Greetings, and welcome to the Grainger first quarter 2021 earnings conference call. I will now turn the conference over to our host, Irene Holman, Vice President of Investor Relations. Thank you. You may begin. Good morning. Welcome to Grainger's first quarter 2021 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 and their corresponding GAAP measures are found in the tables at the end of this slide presentation and in our Q1 earnings release, both of which are available on our IR website. This morning's call will focus on adjusted results, which exclude restructuring and other items that are outlined in our earnings release. Now I'll turn it over to DG. Thanks, Irene. Good morning. Thank you for joining us. Today, I'll provide a brief overview of our first quarter results, key initiatives, and encouraging signs for our business as the economy recovers. Of note, this will be our first quarter with results aligned to our two new reportable segments. As MonotaRO, our majority-owned subsidiary, is a publicly traded company on the Tokyo Stock Exchange, we have now aligned the timing of our earnings releases. I am very proud of the way the Grainger team has continued to serve our customers through the recovery and has addressed new challenges as they arise. We are supporting many customers through vaccination deployment, including pharmacies and other large sites. Recently, we partnered with the State University Medical Center, the National Guard, and the Department of Health to support a mass vaccination site. We outfitted the site with important pandemic-related products like safety equipment, as well as more traditional MRO product needed to support the operation, like power and extension cords, lighting, and traffic cones. As it ramped up, this site has been able to facilitate thousands of vaccinations a day. We're seeing vaccination distribution progressing around the world, albeit at different speeds. In the U.S., as more of the population gets vaccinated, we're seeing many customers return to their normal operations and purchasing patterns. This is evident as our non-pandemic sales continue to return to normal levels and as sales in most end markets grow sequentially. In the U.K., we're seeing business activity rise. In Canada, slower vaccine distribution and potential shutdowns are slowing the business recovery. We're also seeing a modestly slower recovery in Japan. No matter what stage of the recovery our customers are in, our relationships with them are very strong, given our support of their operations over the past year. Part of being there for our customers meant having the products they needed when they needed it. To bring this to life, at this time last year, when customers needed hand sanitizer, we sold them 55-gallon drums, and they were filling their own containers. As supply constraints eased, customers reverted back to purchasing more normal PPE SKUs and far fewer 55-gallon drums. As I've said before, we took calculated risks in procuring pandemic products and reasonable alternatives, especially in the second quarter of 2020. As the pandemic progressed and market dynamics changed, we had to revalue some of our inventory in Q4 and again in Q1. We anticipate further price deterioration on some of these non-core alternative pandemic products. While our profitability on these products, including all potential write-downs, was below normal, supporting our customers by taking these risks was the right thing to do. We improved relationships with our existing customers, developed new repeat business, and delivered strong incremental growth at lower, but still profitable margins. On last quarter's call, we shared our first quarter expectations. As it relates to revenue in the first quarter, all of our businesses surpassed our outlook. We expected first quarter company GP to be down 150 basis points-200 basis points versus prior year, and our actual results fell within the stated range. Excluding the inventory adjustments, our U.S. GP was up versus prior year, giving us further confidence in the path forward. Based on our strong results and improving economic trends, we are providing full year guidance, which Dee will discuss in a few minutes. Within our High-Touch Solutions segment, we continue to make progress on our key initiatives across geographies. The U.S. is seeing positive signs of economic recovery with growth of non-pandemic sales in virtually all segments. The exception is healthcare, which has very high pandemic-fueled comps. Gross margins are returning to pre-pandemic levels in the U.S., net of inventory adjustments. In Canada, the path to recovery is slower as they struggle to get the virus under control. Despite this, Grainger Canada achieved its revenue and margin targets in the first quarter. The Endless Assortment segment grew over 27% as we execute the playbook and gain momentum with our strategy. The team continues to add SKUs beyond traditional MRO products, which helps grow web traffic. Our continued marketing efforts and more targeted discounting strategies are working well and driving operating margin expansion at Zoro. We are gaining real traction with new customer acquisition at both Zoro and MonotaRO. I'm excited to announce that MonotaRO has opened its newest distribution center in Ibaraki, Japan, which will allow the business to stock additional high-demand products locally. Shifting to the financial results, we achieved organic daily sales growth of 5.9% for the total company on a constant currency basis. In the U.S., we started to lap the volatility of 2020, and in the first quarter of 2021, we drove approximately 250 basis points of market outgrow. To normalize for all the volatility, we looked at a two-year average share gain, which we believe is a more reasonable measure of outgrowth. Using this, we averaged 475 basis points of annual market outgrow from 2019 to 2021. We anticipate showing both measures going forward. Endless Assortment had strong performance in the quarter with 27.4% daily sales growth. For the total company, we delivered operating margin of 11.6% with 210 basis points in adjusted SG&A leverage, more than offsetting the anticipated GP pressure from pandemic inventory adjustments. To be clear, we expect to sell through the remainder of these non-core pandemic products and complete any potential market-driven inventory adjustments by the end of Q2. Finally, we generated $294 million in operating cash flow, returned $256 million to shareholders