Greetings, and welcome to the W.W. Grainger second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, Kyle Bland, Vice President, Investor Relations. Thank you. You may begin. Good morning. Welcome to Grainger's second quarter 2025 earnings call. With me are D.G. Macpherson, Chairman and CEO, and Deidra 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. Results for the second quarter of 2025 are consistent on both a reported and adjusted basis, but will be compared to adjusted results from the prior year period, which were normalized for restructuring costs incurred in the second quarter of 2024. 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'll turn it over to D.G. Thanks, Kyle. Good morning, everyone, and thank you for joining today. In the second quarter, the external environment continued to present a degree of uncertainty. What we're observing in the field, though, is largely business as usual, with a sharp focus on execution. Customers are seeking reliable partners who can help them manage the current complexity, and Grainger is proud to be that partner. I recently spent some time with manufacturing and industrial customers in Salt Lake City. These conversations consistently focused on how Grainger can help them drive efficiencies, lowering their purchasing costs, and improving inventory management. In times of uncertainty, our role becomes even more important, and we are uniquely positioned to help our customers strengthen their purchasing processes and overall operations. To that end, we continue to collaborate closely with our supplier network to uphold our standard of getting customers the right products when and where they need them. We've built a strong foundation anchored by a world-class supply chain and enhanced by strategic investments in product information and digital capabilities. These efforts, combined with our scale, deep supplier relationships, and ability to provide alternative product solutions, allow us to deliver unmatched value in any environment. Beyond serving our customers' operations, we also recognize our broader responsibility to the communities we serve. In times of need, we remain steadfast in our commitment to supporting local communities with emergency response and recovery efforts. It's a part of who we are and how we show up every day. I am proud of the resilience and dedication demonstrated across our organization and remain confident that our team will continue to deliver value for our customers, our communities, and our shareholders. In the second quarter, we delivered solid results that, in total, were largely in line with our May verbal guide. Total company reported sales for the quarter were nearly $4.6 billion, up 5.6% or 5.1% on a daily, constant currency basis. Operating margins for the company were 14.9%, and diluted EPS finished the quarter up $0.21 to $9.97. Operating cash flow came in at $377 million, which allowed us to return a total of $336 million to Grainger shareholders through dividends and share repurchases. Importantly, while the headline results for the second quarter played out largely as expected, they do reflect our estimate of tariff-related LIFO inventory valuation headwinds. As Dee will discuss, without this LIFO impact, our operating margin would have been flat year-over-year in the period. As we look ahead, we anticipate that continued LIFO headwinds, along with further price-cost timing pressures, will impact our performance in the back half of the year. As a result, we are updating our earnings outlook for 2025, which Dee will detail in a moment. Importantly, these accounting and timing effects are mostly transitory, and our expectation is that gross margin will begin to recover over time as we work back toward our price-cost neutrality target. With that, I'll turn it over to Dee to go through the details. Thank you, D.G. Turning to slide seven, you can see the high-level second quarter results for the total company, including $4.6 billion in sales, up 5.1% on a daily, constant currency basis. Within the period, we saw gross margin softness from segment mix and from the aforementioned tariff-related impacts within the High-Touch business, including noise from LIFO inventory accounting. This led to total company operating margins of 14.9% for the quarter, down 50 basis points compared to 2024, but roughly in line with our communicated expectations. Diluted EPS for the quarter of $9.97 was up $0.21, or 2.2% higher compared to the prior year period. Moving to segment-level results, the High-Touch solution segment delivered solid growth in the quarter. In total, sales were up 2.5% on a reported basis, or up 2.8% on a daily, constant currency basis, with growth across all geographies and local days, local constant currency. Results were driven by continued volume growth and modest price inflation in the segment. From an in-market perspective, our indicators suggest the MRO market remained muted, but was softer than expected. We saw strong performance with contractor and healthcare customers, which helped to offset slower growth in other areas of the business. For the segment, gross profit margin finished the quarter at 