust, and we finished the quarter with sales growth of 18.2% or 17.9% on a daily constant currency basis. Our results were driven by strong performance in both segments. High-Touch Solutions North America had exceptional daily sales growth of 18.2%. In the U.S., we outgrew the broader MRO market by 550 basis points for the quarter as our supply chain and inventory investments helped us meet our customers' needs. Total company gross profit margin finished the quarter at 37.9%, expanding 245 basis points over the prior-year first quarter. The largest component of our expansion over the prior year was lacking the pandemic-related inventory adjustment that we took in the first quarter of 2021. Even when excluding that adjustment, however, we were still up nicely year-over-year. We delivered a 14.6% operating margin, an increase of 305 basis points over the prior year as the improved gross margin performance was further aided by top-line leverage and disciplined cost management. In the quarter, we delivered an adjusted ROIC of 41% and returned $163 million to shareholders through share repurchases and dividends. Yesterday, we announced an increase in our dividend, which marks our 51st year of consistent increases and continued commitment to our shareholders. As a result of our strong performance, we are raising our full-year 2022 guidance estimates. I continue to be impressed with how our team has come together to deliver such great results. Earlier this year, we talked about our focus areas for 2022: executing on our key growth initiatives, driving operational excellence, and strengthening our culture. We've made strong progress in all three areas and continue to build the company for success. With that, I'll turn it over to Dee to take us through more detail on the quarter and our guidance.