through dividends and buybacks, and maintained strong ROIC of 30.3%. All in all, we are very pleased with this performance and our trajectory. With that, I'll turn it over to Dee to take us through our first quarter results. Dee. Thank you, DG As we move to our new reportable segments, you will continue to see a total company slide, then a familiar four-line P&L for both High-Touch Solutions North America and Endless Assortment. We'll also continue to provide transparency into the U.S., Canada, MonotaRO, and the Zoro U.S. business. As we lap the pandemic, we will continue to provide pandemic-related data to clarify our results, especially for the U.S. Turning to our quarterly results, organic daily sales, which adjust for the divestitures of Fabory in China, finished up 7% and 5.9% on a constant currency basis, underpinned by growth in both segments. Note that we have one less selling day in Q1 2021 versus Q1 2020. At the total company level, GP was down 190 basis points. 180 basis points of this was driven by pandemic-fueled inventory adjustments in the U.S., consistent with what we shared in our Q4 2020 earnings call. We anticipated the need for adjustments. As DG shared, we expect to complete any potential market-driven inventory adjustments by the end of the second quarter, and we estimate the amount will be similar to or lower than Q1. This expectation has been factored into our GP ramp as well as our 2021 guidance. Endless Assortment expanded gross margins overall, driven by continued improvement at MonotaRO. While the mixed impact of growing these businesses is dilutive to company gross margin, it drives incremental gross profit and earnings dollars and is an important driver for company performance. SG&A of $735 million was favorable by $43 million year-over-year, in line with our expectations shared last quarter. We captured 210 basis points of SG&A leverage in the period through continued proven cost control in the High-Touch Solutions segment and strong expense leverage in Endless Assortment. This resulted in total company operating margin of 11.6%, up 20 basis points over last year. The business continues to produce robust cash flow with operating cash flow of $294 million, 124% of net adjusted earnings, and free cash flow of $221 million. We also returned $175 million back to shareholders through repurchases and $81 million through dividends in the period. Turning to our High-Touch Solutions segment, daily sales increased 3.4% compared to the first quarter of 2020. We started to lap the pandemic sales spike in mid-February, resulting in more challenging comparisons. In the U.S., daily sales were up 3.5%. In Canada, daily sales were up 3.3% in U.S. dollars, however, still down 2.8% in local days and local currency. Canada's decline was primarily driven by pandemic disruption, most notably with our natural resource customer. As we diversify beyond natural resources, we are seeing improvements in our targeted end markets, including healthcare, higher education, and manufacturing. For the segment, GP finished the quarter at 37.4%, a sequential improvement of 30 basis points versus Q4 2020, and down 230 basis points versus the prior year. The year-over-year decline was due to the inventory adjustments in the U.S. and pandemic mix in Canada. Excluding the adjustment, U.S. GP would've been up versus prior year, which is a better indicator of expected performance moving forward. We have included a chart towards the end of this presentation, which highlights the impact of the pandemic inventory adjustments in the U.S. by quarter. Finally, we continue to gain SG&A leverage with our costs down $24 million, driven by reduced travel expenses and general operating efficiencies in both the U.S. and Canada. Canada expanded operating margins 110 basis points over prior year. As a part of our commitment to providing continued transparency of our U.S. and Canadian businesses, we've included a chart with details in the appendix. Moving on to slide nine. Looking at pandemic product growth trends, we have started to lap the spike experienced in early 2020. For reference, pandemic product sales grew 41% in the first quarter of 2020. Accordingly, growth rates have eased throughout the quarter this year, growing a very modest 1% year-over-year. Pandemic mix as a percent of the total remained elevated at 25%. As a comparison point, mix was 19% in 2019 and rose to 28% for the full year of 2020. Most importantly, though, on the non-pandemic side, things continued to improve. We started to see year-over-year sales growth in non-pandemic product sales in March of this year, with daily sales dollars increasing sequentially each month during the quarter, with April ending up roughly 36%, the highest growth to date in 2021. This is a very encouraging sign that trends, especially for customer business activity, are beginning to revert to more normal levels. Looking at share gain on slide 10, we estimate the U.S. MRO market grew between 0.5%-1.5% in the first quarter, showing continued improvement as the economy recovers. We knew there would be tremendous noise in measuring share gain throughout 2021, given the extreme volatility of the prior year. Our 2020 share gain was inflated due to the pandemic. Correspondingly, our 2021 share gain will be muted as we lap the unusual sales spikes from non-repeating orders. We outgrew the market by roughly 250 basis points in the quarter as we lapped the pandemic sales spike. To eliminate the noise and better understand our market outgrowths, we've also provided a two-year average share gain metric. While imperfect, it does normalize activity across the two-year period and provides a more reasonable view into our share gains since the end of 2019. The two-year average was approximately 475 basis points. Each quarter, we plan to share both numbers. We think this will be especially helpful in the second quarter, given the extreme volatility. We remain confident in our ability to serve new and existing customers during these challenging times and to produce 300-400 basis points of sustainable outgrowths in our U.S. High-Touch Solutions business. Moving to our Endless Assortment segment. Daily sales increased 27.4%, or 23.3% on a constant currency basis, driven by new customer acquisition at both Zoro and MonotaRO, as well as MonotaRO's continued pursuit of large enterprise customers in Japan. I will share some of our key growth metrics to provide further color into how we think about