41%, down 70 basis points versus prior year. In the quarter, we saw a negative price-cost spread as we progressed negotiations with suppliers and elected to not pass any off-cycle price increases onto our customers. This caused timing-related lumpiness in the period. However, as pricing catches up, starting with our regular September cycle, we expect price costs will begin to recover. Further, because we are on LIFO, we had to pull through the current estimated impact of all effective cost increases known to date, putting further pressure on margins in the quarter. These two tariff-related impacts were only partially offset by favorable mix and freight in the period, and I would note that if we were not on LIFO, our gross margin rate would have been flat compared to the prior year quarter. On SG&A, we slightly delevered in the quarter as we continued to invest in marketing. These costs, along with our annual merit increases that went live to start the quarter, were only partially offset by productivity gains and sales leverage. Taking all of this together, operating margin for the segment finished at 16.6%, down 90 basis points versus the prior year quarter. Now focusing on the Endless Assortment segment. Sales increased 19.7% or 16.3% on the daily constant currency basis, which normalizes for the FX tailwinds realized in the period. Zoro U.S. was up 20%, while MonotaRO achieved 16.4% growth in local days, local constant currency. At a business level, Zoro U.S. continues its strong momentum, driven by growth from its core B2B customers, along with improving customer retention rates. At MonotaRO, sales growth remained strong, with continued growth from enterprise customers, coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses. On profitability, operating margins for the segment increased by 200 basis points to 9.9%, with both businesses contributing to the favorability. MonotaRO's margins remained strong at 13.2% as they continue to gain operating leverage. At Zoro, operating margins accelerated sequentially and were up 380 basis points year-over-year to 5.8%, aided by gross margin flow-through and strong top-line leverage. As sales comps become more pronounced for Zoro in the back half of the year, we do anticipate this margin outperformance will moderate slightly as the year continues. Beyond the results, you will see in the appendix that the team took steps in the period to optimize Zoro U.S.'s assortment. Specifically, net SKUs declined by $1.1 million in the quarter, driven by the elimination of some low volume, low service items. This near-term reduction is part of an ongoing effort to further improve the customer experience at Zoro and has no impact on our go forward strategy or expected financial performance. Looking forward, our optimization efforts will continue over the next several quarters, but we expect net assortment growth for the business over time. Overall, we had an exceptional first half across Endless Assortment, and we remain confident in the team's ability to continue delivering strong results going forward. As we look to the back half of the year, I thought it would be helpful to share a brief update on where we are with tariffs. As we shared during our first quarter earnings call, we took initial pricing actions in May, primarily related to Section 232 and the first wave of announced tariffs on China. These initial pricing actions only apply to a small portion of our products, largely those where Grainger is importing the product directly. As part of this initial wave, we did not take any pricing action on the reciprocal escalations. Consequently, we expect our initial pricing actions to hold as they relate to tariff levels that remain in place today. At this point, it's a bit early to get an accurate elasticity read, but as the full competitive set takes price through the cycle, we still expect these May price actions will approach the previously discussed 1% to 1.5% net annualized price inflation run rate for the High-Touch business. On the vast majority of our remaining products, where Grainger is not the direct importer, we continue to work with our supplier partners regarding tariff-related cost increases. We've finalized the negotiations on a number of impacted SKUs, but expect conversations to be iterative throughout the balance of the year as the tariff environment remains highly fluid. Looking ahead to the third quarter, we expect to adhere to our regular cycle with our next pricing action slated to go live in early September. This round will include some further increases on products directly imported by Grainger to reflect current tariff rates, which are higher than what we passed in May. The September cycle will also include initial pricing actions on supplier imported products where we have finalized negotiations. The pass price from this round is expected to result in net annualized incremental price of 2% to 2.5% on a run rate basis for the High-Touch business. Note that these run rate price figures are annualized and on a cumulative basis will lay across the full year 2025 to deliver close to 1% price in total for the High-Touch business. As we wait on pricing