Greetings, and welcome to the W.W. Grainger First Quarter 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Laura Brown, Senior Vice President of Communications and Investor Relations for W.W. Grainger. Thank you, Ms. Brown. You may begin.

Thank you. Good morning, everyone. This is Laura Brown. Welcome to Grainger’s Q4 earnings call. With me are D. G. Macpherson, Chairman and CEO and Tom Okray, who will assume the CFO role on May 2nd. As a reminder, some of our comments today may be forward-looking based on our current view of future events. Actual results may differ materially as a result of various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures mentioned on today’s call with the corresponding GAAP measures are at the end of this slide presentation and in our Q1 press release, which is available on our Investor Relations Web site. D.G. will be covering the performance for the quarter, as well as give an update on our 2018 guidance. After that, we will open for questions. D. G. to you.

Thank you, Laura. Good morning, thanks for joining us everyone. Earlier this month, we announced that we had concluded our CFO search. And I'm excited to welcome Tom Okray to Grainger. Tom brings great combination of finance and operations experience with him. He knows our industry well and we're glad to him as part of team. So moving on to the quarter. The momentum that we saw in the fourth quarter of 2017 continued into the first quarter of 2018. In the U.S., the volume response to our pricing reset was strong; the demand environment continued to improve. We estimate market growth in the quarter was closer to 4% versus our expectations for 2% to 3% growth for the year. What's encouraging is we're strengthening relationships with both large and mid-sized customers, the pricing reset is allowing us to reestablish trust and gain share by focusing on creating value for our customers. In Canada, our actions related to the turnaround led to gross profit and operating earnings improvement, and our business model reset is on track. Finally, our single channel online and our international businesses expanded operating earnings in the quarter. All this resulted in performance that was better than our expectations. We're raising our full year guidance based on our performance in the first quarter and our confidence moving forward. On Slide 4, let's take a look at our results. Q1, 2018 reported results included restructuring charges of $8 million and an $0.11 negative impact to EPS. This morning's call will focus on adjusted results, which exclude the items outlined in our press release. Total Company sales in the quarter were up 9%. Volume was up 8%. We had positive seasonal sales of 1%, mostly in the U.S., offset by 1% decline due to our Techni-Tool divestiture last July.…

Thank you. Ladies and gentlemen, we will be conducting a question-and-answer session [Operator Instructions]. Our first question comes from the line of Christopher Glynn with Oppenheimer. Please proceed with your question.

Digging into the U.S. medium customer, I was interested in the staging of the customer acquisition levers that you plan to pull, what's the attraction there so far versus the reengagement what you've felt dormant customers.

As I mentioned, there are really three sources to that growth; one is getting more share with active customers; another is reengaging lapsed customers who've been customers in the past; and the third is the acquisition piece. We're going to spend time talking about more details in the near future. But we’re seeing growth across all three of those. I would say we’re still fairly early days in the new customer acquisition piece, but we have dedicated some marketing dollars to acquire new customers, and we've seen we've seen good response with that.

And then the U.S. margins up 120. Just wondering if you could disaggregate that beyond how we could triangulate from the slide, just in terms of the ongoing upside versus the timing of the contract negotiations? And I think you said the accounting change had a little more impact in the first quarter?

So the accounting change does not have an impact on operating earnings. It's just shifts from GP to expense. When we look at what we saw in the first quarter, we're obviously happy with the expense leverage we're getting. And we're happy with what we're seeing from the customer response, both from a volume and from a price point level. So without going into too much detail, there were some elements that we talked about in detail that will not repeat that are in that number, but a lot of the benefit we think is real from the U.S.

Our next question comes from the line of David Manthey from Baird. Please proceed with your question.

Am I understanding it right that your net pricing is coming up a bit, because market pricing is higher and some of your prices to your customers change contractually. Is that what you just say?

Yes. So it's not all contractual, but what we've seen is, given some commodity price increase, we've seen some market prices creep up, and we've been able to take those. And our COGS performance has been better than those price increases. So effectively for us, that shows our best price cost spread and we think we’re going to have a little favorability for the year relative to what we originally expected.

And then as it relates to your price reset parameters. If market prices, more broadly adjust over the year, does that incrementally make your level of pricing more competitive and could that be some of what we're seeing or is it just too early to say that that's what's going on or to small in magnitude?