these businesses. GP expanded 35 basis points year-over-year, driven by Zoro's improved discounting strategies. Operating margins expanded 185 basis points, due primarily to substantial SG&A leverage at Zoro. Moving to slide 12. We have provided further transparency on the results of both businesses. As you're aware, MonotaRO is a public company, and as such, MonotaRO follows Japanese generally accepted accounting principles, or J-GAAP, which differs from U.S. GAAP. In Grainger's consolidated results, we translate MonotaRO's financials into U.S. dollars and U.S. GAAP. In addition, we continue to report MonotaRO's results one month in arrears. As a result, the numbers we disclose will differ somewhat from MonotaRO's public statements. In local currency and using Japan's local selling days, which occasionally differ from U.S. selling days, MonotaRO's daily sales grew 25.5%, with GP finishing the quarter at 26.5%, 10 basis points below prior year. Operating margin expanded 30 basis points to 12%. This is a very strong quarter for MonotaRO. We're excited for the new distribution center that will allow them to stock many of their fastest-moving items locally. They also continue to make enhancements in both product information and order management systems, helping to improve the customer search experience and delivery speed, preparing them for the future. Switching to Zoro U.S., March was our strongest average daily sales month since Zoro's inception in 2010, with daily sales up 15.2%, driven by strong customer acquisition. In addition, we drove solid SG&A leverage, resulting in 370 basis points of operating margin expansion. I'd like to spend a minute on the metrics we are using to measure progress on our growth initiatives for both Zoro and MonotaRO. On the left side of the chart, we've listed total registered users for both businesses. This is a long-standing metric that MonotaRO has shared externally. Growing our registered user base is an important driver of top-line performance, and as you can see, both businesses have shown tremendous progress. Moving to the right side, Zoro is aggressively adding SKUs to the portfolio. Having an expansive assortment is a key factor to Zoro's customer acquisition and growth strategy. As of Q1 2021, we had a total of 6.7 million SKUs available online. We are excited by our robust pipeline and targeting to reach 10 million total SKUs by 2024. Before I discuss our full year 2021 guidance, I'd like to first provide additional color on the current quarter to help you understand what we expect as the economy recovers and our business performance improves. From a sales perspective, our preliminary results for April are strong. As last April was our softest sales month of the year, we expect our growth to moderate in May and June and to end the second quarter up between 14% and 16% on a daily organic basis. Note that our reported revenue growth will be about 280 basis points lower as Fabory and China, both of those businesses, were divested after June of 2020. We expect Q2 company GP to be roughly flat on a sequential basis, which implies down about 30 basis points year-over-year. The pandemic impacts, including inventory adjustments and mix, continue to improve both sequentially and year-over-year. We're starting to see modest cost inflation, especially on some specific product categories and raw materials such as resin and steel. While the quarters may still be a bit bumpy as the timing of cost increases and price actions do not align perfectly, we expect price cost spread to be neutral for the year. We're also starting to see general inflation in the freight market, especially in ocean freight rates and LTL shipping. In the second quarter, we expect freight headwinds will be muted as we're lapping inflated prior year costs from air shipments. For SG&A, we expect to see costs step up, most notably in the second quarter as business activity resumes. Specifically, we expect increases in travel, variable compensation, and merit, as well as advertising spend as we take advantage of higher returns. With this, we anticipate SG&A between $780 million and $800 million for the second quarter of 2021, and to remain in this general range for the remaining quarters of the year. This will drive leverage for the full year versus both 2020 and 2019. As always, we remain focused on managing costs while continuing to invest in the business for the long term. We have learned a great deal through the pandemic and don't expect all costs to return to pre-pandemic levels moving forward. Related to U.S. GP, we still expect to see improved rates as pandemic mix reverts to more normal levels and as we put non-core pandemic inventory adjustments behind us. Rev rate margins are stabilizing, and we maintain our expectation that we will exit the year with U.S. GP rates as high or higher than Q1 2020 levels. As a reminder, this slide relates to U.S. business. We choose to highlight it because it represents more than 70% of the total company results and was most heavily impacted by the pandemic. As we become more comfortable with the pace of the economic recovery, primarily in the U.S., coupled with our recent performance, we are providing full year 2021 guidance and will provide updates as we move through the year. For the total company, we expect daily sales growth between 8.5%-11%, or 10%-12.5% organically, driven by strong top-line performance in both segments. Within our High-Touch Solutions segment, we anticipate the U.S. business will grow between 7%-9.5%, based on estimated MRO market growth between 6.5%-9%. This yields one year market outgrowth of roughly 50 basis points and a two-year average annual outgrowth of 425 basis points. The two-year average normalizes for the extreme sales types experienced in 2020 and anchors to 2019. In Canada, the recovery is a bit more choppy than the U.S., with a slower vaccine rollout and recent business shutdowns. With that in mind, we do expect volumes to stabilize as we move through the year. We expect Endless Assortment to continue growing at roughly 20% as the MonotaRO team delivers consistently strong results and as we rapidly add SKUs and continue to drive greater marketing efficiencies at Zoro. From a profitability perspective, total company GP is expected to be between 36.1% and 36.6%, up between 20 and 70 basis points in 2021. Both the High-Touch Solutions and Endless Assortment segments are expanding gross profit margin. However, there is a roughly 30 