Global Industrial Company - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $358.9M, up 3.2% year-over-year; gross margin reached a quarterly record 37.1% (+190 bps YoY), and operating income rose 26.9% to $33.5M with 9.3% operating margin; diluted EPS from continuing operations was $0.65.
• Results beat Wall Street: revenue beat by $7.1M (+2.0%) and EPS beat by $0.155 (+31.3%) versus S&P Global consensus; only two published estimates for each metric, indicating a thin consensus (bolded in tables below)*.
• Management flagged sequential gross margin headwinds starting in Q3 due to tariff-driven cost inflation and waning FIFO inventory benefits, but still expects year-over-year margin expansion to continue.
• July sales trends accelerated to mid-single-digit growth, led by strategic accounts; the Board declared a $0.26 dividend.
• Potential stock narrative catalysts: record profitability and margin management amid tariffs; continued strategic-account momentum; clarity on pricing actions and supply chain diversification.

What Went Well and What Went Wrong

What Went Well

• Record profitability: gross margin of 37.1% (+190 bps YoY; +220 bps sequential) and record operating income of $33.5M; CEO: “We delivered a strong second quarter performance with record profitability”.
• Strategic accounts drove growth and monthly acceleration; CFO: “Results were strongest amongst our largest strategic accounts… growth accelerated to mid-single digits through the first four weeks of July”.
• Cash generation and balance sheet strength: operating cash flow of $31.8M; $55.1M cash, no debt, ~$120M credit availability; dividend maintained at $0.26.

What Went Wrong

• SMB softness and intentional promotional pullback reduced volume, even as price was positive; mix optimization prioritized profitability over lower-retention segments.
• Sequential gross margin headwinds expected in H2 as pre-tariff inventory timing benefit fades and tariff-related cost inflation flows through COGS; CFO suggested ~100 bps could come off in H2.
• Tariff uncertainty remains significant; supply chain diversification and strategic cost negotiations ongoing, adding execution complexity and potential margin volatility.

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, and welcome to Global Industrial Company's Second Quarter 2025 Earnings Call. At this time, I would like to turn the call over to Mike Smargiassi of The Plunkett Group. Please go ahead.

Mike Smargiassi (Founding Partner)

Thank you, and welcome to the Global Industrial Second Quarter 2025 Earnings Call. Today's call will include formal remarks from Anesa Chaibi, Chief Executive Officer, and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question and answer session. 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 in 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 Anesa.

Anesa Chaibi (CEO)

Thank you, Mike. Good afternoon, everyone, and thank you for joining us. We delivered an excellent second quarter performance with record profitability. I'm pleased with the execution of the entire organization, specifically considering the market disruption and uncertainty from the current tariff environment. The team has done a great job mitigating the risk, enabling us to continue to serve our customers. In the quarter, revenue increased 3.2% to $358.9 million. We grew the top line each month during the period and have seen growth continue into July. Performance was driven by our largest strategic accounts, partially offset by a reduction in our smallest and more transactional customers. Gross margin was a record 37.1% for the second quarter, an increase of 190 basis points over the second quarter of 2024 and 220 basis points over the first quarter of 2025.

Operating income improved over 26% to $33.5 million, which represents a quarterly record for the company. Operating margin was 9.3%, and we also had strong cash flow generation in the quarter. Overall, our results reflect the benefits of modest price capture and the timing of FIFO inventory. While some of this margin expansion may be temporary, we believe it highlights our ability to proactively manage the business and focus on what we can control. This includes ensuring product availability and providing the products our customers rely on us to deliver. As I noted on the last call, Global Industrial has an outstanding foundation for growth, with an exceptional platform and the ability to scale the business organically. We have an opportunity to broaden who we serve, expand existing account relationships, and accelerate our growth initiatives.

During the past several months, we have gained alignment throughout the organization on how we can better position Global Industrial to grow and to pursue new opportunities. We will drive simplification in how we operate and create a sense of urgency within the organization to better serve the customer. We are empowering our teams to make real-time decisions and continually challenging the way we work to find creative solutions to address customers' needs. Quarter our efforts will be the continued transformation of the business model to place the customer at the center of everything we do, not just thinking about the customer and our actions, but realigning and building the organization and the solutions we provide around our customers.

