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Applico Analysis: Graingerís (GWW) Worst Day in More Than a Decade is Just the Tip of the Iceberg

Grainger failed to meet its earnings expectations for Q1 2017, causing its worst single-day stock dip in over a decade. By contrast, Amazon Business has grown its seller network.

New York, NY, April 20, 2017 --( W.W. Grainger announced its first quarter earnings today and the news wasn’t good.

Grainger missed its Q1 earnings projections, driven by recently announced price reductions on spot buys and online sales. Its earnings per share came in under expectations at $2.88, which was a 9% decline compared to Q1 2016. Alarmingly, operating margin declined by a full 2% YOY, falling to 11.4% for Q1 this year versus 2016.

The results in the U.S. market, by far Grainger’s largest at 73% of revenue, were particularly unsettling. While sales grew slightly in other markets, revenue was down YOY to $1.953 billion in the U.S. compared to $1.966 billion in Q1 2016. This decline comes after last year’s full-year results showed negative revenue growth in the U.S. business.

The key takeaway from Grainger’s bad first quarter is that it failed to understand how price-sensitive its customers are. Unfortunately, today's earnings call gives no reason to think that Grainger has learned its lesson.

Applico predicted Grainger’s coming struggles in its recent webinar, The Impact and Risks of Amazon Business for Traditional B2B Distributors, which demonstrated how Grainger’s price reductions and the competitive threat of Amazon Business would likely impact Grainger over the next several years.

As Applico's model suggests, Grainger’s poor results today are likely just the tip of the iceberg. Grainger predicts that margins and profits will improve in late 2018 and 2019 after the price cuts are implemented, but Applico's model suggests otherwise.

The sensitivity to pricing and shift to online sales that Grainger is seeing are significant headwinds for its business and the market at large, factors it clearly wasn’t prepared for. Even worse, these market conditions significantly favor new major competitor Amazon Business.

For more detail on why and a deep dive into today’s financials, go here.

Clearly investors aren’t buying Grainger’s rosy outlook. The stock closed down more than 11% on the day at $197.56, which was Grainger’s worst single-day decline in more than a decade.

In contrast to Grainger’s stumbles, Amazon Business added over 5,000 sellers in the last week. Access the Applico Marketplace Tracker for updates like this here.

About Applico:
Applico is the world’s first Platform Innovation® company and provides advisory and implementation services to build, execute, and scale platform businesses alongside large, traditional enterprises. Applico's clients include Fortune 100 companies as well as multi-billion dollar private companies.

Founded in 2009 by Alex Moazed, Applico has worked with large enterprises for over 8 years, launching over 350 successful apps with clients like Disney, DirecTV, Google and startups backed by KKR, Andreessen Horowitz, and others. It has focused solely on Platform Innovation® over the past 3 years creating hundreds of millions of dollars in enterprise platform value.

To learn more about platforms and Applico, contact:

Jonathan Goodwin
220 East 23rd St., Ste. 501
New York, NY 10010
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