basis point dilutive impact to total company GP as the lower margin Endless Assortment of growth outpaces the High-Touch Solutions segment. Both segments are expected to deliver high ROIC and drive GP and earnings dollars growth for the company. For High-Touch Solutions, our GP guidance incorporates the sequential improvement in the back half of the year as we move beyond the unfavorable pandemic impacts and get back to more normal business operations. For the year in the U.S., we expect our price cost spread to be neutral. Total company operating margins are expected to be between 11.8% and 12.4% and expand between 50 and 115 basis points versus 2020. At the midpoint, we expect our operating margins will be back to 2019 levels. Operating margin improvements are expected to be driven by both GP expansion versus 2020 lows and SG&A leverage as we grow the top line while maintaining cost discipline. These top-line and profitability targets, as well as continued execution of our share repurchase program, are expected to produce earnings per share between $19 and $20.50. That's growth between 17.5% and 26.5%. Continuing with guidance on slide 17, in addition to the total company guidance, we wanted to provide some additional color by segment, as well as our plans for capital allocation. At a segment level, we expect operating margin expansion in both of our reportable segments, with margins in High-Touch Solutions between 13.2% and 13.7%, and Endless Assortment landing between 8.8% and 9.2%. Cromwell, represented in other, is expected to reduce operating losses and anticipates closing the year with operating margin down approximately 7%. We expect to cut Cromwell's losses in half and return the business to profitability in the back half of 2022. From a cash flow perspective for the year, we expect operating cash flow to be between $1 billion and $1.2 billion. Our capital expenditures outlook for the year remains between $225 million and $275 million. The large majority of our investment this year includes D.C. expansion in Japan, KeepStock enhancements in the U.S., continued IT investment, and a normal level of maintenance capital. We expect the balance of our cash to be used to fund our quarterly dividend and to continue executing against our new share repurchase authorization. For 2021, we are expecting between $600 million and $700 million of share repurchases, which continues to reflect our confidence in successfully executing our strategy and growth initiatives. I'll close with a highlight on our dividend announced this week, representing 50 consecutive years of dividend increases, a testament to the strength and stability of our business and our commitment to our shareholders. With that, I'll turn it back to DG for some closing remarks. Thank you, Dee. I'm proud of the team and our results for the quarter across both segments, and I'm confident in our performance moving forward. As Dee discussed, we expect to end this year having gained strong share and to be in a better profitability position than before the pandemic as we enter into 2022. We remain committed to fulfilling our purpose of keeping the world working as we get through the rest of the pandemic and back to normal operations, as well as continuing to execute our strategy so we can achieve this purpose for years to come. With that, we will open it up for questions. Thank you. Our first question comes from Ryan Merkel with William Blair. Please state your question. Hey, thanks, and good morning, all. I guess, first off, your sales outlook is encouraging and a little bit better than I was thinking. Can you put some context around the 36% non-pandemic growth for the High-Touch business in April? I know it was an easy comp, but it feels like the macro noticeably picked up. Is that the right read? Thanks, Ryan, for the question. I think as we talked about before, comparisons to 2020 are going to be pretty silly at times given what happened that year. If you go back to 2019, what we see is a very consistent increase in non-pandemic relative to that 2019 anchor. We see the pandemic sales continuing to be elevated but not as elevated as time goes on. Really, if you think about the revenue outlook for us, we're basically taking run rates and looking at what we think is going to happen with run rates, and that gets us to the numbers we're talking about. You don't have to believe a lot about anything really changing in the macro versus just continued recovery. We still have some segments that are struggling that aren't anywhere near where they were before, but a lot of the economy is really back and running fairly smoothly, and the non-pandemic is as well with those segments. Okay. Helpful. Then secondly, the gross margin outlook for the High-Touch Solutions looks pretty consistent with the outlook in February. My question is, and I think you hit on this, are there cost headwinds that creep in during the second half relative to what you just reported here in the first quarter? I ask because the first quarter adjusted results, near 40%, imply that the second half could be 40% or higher, because the mix is going to improve. Is there offsets is the question. Not really offset. We think there's going to be some inflation. It's already started to come in, as Dee mentioned. We think, as she said, that price cost is going to be neutral for the year. We think most of that's going to be noise. We think we're going to get a little better mix moving forward, and then we get through the inventory write-downs. Where we're at now is similar to where we're likely to be moving forward. It's not going to be a big shift due to cost increases that we foresee at this point. Thank you. Our next question comes from David Manthey with Baird. Please state your question. Hi. Good morning. Yeah, this all looks very good, and thank you for all the modeling detail. I'll go with a strategy question. Could you update us on the High-Touch strategy? If you want to talk about sales force, technology, service offerings, any key initiatives for the rest of this year and into 2022, please, DG DG, sorry. Yeah, sure. Absolutely. Thanks, Dave. I would say that our strategic initiatives remain similar to what they've been the last year or so. We continue to invest pretty heavily in technology to improve our digital offerings, to make it more curated, to help customers find what they need much faster. We continue to work on merchandising assortment. We know what we did, and do a better job of