actions until September, we do anticipate continued headwinds from price-cost and further LIFO inventory valuation impacts in the third quarter. As we pass price, we expect gross margin will recover to more normal levels over time. The team continues to stay nimble as the cost environment evolves, and we take actions as needed over the remainder of the year and into 2026. Despite the anticipated lumpiness, we remain focused on adhering to our two core pricing tenets: to remain price competitive and to achieve price-cost neutrality over time. Now, moving to the updated outlook for the remainder of 2025. First, we're adjusting our sales outlook to reflect both the latest FX rates and the aforementioned pricing actions, the latter of which we expect will contribute around 1% in total for the High-Touch business in 2025. These tailwinds are partially offset by the softer than expected MRO market we've seen to date, which we don't expect will recover in the back half of the year. More notably, as D.G. mentioned at the beginning of the call, we're updating our outlook to reflect the tariff-related price-cost timing headwinds and our current full-year estimate for the LIFO valuation impact. Consequently, we've lowered our gross margin guide with the total company now expected to be between 38.6% and 38.9%, or down 80 to 50 basis points year-over-year. Our SG&A outlook remains largely unchanged, and therefore this gross margin pressure will flow through to operating margins, where we now expect the total company will finish between 14.7% and 15.1%. This all translates to diluted earnings per share between $38.50 and $40.25, up roughly 1% year-over-year at the midpoint. Updates were also made to our supplemental guidance, which included a $100 million increase in expected capital expenditures due to timing of DC network investments and the related offset to our share repurchase outlook. This updated outlook assumes no changes to the effective tariff schedule as of July 31st. The third quarter is off to a solid start with preliminary total company July sales up slightly north of 6% on a daily, constant currency basis, aided by softer comps in the prior year period. We expect growth will moderate as the quarter goes on and anticipate total company sales for the third quarter to be up north of 5% on a daily, constant currency basis. As discussed, gross margin will see further pressure in the quarter, driving a sequential decline in total company operating margin to around 14.5%. With that, I'll turn it back to D.G. Thanks, Dee. Overall, I'm encouraged by how the team continues to manage through this uncertain and evolving environment. Although we did slightly lower our 2025 outlook, it is primarily the result of a softer than expected market and transitory impacts on gross margin, neither of which change our view of how the business is operating overall. I remain confident in our strategy and our ability to drive long-term value for all stakeholders. With that, we'll open it up for Q&A. Thank you. Ladies and gentlemen, at this time, we will conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would 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 keys. Once again, to ask a question, press star one. Your first question comes from David Manthey with Baird. Please state your question. Thank you. Good morning, everyone. First question on the LIFO accounting and the operating income impact. It looks like it was about, I don't know, 50 basis points or something. I guess the question that's out here is, if you were on average costs for accounting here in book, would your second half outlook have changed at all, or is this just a timing factor of the LIFO and price increases, et cetera? Our performance, if we were on FIFO, would have been different, as you noted. However, as it relates to the outlook, our outlook would not have included the negative impacts of LIFO, but our underlying operations, I will say, are still very similar when you look at our ability to estimate the price increases outside of the LIFO impact and the timing of our cost changes. Those things, I believe, will have remained the same. The only real difference is that we would not have had this LIFO accounting impact flow through COGS and through the P&L in the way it is flowing through today. When you look at, specifically, our EPS year-over-year, just comparing ourselves to ourselves, instead of being up two, EPS would have been up north of six. Yeah, that makes sense. As we're looking forward, Dee, you gave us some insight into third quarter. I think you said gross margin would step down again in the third quarter and operating income would come in at 14.5%, if I heard you correctly. Could we think about the progression from there? I know operating income usually takes a step down seasonally in the fourth quarter, but not necessarily gross margin. Is there anything directionally you can talk to us about how the P&L is going to move from the third quarter to the fourth quarter, just so we incorporate that correctly? Yeah, I do believe, you know, seasonally stepping from Q3 to Q4, we will still see the revenue trend through normal seasonality. The