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United Stationers (NASDAQ:USTR)

Q1 2014 Earnings Call

April 24, 2014 11:00 am ET

Executives

Paul Cody Phipps - Chief Executive Officer, President, Director and Member of Executive Committee

Todd A. Shelton - Chief Financial Officer and Senior Vice President

Analysts

Daniel T. Binder - Jefferies LLC, Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Oliver Wintermantel - ISI Group Inc., Research Division

Christopher McGinnis - Sidoti & Company, LLC

Jason A. Rodgers - Great Lakes Review

Anjali R. Voria - Wunderlich Securities Inc., Research Division

John Mantia

Operator

Good morning, ladies and gentlemen, and welcome to the First Quarter 2014 Earnings Conference Call for United Stationers. My name is Chad, and I'll be your conference coordinator for today.

Before we begin, the management team of United Stationers would like to remind you that the information shared on this call may include forward-looking statements, which are based on certain assumptions. What you hear today may be affected by the risks and uncertainties in the United Stationers' business, markets and the economy. Despite the company's best efforts, actual results may be different from what is said on this call. To understand the factors that may affect these forward-looking statements, please review the cautionary language in yesterday's news release and in the United Stationers' Form 10-K and 10-Q filings with the SEC.

Also remember that the information on this call should be considered current only as of today and the company has no duty to update it. At this time, you can find the first quarter news release along with the financial slide presentation and other information relating to this call on the Investors section of the company's website at investors.unitedstationers.com. Shortly after the call ends, an archived version of it may also be found there.

As a reminder, today's call is being recorded for replay purposes.

[Operator Instructions] I would now like to turn the conference call over to your host, Mr. Cody Phipps, President and Chief Executive Officer. Please go ahead, sir.

Paul Cody Phipps

Good morning. Thank you for joining us today. With me is Todd Shelton, Senior Vice President and Chief Financial Officer for United Stationers.

As you can see from the results released yesterday, we turned in a solid quarter, posting EPS of $0.55, which is $0.01 below last year's adjusted EPS on flat sales. Operating margins were down slightly compared with last year on an adjusted basis. This year started slowly, partly due to the severe weather, but as the quarter progressed our sales growth accelerated, and we managed the difficult situation well and delivered solid results.

Todd will go through the numbers in more detail shortly. I would like to spend a few minutes talking about the Office Depot competitive bid that recently concluded. Our team did an outstanding job and we ran a disciplined process, emphasizing our capabilities and service propositions. The outcome of that process was that we were selected as the second call supplier of office products, which will result in the loss of some business.

However, I'm pleased to report that we were also awarded the primary role in supplying Office Depot's janitorial and breakroom business, which will result in new business for us. While we would like to win every competitive bid, this outcome allows us to gain new business in one of our key growth categories. There will be a transition period to implement these changes. So we anticipate we will not see much impact on our business until the second half of this year.

Todd will discuss the expected financial impact in a few minutes. Reflecting on our overall business, we continue to execute our growth and diversification strategies. As I mentioned in our fourth quarter earnings call, we cannot control the macro environment, but there are opportunities for us to grow profitably. We are focusing on helping our resellers win online, investing in our growth categories, managing our costs and continuing to drive margin expansion by shifting our portfolio to higher-margin channels and categories. We are repositioning ourselves to be the premier supplier of digitally sourced business essentials, by becoming easier to do business with, and expanding our capabilities as a single source supplier.

Part of this initiative is combining our office products and janitorial and breakroom platforms, and we continue to make progress on this effort. Our goal is to become the fastest, most convenient source for our customers through our nationwide distribution network and logistics capabilities, our order efficiency and enhanced e-business capabilities, our broad product portfolio, and our superior category knowledge and commercial expertise.

Our expansion into a broader range of essential products that are applicable to all types of businesses will offer our reseller partners the ability to serve a wider base of customers more efficiently and effectively. I am pleased with the momentum I see in our business as we enter the second quarter. Throughout 2014, we will implement our diversification strategy, manage our costs, and work hard to win new business. We'll continue to focus on the activities that have made us successful, such as taking the action to reposition our business, continuing to invest with a long-term view, including our focus on regaining momentum in our industrial business, and building the capabilities that will enable our partners to reach their full potential.