merchandising. DG, I'm not sure if anybody else is having trouble hearing you. Is the moderator on here? Yeah, Mr. Macpherson. Could you adjust your mic, please? Nope. You're cutting out quite a bit. Okay. Can you hear me now? Much better. Yeah. Go ahead. Yeah. All right. What I was saying was the initiatives that we have are very similar to what we've had the last year. Merchandising, we continue to invest in merchandising the assortment. We continue to invest in technology to improve our digital solutions. We continue to improve our marketing capabilities and increase spend in the marketing area. Our sales initiatives, a lot of what we're doing with our sellers is just getting back in front of customers again. We've done a really nice job of staying connected to customers, and we're now getting out in the field more, and we're able to visit customers and reengage and get started on things that might have been put off. The other thing I'd say is we've really seen nice growth in our KeepStock technology, and we're going to continue to invest in KeepStock and improve our ability to serve customers and maintain their inventory. Those are the main initiatives in the business. All are moving along well and effectively. Sounds good. Thanks again, DG Appreciate it. Thank you. Our next question comes from Christopher Glynn with Oppenheimer. Please state your question. Hey, thanks. The low double digits organic daily outlook, clearly very good. I am wondering what amount of lower pandemic product sales does that net out. I was sort of thinking 3%, given the 50 basis point delta with the HTS outlook versus the market for the present year versus your normal 3%-4% outgrowth. Maybe you have a better way to frame it up. Chris, just so I understand the question, are you asking what we think is going to happen to pandemic product sales as the year progresses? Well, basically your top-line guidance has some headwind netted out from lower pandemic sales. I'm wondering what kind of the midpoint basis of that is. Yeah. Okay. As Dee mentioned, last year, at the peak of the pandemic, we were probably 30% pandemic sales, and for the year it was 28%. We're running about 25% now. We do expect that to moderate and get closer to 20%. I would say, we expect relative to 2019, we still expect some elevated pandemic sales. We're seeing that with certainly for any of you that have been in the hospitals or medical offices, there's still much more PPE than in the past. We see that in government agencies. We see that in retail establishments and certainly in warehouses. We expect some elevated, but we expect to slowly see that go from that 25% number down approaching 20%, closer to 20% by the end of the year. We expect the comparisons year-over-year to go down with pandemic as non-pandemic comes up. We don't expect the elevated sales to go away entirely. We expect there to be some long tail here where there's going to be elevated pandemic sales. That's our expectation. Okay, great. Just a point of clarification, I missed the revenue comment for the second quarter. Oh, on the call? Yep. Oh, Dee, do you want to hit that? Yeah. The only thing we mentioned related to Q2 really was what we lay out for High-Touch Solutions on page nine, which is between the range in April of 15%-16%. Thank you. Our next question comes from Nigel Coe with Wolfe Research. Please state your question. Thanks. Good morning. Great color in the slides, so thanks for that. I wanted to just home in on 2Q gross margins. First of all, if we could just clarify the price cost recovery, neutral comments, is that on a dollar basis? Because I'm assuming that's dollar basis, and therefore there'd be some element of margin dilution from that. If you could just clarify that. Then on 2Q margins, gross margins, are we still in a situation where normal seasonality, whatever normal means, would have gross margins down Q-over-Q? Then how do we size the inventory impact in 2Q versus 1Q? Thanks. Dee, why don't you go ahead and take that one? Sure. At the total company level, we're expecting GP to be about flat year-over-year. I'd also reference you to, we really didn't size Q2 specifically. We kind of talked about what we believe the size of the impact is this quarter, and that we do not expect an inventory adjustment to be actually any larger than the adjustment that we had in Q1. We are still selling through a lot of the pandemic product very well. However, as we go through the year, we really want to get back to focusing on non-pandemic through investing in inventory and serving our customers well. Based upon the sell-through and whatever we have remaining, will be the adjustments that we expect in the second quarter, because we really want to get past that and get back to much normal operating numbers on a go-forward basis. The price cost impact of this is margin. From a price cost impact, I would go back probably to the earlier question and response, which is, we're seeing some inflation in the market. We took some pricing actions earlier in the year. We continue to work with our supply base on any increases. We have a pretty rigorous cost process that we work with our suppliers on based on facts. From an outlook perspective, if we continue to see any more inflation that we feel and deem is needed to be passed on to customers, we feel confident in our ability to do that, and that is why, from an outlook perspective, we are targeting price cost neutrality for the year. Nigel, just to your point, the inflation numbers are small enough that it doesn't really have a meaningful impact on rate, whether it's $ or rate. We expect that to be very little impact, either on $ or rate. Thank you. Our next question comes from Chris Snyder with UBS. Please state your question. Thank you. You guys have talked about Zoro margins getting to the high single-digit range. If we think longer term beyond, I think, the three to five years you guys have talked about, is there a structural reason that Zoro cannot get to the MonotaRO 12-ish% level? I'm going to ask because Zoro gross margin is running 500 bps above MonotaRO, which is quite meaningful, and I presume is supported by the Grainger U.S. distribution network. There's a lot in that question. We do expect Zoro margins in the three to five-year frame to be in the upper single digits. There are some differences in the Japanese market and the U.S. market. The digital advertising market's very different. That's a structural difference. One thing I'd