Dee Merriwether
Senior Vice President and Chief Financial Officer at W.W. Grainger
Thanks D.G. Turning to our fourth quarter 2022 Results for the total company. It was a solid quarter to finish out this year and while you notice some noise as we walk through the financials at the end of the day, we delivered great results. Sales growth in the quarter was 13.2% or 17.2% on a daily constant currency basis. Which normalizes for the impact of the depreciating yen. Our results this quarter included strong growth in both segments as we continue to execute well against our strategic priorities. This includes approximately 800 basis points of share gain in the US, high touch business, and high-teens growth in local currency across an endless assortment.
Total company gross profit margin in the quarter was 39.6%, expanding 230 basis points over the prior year fourth quarter, driven by increases in both segments and including a favorable Year-over-Year impact from year-end inventory adjustment, which I'll detail in a moment. The strong gross margin performance was partially offset by a decrease in SG&A leverage in the quarter. We continue to invest in our strategic initiatives and also incurred an aggregate $35 million in non-recurring items in the quarter. This included a one-time bonus to most hourly employees within high-touch to recognize their significant contributions towards our 2022 performance.
Excluding these one-time nonrecurring items, total company SG&A as a percentage of sales would have been roughly flat year-over-year. Despite these nonrecurring costs we still finished the quarter with an operating margin up 135 basis points over the prior year period. This profitable growth resulted in diluted EPS of $7.14 for the fourth quarter, representing a 31% increase versus the fourth quarter of 2021, another strong quarter of performance. In our High-Touch Solutions segment, we continue to see strong growth with daily sales, up 16.8% compared to the fourth quarter of 2021. We saw continued positive growth in all major customer end markets across the segment, including over 20% growth in natural resources, transportation, and heavy manufacturing.
The daily sales increased in the US of over 17% was fueled by mid-single-digit volume growth and continued strong price realization over 11% in the quarter. Canadian daily sales were also strong, up 7% or 17.2% in local days and local currency. For the segment, GP margins finished the quarter at 41.9%, achieving 225 basis points of margin expansion. During the quarter, the segment benefited from lower freight costs and continued improvement in product mix. Margin was also favorably impacted by year end inventory adjustment as we lap the unfavorable LIFO adjustment from the prior year period and also recorded a positive net inventory adjustment in the current year period.
The net impact of these inventory adjustments was around 130 basis points for the segment. Price cost spread in the quarter was also roughly neutral. Moving to SG&A. The segment delevered by about 35 basis points, which was driven by continued investments in marketing and headcount to support growth. In addition, this segment incurred $29 million in non-recurring items in the period, including the one-time bonus payment previously discussed and some accounting true-ups to close the year. While we did modestly delever SG&A, we still expanded operating margins by 190 basis points Year-over-Year, finishing with a 0.5% operating margin for the segment. This is a strong finish for our High-Touch team.
Looking at-market outgrowth on slide 10. We estimate that the US MRO market including volume and price inflation grew between nine and 10%, implying we outpaced the market by roughly 800 basis points in the quarter. This strong finish helped us deliver 775 basis points of market outgrowth for the full-year 2022. We continue to have great success in gaining share as we execute against our strategic growth engines in our high-touch model. We remain confident in our ability to deliver the 400 basis point to 500 basis points of annual outgrowth going forward and are excited to continue partnering with our customers and our suppliers to drive value for all parties each and every day.
Moving to our endless assortment segment. Reported and daily sales increased 0.9% or 18.2% on a daily constant-currency basis after normalizing for the significant impact of the depreciating yen. In local currency and local days, MonotaRO achieved 19.4% growth and Canadian US was 19.5%. Revenue growth continues to be driven by strong new customer acquisition and repeats business for the segment as well as enterprise customer growth at MonotaRO. Gross margin for the segment expanded 170 basis points versus the fourth quarter of 2022 as we saw strong price realization, coupled with continued freight efficiencies as average order values have increased year-over-year.
We also benefited from favorable business unit mix as Zoro grew faster than MonotaRO in the quarter. Segment operating margin declined 180 basis-points as favorable gross margin was more than offset by heightened SG&A costs. While Zoro operating margins were roughly flat in the quarter, MonotaRO was impacted by startup costs at the new Inagala DC as well as nonrecurring asset retirement costs related to the upcoming closure of the Amagasa facility.
As we lap these DC transition costs and ramp the new facility to pitch peak efficiency, we expect profitability will begin trending towards more normal levels as we move through 2023. On slide 12, we continue to see positive results with our key endless assortment operating metrics. Total registered users are tracking nicely with Zoro and MonotaRO combined up 17% over the prior year. On the right, we show the continued growth of Zoro SKU portfolio now at over 11 million SKUs and then in 2022, the team successfully delivered on our stated goal to add 2 million SKUs per year over the next several years.
In summary, a great job of spinning the endless assortment of flywheels by both Zoro and MonotaRO and 2022. I also want to acknowledge the exciting news that our Zoro US business surpassed $1 billion in annual sales in 2022, the first time they exceeded that threshold in their history. It's been an amazing success story since we launched this business back in 2011 and we remain excited about what Messiah, Kevin and the rest of the Zoro team will accomplish going forward.
