As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Kyle Bland, Vice President, Investor Relations. Thank you. You may begin. Good morning. Welcome to Grainger's First Quarter 2025 Earnings Call. With me are D.G. 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 that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company's most recent Form 8-K and other periodic reports filed with the SEC. This morning's call will focus on results for the first quarter of 2025, which are consistent on both a reported and adjusted basis. Definitions and full reconciliations of our non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. 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 discussed will differ from MonotaRO's public statements. Now, I will turn it over to D.G. Thanks, Kyle. Good morning, and we appreciate everyone joining the call. Despite the unpredictable environment, the first few months of 2025 have panned out much like we expected. The business continues to perform well as our team stays focused on serving our customers and delivering value to our stakeholders. While tariffs are certainly a topic of conversation, customers remain acutely focused on running their businesses safely and efficiently. I recently had the chance to visit a large corporate campus where we work alongside a facilities maintenance organization to support this customer. Our team shows up as a trusted partner, helping the customer solve the challenges they face on the ground each day, including ordering, organizing, and managing their MRO inventory. It was again apparent that local on-site execution is critical to creating value for our customers. This visit was a good reminder that no matter what the external environment, it is important to stay focused on what we can control to ensure that we capitalize on a significant opportunity in the market. Although it is largely business as usual on the ground, the external environment remains highly fluid. We are working closely with our supplier partners to understand the full impact that announced tariffs will have on our business. Fortunately, the investments we have made in our product information and pricing capabilities, our scale, and the depth of our sourcing know-how position Grainger to effectively navigate this situation. As we move forward, we remain committed to ensuring transparency with our customers and adhering to our core pricing tenets, offering market-relevant pricing while targeting price-cost neutrality over time. Distributors generally benefit from modest inflationary environments, and depending on the depth and duration of the tariff uncertainty, it may play out that way, but the situation remains highly unpredictable. In any case, we expect to play a key role in helping our customers navigate this current challenge, and I'm confident in the team's ability to remain agile in this dynamic environment. Moving to Q1 results, while the demand environment remained muted, we delivered another quarter of solid growth and profitability in line with the quarterly financial targets we communicated for the company in January. We continue to leverage technology, our product and customer information advantage, and analytical capabilities to drive differentiated value for our customers in both segments. Total company reported sales for the quarter were up 1.7%, or 4.4% on a daily constant currency basis. Operating margins for the company remain healthy at 15.6%, and a diluted EPS finished the quarter at $0.24 - $9.86. Operating cash flow came in at $646 million, which allowed us to return a total of $380 million to Grainger shareholders through dividends and share repurchases. Lastly, I want to mention that yesterday we announced a 10% increase to our quarterly dividend, marking the 54th consecutive year of expected dividend increases. This reflects our continued commitment to returning cash to shareholders through a balanced and return-focused approach. Overall, the quarter finished largely in line with expectations, and we remain on track to deliver our 2025 guidance. I will now turn it over to Dee. Thank you, D.G. Turning to slide seven, you can see the high-level first quarter results for the total company, including $4.3 billion in sales, up 4.4% on a daily constant currency basis. Within the period, we saw gross margin improvement across both segments, which mostly offset SG&A deleverage in High- Touch. This led to total company operating margins of 15.6% for the quarter, down 20 basis points compared to 2024, but above our communicated first quarter expectations, largely due to the timing of certain SG&A items. Diluted EPS for the quarter of $9.86 was up $0.24, or 2.5% higher compared to the prior year period. Moving to segment-level results, the High- Touch Solutions segment got off to a slower start as weather, holiday timing, and some government softness across January and February impacted results to begin the year. In total, sales were down 0.2% on a reported basis, or up 1.9% on a daily constant currency basis. Results were driven by continued volume growth and modest price contribution within the segment, and we delivered growth across all geographies in local days, local currency. In the U.S. specifically, we saw strong performance with contractors and healthcare customers, which helped to offset slower growth in other areas, including manufacturing. For the segment, gross profit margin finished the quarter at 42.4%, up 60 basis points versus the prior year. In the quarter, gross margin benefited from favorable product mix, and the supplier funding tailwind related to the annual Grainger sales meeting. Each of these items contributed roughly half of the year-over-year gross margin favorability. For the quarter, price- cost was roughly neutral. SG&A cost for the segment increased over the prior year period as we continue to invest in demand-generating activities and reflect the P&L impact of the