point out is, over time, and we've already started to see this, as we've added SKUs into the assortment, we've actually leveraged third party shipper relationships more. We've already seen we're getting away a little bit from the U.S. supply chains. The U.S. supply chain still makes up the bulk of the shipments, but will not be in that position forever. One of the reasons that's important is on any way you look at it, the return on invested capital of the business going forward is going to be very strong. Today, even if we allocate some of the U.S. inventory, it's very strong, and as it goes forward, it'll even be stronger. We don't expect to get fully to the Japanese margins. It's a different market dynamic. We do expect to have very strong profitability from the business, both from an operating margin perspective, but even more so from a return on invested capital. Appreciate that. Then turning to the U.S. High-Touch, how do you feel about the revised 300-400 basis points of outgrowth, relative to when you first gave the guidance last year? Are you seeing new customers that came last year for pandemic products reorder non-pandemic? I'd say, short answer, we feel good about the 300 to 400 basis points. Last year, if you take all the mess away from what we saw, which was positive for us in terms of share gain, given our supply chain strength and position, we were over 400 basis points of share gain just on our demand generation activities. This year, adjusted will be, we think we'll be in a similar position. We like that number. We think it's a good number for us at this point. What was the second half of that? I'm sorry. Are the new customers that came last year for pandemic products? Oh, yeah. Are you seeing them order non-pandemic? Yes, absolutely. We're seeing strong repurchase from those customers. One of the things I would say is that, in the heat of the pandemic, we had more consumer volume than we typically would have had. Filtering through that and getting to business customers, we're seeing strong business repeat and business repeat of non-pandemic product as well. Thank you. Our next question comes from Deane Dray with RBC Capital Markets. Please state your question. Thank you. Good morning, everyone. I also echo how much we appreciate the slides. Even though it's the first time we've seen the new casting, it seems pretty intuitive and a lot of detail, so thanks. Here's my question. In Dee's remarks, she said that not all costs will come back and was hoping you could either just size for us or just frame what kinds of costs, maybe magnitude. Did I hear correctly that you're assuming only 50 basis points of outgrowth? Was that a second quarter or 2021 assumption? Sure. You want me to start, DG, here? Yeah, go ahead. As it relates to not all costs will come back, I know we've learned a lot during the pandemic about working remotely. Internally, we're looking at what that could mean for us long term as it relates to helping us improve SG&A leverage on a ongoing basis. There may be different ways, as you can imagine, we can interact with investors in a more virtual means, as an example, with suppliers and with customers to some extent, in the future. We may have some impacts on a long-term basis on overall company travel expenses, as an example. Those are the type of things that we're thinking about and looking at now to help us look at long-term leverage opportunity. Hopefully that helps answer that part of the question. Can you repeat the last part again, Deane? Yes. It was the assumption of 50 basis points of outgrowth. I think that was for 2021. It seems that's under trend. If you look out on the two-year average, maybe you're in line. What's causing the more modest outgrowth? Yeah. We continue to share that there was a lot of noise last year in 2020 and last quarter. Now we talk about the fact that we believe our 2020 share gain was inflated due to the pandemic. This year, as we lap that, our share gain will be less than that. It'll be muted as we lap those one-time, non-repeating pretty large orders that we experienced last year. That's why we put the two-year metric in. We think it's more reasonable because it takes out some of the noise. It's not perfect. Yes, this year, based upon that, we expect to outgrow the market by 50 basis points. As you said, last year at 800, when you average those two, we get to about 425, and that is still above the target and goal we set of consistently growing three to 400 basis points above the market. All right. That's real helpful. Just as a second question, the 30 basis points of structural headwind from the lower margin Endless Assortment growing faster than High-Touch, is that the same kind of headwind we should expect for 2022, like the same magnitude? If not, what might change? Thanks. So we really- Yeah. Go ahead, DG. I would say yeah. I mean, we haven't calculated it exactly, I would see no reason why it wouldn't be similar. Our expectation is that the Endless Assortment business will continue to grow at about 20% a year, moving forward, and we'll continue to gain share in the U.S. in High-Touch at a similar pace. That should be roughly right. The math changes a little bit as the Endless Assortment gets bigger. This should be roughly right. Thank you. Our next question comes from Hamzah Mazari with Jefferies. Please state your question. Good morning. Thank you. My question is on the medium customer growth, was pretty good in Q1 at 11%. Could you maybe talk about what your market share today is now on the medium customer business? Just remind us how accretive medium customers are to gross margins as well. Thank you. Sure, Hamzah. Yes. Mr. Macpherson, sounds like your mic is cutting out again. Okay. Sorry about that. Is it better now? Yes, go ahead please. All right. There you go. In terms of midsize customer growth, we're seeing very good growth right now. We will continue to see good growth. One of the reasons is that last year during the height of the pandemic, we allocated inventory to hospitals and government agencies. Absolutely the right thing to do. That deflated the growth of midsize customers last year. We're going to see very good numbers this year. And a lot of that's real, but a lot of that's due to the fact that we just held inventory last year. We're about 2% share with mid-size customers. We have a lot of room to grow. We're getting back to where we were several years ago, but we think we've got 10 years ago. We think we've got a