Thanks, DG. I'd like to echo DG's sentiments. Our execution and teamwork in the first quarter drove very strong results. Turning to Slide 8. We covered revenue and margins at the total company level, and I'll get into more detail on the segments in a minute. Before we do, I'd like to highlight a few other key points. Our total company SG&A as a percentage of sales was 23.3%, gaining solid leverage over the prior-period first quarter. Given our investments in the DCs at MonotaRO and our continued strategic initiatives in High-Touch Solutions, I am proud of the way the team concurrently managed these investments as well as operating expenses to support strong top-line performance in the quarter. Finally, resulting EPS in the quarter was $7.07, up 58% versus the first quarter of 2021. Turning now to our High-Touch Solutions segment for the first quarter. We continue to see strong results with daily sales up 18.2%, compared to the first quarter of 2021. We saw impressive growth across the board with double-digit revenue growth across all of our North American geographies and both large and midsize customers. In the U.S., we saw a strong price realization from our recent pricing actions and delivered strong growth in every end market, with particular strength in commercial, transportation and heavy manufacturing. In Canada, the economy has rallied back, and the business saw year-over-year sales growth in nearly every end market, with manufacturing especially strong this quarter. Canadian daily sales were up 10% or 11.8% in local days and local currency. For the segment, GP finished the quarter at 40.4%, up 310 basis points versus the prior year. If we exclude the first quarter 2021 pandemic product inventory adjustment, we still achieved gross margin expansion of roughly 80 basis points. This expansion was largely driven by favorable product mix and also aided by the return of the in-person Grainger Show in February. While the sale provided a modest tailwind in the quarter, it is expected to net out as we move through the balance of the year. Given the timing of price and cost increases in the quarter, our price/cost spread was favorable. However, when netted against increased freight costs, it was largely neutral. I'll also note that our pandemic mix at the end of the quarter was back to near prepandemic levels at just above 20% of sales mix, and we continue to see similar results through the first few weeks of April. While we have included our pandemic-related sales in the appendix for this period, given that we have returned to prepandemic mix levels, we do not expect to provide this information in subsequent quarters. At the operating margin line, we saw improvement of 395 basis points year-over-year as the strong gross margin recovery was aided by 85 basis points of operational expense leverage. Overall, an extremely solid quarter for the High-Touch Solutions North American segment. Looking at market outgrowth on Slide 10, we estimate that the U.S. MRO market grew between 12.5% and 13.5%, indicating that we achieved roughly 550 basis points of market outgrowth in the quarter. As I've gone out and spent time with customers and investors over the last few months, we often are asked about the drivers of our share gain. We know our supply chain scale and our ability to deliver products to customers has been strong. We also know that by focusing on and investing in the right areas like remerchandising our assortment, increasing our use of analytically-driven marketing and improving the effectiveness of our salesforce, we can consistently deliver growth above the market. We continue to execute well, and our goal to achieve 300 to 400 basis points of annual market outgrowth remains intact. Moving to our Endless Assortment segment, sales increased 12.1% or 10.4% on a daily basis. Results were heavily impacted by foreign exchange, given the depreciation of the Japanese yen. In local currency and local days, MonotaRO achieved 18.4% growth, whereas Zoro U.S. daily sales were up over 19%, both very strong. Growth continues to be driven by new customer acquisition at both Zoro and MonotaRO and MonotaRO's continued success with enterprise customers. GP expanded 10 basis points versus the first quarter of 2021, while operating margins declined 95 basis points as planned. This decline was primarily a result of our increased DC investments at MonotaRO and was partially offset by Zoro's operating margin expansion, which improved 90 basis points over the first quarter of 2021 on strong GP improvement. Please note the slide covering channel-specific performance for Zoro and MonotaRO is included in the appendix. In addition, we've also continued to see positive results in our key operating metrics. On Slide 12, you can see registered users are up 20% over the prior period. You'll see the count of registered users for Zoro has been restated for prior reporting. In 2021, Zoro made a strategic pivot away from certain less productive channels, allowing them to focus on more profitable B2B customers, who also have a higher likelihood to make repeat purchases. This drives higher lifetime-value customers to Zoro. As a result, we've elected to remove these customers from this metric, which lowers the nominal user count for Zoro, but the growth rate remains relatively consistent to what we have shown in the past. We think this is a more accurate way to reflect this metric, and we will use this new definition going forward. On the right, we show the continued growth of the Zoro SKU portfolio. We are targeting around 2 million SKU additions again in 2022 and are off to a good start as we continue to onboard more strategic third-party supplier partners. Now looking forward to the rest of the year. We're off to a great start and results remained strong in April, with total company daily sales trending up around 20%. While we don't typically adjust our guidance expectations after a quarter and acknowledge the broad market uncertainty, our conversations with customers' results to date and continued momentum give us confidence to make a change at this time. As a result, we are raising our 2022 full-year guidance. Our new outlook includes expected daily sales growth between 11% and 14% and EPS between $25 and $27, representing over 30% earnings growth year-over-year at the midpoint. We've also updated our supplemental guidance in the appendix, which reflects a slight upward revision in the High-Touch Solutions operating margin and an increase in total company operating cash flow. With that, I'll turn it back to DG for some closing remarks.

Thank you, Dee. Before I open it up for questions, I would make just a few comments. First, we performed extremely well in the quarter. I'm proud of the team and the way we've executed, focused on serving customers well and navigated through some of the bigger challenges that we discussed at the beginning of the call. We continue to execute on our growth drivers, drive operational excellence, and strengthen our culture. We are well positioned to continue serving customers well, and they have a very strong 2022. As we shared last quarter, I'm excited to provide some information on our upcoming Investor Day. We will be hosting it on Wednesday, September 21, at our Northeast distribution center in Bordentown, New Jersey. We will be focused on providing more details on our strategic initiatives and longer-term outlook, as well as provide a tour of our distribution center, where we will highlight some of our automation and ESG investments at work. More detailed information will be available in the coming weeks, and we certainly look forward to an exciting day. With that, we will open up the lines for questions.

Our first question today is coming from Jake Levinson from Melius Research.

I just wanted to see if we could get a little bit more color on what's happening with our neighbors to the North. I know you folks used to break that out a little bit separately, but maybe you can just give us an update on how things are progressing in Canada. It seems like the end markets have finally turned in your favor, but are we kind of on a sustainable path to profitability there?