point you make related to pricing, pricing will continue to build with our September pricing change heading into the fourth quarter. We will start to see improvement in gross margins and expect to exit the year with improved price costs. That's what helps with growing operating earnings at the end of the year. Great. That's very helpful. Thanks a lot, Dee. Your next question comes from Tommy Moll with Stephens. Please state your question. Good morning, and thank you for taking my questions. Hi, Tommy. Hi, Tommy. It sounds like there was a judgment call made on the timing of when you're going to push through the second batch of inflationary factors here. I think you referenced that you're just going to take it on the normal cycle in September. I'm just curious, what went into that decision-making process? Did you consider pushing in a more real-time fashion? Have you seen others do that in the marketplace? What were some of the gives and takes there on arriving at the decision you did? Yeah. You know, we considered all kinds of different options here. We decided to keep our price increase on a normal schedule. We think it's the best thing from a customer stability standpoint, and we're hearing very good things from our customers about that decision. We will be a little bit upside down in price costs, but there are other factors that are actually moving sort of positively as well. As Dee discussed, really, the LIFO impact is the biggest impact on our GP right now. We felt like, except that, we could manage this by going to nine-one and waiting for that. Following up on Zoro, good update this quarter. It sounds like you did some pricing optimization and then also reduced the SKU count. If you can bring us into that decision-making process, how long had those initiatives been under consideration and what's the lay of the land there as we go forward? Thank you. Yeah. I think the pricing decision's been in the works for the better part of a year. We've been considering that and made some changes and have learned our way into what we actually did. It's a bit different tilt on pricing, which provides a better experience for customers. The SKU count one, you know, when you have millions and millions and millions of products, 12 million, 13 million products, it's healthy to go through and say which products are actually noise and not creating a great customer experience. We basically identified a set of products, a fairly large set of products that we got rid of. We will continue to expand the assortment, but want to make sure we do it in ways that actually improve the customer experience. That's really what that was all about. Thank you for the insight. I'll turn it back. Your next question comes from Chris Snyder with Morgan Stanley. Please state your question. Thank you. D.G., in your opening remarks, you talked about how in times of uncertainty, customers lean more heavily on Grainger. We certainly saw that through COVID and all the supply chain disruption that followed. It doesn't seem like we're seeing that same impact here. In this current period of disruption, outgrowth remains sluggish. There seems maybe a little bit of less conviction in pushing price to get value for that supply chain partner status. I guess, maybe you would disagree with that. Why do you think maybe we're not seeing those tailwinds that we saw in other times of disruption? I think the pandemic disruption was very much a supply disruption, which is less the case this time. I think there haven't been as many challenges getting supplies, so we may have seen some tailwinds there. I would say a couple of things. One is I don't think we have any lack of confidence in passing price. I think we're just trying to time it correctly for customers and marry it up so it actually makes sense. We still feel like we're going to be able to pass price through this period. We may not see as much cost as others as well, so our headline prices might not be as big, but there are mixed issues and all kinds of things that drive that. In terms of share gain, actually, the second quarter looked better from a High-Touch share gain, and we continue to see significant disruption between our internal metric and the one-unit metric, the external one. The internal one would suggest we gained quite a bit of share in the second quarter. There have been surveys from your peers that have suggested the market was down 2% or 3% even in the quarter. I think actually share gain, we feel pretty good about again. I don't know that we feel like we're not gaining share. We do feel like we're gaining share. Thank you. Appreciate that. I guess just on the gross margin, the 50 basis points guide down, could you just kind of maybe talk about how that splits between the LIFO pressures, which it sounds like are higher than were expected in April, despite general de-escalation, versus how much of that pressure is just from price-cost timing into the back half? Thank you. Oh, I just want to step back a little bit. Thanks for that question. I think it ties back to the last question too a little bit, which is, you know, back in Q1, when we were looking at the guide, there was