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This excerpt taken from the GWW 8-K filed Apr 15, 2005. North American Branch
Network
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| 2005 First Quarter | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12/31/04 |
Opened |
Closed |
03/31/05 | |||||||||||
| United States | ||||||||||||||
| Branch | 394 | 3 | (4 | ) | 393 | |||||||||
| Will Call Express | 16 | 2 | -- | 18 | ||||||||||
| Canada | 166 | 2 | (4 | ) | 164 | |||||||||
| Mexico | 6 | -- | -- | 6 | ||||||||||
| Total | 582 | 7 | (8 | ) | 581 | |||||||||
Net Sales – Sales for this segment were up 9% for the quarter, reflecting the stronger North American economy, market share gains and ongoing strategic initiatives in the United States, and a favorable Canadian exchange rate. Partially offsetting these increases was the negative impact from the timing of the Easter holiday in the first quarter of 2005 versus the second quarter of 2004.
Sales in the United States were up 8% versus 2004 reflecting growth across most customer segments, led by the manufacturing and commercial sectors. National account sales within these customer segments were up 12% for the quarter, while sales to government accounts were up 9%.
Results for the market expansion program were as follows:
| 2005 First Quarter | ||||||||
|---|---|---|---|---|---|---|---|---|
| Sales Increase |
Percent Complete | |||||||
| Phase 1 (Atlanta, Denver, Seattle) | 11 | % | 100 | % | ||||
| Phase 2 (Four markets in Southern California) | 14 | % | 65 | % | ||||
| Phase 3 (Houston, St. Louis, Tampa) | 19 | % | 55 | % | ||||
Overall, market expansion contributed 1.3 percentage points to the 9% sales growth.
*See footnote, page 8.
W.W. Grainger, Inc. Supplemental Financial Information for the First Quarter Ended March 31, 2005
—6—
BRANCH-BASED DISTRIBUTION (continued)
Sales in Canada increased 12% for the quarter versus 2004 due to a stronger economy and the effect of a favorable Canadian exchange rate. In local currency, daily sales for this business were up 4% due primarily to increased sales in the natural resources sector.
Sales in Mexico were up 15% for the quarter versus 2004 driven by an improving economy, expanded telesales operation, and the 2004 relocation to a larger branch in Mexico City and the 2004 opening of a new branch in Queretaro.
Operating Earnings – Operating earnings for the 2005 first quarter were up 2% compared with the 2004 period, the result of higher sales and increased gross profits, partially offset by operating expenses, which grew faster than sales. Excluding the effects of market expansion in both periods, operating earnings grew 10%.
The gross profit margin was up 0.8pp versus the comparable 2004 quarter. Contributing to the improvement in gross profit margin was positive inflation recovery and the positive effect of product mix.
The operating expense growth was primarily driven by increased costs related to strategic initiatives and higher sales commissions and profit sharing accruals. These increases were partially offset by lower bonus accruals and lower bad debt provisions.
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