Financial Data and Key Metrics Changes - Average daily sales improved by 2.7% year over year in Q4, driven by core customer growth and public sector strength [10][16] - Gross margin was 40.4%, declining 60 basis points year over year and sequentially, primarily due to tariff-driven cost escalations [11][12] - GAAP EPS was $1.1 compared to $0.99 in the prior year's quarter, with adjusted EPS growing nearly 6% to $1.9 from $1.03 [13][20] Business Line Data and Key Metrics Changes - Core customer daily sales grew 4.1% year over year, while national accounts declined 0.7% [23] - Public sector sales grew 8.5% year over year and 10% sequentially, although there was a negative impact from the government shutdown in October [23][24] - Vending machine count grew 10% year over year, contributing approximately 19% to total company sales [25] Market Data and Key Metrics Changes - Average daily sales in the quarter outpaced the Industrial Production Index, indicating strong performance relative to broader industrial trends [15][16] - Aerospace remains a strong vertical, while heavy equipment and agriculture markets are stabilizing after previous weakness [15][72] Company Strategy and Development Direction - The company is focused on three priorities: maintaining momentum in high-touch solutions, reenergizing core customers, and optimizing cost to serve [6][7] - Leadership changes are aimed at strengthening growth and customer experience, with a new SVP of Sales and a dedicated SVP for customer experience [30][31] Management Comments on Operating Environment and Future Outlook - The operating environment is characterized as stable with pockets of improvement, though uncertainty remains due to ongoing tariff impacts [14][15] - The company expects average daily sales growth of 3.5% to 4.5% in Q1 of fiscal 2026, with adjusted operating margins projected between 8% and 8.6% [32][33] Other Important Information - The company maintained a healthy balance sheet with net debt of approximately $430 million, representing about 1.1 times EBITDA [20] - Free cash flow for the fourth quarter was $58 million, representing 104% of net income, with a full-year conversion of 122% [21] Q&A Session Summary Question: Can you elaborate on the gross margin decline and supplier price increases? - Management noted that the recent surge in supplier price increases was unusual, with significant inflation occurring in a short time frame, leading to a negative impact on gross margins [50][51][54] Question: What are the expectations for gross margins and SG&A as a percentage of sales? - Management expects gross margins to stabilize and incremental margins to improve, with SG&A expenses increasing due to investments in marketing and operational efficiency [56][59] Question: How is the government shutdown impacting sales? - The public sector experienced strong growth prior to the shutdown, but sales have softened since, particularly in federal accounts, which are expected to recover once the shutdown ends [93][95] Question: What is the company's federal exposure and how is it affecting sales? - The company has about 2-3% exposure to federal government contracts, primarily in military and defense, with some pockets experiencing significant declines in October [108][109] Question: What product categories are seeing the most inflation? - Inflation is most pronounced in products sourced from China and those made of steel, such as fasteners and OEM products, while some private brands have been shielded due to domestic manufacturing [111][112]