Yes, yes. It's a great question. Thanks for asking. So I think the business is on a very sustainable path to profitability. We have reset the way the business operates over the last three or four years. We're seeing signs of share gain returning into that business. The cost structure is in a good place, and we're seeing growth with some attractive customer segments, most notably manufacturing and healthcare. And that business just continues to get better and better, from a profitability perspective, and it's steady, and it's going to continue to be a steady rise in profitability, but we feel pretty good about the path we're on.

Okay. That's helpful. And then, just as a quick follow-up, I'm looking at the safety side of the business. You mentioned that, that's back to kind of prepandemic levels as a percent of sales. I guess the question is, what does the new normal look like for your customers, in terms of buying those products? Obviously, the mandates seem to be changing or social norms around mask-wearing and whatnot, so are your customers still buying masks and hand sanitizer and things like that at elevated rates, I guess you could say?

Yes. I think Dee talked about it. We're pretty much back to prepandemic mix. I'd say, there's a slight elevation in some of those products. I can't really predict what customer behavior is going to be around those products, given the way the virus proceeds. But what I will say is that we see most customers going back to some normalcy. I've been in a number of manufacturing plants over the last couple of weeks. And in almost all cases, there isn't a lot of new PPE versus what was borne in 2019 being used. So we don't expect it to be hugely elevated, mask and sanitizer sales, going forward. And we're pretty much back to normal, still elevated, but not that much.

Our next question today is coming from Ryan Merkel from William Blair.

First off, I was hoping you could unpack the comment you made about speaking with customers and they expressed a lot of confidence about demand. In particular, I'm curious if you spoke with energy customers, if they're seeing a big uplift here?

I can share my perspective, and Dee, if you've spoken to customers with a different viewpoint, please add that. I haven't engaged with too many energy customers, but I've interacted with numerous heavy and line manufacturing commercial clients. Despite the uncertainty in the world, everyone I speak with is extremely busy and just holding on. If they can get the parts they need for their supply chain, they have the demand. This sentiment is reflected in conversations with most of our customers right now, indicating a lot of positivity. It has been some time since I visited an energy plant, so I lack that insight. However, generally, customers seem quite optimistic about demand at this moment.

I was just going to concur. My time with customers is similar to DG's experience up to this point in the year.

All right. That's helpful. And then for my follow-up, what really stood out to me was the profit margin in the High-Touch business. And I'm curious, the guidance seems to imply that 1Q will be the high watermark. So can you just unpack why that might be the case?

Sure. Dee, do you want to take that one?

Yes. So when we talked about guidance last year, I think a lot of the underlying assumptions really stick, even with some strong performance up to this point. We, of course, had to lap for the E&O adjustments. The first quarter is the time when we work with our suppliers on some of our largest price increases in line with our cost cycle that we work with them. I know the cost cycle has been a little unusual, but I will say, the seasonality related to our price changes, we are assuming the same types of outcomes. So you are exactly right. We feel like Q1 will be a higher watermark as it relates to that, and we will moderate as we go through the year. Again, some of the tenants are the same. We're still focusing on price/cost neutrality and remaining price competitive in this market.

Our next question today is coming from Nigel Coe from Wolfe Research.

So I wanted to just return to Canada. That business, in days gone by, it was tracking low double digits until the oil and gas bubble burst in 2014, but any reason why it can't get back to those kinds of levels? I mean there's been some changes in the business profile and the cost base. So just curious on that. And then on the midsized customer margins, they used to be running, I think, about 10 points above the average in that segment. Are they still in that kind of zone?

I think, Nigel, your question on Canada is revenue growth, can we get back to sort of double-digit revenue growth, is that your question?

No, no, no. Margins, margins.

Oh, margins, yes. Yes. Structurally, we don't think there's any reason why we can't get there. Given the path of the business, we're focused on sequential improvement, and we do feel like we can build to that, but it's going to take multiple years to get back to that 10%. They're going on a good path. I am very confident that we will continue to improve margins in Canada. But structurally, there's no reason why we can't get back to double-digit margins there. And then Dee, do you want to take the second half of that?

Yes. Yes. And on midsized customers, I think it's a good assumption now to use high single-digit number.