Now I will turn the call over to Todd to provide a summary of our first quarter performance. Todd?

Todd A. Shelton

Thank you, Cody. As Cody noted, our first quarter earnings per share were $0.55. You may recall that last year's earnings per share of $0.34 included a charge of $0.22 per share for workforce reductions and facility closures. First quarter sales were up 0.3% compared with last year at $1.25 billion, and we consider that a solid accomplishment. A tough winter early in the quarter reduced demand 1.5% to 2%, yet sales improved across our channels and categories as we closed the quarter.

Let me take a few minutes to highlight the specifics by product category. Industrial sales grew 1.4% to $131 million. We invested to gain sales momentum, expand our selling resources and continued to drive strong service levels. Industrial sales rose to 11% of total sales in the quarter. Safety and general industrial continued to show the most favorable trends, and we saw a slight improvement in oilfield. Welding continued to lag prior year but showed modest sequential improvement. We continue to see opportunities to expand our customer base and drive share of wallet in industrial, and we expect to invest behind these growth opportunities throughout the balance of the year.

Moving on to janitorial and breakroom. Sales rose 2.3% to approximately $333 million. These products represented 27% of our sales in the first quarter and we saw growth in most channels. The successful launch of our enhanced product line and marketing materials drove solid gains in breakroom. New and existing customers are leveraging our broader product offering to expand their businesses.

As Cody mentioned, we were selected as the primary janitorial and breakroom supplier for Office Depot. We expect incremental janitorial and breakroom sales beginning in the back half of this year, as we add the legacy Office Depot business.

Now on to office products. Total office product sales were $753 million for the quarter, down approximately 1% from a year ago. The 3 product categories performed as follows. Traditional office products sales rose 1.6% to $325 million, driven by higher paper sales, continued double-digit growth in e-tail and a rebound in government sales.

Technology sales declined approximately 3% to $353 million. As we mentioned on last quarter's call, our largest supplier changed its distribution policy early in the fourth quarter. Overall demand in the first quarter continued to be influenced by this change. We realized sequential improvement in the technology category, as our team proactively managed our customer portfolio during the first quarter, adding new business to offset volume lost in the transition. We anticipate it will take until mid-year for the supply chain to fully stabilize.

Finally, furniture sales declined 3.8% to approximately $75 million. Across all product categories, our private brand penetration was just over 16% for the quarter. Resellers use our brands to manage competitive opportunities and differentiate their businesses.

Turning to channel data. Sales from independent resellers rose almost 1% during the quarter, generating 88% of our sales. Sales to national accounts declined 3.7% in the quarter and accounted for the remaining 12% of our sales. This decline was largely driven by the severe weather and the timing of some purchases. First quarter gross margin was 14.9% of sales, down 16 basis points from last year's 15.1%.

4 primary items impacted our first quarter gross margin. First, our actions to mitigate the technology distribution policy change and the timing of some paper sales drove a mix shift toward lower margin categories.

Second, we made investments in our industrial business to capitalize on the growth opportunities we see in that category. On the positive side, we sold through a portion of the strategic inventory purchases we described on our last quarter call, reducing our inventory balance by approximately $82 million. This generated a favorable LIFO impact and caused a favorable reversal of previously capitalized supplier allowances.

Finally, we realized inflation gains on manufacturer increases.

Operating expenses were 11.9% of sales, the same as last year on an adjusted basis, as we offset inflation and continued our investments in online, merchandising and platform capabilities.

First quarter operating income was $38.2 million, down from last year's adjusted $39.7 million. Our operating margin was 3%, down from an adjusted 3.2% last year. We remain committed to our long-term goal of improving our operating margin to 5%.

Interest expense was $3.4 million versus $3.1 million last year. As we mentioned on last quarter's call, interest expense for the full year will likely trend higher than in 2013.

Inventory was $749 million, compared with $726 million at the end of last year's first quarter and $830 million at year end 2013. Ending inventory balances declined versus the fourth quarter of 2013, reflecting the sales of the inventory we acquired through strategic purchases in the fourth quarter.