long way to go to grow. Both with uncovered customers through digital means and through covered customers and inside sales, we're seeing nice growth rates. In terms of margin, it's significantly higher gross profit. On a contribution margin level, it's not as big a difference, but it's still a difference. We've talked about 500 basis point plus difference in the past. Got you. Just my follow-up question is just on the Endless Assortment business. Could you maybe talk about MonotaRO growing sales with enterprise customers? Is that something that's new? Is that something that Zoro can do as well, or is that just sort of a difference in the marketplace in Japan versus the U.S.? Yeah, it's a great question. It's not new. MonotaRO's been doing it for five or six years, I think. I may have that a little bit wrong, but something like that. They've become better at it. The market in Japan is very, very different. I would say that there aren't distributors like Grainger serving customers with the kind of intensity that we have in the U.S., their enterprise customers. We're going to keep Zoro focused on small and mid-sized businesses. There's a ton of runway with small and mid-sized businesses. As they get better, we're seeing the fruits of that work, that's going to be our focus in the U.S. Thank you. Our next question comes from Jake Levinson with Melius Research. Please state your question. Morning, everyone. Morning. Just turning to Canada for a second. I just wanted to ask, do you guys see a path to profitability in that business that looks more like what we see in the U.S. over time? The answer is yes, we do. Obviously, we've had a long ride that's been challenged in Canada. I think for the last two years, for the first time, we have a really good customer experience. We have a team that's really energized. We feel we will be right at breakeven this year. We will be profitable next year, and that's with what has been a very difficult path economically for Canada. We feel good. Whether or not we're going to get it up to the levels that the U.S. are is debatable. We feel like we have line of sight to getting it to strong profitability in Canada. There's really no structural reason why we can't do that. We're just on the execution path to making that happen now. Okay. That's helpful. Thank you, DG I'll pass it on. Thanks. Our next question comes from Kevin Marek with Deutsche Bank. Please state your question. Yeah. Hi. Thanks. Good morning. Morning. Just with respect to the full year guidance, wondering if you could talk a little bit more about some of the general supply chain conditions you touched on. It's obviously a topic that's been talked about a lot. I'm curious what you're seeing and then what kind of improvement or lack thereof you're expecting within the full year guide. Yeah. I assume you're referring to sort of a lot of the global challenges with the supply chain. Exactly. We see some of those issues certainly. The freight market's challenging right now. It's actually easing a bit and getting a little bit better as we head throughout the year, it appears, and we feel like we have a decent sense for where that's going to go. We see some of our customers disrupted by supply chain challenges. Certainly, automotive has been one that there's been a lot of press on. Most of our customers are not disrupted by some of the supply chain challenges that we see. We don't expect huge disruptions, although we expect a lot of messiness in the supply chain. I would say some things are getting a little bit better. I think port clearance is getting a little bit better now, which is good to see. We're trying to bring a bunch of inventory into our buildings as we grow, and there's challenges, I would say, in the entire supply chain. Certain things are slower than they've been historically. I think that's definitely a condition that everybody has. Our assumption is that there's going to be messiness. We'll manage it as well or better than anybody else and come through it well at this point. We do recognize that there's a lot of challenges with supply chain right now. As a follow-up, just looking at the other segment, you've narrowed the loss to $3 million in 1Q. Just curious what you're seeing there. I think you said halving losses in 2021, turning to profitability in the second half. Is there a medium-term kind of profitability target or a framework that we should be thinking about? Yeah. I think most of that's Cromwell business, and I would say a couple of things about the Cromwell business. One is, that business has very high customer satisfaction now. It has very high team engagement. They were just named the 11th, I guess, best employer in the U.K. for large companies. That is very different than where we were at three years ago on both of those dimensions. They're starting to see a return to growth now. The U.K.'s doing okay coming out of the pandemic. We have some confidence that they're going to actually be able to get back to growth and get back to profitability, taking a bunch of cost out of the business. They're doing a lot of the right things. We feel good about it. It's too early for me to talk about where they're going to be midterm. We've talked about we need to see profitability from that business next year. We expect to exit the year profitable in Cromwell. That's going to be kind of a big checkpoint for us. There's a lot of positive signs that we will be able to do that. Thank you. Our next question comes from Adam Uhlman with Cleveland Research. Please state your question. Hey, guys. Good morning. Congrats on good execution this quarter. I had a couple of questions on Zoro. First of all, I think you mentioned there's been some changes with the discounting strategies at Zoro. I guess, what's changed there to help drive the gross margin expansion? Yeah, I won't go into too many details, Adam. Thanks for the question. I would just say that we've used some analytics to determine where a discount works and where it doesn't work, and that has allowed us to be more targeted in our discounting to acquire new customers, and that is a big part of what the benefit and improvements have been. Okay. Related to the customer count, thanks for sharing all that detail. It's really helpful. I guess I'm surprised that Zoro and MonotaRO have the same number of customers, but MonotaRO's twice the size in revenues as Zoro is. As we think about the path forward, closing that gap, is all that just the SKU expansion that you