So just as a reminder, so our pricing philosophy is to price to market and we've gotten prices to what we think are the right market levels. If market prices go up, we will watch that closely and make some adjustments. We're seeing two benefits, one is a little bit of inflation and the other is from our customer mix where we're seeing growth with attractive customers at higher margins and with attractive volumes sources within existing customers as well. So there is really two going on, one is the inflation benefit that we get and the other is customer mix benefit.

Our next question comes from the line of Ryan Merkel with William Blair. Please proceed with your questions.

So first question for me just back to the non-repeating items that you called out. Can you just add a little more color to each piece? And then I'm hoping that you can quantify each component of the $0.45?

So let me just describe. So tax benefit from stock-based awards, that's pretty clear. I think the one that's probably not, maybe not as obviously, is we had a change in accounting estimate, that's really we had a number of customers who have been on cash accountings, because we were very conservative. And when we looked at their credit risk, it's similar to rest of the business. We made a change that's going to now be an accrual system. So that's a modest portion of the $0.45. But that's the one that probably is a little bit odd, the others are fairly self-explanatory. And we're not providing necessarily the detail on the each -- the impact of each of those at this point.

And then on gross margin, the quarterly cadence for year is a little different than I was thinking. There is some noise I guess in the first quarter’s gross margin. But can you just clarify, how much gross margins declined sequentially into the second quarter? And then could you also comment on the trend line, is it stable to slightly rising sequentially from the second quarter?

So the things that were unusual in the quarter, Ryan, one is the timing of our sales meeting. And so we would expect the second quarter to be slightly lower, because that benefit was in the first quarter and won't be in the second quarter. It will be an offset effectively. Other than that, things are actually I think pretty stable with our GP rate.

So just one more follow up, I guess. So should mix and improving price help gross margins as we think about the second half of this year and entering 2019, is that still the plan?

Well, that's why we changed our expectations on GP, because of the customer mix and the inflation and that's why we've raised the U.S. 0.5 percentage point. So yes, that's absolutely the expectation for the year.

Our next question comes from the line of Robert Barry from Susquehanna. Please proceed with your questions.

I just wanted to actually follow up on that. I mean, big picture it doesn't seem like your view on the gross margin performance is changing that much. Is that right? I mean, you still expect it down 110 and that was 130 last quarter?

Yes, that's right.

And I think the math, if you were down 60 in the first quarter, would actually imply a fair amount more pressure in the remaining quarters to be down 110 for the year. Your answer to the last question about just a modest, what sounded like a modest noise from the prior accounting suggested that in fact it could be a lot better than that. So I'm just trying to understand, I guess just a clarification on the cadence?

We actually think it’s going to be fairly stable. It's all really the sales meeting driving that difference. So it was a fairly significant benefit in the first quarter. And so when you take that out, there is really not sequential down really.

So just to clarify, you do think the gross margin will be down a little bit in the second quarter versus or maybe fair amount in the second quarter versus first quarter. And then it will remain stable?

No, we’re not. And we’re not giving quarterly guidance on GP, we don’t do that. So we’ll talk more about it as we go forward. But we would say that the one thing we wanted to highlight is the timing of the sales meeting. We also had some benefit from COGS deflation in the quarter that was better than we had expected. Some of that is actually timing as well.

Our next question comes from the line of Scott Graham from BMO Capital Markets. Please proceed with your question.

I wanted to beat the dead horse here, the $0.45. How does the timing of contract negotiations -- how specifically does that translate into something positive? Is there some backdating there or how does that work?

Well, if the contracts push out and we don’t get them completed, then we haven’t lowered the price for our customer yet. And so that’s why it’s a benefit that we don’t expect to continue, because we will complete those contracts.

And it looks to me like your revenue recognition change analysis in the back is exclusively about the revenue recognition. So the gross profit that you show here is not reflective of this, whatever piece of the $0.45 is, yes?

Yes, right. We’re only talked two separate things, we’re talking about revenue recognition in the back that’s the accounting standard change that we talked about before. I think you are asking a question about the accounting change for revenue recognition for some form of the cash based customers, that’s a very -- that’s a small piece of the $0.45, it’s separate.

That’s a small piece, which would make the timing of the contract negotiations a larger base?

There is a number of pieces that add up to the $0.45 and that does all contribute.

And my last question is I don’t know how closely you guys have looked at some of the tariffing, I’ll call it, going on out there, U.S., China, even a little bit of Russia. I was just wondering if you guys are looking this lay of the land, how this affects you?