Accounts payable balances decreased $79 million, consistent with the sell-through. We made solid progress in reducing our inventory investment and expect continued improvement as the year progresses.

As before, we will be disciplined in our inventory positioning to accommodate investment opportunities as they arise. Net trade receivables rose 1 day from prior year to 40 days, mainly driven by sales acceleration later in the quarter.

First quarter capital expenditures were $6.4 million versus $9.1 million in 2013. We anticipate full year CapEx will be approximately $30 million to $35 million.

Cash provided by operating activities was $1.5 million versus a use of $13.4 million a year ago. This improvement mainly reflects lower contributions to the company's pension plans.

In the first quarter, we returned cash to shareholders by repurchasing approximately 300,000 shares at a cost of $12.5 million and by paying $5.5 million in dividends. Total debt was $563 million at quarter end compared with $537 million last year. Debt-to-EBITDA as defined by our lenders was 2x at quarter end. This remained on the conservative side of our target of 2.0x to 2.5x.

As Cody noted, we expect to see changes in our Office Depot business in the second half. Our best estimate is that we will see a net sales reduction in the range of $20 million to $30 million and an earnings per share reduction in a range of $0.05 to $0.08 in the second half of this year, absent any actions we take to mitigate the loss. Looking to 2015, again, absent any mitigating actions, we estimate the sales decrease would be in the range of $75 million to $90 million, which translates into an EPS decline of $0.14 to $0.22. We continue to take a methodical and disciplined approach to managing our business, both in the context of the Office Depot opportunity and as we work to expand our relationships with other strategic customers. We've successfully managed disruption in the past and I anticipate that we will do so again. We're well positioned to pursue sustainable new business and drive growth. We are proactively managing our business by moving toward common processes, platforms and systems. This will allow our customers to conveniently source a broader portfolio of products, enable us to serve our customers more efficiently. As we mentioned last quarter, we will fund a majority of these projects through cost savings and expect approximately $2 million to $3 million in incremental expenses, much of which will occur in the second quarter.

We're encouraged by the demand acceleration that began late in the first quarter. We see growth opportunities in our industrial, janitorial and breakroom, and online businesses. And we will strive to outperform the challenging office products market. Our goal remains to show gross margin improvement for the full year. Yet we expect to see fluctuation among the quarters and face a record comparison in the second quarter.

Overall, our financial position continues to be solid and we have ample flexibility to fund our business initiatives, make additional acquisitions to reposition our portfolio and return capital to shareholders through dividend and share repurchases.

We appreciate your attention. And at this time, we'll ask our moderator to open the question-and-answer session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Dan Binder with Jefferies.

Daniel T. Binder - Jefferies LLC, Research Division

First, on the sales reduction relating to the contract with Office Depot, just for the purpose of clarification, in total, we should be adding up the $20 million to $30 million plus the $75 million to $90 million for this year and next to get the total? Or is the $75 million to $90 million next year sort of a net number?

Todd A. Shelton

Dan, this is Todd. $75 million to $90 million is the net number for next year.

Daniel T. Binder - Jefferies LLC, Research Division

Okay. So that's the total -- that's net of whatever you have gained on jansan.

Todd A. Shelton

That's right. We put the 2 together.

Paul Cody Phipps

And Dan, as you know, these things, there's a lot of factors, including timing, execution. We've been through this in the past, so it's hard to peg that down precisely, but the one thing I want to point out, that number we were quoting there, assumes we don't do anything to make up that business, and I can assure you, we are going to be focused on that.

Daniel T. Binder - Jefferies LLC, Research Division

Right, of course. The other question was on the pickup in the business later -- as the quarter progressed, how much of that do you think was recapturing some lost sales, as the weather improved? How much of it do you think was just some sort of underlying improvement either with the macro or something that you guys are doing specifically?