annual Grainger sales meeting, which was an equal offset to the favorability we saw in gross margin. These costs, coupled with the softer top line and one fewer selling day in the current year, led to SG&A deleverage of 80 basis points for the quarter. If you normalize for one fewer selling day and the impact of the Grainger sales meeting, SG&A only slightly delevered year-over-year. Taking all of this together, operating margin remained healthy at 17.7%, down 20 basis points versus Q1 2024, but ahead of our expectations to start the year. Looking at market outgrowth on slide nine, on a volume-only basis, using the manufacturing subcomponent of industrial production as a proxy, implied growth for the U.S. MRO market volume was 1%-1.5% in the quarter. With our High- Touch Solutions U.S. business driving 1.3% volume growth, this would suggest mathematical market outgrowth on a volume basis was roughly flat in Q1, which was surprising to us, even with our slower start in January and February. While tariffs have not had a meaningful impact on our business to date, they seem to be inflating the underlying IP benchmark, likely reflecting trade-related noise as manufacturers react abnormally given the unique environment. The IP benchmark has been a strong, accessible indicator of our overall MRO industry performance over multiple cycles, but its ability to capture the dynamic and unprecedented nature of the current economic environment is uncertain. As we've been discussing over the last year, we run a separate internal model in parallel to help triangulate around MRO volume growth. This internal model pulls in several supply and demand factors, including MRO product shipments, import-export dynamics, and end-user activity, to formulate a comprehensive view of the MRO landscape, including segments outside of manufacturing. This internal view suggests that the MRO market volume actually declined in the low single digits during the first quarter, implying we drove several hundred basis points of outgrowth. While the two different models have been highly correlated during normal business cycles, the divergence calls into question the relevance of our quarterly outgrowth disclosure given the uncertain environment. It is likely that this quarterly disconnect will persist so long as trade policy and tariffs continue to influence the manufacturer's production decisions. With this, moving forward, we are pivoting to an annual disclosure of our outgrowth metric. We believe this decision will create less quarter-to-quarter noise and allow us to stay focused on discussing the drivers of our growth while keeping an eye on our relative performance compared to competition. We'll consider reintroducing the quarterly disclosure when the macro environment stabilizes, and in the meantime, look forward to sharing our annual progress on volume outgrowth at the end of the year. It's important to note that despite the noise in the metric, we still delivered on our first quarter sales expectations, and this change in disclosure has no impact on the full-year High- Touch segment sales guidance we discussed back in January. Moreover, nothing is changing with our long-term earnings algorithm, including our annual volume outgrowth target, which remains at 400-500 basis points. Now, focusing on Endless Assortment. Sales increased 10.3%, or 15.3% on a daily constant currency basis, which adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 18.4%, while MonotaRO achieved 13.6% growth in local days, local currency. At a business level, Zoro continues its momentum, once again delivering strong growth underpinned by its core B2B customers and improving retention rates. At MonotaRO, sales growth remains strong with enterprise customers coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses. On a reported basis, these results were partially offset by foreign exchange as the yen devaluation represented a headwind year-over-year. On profitability, operating margins for the segment increased by 80 basis points to 8.7%, with both businesses contributing to the favorability. MonotaRO margins remained strong at 12%, with continued DC efficiencies driving improved operating leverage. At Zoro, operating margins were up 240 basis points to 5.2%, aided by gross margin flow-through and strong top-line leverage. Gross margins outpaced expectations as we made some non-tariff-related pricing changes in the quarter, the benefit of which we expect to moderate slightly as the year continues. Overall, we're encouraged by the strong progress made in the quarter and expect to continue our momentum across this segment. Given the environment, I think it would be helpful to share an overview of how we see the current tariff landscape. On slide 12, there are a few things to call out. First, it's early innings and things are constantly adjusting. Even with the original Chinese tariffs, which have been in effect for nearly 60 days, we're only recently completing negotiations with a subset of our supplier partners regarding tariff-related cost increases. While we've seen a swift pace of tariff-related headlines, things are progressing more slowly on the ground. Second, understanding the full impact that the tariffs have on our business is not straightforward and needs to be quantified at a granular level. You can see our total U.S. COGS exposure on the left-hand side of the slide, with around 50% being domestically sourced and the remainder comprised of import products, including those from China. As others in the markets have discussed, this view of COGS is on a country-of-origin basis and does not further deconstruct individual product components by their respective country of origin. What we can do is take the announced tariff rates and apply that to our total COGS exposure to estimate the impact. You have to go through each product and evaluate its composition and cost structure. This includes answering