Yes, so we have looked at it. We will continue to look at it. It’s a little bit unclear yet that the impact it’s going to have on some of categories we participate in. We look at it two ways; one is understanding the financials the other is making sure that we’ve got the right decision on sourcing. And depending on certain tariffs, we may lose suppliers as well. So we don’t have a conclusion. Obviously, certain tariffs will be very inflationary for the market and others might not. And so we’re looking at the specifics to understand what we will need to do.

Our next question comes from the line of Robert McCarthy with Stifel. Please proceed with your question.

Well, what a difference a year makes. Good job in the quarter, and I don’t want to be a Grinch, but I feel get asked some questions along those lines. I guess, the question I would have is how should we think about your embedded guidance in the back half of the year for revenue growth around anniversarying these compares, particularly as your pricing reset. And then I guess the question is, how do you think the situation? Do you think you’re going to have to have some further price cuts as you get price discovery or what’s embedded in your guidance with respect to further pricing actions if you anniversary volumes and you don’t see quite the demand response you saw for the first half of the year?

So let me break that in two buckets. I would say one of the things we're seeing is that for large contract customers, our pricing has always been competitive and so we're not seeing substantial GP rate contraction with large customers. I think it's relatively business as usual. I think we're going to execute well, and we still have a lot of growth with large customers. Mid-size customers, what were findings is that price points we’re at are actually good for both acquiring customers and reengaging relapse customers, and we have not reached yet a large portion of that market. So I feel like we have a fairly long runway to grow with midsize customers, and certain large customers where we haven’t historically had contract. So while we've always said the back half of the year will be lower revenue growth, because of the comparisons, we feel like we’re well positioned to continue to gain share.

And just as a follow-up in terms of brass packs, I mean what are do you expect -- what you can share about the business, the EPG time frame, because I think you are not disclosing monthly sales anymore. You will be out at some of the conferences. But what do think will be the mid quarter update topic around, we’ll be traction of U.S. medium-size, we’ll be talking about Gamut, we’ll be talking about the back half. Just try to set this table for what are going to do the key topics, because we're stuck because the submarine goes down for about a month and a half before we -- or a months before we speak with you again.

So I think the two topics are going to be; one mid-size customers understanding a little bit more detail what we're seeing with that with that group; and the other will be around digital broadly. So I think those will be the topics that we focused on that will be additive and new.

Our next question comes from line of Patrick Baumann with JPMorgan. Please proceed with your question.

Can you just talk about -- looks like that the slides you pulled out the commentary on monthly daily sales by segment. I'm just curious has U.S. segment progressed by month through the quarter? And really the question along the lines of your commentary around the expected second half volume slowing and I'm guessing that's just comps. But I was just curious if you saw anything intra-quarter that makes you stick with that forecast?

No, I mean they really were very minor changes in terms of the demand environment and volume throughout the quarter, throughout the entire business.

On the MRO market, you said up 3 to 4 now versus 2 to 3. Is that really what's driving the increase in the U.S. volume growth expectations from 6 to 7, it's the market?

Yes. So the market is a big portion of that and we're also seeing some higher share gain with midsize customers for sure than we expected, and with large customer as well. So it's a bit of market and share gain.

And then on the price cost, the change from 1.5% to 1%. What's the U.S. segment margin guidance now for the year? Is it just 50 basis points better than it was before? And just curious on that price cost. Is that going to exit the year in your current planning as a positive contributor in the fourth quarter?

So in terms of GP rate, we're 20 basis points better than we were previously in terms of what we expect for the U.S.

In GP, but I was talking total segment margins?

On earnings…

Margin guidance for the year segment, you gave guidance…

We haven't given margin guidance for the year for the U.S. segment. No, we're anticipating -- no, we're obviously encouraged by what we’re seeing.

And then price cost for the year exiting 4Q. I mean, do you think it will be positive?

I think you may be asking two questions simultaneously. So what we talked about is our reset this year is going to be 200 basis points decrement. And then we talked about positive price cost above that. And so yes, price costs are going to be positive for the year for sure. It will happen to going into next year, we'll start talking about that later in the year as we would expect that 300 basis points to go -- hoping much smaller and we’ll probably won't talk about that really until November.

Our next question comes from the line of Dean Dray with RBC Capital Markets. Please proceed with your question.