Paul Cody Phipps

We don't tend to see a recapture once we lose the business because it's a -- we're kind of in a daily consumption business. So what I'm encouraged about is I think there is some fundamental -- we're seeing pockets of fundamental improvement that began -- after the tough start of the year, began in March and continued into April. We still face the headwinds in core OP, but online picked up nicely, jansan picked up nicely. Some of the sub-channels within industrial picked up and government came back. I wouldn't say government's going to be a real positive story this year, but it's not a drag as it was last year. So I'm encouraged, I think there are some pockets of building momentum, too early to call it a trend.

Daniel T. Binder - Jefferies LLC, Research Division

You're investing -- it sounds like, in price I'm assuming on the industrial side, you pointed that out as an impact on the gross margin. I'm just curious, is that something that you plan to continue and I guess, what are you seeing in the marketplace that caused you to do that?

Todd A. Shelton

Dan, it's Todd. We saw some specific opportunities in -- across those 4 different sub-channels in industrial that we felt like were consistent with our long-term strategy. So we did adjust some market pricing to meet where we felt the market was, and we feel like we're seeing a nice momentum response in return for that.

Operator

Our next question comes from Brad Thomas with KeyBanc Capital Markets.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

I thank you for all the color this morning on the new terms that you guys are dealing with. Just a quick follow-up, in terms of the timing, can you just give us a little bit of better sense of how the mechanics work? And I'm just trying to get a better handle on how to model this for 3Q, I mean, is it July 1 that the contract changes and that it could be a slow impact on the third quarter? How should we think about the timing both from a starting standpoint and when it's probably fully rolled out?

Paul Cody Phipps

Yes, Brad. We're doing our best to try to help with the modeling of this. It is difficult though because there are so many factors in terms of -- like I said, in terms of timing of the transition, the execution of that transition. So what we've said is, we are planning on it to really start in the second half, there is a lot of planning going on right now, but the actual transition of the business to start in the second half. Once that starts, it just depends on how the execution goes on their side and on our side. So that's where we peg the $20 million to $30 million this year and the $75 million to $90 million next. And again, I want to emphasize that's specific to this customer situation. We're going to work real hard to close that top line gap.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Got you. And then if -- if this is a permanent revenue loss, at what point in time might you be comfortable making some expense reductions associated with this?

Paul Cody Phipps

We'll start the expense reductions almost immediately. We are already in the planning phase of that. So we look at that and say, with respect to this relationship, we'll bring down some of our overhead expenses and ongoing expenses. So that planning is underway right now. And again, it's hard to peg the timing because we just don't know at this point. And as you know, we're in the second call position on the office products business and that tends to be a higher margin, so if they go slower that's kind of a good thing for us, if you will. But we're here to support our customer in this; they made a decision and we're comfortable with the outcome.

Todd A. Shelton

I think the final piece, I would add to that, Brad, is as we see line of sight to new business opportunities, we'll match our expense ratios accordingly. If we think we're landing new things that will be a clean offset we won't go through reductions and then additions, we will transition smoothly, but that will, again, be a timing management.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

And then just to make sure I understand correctly, when you said the $0.05 to $0.08 does not include any mitigating factors, do you mean expense reductions are not baked into that $0.05 to $0.08?

Todd A. Shelton

That is correct. We tried to take the conservative view of the business if it exited and we had not taken cost actions or any offsetting actions.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Great. Well, if I can just add one last question, and I know this isn't how you want to get to it, but this will shift your business away from office products and towards jansan and industrial. In those areas, could you, maybe, give us a sense of how the pipeline for acquisitions looks? I know you have a dedicated team looking into that and your leverage ratio is at the lower end of what you guys target.

Paul Cody Phipps

Yes. We -- as we've said on previous calls, we're -- diversification is a core part of our strategy now. So we've been ramping up our capabilities there. The target areas for us are both industrial and jansan. And we've got very active pipeline there, nothing to talk about at this time, but we're -- we will be pursuing additional acquisitions, both from a capability building standpoint and a diversification standpoint.

Operator

The next question is from Oliver Wintermantel with ISI.

Oliver Wintermantel - ISI Group Inc., Research Division

Looking back, your gross margin has been stable about -- at about 15% over the last 6 years or so. With the last 3 quarters, there was a negative trend and now in the first quarter, it dropped slightly below that 15%. Has anything changed in your business model?