questions like, what are the input components and where are they sourced, how much of their cost is freight-related, etc. You need to do this by product to grasp what elements are subject to tariff as you adhere to the government tariff schedule and engage in cost conversations with our supplier base. Given the investment we have made in product information, the tools we have built, and the product teardown work we have completed over the last several years, we feel we are well equipped to navigate this challenge. As we gain clarity on costs, we will work to pass along these increases to our customers, similar to what we do for other cost increases we received. With this, earlier today, we took initial pricing actions primarily related to Section 232 and the first wave of announced tariffs on China, which did not include any increases related to the recent reciprocal escalations. These initial pricing actions only apply to a small portion of our products, largely those where Grainger is importing the product directly. On the vast majority of our products, where we do not directly import, we are taking a measured approach and will wait to pass price until we have clarity on the amount and timing of cost increases. Our goal here will be to mitigate impacts to our business and achieve price-cost neutrality over time. Obviously, if the heightened reciprocal tariffs persist, we would need to consider source of supply and overall product economics to determine what course of action we would need to take. It goes without saying, but this remains a very fluid situation, and we are working side by side with our suppliers and customers alike. Importantly, as we look across our assortment today, we do not believe we are uniquely exposed to these tariffs compared to our competitive set. In any case, our team is focused on adhering to our two core pricing tenets to remain price competitive and achieve price-cost neutrality over time, and I have full confidence in our ability to remain agile while we execute on these objectives. As D.G. mentioned at the beginning of the call, after our solid start to the year, we're reaffirming our 2025 guidance. From a tariff perspective, we've included price-cost impacts we are seeing today and assume any go forward incremental pricing actions passed on a price-cost neutral basis would be offset by lower demand. While the tariff inflation in a vacuum would provide a net tailwind to our business, it is unclear at this stage what the duration of the tariffs will be and what impact they will ultimately have on customer demand. With this, we assume these impacts will offset and are leaving our outlook unchanged, but we'll check and adjust as the year progresses. From a seasonal perspective, we expect the year-over-year sales growth will improve slightly in the second quarter, reflecting normal seasonality and including a modest tailwind from the first wave of tariff-related pricing actions that went into effect today. Preliminary April sales are up approximately 5.5% on a daily constant currency basis, which includes a 30 basis points headwind from the timing shift of the Good Friday holiday. All told, we expect the total company sales for the second quarter to be just north of $4.5 billion, or approximately 5% on a daily constant currency basis. From a profitability perspective, there are a number of moving pieces that we know will impact second quarter results. Moving sequentially from the first quarter, we know gross margins will structurally trend downwards, generally in line with normal seasonality. We've layered in the tariff-related price and cost impact that we know of today or can reasonably expect based upon conversations we've had to date with our supplier partners. On SG&A, we expect some leverage improvement sequentially as productivity and sales leverage partially offsets increased costs. We will continue to invest in demand generation, and as with every year, merit increases went live to start the quarter. Further, as we've discussed, some expenses that were planned for the first quarter are shifting to the second, creating a sequential headwind. These items are in addition to the previously discussed noise that occurred in the first quarter from the Grainger sales meeting. This impact will flip sequentially in the second quarter and become a headwind to gross margin, but an offsetting tailwind to SG&A. Taking all these moving pieces into account, we are targeting second quarter operating margin to be at or near 15% for the total company. Again, this is obviously a highly fluid environment, but we believe our outlook covers a reasonable set of potential outcomes. With that, I'll turn it back to D.G. Thanks, Dee. Overall, I'm encouraged by how the team has managed through what is a very dynamic environment and how we continue to show up for our customers every day. Before I close, I want to take one more opportunity to acknowledge the strength of the Grainger culture. Just four months into the year, we've received several recognitions, including World's Most Admired Companies, Glassdoor's Best Places to Work, and for our first time ever, the World's Most Ethical Companies. Each of these achievements are special individually, but together, I believe they showcase why team members choose to grow their careers with Grainger. Congratulations to the team for earning these notable awards. With that, I will open it up for Q&A. Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of David Manthey with Baird. Please proceed with your question. Thank you. Hi, good morning. Good morning. First morning. First off, let me ask about Zoro. It looked like a great quarter and terrific SG&A leverage there. Is the improvement that you're seeing there just based on stronger-than-expected sales this quarter, or are you starting to find an equilibrium between revenues and OpEx so we can continue to see a higher level of profitability there? Yeah, most of it is what we think is sustainable revenue growth. We're seeing nice repeat rates in the business, and that's gotten a lot better. We don't have to grow expenses with that revenue growth, given where we're at. We're in good shape to get leverage if we continue to drive that revenue growth. Yeah, that's great to hear. Then second, you've in the past said that you could achieve 20% consolidated contribution margin at kind of a mid-single-digit rate of growth or higher. If we have this situation where volume and tariff-driven pricing net each other out, is it possible you could do that at a slightly lower rate because price is coming through at a higher contribution margin? The short answer is yes, that is true. Obviously, if you don't have significant demand degradation with increased prices, then yes, we would have a lower rate of growth to get that through pull-through. Terrific. Thank you. Thank you. Thank you. Our next question comes from the line of Jacob Levinson with Melius Research. Please proceed with your question. Good morning, everyone. Good morning. Good morning. D.G., I realize you folks have quite a broad product offering here, but can you maybe just speak to your, I guess, your ability to flex your sourcing given the tariff headwinds and maybe how you're balancing that versus taking a price, especially given all of the inflation we had over the past few years? Yeah. The good news is we've done a lot of work to understand sources and alternative sources. We've already moved some things over the last few years to allow us to have a more resilient supply chain. The challenge is there are certain categories for which there are really no alternatives, where everything comes from China, for instance. That gets harder because that takes time, a lot of time in some cases, to actually move somewhere else. We're talking with our own suppliers on private brand and our brand suppliers, and we're hearing people talk about potentially moving things, but it's not immediate. Our hope is that we don't completely shut down trade between China and the U.S. for a long period of time because, obviously, we wouldn't have everything we need to support our customers. We do have inventory on hand, and we're doing some creative things to make sure we have the right inventory to support our customers without taking extra cost on. I think that's probably the trick right now. Our team's working very hard to make that happen. Okay. That's helpful. I mean, does that apply to your private label offering or maybe so in different ways? I assume the economics change quite a bit with the tariffs as they stand today. They do. I mean, I give you one hypothetical example that plays out a lot. It depends, of course, whether or not the national brand and the private brand are only produced in the same location or whether there are alternatives. In an example, if a private brand product is made in China and the national brand is made in Indonesia, let's say, if there are different tariffs, that can change the economics, and we could be in a position where the private brand does not really make any sense anymore in raising the price there, it would actually just stop all volume. There are some cases like that. There are some cases that are not like that, and you have to do it on a case-by-case basis. Okay. That's great. Thank you very much. Good luck, guys. Thank you. Thank you. Our next question comes from the line of Ryan Merkel with William Blair. Please proceed with your question. Good morning. Thanks for taking the question. I wanted to start off just high level on the macro. It sounds like you haven't seen any slowdown yet in the business just based on the guide you gave for daily sales. D.G., I don't know, any feedback that you found interesting when you're speaking with customers as it relates to the outlook and what people are concerned about? Yeah. Actually, as the year's gone, we've seen actually some accelerated growth. April was our best month yet. We haven't seen any slowdown yet. That said, the way this works on the tariffs is it takes, we have inventory, obviously, and it takes months for that to sort of flow through. We would not expect to see any tariff-related impact on demand yet. Probably starting this quarter, we might see a little bit, but we do not think it is going to be that much, and more would happen later depending on how things shake out. There is a lot of uncertainty there. I would say I think most customers are embedding modest tariffs into their thinking. They do not expect it to be significant trade challenges. They think they are going to be able to get product at this point, and they are really focused on running their operations and keeping their people safe and doing the things that they do every day. There have not been a lot of conversations about tariffs specifically with my customer interactions. I think that is primarily because they think this likely gets worked out some way, but nobody knows which way. Yeah. Okay. Then second question is on tariffs. I just want to make sure I heard the message right. It sounds like on May 1st, you put through a price increase, but it was only for the direct imports that you're bringing in, and you're sort of waiting to see what the suppliers do, and you'll have an update on what that price increase might be next quarter? Yeah, next quarter we will. What I would say is mostly just our direct imports. There are a few suppliers that came with increases, and we put those through as well. Generally, on the whole, it's very modest. For some specific products, it's significant. Okay. Thanks. Thank you. Thank you. Our next question comes from the line of Christopher Snyder with Morgan Stanley. Please proceed with your question. Thank you. Just following up on tariffs, maybe no surprise. Did you guys provide anything in the prepared remarks just around how much price is flowing through from what's been