I wanted to follow up -- what's also interesting from this call I feel little badly for D.G., because you have to answer as a CEO and CFO at the same time. So I appreciate that, it’s a little more challenging but lot of good color here. I want to go back to price cost, if I could. Just to reference early in your prepared remarks about mix has had a benefit here. And maybe give us some examples of how mix enters into this. I guess, intuitively you would think that you're not selling as much as of those products that have the deepest price discounts. But maybe you can just clarify provide some color there, please.

Deane, I think most of the benefit we're actually seeing is customer mix. So the fact that mid-size customers have generally higher GP rates and are less on negotiated prices than large customers. And so historically the last six or seven years, we've been growing large contract volumes faster than mid-size customers that has reversed, and so you get some positive mix benefit on the GP.

And then in Canada, the ability to put 7% price increase. How does that compare or maybe it's completely different market, but you pricing power in Canada compared to the market and versus pricing strategy in the U.S. Where is the breaking point for you in Canada?

So I think it's really not even close to a comparison. The reality is that as we went through our ERP implementation in Canada and the Canadian dollar few years ago went down, we did not pass through price increases that the rest of the market did. So we got to a position where prices are well below market. And as we've improved our service and come out of that, we've been able to pass some of those prices through. So it's really not even analogous situation at all today.

Just let me -- if I can sneak one more in. Any color on Cromwell?

Cromwell is performing as expected at this point. We've made a bunch of changes to that business. We've read on the supply chain, which is performing much better, put in a new Web site and that's performing better. But it's performing as expected.

Our next question comes from the line of Ryan Cieslak from Northcoast Research. Please proceed with your questions.

My first question, D.G., is when you look at the guidance on the price COGS or the gross margin I think you guys are looking at price deflation or COGS deflation around 50 basis points. It seems like that’s consistent now for the balance of the year. Is that the case? And if it is, can you just help us maybe understand maybe some of the offsets that you’re able to deploy as it relates to maybe as we’re hearing more about inflation pressures throughout the industrial supply chain right now?

And I’ve talked about this before. If we had not have the initiatives we had, we would have had COGS inflation this year of 2%, 3%, 4%, somewhere in that range. And so our own efforts around line reviews, managing COGS, PPO, we call PPO that’s basically going through and understanding the cost of our products and working with suppliers to get the right assortment and the right cost. Those efforts have had a significant impact, and that’s why we expect slightly negative COGS inflation this year.

And D. G., I mean would it be fair to assume though you’re having maybe better benefits from some of stuff considering it seems like inflation over the last couple of months has picked more and certainly maybe some of the tariffs that could be rolling through as well?

Well, and so I think I would probably tease those into two. One is I think we’re getting the benefit we expected. I don’t know that’s necessarily better than we expected, it’s quite an important benefit or one that the team has done a nice job of. I think in terms of things like tariffs that would be something the whole market would see and we would then be raising price to offset those if in fact those tariffs were to become reality. So we’re watching those closely. That would be a separate issue generally.

And then for my follow up and thinking about the incremental gross margin or gross profit contribution from medium size volume growth for you guys. Does that change at all going forward as you start to see new customer acquisition pick up in that overall mix of incremental volume, meaning maybe cost to serve those new customers is going to be a little bit higher than gaining incremental volume from existing customers? Thanks.

We’ll probably talk about that as we go forward. I think the incremental margins on that mid size customer are strong obviously, which is great. New customer acquisition does have a little bit different economics, although it would still be very positive to the business we believe.

Our next question comes from the line of Chris Dankert with Longbow Research. Please proceed with your question.

Just want to get quick update on Canada. I believe the expectation was getting margin to a positive number, and exiting the year on a run rate basis. Is 4% still the bogie or just given how that’s rolled out, that’s have been pushed further into ’19 at this point?

No that’s still -- we have the exact same expectations we had in November for the Canadian business at this point. That has not changed.

And then I guess if you just expand a bit on freight. Obviously, we’ve seen those numbers go up quite a bit. Has any of the cost indications then on that aspect how successful that has been? And then just any color around freight would be really helpful?

So I think to understand freight impact, you have to understand how our freight works. In U.S., most of our orders actually go through parcel, although not necessarily most of the dollars. And we do not own our own fleet. So we use third parties. We have contracts with third-parties. Certainly, for truckload and less than truckload volume, there is a lot of upward freight pressure right now. We don't do a whole lot of truckload and we do some LTL. And so we are actively managing that. Certainly, there's some upward pressure. We probably have managed it well, so far, I would say and we’re watching it very closely.