Todd A. Shelton

No. I don't think there is anything, Ollie, that has changed significantly. Obviously, we have to look a little bit at the weather mix, the days that we did lose would've been typically more traditional mix. And as we noted, we took some specific steps, particularly in our technology business to replace some of that industry transition with different products, different share. We felt that was a good long-term move, that was accretive. But that moved our mix -- our margin rate mix back a little bit, we still think that was the right move. But overall, I don't see anything in the overall portfolio that's a material change.

Oliver Wintermantel - ISI Group Inc., Research Division

Okay. And then you might lose some office products volume due to Office Depot, but you might gain some jansan and breakroom. Would that have net-net a positive impact on your gross margin, do you think?

Todd A. Shelton

That one is as well difficult to answer in that it'll come down to how much -- if we talk about 2014, it will depend largely on timing. As we go forward to 2015, it will depend on the mix that we pick up in the second call office products, which as Cody noted are often accretive to our current portfolio. And then ultimately the velocity of the jansan business that we pick up, we -- that was a big win. We like the trend that shows, and we think we're the right experience up to help them grow that business.

Oliver Wintermantel - ISI Group Inc., Research Division

And lastly, just the industrial up 1.4%, is that an organic number or was there still some O.K.I. business in there?

Todd A. Shelton

No, that's a pure organic number. We anniversary-ied O.K.I. in November of last year, so we're pleased to see the momentum building in industrial. And as we noted, we saw 3 out of those 4 categories make -- well, actually all 4 categories of products make nice advances in industrial during the quarter, led by the general industrial and safety starting to show really solid numbers. Welding is still a bit soft, but -- and wasn't -- didn't grow versus prior year, but we like the trends in that business and you saw us make some investments in that business as well, in both selling resources and marketing to continue that, advance that, we like the margin rates there.

Paul Cody Phipps

Yes, Oliver, that -- getting industrial back to expectations is a top priority for us, so we've got nice momentum in staffing the sales team. We're getting close to full strength there. We got a few more to make and that was the investment that Todd called out. And spend a lot of time there, but we're seeing some good momentum in sub-channels within that business, and as you know, we have a share of wallet strategy, so there is some good wins emerging there and I'm pleased with the progress.

Operator

Our next question is from Chris McGinnis with Sidoti & Company.

Christopher McGinnis - Sidoti & Company, LLC

Just, just quickly on the technology, I guess, the change in -- sequential change in revenue decline, if exit -- I guess, if you back out the loss or the change in that supplier, would you have seen growth in that segment itself?

Todd A. Shelton

Great question. Hard to tell. What I would tell you is we know of some changes that we felt we lost some business on. And we feel as though we've replaced those, and we feel as though we've taken share, in general. And that was strategic and intentional, again it was accretive. What's a little bit difficult to call in answering that clearly, is how much the industry consumption shrank in total. If you recall last quarter, I talked about the average across the year being minus 6%, this quarter was 3%. So that would lead you toward we took some share and we had some onetime -- I think some timing issues that were favorable this quarter, but by and large I would say we were -- we held our share and were slightly up. But it'd be hard to say if we would be lapping versus the prior year up just given the consumption declines.

Christopher McGinnis - Sidoti & Company, LLC

And then secondly, just digging into the industrial little bit more. With the -- I guess, if you look at April, was it a higher rate than where I guess you kind of exited Q1 or in the Q1 number itself on then just the growth rate -- just with the opportunity there, I would just think it, you have such a great opportunity, it would be a little higher, that's all.

Paul Cody Phipps

Again, as the tough part of the start got behind us, we saw a good momentum building in March that carried into April, and I'd say with the exception of the welding channel we're seeing nice momentum build across the industrial base. So we're pretty optimistic there.

Operator

Our next question is from Jason Rodgers of Great Lakes Review.

Jason A. Rodgers - Great Lakes Review

I wondered if you could talk about your thoughts on the share repurchase given the weakness in the stock, and your debt at the bottom level of your comfort range currently?