information in the market related to tariffs. One piece of information was like China tariff was like at 135%, which it is nowhere near today. When D.G. talked about being really prudent about the timing of when we're going to take price, this is what we mean. If we would have taken that assumption, which was very high level, very hard to measure at that point in time, and then roll that through our estimates, we would have had some jarring changes to guidance then. Now, having had a whole quarter of better information, a little bit more certainty around tariffs, and then being able to actually estimate their near-term impacts, I think has put us in a better position. That has also allowed our pricing team to take that information and then make better pricing decisions with our customers at this time. Back to your question related to how much is LIFO versus how much is price cost. The vast majority of the impact to us, or like as an example to High-Touch, in this quarter is the LIFO impact. It's like 80 basis points. There is impact to price cost, but much smaller than the impact of LIFO. We believe that will continue to be the case as we move through the year. As we've noted, we will in September be then updating for the incremental increase that had been announced on aluminum and steel, plus some of the other changes that have occurred. That will also continue to flow through as subsequent LIFO adjustments. As it relates to gross margin, none of that reverts unless we have deflation, which we don't see any coming. Gross margin will improve since we're on LIFO because pricing will start to take hold. If there's one thing to walk away with, those of us that are on LIFO have a hotter impact or more negative impact to gross margin at the beginning of these cycles because we restate our entire inventory to the latest price or cost of goods, and that flows through the P&L immediately. Over time, as pricing takes hold and that LIFO impact normalizes, our gross margin starts to recover and improve. Different than those on FIFO, who have the opportunity to flow through their lower cost inventory while they're taking price, leading to higher gross margin that then starts to mitigate through the cycle. Over time, our gross margins will become much more comparable to others based upon the differences in our accounting treatment. We expect our gross margin and specifically our price-cost, which is not the biggest impact here. It is a timing difference to moderate as we go through the end of 2025 and into early 2026 as we continue to take price. Thank you. I appreciate that. Your next question comes from Jacob Levinson with Melius Research. Please state your question. Hi, good morning, everyone. Good morning. Good morning. I realize these tariffs are a moving target. If you have a 30% tariff on China today and obviously different rates in some of the other major manufacturing centers, is the economics of private label really changing versus the branded side? I assume it's probably not necessarily straightforward because you've got branded stuff that's also being made in China or Vietnam. I'm just trying to get a sense of whether there's been a real shift in terms of the economics of private label. Yeah. First of all, I would say that we do have a lot of U.S. private label production, so that is not affected. Certainly, the China component of private brand could be impacted. It really depends, without sort of giving you a direct answer here, it really depends on the SKU level analysis. There are some SKUs for which a 30% tariff might make them much less competitive to the national brand, and there are many where it doesn't matter. You're still more competitive coming from China. It's happening at the SKU level. We're watching it very closely. I suspect once we get through the next quarter, we'll have a lot more to say about what we're seeing. It's still really, really early in terms of what we're seeing from the cost increases on a private brand, but it's going to vary dramatically by SKU, and we'll have a better perspective over time. Okay. That makes sense. Just on a brighter note, Zoro seems to be heading in stride there. I know Tommy asked about it as well, but can you just help us understand what's really changed in that business? I know there's been a lot of cross-pollination with MonotaRO, but it seems like they're finally kind of getting the flywheel going there. Yeah. I think, you know, I'd point to a few things. One is I think they've done a nice job of improving who they target to acquire and then getting to repeat business with those customers. That includes how they think about what products they promote, how they think about evaluating customers initially, and then how they think about basically marketing to those customers that are attractive. A lot of what MonotaRO has done to be successful, they built and ported over the logic. It's a little bit different in this context, but to basically get to that repeat business. That repeat rate is really, really important. That's up about 200 basis points year-over-year, which is a big deal to that business. The other thing I'd say is as they grow, they had already