mentioned to get better customer penetration within the Zoro customers? Are there other levers that you need to pull to continue to drive that sales growth? I think it's two things, Adam. I think it's SKU expansion, and I think it's, to your point about the size of the customer file and the revenue, it's repeat buying. The Zoro business is getting traction on doing better at getting repeat volume from customers and building relationships with existing customers more. That's been a lesson that we're learning from the Japanese business that they've done very, very well, is how do you take a customer who buys and actually turn them into a customer for a long time. That's the other piece that the team's really working hard to drive. Those are the two, the SKU count and the data are really the drivers of where we need to get. Thank you. Our next question comes from Michael McGinn with Wells Fargo. Please state your question. Hey, thanks a lot for sneaking me in here. Just want to go back to the Endless Assortment model. Can you talk about the trajectory of GMV versus the sales and maybe the SKU count? As you shift away from the U.S. supply chain, I think you alluded to, does that change your private label mix within the overall business? I'll ask you to repeat the first part of that. Our private label mix shouldn't change all that much. Most of the private label we sell is through the Grainger brand. We are going to continue to push on growing private brand. We have great brands and great products and working hard to make sure we're able to cross those with national brands and that type of thing. I didn't quite understand the first part of your question. Could you repeat that? Yeah. Sequentially, active SKUs on Zoro went from 6.1 to 6.7. I'm trying to kind of back into what is the internal, I guess, sales contribution versus what's being done on a GMV basis that would be more indicative of that reseller model that you're shifting to. If the SKUs went up 9% sequentially, is the GMV sales trend following that same kind of trajectory? Yeah. What I would say there is a couple of things. One is most of the new SKUs we're adding are going to be third party. We already have access through Zoro, through all the Grainger SKUs. Most of them are going to be third party, not all, but most. The other thing I would say is that We look very carefully at sort of revenue per SKU, for different tranches of ads. We continue to see very high productivity and similar revenue per SKU as we add items across the assortment at Zoro. In fact, given the number of SKUs we've added in the last couple of years, if you look at those curves, you would get pretty confident that we're going to see a big lift over time as we continue to add SKUs, given what we're seeing. We're pretty confident about sort of the revenue path and what SKU expansion will add for that business. Okay. I don't know if this was asked or it was in the script, but the variance in national versus small or mid-size accounts, is that simply a function, I think you turned off some SKUs last year to protect some of the large customers, so it was an easy comp, or some other distributors saying, or large customers are coming back faster than the local accounts. Any color there would be great. Yeah. I mean, we're seeing good activity with both large and local accounts. I would say that for us, you're going to see, particularly in the second quarter, you're going to see a bigger lift with mid-size and local accounts as a result of holding SKUs and inventory for hospitals and government agencies in the peak of the pandemic last year. We turned off SKUs for a number of our customers to make sure that we could get the product to the most helpful place. That's going to be a big factor in what you see. Thank you. Our next question comes from Justin Bergner with G Research. Please state your question. Oh, thank you for double sneaking me in, DG and Dee. My first question is, with respect to mix, as we look at the business over the medium term, obviously mid-size customers are growing a little bit faster. Maybe there's some headwinds from larger customers getting larger. Is mix sort of a neutral for your U.S. business as you look at the business on a two to three-year view? We haven't shared probably the full perspective. I think mix is likely to be, if at all, slightly positive in the High-Touch business. It's slightly negative from the growth of the Endless Assortment. At a company level, we would expect it to not be a huge lever either way. We do feel like the mid-size customers are likely to grow a little faster over the next several years. I think that will be a slight positive. Okay. The other question I'll slip in was the government sales looked very strong this quarter, and they were lapping a pretty good comp. I realize there's a lot of comp noise there, but is there anything you wanted to call out that was particularly positive in the government performance this quarter that maybe was beyond the pandemic? No. I think our government team does a great job, and we have great relationships with government customers. Their comps get tougher in the second quarter for sure, and the third quarter given the pandemic activities. I would say, the initial flow last year of the pandemic, hospitals were far and away the biggest demand, and then government came in after that. Overall, we're seeing really nice run rates with our government customers and expect that to continue. Thank you. Ladies and gentlemen, there are no further questions at this time. I'll turn it back over to Mr. DG Macpherson for closing remarks. Thank you. All right. Terrific. Thanks for joining us. Really appreciate having you on the call. I would just reiterate that what we've seen as we've looked through the last 18 months is certainly remarkable for all of us. If you sort of boil it down, I think what we're likely to see is, for us, significant share gain over a two-year period, and I think our economics will be in a better place when we come out of this than when we started going into the pandemic at the end of 2019. We feel like we've got great customer relationships, and our team has done a very nice job of providing good service through what has been a challenging time, and we feel like we're really in a good place going forward. With that, I'll close, and I wish you all the best, and thanks for your time. Take care. Thank you. This concludes today's conference. All parties may disconnect. Have a great day.