Todd A. Shelton

Sure, I'll take that one. As we noted, we purchased a little over 300,000 shares. And we consistently have a 10b5-1 in -- plan in place. We have $75 million left in our board authorization. So that will continue to be a portion of our strategy in giving return back to shareholders.

Paul Cody Phipps

I think, one way to think about it, though, we tend to follow a balanced approach between acquisitions as part of our diversification strategy, the dividend and share repurchase. So we'll continue that balanced approach as we go forward. And we don't try to time the market, we do this through a 10b5-1 plan. And that's how we'll continue to do it.

Jason A. Rodgers - Great Lakes Review

And then looking at janitorial/breakroom and the industrial sectors, I wonder if you could review your long-term growth expectations for both of those sectors. If you think they can get to mid- to high-single digit growth or we should be just expecting the kind of the low-single digit growth over the next year or so?

Paul Cody Phipps

Yes, I'll take that. What we've said is that our goal is to outperform the underlying markets. So if you take jansan, for example, we would say jansan is a GDP growth business, we'd like to beat that growth by several points. And I think we've got some good plans in place to do that. And similarly on industrial, industrial tends to be a little more cyclical, and as you know we're -- I think, we're starting to see a better trend there. But again, we think we've got the opportunity because we have a share of wallet strategy to outperform the underlying market. And we are not where I want to be yet, but I think we're making some good strides there.

Operator

[Operator Instructions] Our next question is a follow-up from Dan Binder with Jefferies.

Daniel T. Binder - Jefferies LLC, Research Division

I just want to touch on the office products side of the business. Recognizing that the core office was quite negative last year and had an easy comparison, showing positive growth at all, I think, is probably a bit of a surprise. Is there something you would point to specifically other than just the easier comparison? Was it the government piece that you think brought it up or it's something else?

Paul Cody Phipps

Dan, I think there is 3 factors, and I think, in general, there is a better economic environment, more stable, if you will. Obviously, we used to talk a lot about how employment drove office products consumption. I think that environment is modestly improving, I think that's a factor. I think, the government stabilizing, it was a drag on us last year. We're not expecting great things there, but it's not a drag right now, and in fact we're seeing it come back. It's -- we are not counting on huge growth there, but it's come back. And then the other area that really is initiative driven, I think we're doing a very good job of articulating our value proposition to our customers. I think we've got some good momentum there of how we're talking to them about how they can win and the capabilities we're going to bring to that. I think we're just at the forefront of that, but I think we're starting to see a little bit of that come to fruition for us.

Daniel T. Binder - Jefferies LLC, Research Division

Okay. And then on the technology side, you described what you've done to help mitigate some of the pressures. I'm just curious, is that -- does that involve price investment in most recent quarter, and how do you plan to deal with that next quarter, I think you face some of the same issues. Is it a rate of decline that you think you can maintain? I know you strive for growth, but given the circumstances, do you think you can do that again in Q2?

Todd A. Shelton

Sure. Dan, it's Todd. And I would answer that by saying, we saw some of our larger customers grow a bit faster, we had some onetime purchases in technology. And so rate suffered a little bit, not on more aggressive pricing, but rather the mix of the customer base. The new business that we picked up to offset some what we felt was going to be losses in general in the marketplace transition. That tended to be fairly neutral, we didn't have to get aggressive with price to pick that up, we felt it was more stable to diversify that portfolio a bit.

Daniel T. Binder - Jefferies LLC, Research Division

Okay. I missed what you said earlier, I apologize. On the expense guidance, during your formal remarks. You said that there was going to be, I think $2 million to $3 million of incremental expense this year, a lot of which was falling in Q2, if I heard it correctly. I was just -- can you just say again what that was for?

Todd A. Shelton

Sure. As we bring the platforms together, and we talk about the value we can bring to our customers, by being one of the fastest, broadest assortments of products to our resellers, we're going to bring -- we're bringing 2 of our platforms together to give them more services and capabilities. We feel we can fund a significant portion of that transition expense through our everyday cost savings, but we'll use those cost savings, typically, we would have reduced our operating expenses, we're using that to make the transition, and we felt it would take another $2 million to $3 million. We'll see a significant portion of that happen in the second quarter in expense. Although, we'll see a bit of it move into the third quarter, potentially the fourth as we slowed a little bit given the weather early in the year.