built out a lot of the capabilities. They get good, really good leverage when they grow at this point because they don't need to add nearly as much cost. Those two things are really working in their favor. Good color. Thank you, D.G. I'll pass it on. Thanks. Your next question comes from Ryan Merkel with William Blair. Please state your question. Thanks. Hey, all. It sounds like a key message here on gross margin is that the update is more about LIFO than it is price-cost. My question is, the new 50 basis point headwind to gross margin for the year, how much of that is LIFO and how much of that is price-cost timing? I will say the majority of that is LIFO. I think we'll really start to see the price-cost portions of that unwind into 2026. There is a component there, but as I noted, I kind of noted the impact of High-Touch in this quarter is significant. It is the main event when you look at the year-over-year decline to High-Touch gross margin. I would just say, you know, we've said this a few times, our GP would have been flat year-over-year, which is actually better than we expected to start going into the year if we didn't have LIFO. While we have some price-cost headwinds, we have other things that have been positive as well. LIFO on the math basis is the entirety of what we're seeing right now. Okay. That's helpful. My follow-up, this might be kind of a hard question, but you know, there are new tariffs being announced today. One of the questions I'm getting from clients is, is there going to be more price-cost risk now in the second half if you have more tariff-driven inflation? Hard to tell. I mean, clearly, China is the most significant trade partner we have at this point. Some of the countries that are being announced have much smaller impacts than China does. Mexico hasn't changed. They are a significant trade partner as well. It just depends which countries have that happen to them. Right now, there's obviously risk depending on what happens or opportunity as well, depending on what happens going forward. You know, China is the biggest one we have to watch. So far, I don't think the things that have been announced today would have a huge impact on us based on what I know. Got it. All right. Thanks. Pass it on. Your next question comes from Christopher Glynn with Oppenheimer & Company. Please state your question. Hey, good morning, D.G, Dee. Morning. You mentioned a great description of the decision-making process with deferring on price a bit. You talked about the customer benefits and the good feedback there. I wanted to talk about maybe what long-term strategic goals you might have had in mind there along the way as well. Is this sort of a nice arrow in the quiver as you go through next rounds of contract negotiations? Does it play into the wallet share strategy? I think our long-term share strategy is based much more on providing exceptional service, helping customers take out costs, helping them with their purchasing process, helping them manage inventory. We do recognize that you don't want to, winning the tariff transition is not really a thing for us. For us, it's are we doing the right things for the customers and making sure we continue to build loyalty and trust. That's a big part of what we do, and we think that does help us in the long term. This wasn't really a specific point we were trying to make around share gain, but we do think it does help. We do think it helps us over time. Okay, great. Just to follow up on Zoro, it's had tremendous sequential momentum in the last few quarters. I think the high-end guidance has kind of flattished through the back half. Is that just conservatism, you know, relative to 2Q, honestly. Yeah, last year, they're cycling some tough comps. It's just some modest deceleration, but nothing to worry about. We're still very bullish on their outlook. Okay, thank you. Your next question comes from Deane Dray with RBC Capital Markets. Please state your question. Thank you. Good morning, everyone. Good morning. Good morning. Hey, I'd like to circle back on the Zoro SKU pruning. I consider this to be a very healthy process, but I'd love to hear just a bit more detail on the algorithm, the approach here. Is it simplification? Do you look at returns by SKU, the volume that's being done, and maybe the frequency of ordering? It's probably all of the above, but what's the net impact? The net impact is basically nothing. These are SKUs that basically weren't moving, and frankly, were probably not helping searchability on the website. These are very low-risk, like no-risk financial decisions that were made in the core. Great. Is there any, would you be following a similar practice with the core Grainger offerings? Has that, have you done any meaningful culling of the SKUs and maybe just kind of size that process for us too? Yeah. We do that on an ongoing basis. That is not new for us. We probably have 80,000 SKUs fall out every year, roughly, or something like that. We add a little bit more than that to get to the net assortment number. That is a very well-trod path, and the analytics to make those decisions are very clear and have been in place for a long time. I