We need to make it easier for our customers to engage and do business with us, allowing us to deliver greater value to them and become an extension of their teams. Moving forward, our growth strategy will be anchored in specialization and expansion. On specialization, we will become more focused in the identification and targeting of key customers and align sales in the broader organization to serve the specific needs of each type of customer. We will reframe our go-to-market strategy to become much more intentional in how we approach and attract new customers. We see significant opportunity to deepen existing relationships, gain greater share of wallet, and acquire new customers. On expansion, we will broaden the product categories we offer and enhance our overall offerings to ultimately improve our customer stickiness. We will do this focused on driving profitable growth.

In summary, we were very pleased with our second quarter performance. We have more work to do as we look to accelerate our success and mitigate the impacts of tariffs on our business and for our customers. As we become more intentional in how we go to market and operate the business, we believe we have the opportunity to open the aperture of the total addressable market that we pursue. There is a lot of positive activity across the company, and I'm excited by what the future holds. We remain well positioned to continue to invest in our growth initiatives and to evaluate strategic M&A. Finally, in September, we will host our ninth annual National Trade Show in Orlando, Florida. This event allows us to showcase our extensive product offering of national and proprietary brands, as well as the knowledge and solutions we bring to market.

We look forward to connecting with our customers and vendor partners at the show. Now, I will turn the call over to Tex.

Tex Clark (SVP and CFO)

Thank you, Anesa. Second quarter revenue was $358.9 million, up 3.2% over Q2 of last year. U.S. revenue was up 3%, and Canada revenue improved 7.4% in local currency. Sales grew each month during the quarter, and we have seen growth accelerate to mid-single digits through the first four weeks of July. Results were strongest amongst our largest strategic accounts, which continued to see good momentum and sales progress as they grew on both total dollar and order volume basis. Price was positive in the quarter and includes some initial pricing actions implemented in April. This was partially offset by a decline in total volume, which reflects an intentional effort to limit certain promotional activities that previously targeted customer segments with historically lower retention rates and ultimately a lower lifetime value. The tariff environment remains highly fluid, and the cumulative impact of incremental tariffs remains significant.

We continue to actively monitor the situation and are focused on supplier diversification, price management, and strategic cost negotiations. We concluded the second quarter with a healthy inventory position and continue to prioritize availability for our customers. We anticipate implementing additional pricing actions as inventory affected by tariffs moves through our cost of sales. Gross profit for the quarter was $133 million. Gross margin was 37.1%, up 190 basis points from the year-ago period and 220 basis points sequentially. Gross profit improvement reflects both price capture and temporary favorability of inventory valuation, which flows through the cost of sales on a FIFO basis. In addition, our gross margin rate benefited from transportation and freight cost improvements in both our small parcel and LTL environments, as well as quality initiatives that reduce freight claims and customer returns. Management of our margin profile remains a key area of focus.

As we move through the current cycle, we have started to see the timing benefit of pre-tariff inventory decline. While our goal is to manage price cost neutral, we are seeing sequential headwinds in our margin rates, given the timing dynamics of on-hand inventory, market inflation associated with the tariff-related cost increases, and efforts to continue to diversify our supply chain. Selling, distribution, and administrative spending for the quarter was $99.5 million, an increase of 3.5% from last year. However, as a percentage of net sales, SD&A was 27.7%, nearly flat with last year. SD&A reflected strong general and discretionary cost control and modestly lower marketing expenses. These savings were partially offset by a year-over-year increase in variable compensation expenses, with both selling commissions and our bonus pool accrual increasing compared to last year.

While marketing CPC inflation remains, we continue to drive efficiencies in our investment and have seen some nice productivity and efficiency gains within our sales teams as we continue the implementation of our new CRM. Operating income from continuing operations was a record $33.5 million, an increase of 26.9% in the second quarter, and operating margin was 9.3%. Operating cash flow from continuing operations was $31.8 million. In the quarter, we closed on the purchase of a small services company that provides a value-additive service wrapper extension to one of our product lines. This company represents less than 1% of total revenue. Total depreciation and amortization expense in the quarter was $1.9 million, including approximately $0.8 million associated with the amortization of intangible assets, while capital expenditures were $1.4 million. Cash flow from investing activities includes the $4.3 million purchase price of the previously mentioned service business.

We continue to expect 2025 capital expenditures in the range of $2-$3 million, which primarily reflects maintenance-related investments in equipment within our distribution network. Let me now turn to our balance sheet. We have a strong liquid balance sheet with a current ratio of 2.1-1. As of June 30th, we had $55.1 million in cash, no debt, and approximately $120 million of excess availability under the credit facility. We maintain significant flexibility to fully execute on our strategic plan and continue to fund our quarterly dividend. As a result, our board of directors declared a quarterly dividend of $0.26 per share of common stock. This concludes our prepared remarks today. Operator, please open the call for questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-toned phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Our first question comes from Ryan Merkel with William Blair. Please go ahead.