announced to date, including some of the early action on 232 in China and then what we got here on the direct imports in May? You guys did not change the gross margin guidance. Is that just an assumption that gross margin can be held through this period of higher cost inflation? Thank you. Hey, Chris. Yeah, we didn't prepare, and the prepared remarks didn't state a specific number, but we did note that we put through increases related to the tariffs mainly on imported products, and D.G. just noted a few other national brand suppliers. We believe that impact will be about 1%-1.5% net impact for us. He noted fairly modest. When you look at the gross margin outlook for the year, we did a little bit better in the first quarter. We have taken some price that we know of. We are going to continue to target price-cost neutrality over time. Within that price-cost neutrality, D.G. just gave an example of where in some cases, because and if some of these very significant tariffs sustain over a period of time, we are going to have to come back and revisit how we price our product generally. The goal will be to achieve that price-cost neutrality over time. Due to the noise and the scenarios we have run, we believe, based upon the range aligned with the guidance for the year, that is something that we should still be able to hit. Again, more to come. We feel like we're going to learn a lot in the second quarter. More negotiations will be completed, and we'll get a read on price elasticity as well. Thank you. I appreciate that. Maybe just following up on some of your commentary earlier around the benchmark, maybe not being the right benchmark at this period of time, I guess, why does the company think IP is the best way to benchmark volumes? Manufacturing is only, I think, about 30% of the mix. I just wonder, could GDP be a better benchmark to go volumes against? I mean, I wonder if some of the dislocation we're seeing between IP and GDP could be causing some of that performance. Thank you. Yeah, no, appreciate the question. A couple of things. What's not changing? We aren't changing our expectation of what market growth is going to be this year from a volume basis. We aren't changing our revenue projection. We aren't changing the fact that we think outgrowth, particularly on a volume basis, is critical for us to be successful long-term. We aren't changing our target. What we're seeing right now, historically, IP manufacturing has been, I would say, close enough. We know it's not perfect. Our internal model takes into account things like government spending, trade flows, those types of things. It's much more accurate, but it was close enough and easy for everybody to understand. What's happened here is those two have really gotten to a different place this quarter. As we look at sort of how we're performing around the competitive set, similarly, we're seeing more positive things for us than that metric would suggest. Given the noise, we're just going to focus on the annual number. We'll get back to you. You're right. There's probably a—we know there's a better one. We know our internal model is more accurate. We could explain it to you, but it's relatively complicated. We have tried to keep things simple in the past, and that's been our goal. Thank you. I appreciate that, D.G. Thank you. Our next question comes from the line of Tommy Moll with Stephens Inc. Please proceed with your question. Good morning, and thank you for taking my questions. Good morning. D.G., I wanted to circle back to your comments around the private label portfolio. If you think holistically there, is it relatively more tied to China? If we do end up with persistently elevated tariffs there, how much risk to profit dollars, if any, is there to the extent you see customers, as you indicated in the example, shift away from private label to a national brand? Yeah. I would say that certainly private brand is more China-centric than national brands, but not as much difference as you might think, actually. There are a lot of national brands with the same China exposure in the same categories. The short answer is we think we can navigate around our private brands. Obviously, if this level of tariff were to persist, I think we get into supply challenges for big categories that are really important to our customers, and there may not be other sources. I think that is probably the biggest risk right now. If certain categories become uncost competitive or non-cost competitive in China, we can move them to other locations in some cases or just focus on the national brand. I don't think it would be a huge deal overall. It would be a modest pressure, not huge. The issue here is going to be, do we actually continue to trade effectively with China? If we do, I think we can navigate things. If we don't, there's going to be some categories that are really difficult to get our hands on. Only other thing I would add is that we don't feel like we have a unique situation here. This wouldn't be any different for us than anyone else we're competing with. That's the only piece I would add there, Tommy. Yeah. The other thing on that is we've looked at where we have unique exposure, and it's almost nothing. It's very, very low. Everybody's in the same boat here for sure. Thank you both. D.G., in recent periods, or I should say previous periods of market volatility, Grainger has been able to capture significant market share. There's probably a whole host of reasons for that. Just as a simple example, I'm thinking about a few years ago when the supply chain was disrupted. You were able to exploit your scale and buying power to serve customers better than some of the smaller peers, for example. If you think about the current environment, are there new lanes that you're identifying where you can lean in and, once again, exploit some of the scale and sophistication that you've built over your years as CEO? Thank you. Yeah. I