think with Zoro, the difference is you've added so many so fast. We've added things that we didn't know if they were going to sell or not. If they didn't, then we made the decision. That's really helpful. Thank you. Thank you. Your next question comes from Chris Danker with Loop Capital Markets. Please state your question. Hey, good morning. Thanks for taking the question. Sorry to come back to pricing here again, but just on High-Touch pricing specifically, you'd flagged one to one and a half points of kind of target price for the quarter. We came in basically flat. Was that fully offset by negative mix, or was it a measure of weak realization on the price front there? When we laid out what we thought we would realize, the 1% and 1.5%, that was on an annualized run rate basis. You're right, in the quarter, you'd have to look at how much of that the next quarter you would actually realize. The actions were taken in May, so we didn't have the full quarter. That's an impact. When you compare it to prior year 2024 actions, there's some offset there year-over-year because last year's increase was larger than the one we took this year. That explains a portion of it. The rest of it, though, we believe has to do with the fact that ourselves and others are taking price on different SKUs at different times, and it's really hard to read elasticity. Based upon what we continue to see, even including in this month, that is improving. We have conviction that on a run rate basis, we will get on an annualized basis to the 1% to the 1.5%. As it relates to September, with that continued conviction and then the new and additional pricing of tariffs and other negotiated costs, we plan to pass enough to realize an additional 2% to 2.5% on an annualized run rate basis to cover those increases. As we stated in our prepared remarks, when you look at that across all of 2025, we expect to realize about 1%. The combination of those two with the timing, because we are starting to see competitors take more price, we feel like we'll be in a more normalized environment, and realization will get back to what we have seen historically. Got it. Thank you so much for that, Dee. And I guess just as a follow-up here, noticed you moved about $100 million from the buyback towards, you know, CapEx investment in the guide here. Just maybe some color on what we're spending on, what kind of projects are moving forward here that look more attractive today? Yeah, what I would say is the vast majority of that is in the supply chain investment. It was an opportunity to make an investment for the future. It's not going to be near-term, but it's longer term. We're thinking about the longer-term network evolution, and there was just an opportunity to make a, to add some money to the budget. Got it. Thanks so much. Thank you. Just a reminder to the audience, to ask a question, press star one on your phone. To remove yourself from the queue, press star two. Our next question comes from Sabrina Abrams with Bank of America. Please state your question. Hey, good morning, everyone. Morning. Morning. Apologies. I'm also going to go back to pricing. If I look at the government pricing data for non-durable wholesalers, like the smaller machinery, equipment, and supplies wholesalers, the industry data is closer to mid-single digits up year-over-year. I just want to understand, maybe it's something in the definition of how you report pricing, but just want to understand the difference between what the government data is suggesting inflation is running at versus reported pricing for you guys. Thank you. Yeah, I mean, I think that's an interesting view. Obviously, we look at, first of all, we think we've got better scale and opportunity to not have the cost increases maybe that others might take. We tend to try to match our cost with our pricing, and that's what you'll see us do over the next few years. What Dee did talk about, though, is we will be right at 3% to 4% at the end of the year for this year. You will see us increase prices, but we're not having to take them maybe as soon as others do. That's not unusual for us when there's an inflationary environment that's been in history. Thank you. Just on the High-Touch volume, they were better, I guess, than what I had in my model in the quarter. I think there, you know, we have like the monthly sales. I think July, you said, came in a little bit better on the easier cost. Anything to call out on cadence of demand in the quarter? I understand you guys don't have a ton of, you guys don't really have big capital project exposure, but I think what we're hearing from some of the other manufacturers is you did feel a little bit better about the macro in July. Just any color there? Yeah. I mean, it's hard to talk about the macro. I think the macro has been one of the data. I do think we've, like I said before, we are doing better on share gain, and volume share gain was pretty solid in the quarter. We'd expect that in July. It doesn't feel like a huge change, frankly. It feels like the demand environment's still relatively muted. We do feel like we're doing reasonably well in that environment. Thank you. I'll pass