Ryan Merkel (Research Analyst)

Hey, good afternoon. Thanks for taking the question. I wanted to start with a big surprise, which was gross margin. Could you help us with the bridge, the 200 basis points increase year-over-year? How much of that was FIFO, and how much of it was freight and the other things that you talked about?

Tex Clark (SVP and CFO)

Hey, Ryan. Thank you for the question. I'll go ahead and jump in there. When we think about that expansion, a lot of times I like to look back at what we saw in the back half of 2021 and leading into 2022 when we were going through a similar inflationary environment with the cost of ocean freight going up and we saw a similar ramp-up. When we think about that 200 basis points of expansion, about half of that is going to be that price timing that we looked at with pricing with our COGS working through. The other half of that is going to be things like we mentioned where we were seeing favorable costs in transportation and some other areas that drove benefit into our gross profit rate.

We have started to see that benefit that we recorded in the second quarter already start to wane in the third quarter. We would expect some sequential headwinds into the third quarter. We still think we'll be able to manage our gross margin favorably on a year-over-year basis.

Ryan Merkel (Research Analyst)

On that last point, Tex, about 100 basis points, do you think, comes off as we think about the second half?

Tex Clark (SVP and CFO)

Yeah, I mean, I think that's a fair way to look at it. Obviously, there's still some unknowns out there as tariff rates are continuing to change and mix could change. We'll be continuing to look at market-based pricing. Yeah, I think that's a fair assessment of where we stand today.

Ryan Merkel (Research Analyst)

Got it.

Anesa Chaibi (CEO)

Ryan, this is Anesa. Just to chime in real quick, I would just say we have numerous initiatives that are in flight and we're watching it very closely. We'll read and react as we go through. I would say that Tex is spot on with what we anticipate at this juncture.

Ryan Merkel (Research Analyst)

Okay. Just in my own words, 37 is a little punchy. You don't expect to continue that, but you do expect year-over-year expansion to continue.

Tex Clark (SVP and CFO)

Yep, absolutely. That's fair.

Anesa Chaibi (CEO)

Yes.

Ryan Merkel (Research Analyst)

Okay. My next question was just on the July commentary up mid-single digits. I mean, it's a bit of acceleration. This might be hard to answer, but is that market-driven? Is that price? Is that company-specific share gains?

Tex Clark (SVP and CFO)

Yeah, Anesa, do you want to jump in on that? Go ahead.

Anesa Chaibi (CEO)

Go ahead, Tex. That's fine.

Tex Clark (SVP and CFO)

I mean, when we look at it, Ryan, we're seeing it fairly broad-based. We're seeing good growth across different customer segments, both our managed customers and our strategic customers, but the biggest growth has been those strategic accounts that we've been putting the most effort to really target those customers and be very intentional with how we're servicing those customers. It's been fairly strong growth. We saw growth each month in the quarter during the second quarter, and that has accelerated into the early part of the third quarter, the four weeks in at this point.

Anesa Chaibi (CEO)

It's on all fronts, Ryan. We've got some things that we're piloting right now strategically on go-to-market that are premature at this point, but we're starting to see some incremental positive momentum. We'll be in better position to speak to it the next time we have our subsequent third quarter call.

Ryan Merkel (Research Analyst)

Okay. Maybe one more for Anesa. It's a two-parter too. You mentioned being more intentional about attracting new customers. Can you be a little bit more specific to what you mean by intentional? Am I reading this right? Are the new customers that you want, are you going to be shifting more to the strategic accounts, or are you equally trying to get small and medium businesses as well?

Anesa Chaibi (CEO)

Thank you for the question. The intentionality is just really aligning ourselves and putting the customer at the center of what we do. That is a pivot and a shift for us. Really trying to understand what the customer needs are across various industry segments and sectors. We're getting very smart on understanding the behavior of our customers along those lines. The second part of your question is, I would say that Global Industrial in the past targeted customers that were more price-sensitive or really looking for applying coupons and discounting and what have you. It's just being very intentional on who we're targeting, where we're going to look for growth opportunities, and then kind of doubling down and investing in those arenas.

Ryan Merkel (Research Analyst)

Got it. All right, I'll pass it on. Best of luck.

Tex Clark (SVP and CFO)

Thank you, Ryan.

Anesa Chaibi (CEO)

Thank you.