Our next question today is coming from David Manthey from Baird.

And congrats on the Fortune designation. It's a great honor. Could you please update us on High-Touch and some of your efforts there? I mean you had really nice outgrowth, and I'm trying to understand the factors there. I'm sure it's a combination of these things. But if you could talk about customer receptivity? And then, any idiosyncratic things that are going on there, in terms of a better offering or changes in incentives, anything that you're doing inside Grainger to drive those better results?

Yes, we've discussed some of these topics previously. Our main initiatives focus on enhancing our product range through merchandising efforts and ensuring customers can easily find what they need. We are making significant progress in this area and are seeing positive results in gaining market share as a result. Our marketing capabilities are improving, and we are effectively allocating resources to areas that yield strong returns. Additionally, we are expanding our KeepStock offering, aiming to integrate more closely with our customers' inventory management practices. These efforts are consistent and continually improving, contributing to notable share gains. While there is not much that is unusual in our approach, we are also focused on providing better insights to help customers manage their costs, and we are enhancing our capabilities in that regard. The only distinctive challenge we face might be related to supply chain issues, but we have managed to navigate this better than many others by ensuring we can add products, find substitutes when necessary, and serve our customers effectively, even when some competitors are unable to do so.

Got it. That sounds good. And then just quickly, if you could zoom out on gross margin kind of 5-year plus sort of basis. Do you expect gross margin to continue to decline gradually over time, all else equal?

Yes, go ahead, Dee. You can take that.

I was going to add that DG, you can continue on. In the High-Touch business, we've noted that this year we're focusing on gross margin stability around 40%. DG, were you going to talk about the outlook?

We believe we are competitive in terms of pricing at our current gross margins. For the High-Touch segment, we anticipate that the 40% figure will remain relatively stable over time. However, our overall company gross margins may decrease slightly as assortment growth outpaces the rest of the business, which typically operates at lower gross margins and lower SG&A expenses. Nevertheless, we expect stable gross margins across segments in the coming years.

Your next question today is coming from Josh Pokrzywinski from Morgan Stanley.

Just a first question for clarification. Dee, you mentioned in your opening remarks about a seasonal benefit in the first quarter related to a sales event in February. I'm hoping to unpack that a bit more and possibly add some numbers to it.

Well, sure. Yes. We returned to an in-person Grainger Show in Orlando in February. That's what I meant in my prepared remarks related to a show. It was really great to be back in person. Our show was well attended. We heard great feedback from our customers and from our team members. From a Q1 GP perspective, the show provides a modest tailwind for us year-over-year. And that's due to supplier funding, as you can imagine. And this favorable impact through the year will moderate versus the prior year as we will go through the year.

Okay. Got it.

Verified.

Understood. And then a competitor of yours, pretty recently, talked about some supply chain stabilization, maybe not seeing as much inbound inflation outside of freight-related items. What would the Grainger take on that be? I mean, obviously, the freight environment has gotten more difficult, and China has a bit more of wild COVID lockdowns. But would that be your take as well? Or do you see that differently?

We have definitely noticed some improvement, especially in domestic freight regarding service. Additionally, price increases have moderated significantly. There has also been a slight moderation in ocean freight due to the lockdown in China, although the situation remains uncertain. Overall, we would say that domestic conditions are easing somewhat, but the international aspects are likely more complex.

And your next question is coming from Chris Snyder from UBS.

I guess, so first, I kind of wanted to follow up on DG's prior commentary around the longer-term gross margin drivers. And certainly, I understand that Endless Assortment outgrowth is a structural gross margin, I don't have the consolidated level. But what gives the company confidence that it can hold business line, gross margin steady beyond '22? This is a pretty competitive business. So it is the midsized outgrowth. What gives you on that?

Yes. I think just working with our customers, understanding the value we provide, the value we create, seeing some midsized outgrowth and having confidence as we continue to return to more industrial products as we've seen. We just feel like our price is in a competitive place. And we can continue to support our customers and provide what they need and sell on the value that we provide. And that's really what our business is based on. And we're going to continue to do that.