Paul Cody Phipps

And Dan, on that move, I just want to point out, we are excited about that, because we think we're going to be able to offer our customers the broadest array of office products and janitorial and breakroom products of anybody on the most flexible platform, so that investment is for that. We also are making investments in the industrial business, primarily in sales and then merchandising continues to be an area, we've made some strategic personnel investments there because we believe there is more value there that we can unlock, so those are really the essence of where we're investing.

Daniel T. Binder - Jefferies LLC, Research Division

So you, effectively, are you trying to keep in terms of dollars, expense dollars flat on an annual basis, flat year-over-year plus the $2 million to $3 million, is that how we should be thinking about the full year?

Todd A. Shelton

Yes, that's a pretty good direction.

Daniel T. Binder - Jefferies LLC, Research Division

Okay. Then my last question was regarding the independents, they seem to be growing while the nationals are shrinking a bit. I think that may have been, not been the case last quarter. Can you just give us a little color in terms of what's going on in the -- not with any specific player, but broadly the channels of the independents gaining momentum, is there something they're doing that's allowing them to take share, or conversely something the nationals are doing that's leading to some share loss?

Todd A. Shelton

Sure. I think there is a positive trend in our independents across all 3 of our product categories; industrial, jansan and OP all saw a better results. I'll point to what Cody commented on what we're seeing in the industry in general. The momentum that we've made some investments in industrial specifically as that business has a pretty high penetration in independents as compared to national business, there aren't as many national players that we're engaged with. That being #1. The -- I wouldn't put too much into the national account change, that was some timing of some business that moved back and forth, we didn't see anything that specifically moved back to direct manufacturing. We saw a little bit of competitive pressure there in small pieces of business, but not enough for us to be concerned about, given the bigger picture of what we'll face in the back half of the year.

Paul Cody Phipps

And Dan, I think the independents are proving themselves to be very fast and flexible and adaptive, so the strong independents are very quick to diversify their portfolios to sell more jansan, sell more breakroom, move online and I think that's helping them hold their own.

Daniel T. Binder - Jefferies LLC, Research Division

So when you talk about independent and when you talk about that growth number for independents, your -- I think you used to just talk about it with regard to office products, are you now including all independents across all the businesses?

Todd A. Shelton

We do. It's all the independents across all the businesses, and we should also highlight when we talk about our e-tail business, that also is in that independent section as well. So we're seeing some positive outcome there as it continue to grow double-digit.

Operator

Our next question is from Brent Rakers with Wunderlich Securities.

Anjali R. Voria - Wunderlich Securities Inc., Research Division

Yes, this is Anjali Voria in for Brent today. I think, you've talked a little bit about the SG&A side of the equation. I'm trying to better understand what has changed in the last -- with this past quarter, so when I look at the second half of 2013, SG&A, obviously, declined pretty substantially year-over-year, presumably due to restructuring savings and this came despite having the added incremental SG&A impact from O.K.I. from most of that period. When I look at Q1, SG&A is flat year-over-year with no O.K.I. acquisition drag. But I assume the restructuring benefits continue to aid the numbers, so I guess, the question to this is why was SG&A flat year-over-year as opposed to maybe a little bit less or lower?

Todd A. Shelton

Sure. I'll take that. Number one, if we go back to that restructuring conversation, we talked about $8 million to $10 million of the total restructuring happening in the 2013 horizon and then a portion of that restructuring would actually be reinvested in the business to reposition us, and you're starting to see that. We saw significant gains, we felt like we got the benefits in 2013 that we expected. You're seeing us, as Cody and I mentioned, reposition our business with investments in merchandising, industrial, our online activities. And I would call out one specific expense that was a bit of the transition in our inventories. As we reduced our inventories, we actually bring back some expense from the balance sheet that was capitalized, and that was worth about 15 bps of cost. That's consistent with the call out that we made on the margin gains that we got, but that 15 bp wouldn't have necessarily be repeating, unless we see significant reductions in inventory going forward.