Our next question comes from the line of Joe Ritchie from Goldman Sachs. Please proceed with your question.

This is actually Evelyn Chow from Goldman. Maybe just starting on 1Q, I just want to make sure we have a good handle on the moving parts on gross margin. So specifically as it relates to the trade show and the COGS deflation, what benefit did you actually get in the quarter from that?

About 20 basis points in the quarter from that.

And then just turning to the timing of the contract renegotiations, it would be helpful to get some rationale as to the decision to defer. Is it decision to maybe think about different customer accounts that you’re targeting, is it a reflection of the pricing or demand environment? It would be helpful just to understand what push that out.

This is not our decision at all. This is just customer processes potentially taking longer than we have thought they might take. So we aren’t deferring anything. These are customer processes that are taking time to work through.

Our next question comes from the line of Justin Bergner from Gabelli and Company. Please proceed with your question.

Maybe you could just talk about the other businesses a bit. How is Zoro performing, any trends there or any of those sub components?

I would say that the online businesses continue to grow very strongly, and continue to have strong margins. They’re performing as we would expect. The international piece of the portfolio really is a much narrower piece of the portfolio, it's Cromwell, Fabory, China, Mexico and some export business at this point. So we've gone through a fairly long process of cleaning up that portfolio. And the good news is that is all profitable and contributing to profitability for the company. So we feel good about having the right portfolio at this time.

And then any change to your long-term capital allocation, medium term capital allocation plans with this improved guidance. I know that you continue to repurchase shares fairly actively. But any change there?

Well, I'm going to let Tom get more than three days under his belt before we dive into that. But we’re not changing anything right now, but we will continue to talk to our board about long-term capital allocation as we move forward.

Our next question comes from the line of Hamzah Mazari from Macquarie Capital. Please proceed with your question.

The first question, D.G., is just you mentioned you have not reached a large portion of the medium customer market, which suggest you’re in early innings of share gain. I was hoping you could maybe share some data points around maybe what was your market share in 2011. Last time you grew with medium customers, or maybe some other data points to verify that you haven't reached the large portion of that market, what's your customer account versus overall medium customer account. Any data points to help us understand sustainability of share gains in that segment?

I think I would point to a couple of things. One is we were $1.5 billion to $2 billion in mid-size customers at one point, which is probably 3% or 4% market share, we’re down to 2% now. So that's -- it's small in either case but we think we can certainly grow share. We think there are $0.5 million of attractive mid-size customer we have relationships with $60,000 plus of them. So we feel like there is a long runway of mid-size customers to acquire and to build relationships with.

And then just on the COGS deflation. Is the PPO project covered all your SKUs? Is that project behind you? I know we didn't have this project in 2016. I don't know if we had it last year. But just any color as to -- is that project behind you now and we’re seeing the benefits of that or is there more room to go in terms of other SKUs or revenue to cover?

So it’s been ongoing for several years. And it was a little bit new way of thinking about how we manage our assortment in COGS. I would say that every year, we run different processes for different parts of the portfolio. In some cases, the much simpler part of the process and some cases, it's more involved like PPO. But we're certainly not done, we're going to continue to work on the assortment and we always start with the assortment, and the cost of that assortment. And so that will be a consistent process for us.

And just to follow up. Did you guys have any impact from -- I know you don't give much details. But any impacts from Easter or weather in your Q1? Thank you.

So Easter would have been a very small impact and probably not worth talking about. I would say, the weather, we had 1% increase in seasonal sales a lot of that was nor Easters it’s just pounding or I guess the East. So that was most of that in March.

Our next question comes from the line of Matt Duncan with Stephens. Please proceed with your questions.

So first thing I've got, I'm hoping you can give us a little bit of clarity here on gross margin. So your guide before has been a 130 basis point decline with the 70 bp drag from the accounting change, it’s now 110 basis point decline with only a 50 bp drag implying that the underlying gross margin hasn't really changed. And yet you're updating in a positive way the price cost spread in the U.S. So how do we reconcile those two things together?

So net-net the expectation is that the underlying GP will be 20 basis points better than we had said back in the fourth quarter.

But there is a 50 bp better in U.S. price cost spread. So is there somewhere else in the business where gross margins are a little lower than you thought before?

No, that’s just the impact of that 50 bp. 50 basis points of price equals 20 basis points of GP.