I wanted to follow up on the previous question regarding the possibility of reducing domestic freight costs or supply chain issues. Has there been an overall easing of supply chains, or has procurement become more challenging due to the shutdowns in China, despite some improvements in the domestic freight market?

Yes. First, I want to note that the shutdown in China will take weeks or possibly longer for us to fully understand its effects. Prior to that, we were experiencing significant supply chain challenges, but these were largely isolated to certain suppliers struggling to meet their manufacturing demands. As transportation improved, the situation became less widespread. We rely heavily on domestic procurement, and for those customers who have the materials we need, we’ve seen some improvements in labor and transportation. However, there are still many areas facing challenges. The supply chain remains difficult from our suppliers’ standpoint in many instances, but it is now more focused on specific suppliers instead of being a broad issue, as it was about a year ago. Back then, it felt chaotic, and while things are less chaotic now, significant challenges still persist.

Our next question is coming from Hamzah Mazari from Jefferies.

This is Hans Hoffman filling in for Hamzah Mazari. My first question is just on the cyclicality of the portfolio today. Can you just walk us through how to think about how your business performed in a recession? And maybe any differences in the mix of the portfolio today versus past downturns?

You're talking about if there's a recession, how have we performed in past recessions? Is that your question?

Yes. Yes, yes. If there's any difference in the mix of the portfolio today versus past downturns.

To answer the second part first, I don't think there's a significant change in the mix of the portfolio. We have more in the assortment business, but I believe that will likely perform similarly. In general, we tend to perform well during downturns and have seen share gains during these times, which has typically been very positive for us. This is partly because we remain committed to maintaining service for our customers even during tough times, allowing us to better serve them than many competitors. We also continue to generate a significant amount of cash and perform well financially during downturns. Of course, everyone faces challenges, including us, and you can look back at 2008 and 2009 as the most severe downturn for insight on what occurred back then. While we can't predict when a recession will strike, we are certainly mindful of the uncertainty in the world and are carefully managing our business costs. We are prepared for whatever may happen. Overall, we have performed well in the past, and we expect to continue doing so.

Great. And then, could you just walk us through where your market share is today with midsized customers? And what the total addressable market there is?

Yes, Dee, do you want to share the details? Over the past 10 to 12 years, we had about $2 billion in midsized customers, but we dropped below $1 billion. Currently, we expect to be at around $1.5 billion to $1.6 billion this year. We're still working to gain market share with midsized customers and believe we have a lot of progress to make. We are successfully reacquiring former customers, growing with our existing ones, and building strong relationships. Consequently, we see a significant opportunity for growth in market share among midsized customers.

Our next question today is coming from Deane Dray from RBC Capital Markets.

But DG, I was hoping you could expand on what types of products are in short supply? Did you have any missed sales because you would blame it on the supply chain?

No, I wouldn't say we had many missed sales. More than ever, we're relying on our product information investments to ensure we can provide customers with substitutes. We haven't encountered any issues that haven't already been in the news. Obviously, products containing chips have posed a challenge, as have certain commodity products. I won't specify individual products, but I would say that we've done a good job of finding alternatives in most cases, and it's difficult to argue that we're missing too many sales. I'm sure there are some sales we're missing, but that's primarily because those products just aren’t available.

That's helpful. And then just qualitatively, can you comment on the mix with regard to a typical reopening? Coming out of the pandemic, you've got a number of your customers opening up shop, back to work. And so that's when Grainger typically gets a nice lift as they haven't restocked their shelves but now they have to. So you typically get a bigger lift during the reopening or restarting process. Is that still reading across in your North America businesses? Or is this kind of the steady MRO run rate?

First of all, we haven't seen many customers that have closed down. We've been with our customers throughout, and while a few in specific sectors have shut down, such as cruise lines, the impact on growth from that is minor. Hospitals, governments, manufacturing plants, and retail distribution centers have remained open the entire time. One surprising aspect of the pandemic has been the consistency of our growth. Since 2019, we've experienced substantial growth, and we noticed some growth during the early pandemic in 2022, but most customers continued to operate, which limited any decline. Overall, it feels like normal business activity, and we are not seeing much restocking.