Moving to our outlook, despite the economic uncertainty heading into 2023, our high-level earnings algorithm remains intact. Within our Hi-Tech segment over the longer-term economic cycle, we target growing 400 basis points to 500 basis points faster than the US MRO market and remain confident in our ability to do so. In our endless assortment segment, we expect to continue our track record of strong growth both in the US and in Japan. At the total company level, we target generally stable gross margin performance over time while sticking to our core pricing tenant and as we strive to grow SG&A slower than sales to help expand operating margin.
Couple this with our balanced and consistent approach to capital allocation, and we can drive attractive returns over the long term as we've done especially well over the last few years. So what does this mean for 2023. At the total company, we expect revenue between $16.2 billion and $16.8 billion with daily sales growth between seven and 11% driven by strong top-line performance in both segments. Note that this range is 40 basis points lower on a reported basis when factoring in one less selling day in 2023.
Within our High-Touch Solutions segment, we expect daily sales growth between 5% and 9.5%. In the US, we're planning for MRO market growth between 1% and 5% comprised of the volume range of flat to down 3% coupled with price inflation between 4% and 5%, largely representing the RAP of 2022 price increases. On top of a 1% to 5% market, we expect to continue executing against our strategic growth engines to achieve 400 basis points to 500 basis points of US market outgrowth in 2023.
In the endless assortment segment, we anticipate daily sales to grow between 16% and 18%, or roughly 17% to 19% and daily constant-currency when factoring in 100 basis-points of foreign exchange headwind at the segment level from the Japanese yen. Zoro is anticipated to grow within this segment range reflecting further SKU expansion and the continued focus on acquiring and retaining high-value business customers. MonotaRO is also expected to grow within this segment range in local currency as they continue to grow small businesses and large enterprise customers.
Moving to our margin expectations. We expect strong performance in both segments with stable to expanding performance and high-tech solutions and improving profitability in endless assortment. In the High-Touch Solutions segment, we expect gross profit in the year to be flat to slightly down, as we anticipate some of the price-cost favorability experienced in 2022 to unwind as we trend back to neutrality over the long term. We expect this headwind will be partially offset by freight favorability, given the improvement in container costs and the current outlook for diesel prices.
On the SG&A side, we will continue to make incremental investments toward our strategic initiatives as we view our growth algorithm. We will also have the tailwind as we lap the nonrecurring items that hit in the fourth quarter and certain expenses like variable compensation reset in the New Year. Overall, in total we expect SG&A leverage to be favorable and therefore when combined with our top-line growth expectations, we anticipate an operating margin of 16.3% to 16.8% and high touch for 2023.
In the endless assortment segment, we expect MonotaRO's operating margins to improve Year-over-Year as they continue to benefit from favorable freight efficiencies and strong price realization. At Zoro, we expect operating margins to continue to ramp as they gain leverage on their cost base. Overall, this represents operating margin for the segment is between 8.6% and 9%, an improvement of 60 basis points to 100 basis points compared to 2022. Rolling this out for total company, we expect to gain SG&A leverage of 30 basis points to 60 basis points to offset a modest decline in gross margin resulting in an operating margin between 14.4 and 14.9% for the full year.
Turning now to capital allocation. We expect the business will continue to generate strong cash flow in the year with an expected range of $1.45 billion to $1.65 billion, an increase of over $215 million at the midpoint compared to 2022. We expect to use this cash to invest in the business and return capital to shareholders. As discussed at our Investor Day in September, we plan to invest in our DC network over the next few years to support strong growth and to maintain industry leading service levels. With this, we anticipate capital spending in the range of $450 million to $525 million in 2023. This includes DC capacity investments to expand our service advantage in the US as well as the start of a new DC project in Tokyo.
We are also continuing to invest in technology to further our customer and product information advantage and will continue to spend on accretive ESG investments across the portfolio. We expect to continue to return a significant amount of cash to shareholders in-line with our historical approach. This will include share repurchases to the tune of $550 million to $700 million and a strong cash dividends, which we've increased consistently for the past 51 years and expect to do so again here in 2023.
Summarizing the high-level points on slide 17. You can see these revenue, profitability, and capital allocation expectations translate to adjusted EPS of $32 to $34.50 per share, a 7.9 to 16.3 percentage increase over 2022 and nearly double our pre-pandemic 2019 adjusted EPS of $17.29. We are off to a really strong start in January with preliminary total company daily sales up 16% or around 19% in daily constant currency. We do expect growth rates will be stronger in the first half as a result will benefit from a more pronounced price wrap.
In the second half, we will face tougher comps and have modeled a slower economic cycle. On profitability, while every year is different, we do expect gross margins will generally follow our traditional seasonal pattern with a high watermark in the first quarter and sequential declines in the second and third quarters. We anticipate SG&A will be reasonably consistent over the course of the year.
With that, I will turn it back to D.G., for some closing remarks.