And then just in terms of what you're seeing so far D. G. with organic Gamut. Can you give us any update on where you are in the roll-out of Gamut and what you're seeing in there?

Well if you call, we're actually merging Gamut and Grainger.com and building a lot of those capabilities into Grainger.com at this point. The team is working to build those capabilities and we'll provide a bit of an update at EPG in May.

Our next question comes from the line of Steve Barger with Keybanc Capital Markets. Please proceed with your questions.

With medium customer growth running the way it is, I'm curious if the incremental volumes coming through the digital channel are more through inside sales reps and how much room do you have in terms of inside sales capacity?

So it’s coming in both places and we’re seeing nice growth with the covered customers through inside sales. But we’re seeing very high growth through digital channels as well, so it’s really coming in both places. We have capacity in inside sales and we will add capacity if that makes sense, so we are not constrained if we’re getting profitable growth. But so far, we’re seeing it both places and really just continuing to dive and understand the sources of benefit.

And based on the 4Q presentation, free cash flow guidance $810 million to $850 million for the year. 1Q came in it at $97 million even with less than 25% of the projected CapEx for the year. I know it typically ramps through the year. Can you talk about how you see free cash flow coming in given the early trends?

We expect it to be at the higher end of that range for the year, the range we talked about before.

Our next question is a follow up question from the line of Justin Bergner with Gabelli and Company. Please proceed with your question.

On the gross margin 20 basis points improvement. Is that almost all mix towards medium customers or is some of that general price cost?

It’s a little bit of both. It’s a combination of both.

And then what’s driving the price cost just the better end market environment that’s allowing you to get a better spread there or are there other factors?

Market price increase is due to inflation and our ability to not take those in product cost that difference.

We have a follow up question from the line of Patrick Baumann with JP Morgan. Please proceed with your question.

I just have one more and I know this question has been asked a bunch of times in the call, and I am not sure I quite understood the answer yet. So the U.S. segment margin in the first quarter was 16.7 and it does include some favorability from items that you don’t expect to repeat for the year. is this timing related or something? What’s the underling margin in the first quarter ex those items, can you give color on that?

We don’t give color on that typically, it was good though.

And maybe just last question just on the capital allocation priorities. Will there be a relook for the new CFO coming in, or how does that typically work?

I would assume that the CFO we want to relook at pretty much everything. So yes, I would expect it would be a relook. I don’t know when the timing will occur.

Our next question comes from the line of Chris Belfiore with UBS. Please proceed with your question.

So I just wanted to touch on a couple of things that have - you talked a little bit about. So just in terms of the pricing increases versus mix and on the 1.5% full year. Can you provide a little bit of color in terms of the mix portion of that versus the price?

No, I mean both are significant contributors but we’re not providing that level of detail.

And then in terms of reaching the larger remaining portion of the medium customer base. What are the initiatives that gives you the confidence that that’s achievable? And how much of that is factored into longer term 6% plus volume growth that you guys are expecting?

Well, I mean our expectation is that a lot of that will be through digital means initially where we acquire customers through digital meter and then figure out how to best serve them. I think what we're seeing with some other digital efforts so far gives us confidence that that will be a positive contributor. And certainly, we made the change with the idea of reengaging existing customers and driving more volume through existing customers, and we reengaging lapse customers and acquire new customers, so all of that is important to our expectations going forward.

And that’s factored into the volume growth expectations that you guys have given or is that like above and beyond that?

It's factored in although it's not a big portion of the 6% in the next couple of years, the expectation is longer term and that will become a bigger portion of it.

That is all the time we have for questions. I'd like to hand the call back to Mr. Macpherson for closing comments.

Thanks everybody for joining us. Obviously, we're very pleased with our progress in the U.S. We're pleased that pricing changes are resulting in strong growth with gross margin rates above expectations. I think we're probably most pleased with the fact that we’re really developing stronger relationships with customers and all different types of customers. In Canada, we like the progress we've made to-date, still a lot of work to go, but we really see signs of progress and we're excited to get that business back to a profitable state. And then our online model continues to drive great revenue and profitable growth, and our international businesses are all contributing. And we’re very happy with the expense leverage we've seen and continue to focus, we will continue to focus on making sure that we spend money wisely to drive growth and to serve our customers, and to improve our productivity. So we feel like we are really well positioned to gain share, improve our economics going forward. And thanks for being with us today.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.