think we're, like I said before, I think we're in a good place in terms of understanding the options. I would say similar to when we went into COVID, our expectation was we're not trying to win any dip. We're trying to win through the cycle. I think that allowed us to invest and gain share. We're talking about it similarly now. Are there ways for us to gain share coming through whatever happens here? I'd say with COVID and the supply shortages, it was pretty obvious what was going on. I'd say this is pretty uncertain still. We're probably going to let this play out for a few more months to understand really what the rules of the game are. Certainly, I do feel like we will be in a good position to drive some share gain through this process. Thank you. I'll turn it back. Thank you. Our next question comes from the line of Ryan Cooke with Wolfe Research. Please proceed with your question. Good morning, and thank you for taking my question today. Good morning. Maybe we could just touch on some of the moving pieces in your guide. I understand that you left the high-level framework unchanged, but I'm curious if there's been any push and pull between HTS and E.A. coming out of the quarter. Also, if you could just help parse out price versus volume expectations. I think you had said earlier in Q&A that market volume outlook remains unchanged, but presumably you'd no longer be looking at minimal price for the year. Maybe if you could just touch on that. Yeah. You're correct in the fact that there are a lot of moving pieces, which is one of the reasons when we looked at scenarios, the pieces were moving so much, whether it was gross margin, the revenue outlook, the price that we could actually feel certain about at this point in time, and then the leverage that we could probably drive for the rest of the year. We actually zoomed out and just said, "Okay, let's look at our seasonal trends. Let's base our outlook and guide if we're going to look at it on what we actually know and can understand." That got us back to really holding the guide that we had laid out earlier in the year. There are some pieces, as you know, FX has moved a little bit differently, but we started off the year well, which helps us put a quarter of that in the bank. Gross margin was stable, and we're on our way to pass price and attempt to reach neutrality on the things that we actually knew. That helps from a GP perspective. You call out that E.A. did really well, and it is growing faster than the high-touch business, which generally, at those margin rates, creates a headwind for us. Again, we were not necessarily incorporating potentially some of the upside that we may see from price over time. Those things kind of canceled themselves out. I guess the point I would like you to walk away with is we understand the dynamics of the business and what could happen. We have modeled several scenarios, including E.A. continuing to move fast and grow well in this market. I would point you back to some of our original assumptions related to the market. We knew that the administration was going to pass tariffs. We could not size them, but we did estimate that the market would most likely be down from a volume perspective or flat. It looks like it is playing out that way. We have kept that assumption in mind as well. We feel like we are at a good place. Any incremental price, we feel like we are going to be able to pass on as long as it is not too significant. Since we have been through several cycles of pretty high inflation, at some point, that is going to start to impact demand. We are thinking about that and being conservative as we think about the rest of the year. That is very clear. Thank you, Dee. FX was actually going to be my next question. It sounds like there could be a little upside there given moves in the dollar. Okay. For my second question, we have covered a lot of ground on pricing and tariffs. Maybe if you could just touch on health of the customer groups and any notable trends that you would highlight. I know government is a chunky exposure for you. Have you still seen kind of no impact from DOGE or stimulus rollback there? No. This is what I would say: we are seeing all kinds of impacts at a subsegment level. There were markets that were very, very strong in the quarter. You are specifically commenting on government. We think it was relatively weak to start the year. We are not as exposed to DOGE, given we are mostly military and state, but the little bit of business that we have that would be exposed, certainly that was a little slower. We did see that. Net-net, there is a lot of movement, but nothing dramatic to really describe at this point. I would say certain manufacturing segments were very, very strong. Aerospace is an example. It was very strong in the quarter. Other than that, not much to really talk about. Okay. Appreciate the color. I will turn it over. Thank you. Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Thank you. Good morning, everyone. Good morning. Hey. I am going back to page 12 and the pie chart on the geographic mix. I would have thought China was much higher. Has that changed meaningfully, let's say, in the last five years? Also, how does that mix look differently versus your channel partners versus private label? Maybe I was thinking the private label is much higher China source. The private label is much—yeah, that's right. The private label is much higher China sourced. This is sort of end production location as well. What's the note about this? This is sort of the end production COGS by region. Certainly, there will be some componentry that we don't capture in our branded product that comes from China. That number will be higher when we look at that. We know some of that. We don't know all of that. This is just end production at this point. It's actually China's gone down a little bit over the last several years. Not fast, but it has gone down a