Paul Cody Phipps

I think if the question is why didn't we see more leverage there? We offset inflation in the quarter, we made investments as we said in industrial and merchandising, and then as Todd said, there was some inventory recapitalization that impacted that number.

Anjali R. Voria - Wunderlich Securities Inc., Research Division

Okay, that's very helpful. And secondly, I was wondering if you could perhaps, maybe put some numbers to what the Depot and Max revenue stream look like in 2013 so I can better frame how that's impacting 2014 and '15?

Todd A. Shelton

We actually haven't broken out the specific dollars for revenues for those customers separate from the national account numbers we give.

Anjali R. Voria - Wunderlich Securities Inc., Research Division

If I could just clarify that the -- for 2015, the impact that you're suggesting, is that an incremental impact on top of what you're expecting in 2014 or is that the full year impact for 2015?

Todd A. Shelton

That is the full year impact for 2015.

Paul Cody Phipps

And again, absent any actions we take to offset that, on the expense side or on the top line revenue side.

Anjali R. Voria - Wunderlich Securities Inc., Research Division

And if I could also clarify one thing on the gross margin side, you mentioned the benefit from the inventory, you said it would be more of a Q1 phenomenon. So does that mean that will also roll off for Q2 and beyond that 15 basis points or so benefit on the gross profit line?

Todd A. Shelton

So the 15 basis points I gave you was from an operating expense impact, but it would hold true that when we reduce our inventories, we take margin back from the balance sheet to the P&L. So obviously, it will depend on what our inventory positioning is throughout the year.

Operator

Our next question is from John Mantia with Glenrock Asset Management.

John Mantia

Actually, both the question that I had were just answered, but I was hoping, maybe, you could just elaborate a little more on the competitive environment.

Paul Cody Phipps

Yes. I don't think there is anything -- significant changes to point out, out in the marketplace. It's -- we continue to see a sluggish demand environment in core office products. That, obviously, leads to everybody chasing the same demand pool. So that's -- we've been dealing with that for quite a while now, and I don't think there is anything significant that's changed there. And as we said in the other pocket -- we're seeing pockets in our business where we're seeing better momentum, I think, just to improving economic conditions. So I don't have anything significant that I would call out.

Operator

Next question comes again from Dan Binder of Jefferies.

Daniel T. Binder - Jefferies LLC, Research Division

I just wanted to just touch on a couple of other items of housekeeping. On the number of days per quarter versus last year, are there any differences in Q2, Q3 and Q4, are there any plus or minus a day or so?

Todd A. Shelton

No, Dan, all the quarters are the same as prior year this year.

Daniel T. Binder - Jefferies LLC, Research Division

Okay. And then it looked like receivables growth had jumped up a bit, anything -- any color behind that?

Todd A. Shelton

Yes. We picked up a day and that was largely driven by the fact that sales accelerated in the later part of the quarter, so obviously those balances were still on the books as we exited the quarter.

Daniel T. Binder - Jefferies LLC, Research Division

And then on the gross margin, you gave, sort of, a broad explanation. I know some quarters you are able to, maybe, parse it out a little bit more. Is there any detail you can give us behind it by item, in terms of basis point impact?

Todd A. Shelton

Yes. Let me give you a little bit here, and I'd start by saying, we still remain committed to expanding our operating income and our long-term gross margin improvement goals, despite some of the trend in this quarter. What we highlighted in the script a bit about customer and product mix, which does vary every quarter, as we noted with the timing on some paper, we took the specific actions to secure some new and accretive business in both tech and the industrial markets. We did have a LIFO change that'll be noted in our Q, that will be about 15 bps, so if you look at the balance of the minus 16, offset by the 15 of LIFO, you would end up with the combination of our initiatives, the mix shift, the inflation, and finally the inventory changes drove about a 30 bp difference year-over-year, 30 bps down.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Cody Phipps for any closing remarks.

Paul Cody Phipps

Todd and I appreciate the time you've spent with us today. We look forward to speaking with you again in July, and seeing some of you at conferences before then. Thank you for your interest and continued support of United Stationers. Thank you.

Operator

Thank you, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you.

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