it on. Your next question comes from Ken Newman with KeyBanc Capital Markets. Please state your question. Hey, good morning, guys. Thanks for squeezing me in. Maybe to piggyback on that last question, you know, look, it does sound like you feel confident around the net price realization into the back half on all the negotiations that are already finalized. I guess, is the confidence that volumes don't have another or don't have a negative response as you introduce these price increases really just driven by net customer ads, or is it that you think there's also a stickiness to your current customers as it relates to volumes today? I guess what we would say is we think that price increases in general and inflation in general is going to have an impact on market demand. We do have the market demand not doing as well in the back half as we had in the first half, and that's where you see that impact. We don't think we are uniquely exposed. We think everybody's doing the same thing, and we feel confident in our ability to realize prices with that lower market demand. Got it. Okay. Just for my follow-up, switching gears to Endless Assortment, I think the total revenue guide kind of implies Endless Assortment grows similar on a total sales, maybe like in that high teen, a low 20% in the back half, but maybe the incrementals are slightly lower than what we saw in 2Q. Dee, is that right? If so, just any comments on what's driving that deleverage? Yeah. You do have that right. We talked a little bit earlier about the fact that some of it is the comp that Zoro is cycling through because they had, you know, a stronger back half last year after some of the actions they took the prior year. When you look at it on a two-year basis, we feel like the numbers are, you know, in the right realm. It's really a comping issue for EA. Okay, understood. Thanks for the clarification. Your next question comes from Patrick Baumann with JPMorgan. Please state your question. Oh, hi. Good morning. One quick one on gross margin. It looks like the exit rate on gross margin in the fourth quarter is maybe in the high 38% range. Given the timing of the price increases coming through, which I think you said are going to annualize at 3% to 4%, maybe that hits at some point in 2026, but starting in late 2025, I guess. Also, the LIFO impacts to 2025. Do you think 2026 will be a year of gross margin expansion back to that 39% level? Just Just based on all those things and this LIFO dynamic, that sounds like it's timing related. I would say that would be reasonable, all things equal, if no other dramatic changes around tariffs and things like that are announced. Today, we would say that would be very likely, yes. Obviously, things would change, but yes, that is the way this should flow. I'll take that as an encouraging sign because I actually wasn't really expecting a response from you on that. The next question was on government customer dynamics. It looks like things were relatively stable in the quarter after slowing a bit in the first quarter. Can you talk about whether you've seen contract cancellations at all impact your business there and whether you've been able to backfill that with other activities? Just any dynamics within government customer, federal versus state, local versus military, however you want to talk to it? Yeah. I mean, certainly the place we've seen, we don't have contracts canceled. We don't, we typically are transacting in small orders with our customers, basically. The non-military federal business certainly has been struggling and is down. The military business has been good. State and local has been okay, some states doing well, some not. Other than that, the small portion, we're 70% state and local, 30% federal. Most of our federal is military, we aren't that impacted by this. It's a very small portion that has some impact. Excellent. Thank you. There are no further questions at this time. I'll hand the floor back to management for closing remarks. All right. Thanks for joining us today. We really appreciate it. You know, it's an interesting moment. From our perspective, obviously, Endless Assortment had a really good quarter, has a lot of momentum. We feel like the High-Touch model is gaining share and the volume looks pretty healthy. Our underlying performance would have been pretty good and quite good, actually, had it not been for LIFO. We are on LIFO. The reality is we have altered our guide based largely on that, as we discussed. That will cycle through. It's going to be several quarters until that cycles through and that goes away as an issue. We do believe that market demand is going to be relatively muted, and we've taken that down as well. That's just a reflection of what we think tariff price increases are likely to do to the market. We also think that's temporary. Neither of those things changes the way we think about the business or run the business. Like I mentioned, we run it for long-term health and success. We feel pretty confident about what we're doing and how we're doing it. I appreciate you joining today. Thank you. This concludes today's conference. All parties may disconnect. Have a good day.