Yahoo Finance Global Industrial Company (NYSE:GIC) Q1 2024 Earnings Call Transcript
Global Industrial Company (NYSE:GIC) Q1 2024 Earnings Call Transcript April 30, 2024
Global Industrial Company misses on earnings expectations. Reported EPS is $0.3411 EPS, expectations were $0.38. GIC isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and welcome to Global Industrial's First Quarter 2024 Earnings Call. At this time, I would like to turn the call over to Mike Smargiassi of Plunkett Group. Please go ahead.
Mike Smargiassi: Thank you, and welcome to the Global Industrial first quarter 2024 earnings call. Leading today's call will be Barry Litwin, Chief Executive Officer; and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question-and-answer session. During the call, we will reference both GAAP and organic metrics. Organic reflects the performance of the Global Industrial business exclusive of the May 2023 Indoff acquisition. Today's discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statements caption and under Risk Factors and the Company's annual report on Form 10-K and quarterly reports on Form 10-Q.
The press release is available on the Company's website and has been filed with the SEC on a Form 8-K. This call is the property of Global Industrial Company. I will now turn the call over to Barry.
Barry Litwin: Thanks, Mike. Good afternoon, everyone, and thank you for joining us. First quarter revenue improved to more than $323 million. And on an organic basis, we posted our third consecutive quarter of growth with revenue up 4.2%. These results reflect the continuation of the cautious customer purchasing behavior we have seen for the past several quarters. Overall, our performance was consistent through the period. E-commerce was once again our leading channel, and we are seeing strong growth in our enterprise business as it benefits from new account generation and healthy retention rates. Order and volume trends were solid and partially offset by continued price headwinds. We remain pleased with gross margin performance, which was 34.3% in the quarter.
On an organic basis, gross margin of 35.8% was essentially flat on both the prior year and sequential quarter basis. As I outlined on our last conference call, in 2024, we are focused on championing the customer experience across every facet of the business. This includes enhancing the quality and value we provide to elevating our position as a solutions provider and problem solver for our customer. Across the organization, we are executing against multiple initiatives to help us continuously improve and deliver an exceptional end-to-end shopping experience. One of the key performance indicators we utilize to measure the impact of these efforts is our customer satisfaction scores. Our Voice of the Customer process evaluates everything from product fulfillment and quality to overall experience.
Satisfaction scores run greater than 90% each week, and this tells us that the customer service, same-day shipping percentage, order fill rates and post-sale support are working well, as evidenced by our high customer retention rates. Customer retention drives the total lifetime value of our customers and ultimately enables us to capture market share. The gains we are seeing are a direct reflection of the efforts of our associates and recognition across the company that everything we do impacts the customer. Overall, we have been pleased with our execution against the key pillars of our customer-centric strategy. We continue to differentiate our position in the market through an exceptional experience, a leading assortment of national brands and global industrial exclusive branded products and a one-to-one managed sales approach that delivers significant value to customers.
We are making continued investments in sales, marketing, merchandising and customer service that will help us drive operating efficiencies, accelerate customer engagement and strengthen our competitive position and capture market share. While the current demand environment is not as robust as we would like, we believe Global Industrial is improving its position as an indispensable business partner and in turn, strengthening its ability to drive its long-term performance. The industrial distribution market remains highly fragmented, and we have numerous opportunities for growth as we drive sales enablement across our channels, expand current relationships and acquire new customers. With an exceptional balance sheet and strong cash flow from operations, we are well positioned to execute on our strategy, invest in our growth drivers and evaluate strategic opportunities while we build long-term value for our stakeholders.
I will now turn the call over to Tex.
Tex Clark: Thank you, Barry. First quarter revenue was $323.4 million, up 18.1% over Q1 of last year. Organic revenue was $285.3 million, up 4.2% year-over-year. Organic U.S. revenue was up 4.3% and Canada revenue was up 1.8% in local currency. Revenue benefited from volume improvement while order growth rates were impacted by continued pricing headwinds. The pricing environment remains competitive. However, we are optimistic that the negative impact of pricing trends will improve near-term. We've seen the first quarter's modest organic revenue growth continue into April. Gross profit for the quarter was $110.9 million, up 12.7% from last year. Gross margin was 34.3%, down 160 basis points from the year-ago period due to the contribution mix of Indoff and its relatively lower gross margin profile.
Indoff gross margin was 23%, which represents an improvement to their historical performance. Organic gross margin rate was 35.8% off 10 basis points from both a year-ago and sequential period. Management of our margin profile remains a key area of focus. Performance will continue to reflect the impact of proactive promotion and freight actions as part of our competitive pricing initiatives. As a reminder, we are nearing the first anniversary of our in Indoff acquisition in May of this year. Composite margin impacts related to the business combination will be more muted in the second quarter as compared to last year given this timing. In addition, ocean freight costs while off recent highs remain elevated. Higher cost inventory is starting to flow into our cost of sales, and this is something we are proactively managing.
Selling, distribution and administrative spending for the quarter was $93.5 million or 28.9% of net sales, an improvement of 50 basis points from last year. SG&A primarily reflects the benefit of Indoff's lower cost structure. This was partially offset by approximately $0.9 million of audit and remediation costs related to certain IT, general controls incurred in the period. Given planned investment in key sales and marketing growth initiatives, as well as SOX implementation costs associated with the Indoff acquisition and ongoing IT control remediation, we currently expect SG&A to be elevated in 2024 when compared to the year-ago period. Operating income from continuing operations was $17.4 million in the first quarter, and operating margin was 5.4%.
Organic operating margin was 5.6%. Operating cash flow from continuing operations was $6.3 million in the quarter as we built inventory in advance of the spring and summer season. The second and third quarters are historically the largest sales periods for our private brand products. Total depreciation and amortization expense in the quarter was $1.9 million, including approximately $0.7 million associated with the amortization of intangible assets with the Indoff acquisition, while capital expenditures were $1.3 million. We expect 2024 capital expenditures in the range of $3 million to $5 million, which primarily includes maintenance-related investments of equipment within our distribution network. Let me now turn to our balance sheet. We have a strong and liquid balance sheet with a current ratio of 1.9:1.
As of March 31, we had $29.9 million in cash, no debt, and approximately $120.7 million of excess availability under the credit facility. We maintain significant flexibility to fully execute on our strategic plan and to continue to fund our quarterly dividend. As a result, our Board of Directors declared a quarterly dividend of $0.25 per share of common stock. This concludes our prepared remarks today. Operator, please open the call for questions.
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