Our next question today is coming from Chris Dankert from Loop Capital.

I guess, and forgive me if I've missed it, but can we get a little bit more detail on the Zoro strategic pivot? I mean, it sounds like you're moving more into productive channels. I mean, does this merely change the TAM? Does it change the growth outlook for that business? Was it a margin-driven decision? Any color on that strategy change would be great.

Yes. We've been making a strategic pivot with that business for the last several years, dramatically expanding the product line, building new data analytics capabilities, getting that business independent from a technology stack. So there's been a lot of investment that's happened. In terms of the question specifically you're asking, we have done a whole bunch of analysis, working with the team in Japan, on customer profitability. And customer profitability, not in terms of the first transaction but in terms of lifetime value. And we are skewing our efforts to attractive business customers. And so what you've seen is dropped some volume that we certainly could have in the short term because it's just not helpful in terms of creating a profitable long-term business. I think, ultimately, it actually will accelerate our growth rate as we get better at acquiring and getting attractive customers to the second, third order, where they become more frequent buyers. But certainly, we have made a little bit of a shift in getting out of some channels that were lower lifetime.

Got it. That's really, really helpful. I guess, kind of, with that as a backdrop, any kind of color you're able to provide in terms of kind of price versus volume inside of the Zoro business this quarter?

I think the price volume wasn't much different than what we saw in the whole business that we talked about before. So high single-digit price and substantial volume growth is what we're seeing in that business at this point.

Our next question is coming from Christopher Glynn from Oppenheimer.

I appreciate the comments that reopening isn't causing significant episodic demand. However, I think Dee mentioned some unique advantages from competitors who are facing challenges in their supply chains compared to us. Historically, when we gain volume with customers, it tends to create a strong foundation for continued growth. I wanted to point out that there may be some reversion once everyone has equal access to procurement processes. I will listen from here.

Yes. It's a great question. I think what I'm hearing from customers is, most of the work that we've done has been highly valued to support their operations and to keep them up and running. And in many cases, we've actually added inventory management solutions to our KeepStock solutions or further embedded in customers really, really want to continue to have long-term relationships. So you could argue there may be some pullback, but that's really not the behavior we're seeing, and it's not what we're hearing from our customers. Our customers are saying, if anything, we've learned a whole lot about who we want to partner with and why we want to partner with them through this. And our ability to keep customers going is super valued, and I think it will continue to help us be sticky with those customers.

Our next question today is coming from Patrick Baumann from JPMorgan.

Can you talk about the approach to pricing this year? Should we assume the 8% in the first quarter is a good level to work from now? Or have you taken more actions that are providing another boost here in April and for the rest of the year?

Yes. Dee, do you want to jump in? I can't hear you, Dee. I'll take it then. We have been looking at prices, especially during the latter half of last year, like everyone else has. We believe that prices will moderate somewhat. We don't expect the current level to represent the full-year number year-over-year because we anticipate that the rate of price increases will slow down. This doesn't imply that prices will decrease; they will not. However, compared to the changes we implemented last year, you will notice a smaller difference moving forward. Therefore, we expect prices to moderate a bit, but they will still remain quite healthy this year.

Yes, in High-Touch U.S., we usually discuss our pricing outlook. We expect the price to be about 6 to 7 for the year.

We reached end of our question-and-answer session. I'd like to turn the floor back over to DG for any further closing comments.

Sure. Thanks, everybody, for joining us. It is a pleasure to have you on and hope you're all doing well. I would just reiterate the fact that we're completely focused on what we can control, and that's making sure we advance our strategic initiatives to grow profitably. Building the culture, we think, is really, really important, and making sure that we serve our customers well. And while there are many things going on, the market right now is very, very strong, and we feel good about the share gain performance we're getting. We feel good about what we're seeing in both models. And really optimistic for the future. So thanks. I hope you all have a great rest of the week, and take care.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.