little bit. There's been a shift to Vietnam as an example for some categories. Mexico's picked up a little bit. All right. Good. That was really helpful. D.G., I know you were dismissive last quarter that there might be any pre-positioning by customers ahead of tariffs, and it doesn't appear like that happened. Was interested if you all have done anything differently in terms of sourcing volumes ahead of tariffs. It doesn't look like it in your free cash flow, but just have you been tempted to try to get out in front of any of this? Some color there would be great. Yeah. Not much. I mean, we placed pretty strong orders for Chinese New Year to make sure we got service right and got out in front of service on private brand products. We are doing some things for things that were on the water, for example, to hold them so that we do not take them at a deflated cost, but we still have them accessible when we need them for customers. We are doing some things. Generally, we have not done that much that would show up. Great. Just last one as an observation. I appreciate all of your candor in the outgrowth, kind of the consternation between the two models. As much as I would love to have real-time outgrowth updates from you all, getting an annual number I think is fine. It would be great if you could revisit those differences at year-end, but we appreciate it. Great. Thank you. Appreciate it. Thank you. Our next question comes from the line of Sabrina Abrams with Bank of America Merrill Lynch. Please proceed with your question. Hey. Good morning. Good morning. Hey. Thank you. Thanks for the question. I'm going to go back to the price and tariffs. I guess I think, Dee, you mentioned that it was 1%-1.5% net impact in Q2. I guess I'm just curious. I understand maybe it's not all—you haven't raised prices on everything at this point based on the tariffs. Just if I think about the China COGS and the percentage of China imports to the U.S., I think with the 145% tariff, I think I get to a very robust price increase, something in the mid-teens level. I guess just curious how to sort of bridge from the 1%-1.5% to what is implied just by China alone in the mid-to-high teens. I guess, yeah, just thinking about the different, I guess, getting from 1%-1.5%, maybe it goes higher in the second half, and how to think about the price increases on China. If the tariffs do stay in place, do we see pricing reach 16%, 17%, 20% plus in your business? Thank you. Yeah. Yeah. Just as a reminder, the tariffs that we took were on direct imports, meaning our own private brands mostly. We took a few increases on national brand product, but mostly it was our own product. That is a relatively smaller portion of the product. Certainly, some of those products did increase into the mid-teens. That is true. As a percent of the whole, that's pretty small. That is where you get the 1-1.5% now. This does not contemplate any of the 145%. Obviously, that is a different thing altogether. If we had to price that in, if our suppliers had to price it in, it would be quite a change. Right now, the behavior we are seeing from our suppliers is they know that if they take the prices up that much, we are not going to sell anything in some cases. We are working through—everybody is sort of working through what is going to happen and how we are going to handle that. So far, it has been relatively modest. Thank you. That makes sense. Could you just provide a little more color on the price-cost dynamics through the year? I think there's a comment on the slide about being lumpy, but just want to understand expectations around price cost in Q2 and sort of how that cadence trends through the year. Yeah. Thanks for the question. I will say I'll continue what D.G. started with. At the highest level, there's a lot of noise in the news about inflation. However, on the ground, things are moving a whole lot slower. The reason why we took the step to take the increases that we did is because those are more known. They've been negotiated. Some of those standard costs in our system are being changed, and thus the price is being changed. We did layer in this first pass of price inflation. That will have an impact, a slight impact because it is modest on the second quarter. There is a lot of puts and takes related to, I would say, price, gross margin, and profitability as we go from Q1 to Q2. As you know, from Q1 to Q2, structurally, gross margin usually trends downward in the second quarter. We layered on the tariffs from that perspective. SG&A, there is also quite a bit of noise. We expect to gain some leverage as we move sequentially from Q1 to Q2. In the prepared remarks, I noted that some of the favorability from Q1 SG&A flows into Q2. That will be a headwind. We have this noise with the Grainger sales meeting that also impacts us both on gross margin and operating margin. I wanted to point everyone to the fact that we expected for the second quarter operating margin to be about 15% because it is so noisy. It's kind of hard to follow all the noise and some of the things straight through. As you think about the rest of the year, if tariffs remain modest as we continue to work through negotiations, we feel like we'll be able to manage that from a price-cost perspective. There may be some timing differences, but we will provide you that insight as we do on a quarter basis on how things are trending. We feel like the overall guide still holds intact from an operating margin range, including operating cash flow and some of our other expenditures like CapEx, share repurchase, and the announced dividend that we just had. Thank you. Thank you. Our next question comes from the line of Christopher Glynn with Oppenheimer & Co. Please proceed with your question. Yeah. Thanks. Good morning and afternoon. Going back to the Zoro strength, I know it's in a different growth zip code from HTS, but the spread of growth is pretty unique