Operator (participant)

Our next question comes from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Anthony Lebiedzinski (Senior Equity Research Analyst)

Good afternoon, and thank you for taking the questions. Certainly nice to see the strong profitability in the quarter. First, I just wanted to go back to your comments about the fact that you saw your smallest accounts, the smallest accounts or SMB clients, kind of being softer in the quarter. Just wondering if that changed in July as you've seen an acceleration in your sales trends.

Tex Clark (SVP and CFO)

Yeah, Anthony, how are you doing? This is Tex. I'll take that one. Again, thanks for joining us today. I think that's one area that, as we've gone into July, we've seen fairly broad-based growth, but still concentrated in those largest customers that we tend to serve. When we think about some of that intentionality and some of that targeted marketing, obviously, we pulled back some promotional activities in the second quarter, which in the past were a little bit higher proportion of our customer mix. While that did impact some volume metrics that we looked at in the period, overall, we think we drove more profitable growth in a healthier customer mix for ourselves.

Anthony Lebiedzinski (Senior Equity Research Analyst)

Gotcha. Okay. Yeah. Thanks for that. Anesa, you spoke about having more of a sense of urgency in terms of just driving the business forward. Where would you say are the greatest kind of near-term opportunities, and where would you say it's something that will take longer to achieve in terms of just wanted to go back to that comment where you talked about having that greater sense of urgency?

Anesa Chaibi (CEO)

Yes. No, that's a great question, Anthony. Thank you for it. What I mean by that is I would say there are some operational elements that will enable us to be more nimble, more flexible, and responsive to our customers. I would say on the customer experience side, being empowered more so to be able to make real-time decisions if a customer calls in and needs some assistance and so forth. That's what I was referring to and implying.

Anthony Lebiedzinski (Senior Equity Research Analyst)

Okay. As you look to grow the business, can you also speak to the total addressable market opportunity that you referenced in the press release?

Anesa Chaibi (CEO)

Yeah. I guess I don't have a specific number in mind if that's what you're asking relative to the total addressable market, but I believe that there is just a tremendous opportunity. I think during one of our last meetings, we had discussed that briefly. I would say we have been doing intentionally throughout the quarter as well as expanding our assortment and the products and the SKUs that we're taking to market. That's also enabled us and enhanced our growth and some of the momentum we're seeing as well. It's really honing in on that. Again, back to the specialization comment, it's understanding the customer at a more intimate level to then align the organization to be able to serve it and to be able to fulfill what they're expecting from our capabilities. That's really what we're trying to align to do.

I'm convinced that that total addressable market, if where we're currently anchored on infrastructure with operational type of industrial equipment, will broaden to industrial equipment and supplies, MRO in a broader sense, and so forth. We're in the nascent stage of that as we're looking to further expand the assortment, the progression, and everything that we take to market.

Anthony Lebiedzinski (Senior Equity Research Analyst)

As you look to execute this strategy to be more intentional and more specialized, do you think you'll need to grow your sales team or other parts of the business in terms of people, or do you think you're in the right, you have the right group of people to execute this strategy?

Anesa Chaibi (CEO)

I believe we will need to make some investments, and yes, we will need to look at how we go to market on the sales side. There will be investments in the sales organization. That's really what we're doing right now currently, to do some piloting, some testing, and we'll be launching some things incrementally in various markets so that we can quickly learn and then determine just what we'll do differently going into 2026.

Anthony Lebiedzinski (Senior Equity Research Analyst)

Okay. All right. You made a small acquisition that you talked about. What is your appetite for additional acquisitions going forward?

Anesa Chaibi (CEO)

Yeah. No, great question. You know, as Tex highlighted, we have zero debt or minimal debt, if at all. The opportunity for strategic M&A is absolutely available to us. We're going to be very mindful and prudent. As we go through some of this piloting and testing that we're doing right now, real-time, the back half of this year, I think that will help provide clarity on the strategic direction that we want to take. I already have some perspective at this point, but I want to validate a few things before really aggressively going after it. That opportunity is there for us to scale and grow, especially along the lines of some of the broad, you know, being able to go after some broader MRO capabilities and to live up to the fulfillment expectations of the customer base, depending on the segment or the industry or the vertical.

Anthony Lebiedzinski (Senior Equity Research Analyst)

Thank you very much, and best of luck.

Anesa Chaibi (CEO)

Thank you.

Tex Clark (SVP and CFO)

Thank you.

Operator (participant)

This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. We may now disconnect.