historically. I'm just curious. If we were in a 3%-4% HTS environment, would you be expecting Zoro to be putting up 25%-30%? Is there a multiplier on end market increments to the upside? No. What I would say is they generally focus on different end markets. Zoro's growth is typically its ability to acquire high-quality customers that are more mid-size and smaller and then to get them to repeat. Most of their growth, frankly, is in their hands. It really isn't linked to High- Touch given High- Touch is focused on more industrial, larger customers with all kinds of added services. Zoro's a business that's very much a marketing-focused business on trying to gain share with those mid-size and smaller companies. Okay. Great. And then just within the U.S., D.G., any interesting divergences geographically, regions within the U.S.? Not that we've seen. We haven't seen anything really interesting there. Okay. Thank you. My other questions have been asked. Thank you. Appreciate it. Thanks. Thank you. Our next question comes from the line of Katie Fleischer with KeyBanc Capital Markets. Please proceed with your question. Hey. Thanks for squeezing me in. I just have one question here. Is there any way to quantify the amount of price increase requests that you have gotten from your suppliers and how long that will take to flow through to the P&L? We probably won't talk about the amount of increase requests. They've been all over the map, I will say that. We've had some very high and some modest ones. Flowing through the P&L, though, I think is an interesting question. We typically have, let's say, three months' worth of inventory already. It does take a while for this to flow through. We have to place the orders, and then we actually have to receive the orders for the cost to change. It will take some time. We will see a little bit of that in the second quarter, but I'd say more of it in the third quarter and beyond. We'll start to see that flow through. Okay. Helpful. Thank you. Thank you. Thank you. Our final question this morning comes from the line of Patrick Baumann with J.P. Morgan. Please proceed with your question. Hi. Good morning. On the comparison of branded versus private label product, is there a rule of thumb or an average where your private label competes with a branded product? What% discount in price the private label brand is to the branded product? What the difference is in gross margin between them? In terms of—I know you've probably looked at this very detailed—is there a% risk that you're thinking about as a% of your private label portfolio that's sourced from China that would be non-competitive if the tariffs held at the 145% number? Yeah. What I would say is that you have to do this on an individual product basis. In some cases, our private brands have a modest cost advantage. If the tariffs are big, they will be underwater immediately. In that case, though, the GP between the private brand and the national brand is not actually that big of a difference. That will be an impact, but not a huge impact. There are some huge cost differences between private brand and national brand. In those cases, we may end up taking the increase, and GP may be smaller on those products in that case. So far, the cost increases that we—price increases we put through on those cost increases, we have been able to pass those through. I think that will make sense. Like I said before, if the 145% were to sustain, that is where you are going to have some issues where we probably affect gross margin in the short term, potentially. Okay. In looking at your comment on slide 12, again, back to that slide where you mentioned that total COGS is not subject to the full tariff increase resulting in net inflation being lower for Grainger, can you help us understand how much of your COGS is product and input cost versus some of those other buckets like freight, supplier markup, other costs that maybe will not be subject to the tariffs? We do not give all of those details. Some of the things that we have talked about in the past that I think are fair to reiterate is that freight as a percent of COGS is generally in the mid to high single digits for us. This is the detailed work that we have done to be able to understand that. By and large, you could assume that the product piece is the majority of the impact. As D.G. noted, you really have to go through product by product, cost, and then composition of the product to really get to the tariff amount. I know it's hard for you all to attempt to model this, but it's also difficult for us as well as our supplier partners to get to the right answer here. That's why our teams are really taking a very measured approach. I really appreciate that our supplier partners are doing that as well with us. We are also trying to partner on the other end with customers to help them understand that when we have much more knowledge. Thank you. Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Macpherson for any final comments. Thanks for joining us today. We spent a lot of time talking about tariffs. While we do not know where those are going to shake out, I just would reiterate that our business is focused on making sure we can serve our customers well, protect service, and work with our partners effectively to get to the right outcome here. We will be thoughtful. We will not react too quickly. We will get to the best answer. We feel like we have got a good position given our product information, our understanding of sources, and some of the things we have evaluated in the past help us have a good position heading into this. This is all about making sure we can serve our customers effectively and protect service and do that in a financially proven way. I want to thank everybody on our team and our suppliers for helping us with this. Thanks for joining us today. Take care. Have a great weekend. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.