Q4 2021 Tractor Supply Co Earnings Call

<unk> never been stronger.

We have significant momentum our team is executing at a high level and our results demonstrate that our multi year life out here strategy is working.

We're operating from a position of strength, we have a lot of exciting news and progress we want to share with you today.

Kurt and I will take you through our fourth quarter and fiscal year 2021 results.

And review our outlook for 2022 before the team provides an update on our strategic priorities.

Retail is ever evolving.

But our most important strategic asset remains constant in our team members they.

They nurture our relationship with our customers and they make US who we are and what we stand for as a company.

As a purpose driven company our team members create a sense of community in our stores and with each other.

Our 46000 team members are passionate about life out here.

Over the last 22 months of the pandemic. They have lived our mission and values to ensure that tractor supply is the dependable supplier that our customers count on.

This team has worked diligently with grit and determination to overcome the challenging operating environment they've come together to support the increased sales volume through our Dcs to our stores and online welcome new customers into the lifestyle onboard new team members and navigated.

The supply chain disruptions, we've enhanced our I T capabilities and does so much more.

My Thanks goes out to their hard work and dedication to each other our customers and the communities we call home.

Thanks to the team 2021 was a record year for our business as we successfully comped our record performance in 2020.

And as we will share throughout today's presentation, we're benefiting from the many market trends they continue to be structurally sound.

So let's recap a few of the milestones in 2021.

We celebrated the opening of our 2000 store in December right here in our home state of Tennessee.

We announced the acquisition of Orsa wind farm at home and we remain committed to the acquisition, which continues to be reviewed by the FTC and we hope you have an update soon.

The strength in our customer base is supporting our market share gains across our categories.

Our Neighbor's club program is growing with membership up 24% year over year as we transition from an affinity program to a tiered rewards program, we have robust retention rates and engagement, especially with our highest value tier members, we're committed to making tractor supply a household name.

Through our targeted investments in marketing, we're seeing a remarkable increase of 21 points in our unaided brand awareness.

We're also investing in our supply chain as.

As we announced the first of three new distribution centers over the next five years.

And in September , we announced new robust ESG goals to further reduce our carbon emissions from our operations as well as new diversity equity inclusion goals.

And the team has done a remarkable job managing through the well documented challenges across the global supply chain and dealt with an unprecedented level of inflation.

We have tremendous strength and it is broad based.

And now let me provide some specific color on our fourth quarter performance.

Our comparable store sales grew a robust 12, 7%.

And this represents a 40% stack on a two year basis.

Continuing the trend we've had several quarters now.

Every week was positive with broad based strength across all regions and all categories.

We believe we are significantly outpacing the industry and our growth and continuing to gain market share both online and in store.

Inflation.

It contributed over 850 basis points to comparable store sales as we navigated the ongoing cost pressures across the supply chain.

Where necessary, we are taking price increases to pass through some of the cost pressures that we cannot offset.

And our merchants and supply chain teams are currently navigating this challenging and disruptive environment extremely well and they're most focused on being that advocate for our customer to be everyday low price.

As we closely monitor our customers' purchasing behaviors, we're focused on product unit trends and as I said, we are committed to being priced right every day.

Consumable usable edible products, they continued to perform well with comps above the chain average.

These categories as we discussed often are needs based demand driven and they drive trips to tractor supply.

And key categories in our two area dry dog food livestock feed equine health in pet treats were among some of the strongest category to continue to perform very well.

While we were comping exceptional strength in the fourth quarter of last year for our big ticket categories, We had double digit growth again this quarter.

Looking at the cadence for the quarter December was modestly below October and November comp performance.

And as a reminder December was the warmest on record in 30 plus years.

That said, we exited the quarter strong as weather normalized and as we all know.

January has started off quite cold.

So to recap our sales performance, we had a remarkable year with consistency that gives us confidence that the trends, we're experiencing a more structural in nature.

The execution by our team has been excellent.

Our store teams and distribution centers, along with our supply chain partners have navigated another challenging year with outstanding execution of our operational playbook.

We have faced every challenge head on.

Just on controlling what we control all the while staying true to being a dependable supplier for the out here lifestyle, the strength and diversity of our comp growth in 2020 one on top of our record results in 2020 is very compelling.

As evidenced in our share gains the health of our customer continues to be very robust.

All customer segments had strong growth with the fastest growth in our core farm and ranch segment.

We continue to see stellar performance from our highest spending customers.

Our retention rates remained higher than historical standards, and it's even higher from our neighbor's club members.

One in five or 20% of our new customers came to tractor supply through our digital channels in the fourth quarter.

Reinforcing the importance of the investments we're making in this area.

We're supercharging, how we serve customers with convenience and meeting them, how they want to engage with us.

To recap.

We're experiencing more customers shopping us than ever before.

They're visiting us more frequently and when they come to shop with us whether it's in our stores or online they're spending more money per trip.

Throughout the teams upcoming presentation today, you will learn much more about our plans to continue to build on this positive momentum that we have with our customers.

Before we get to the update on our life out here strategy Curt will go through some of the key highlights of our fourth quarter and share more details around our 2022 financial outlook Kurt Thanks Al.

And Hello, everyone. Thank you for joining us we really appreciate your time and attention today to hear more about our substantial progress in our very bright future as how covered a good bit about our topline results and impressive customer trends I'll pick up with our gross margin performance.

Our fourth quarter gross margin rate was 33, 8% a decrease of 83 basis points versus last year. This was generally in line with our expectation as we expected inflationary pressures to continue in both product and transportation costs.

As has been very well documented the cost environment remains elevated across imports and domestic freight commodities and labor wages has shared with you our approach to managing through the current environment I commend our team for the great job, they're doing in the current environment.

The tractor supply team effectively offset a significant portion through our retail price management program. The fourth quarter comparable ticket growth included the benefit of approximately 850 basis points of inflation for.

For fiscal 'twenty, and 'twenty, one inflation benefited comp sales by approximately 550 basis points.

Across the network, we have been nimble to navigate the unprecedented supply chain environment and macro issues, including inflationary pressures.

Additionally, we continue to see favorability in the frequency and depth of promotions. This is due to our commitment to our everyday low pricing strategy and a continued strong demand for our product categories.

Turning to SG&A, our fourth quarter, adjusted SG&A expense ratio, including depreciation and amortization improved by 68 basis points versus last year to 24, 9%.

This improvement as a percent of net sales was primarily attributable to good leverage in occupancy and other fixed costs from the increase in our comparable store sales along with lower COVID-19, pandemic response costs and decreased incentive compensation.

This leverage was partially offset by higher wage rates incremental store labor hours to ensure we're providing a great customer service and investments in our life out here strategic initiatives.

Moving to our profitability adjusted operating profit increased 13, 4% adjusted net income increased 14, 6% and diluted earnings per share was $1 93, an increase of 17, 7% on an adjusted basis from the fourth quarter of last year.

This slide recaps, our record performance for the year all on an adjusted basis, our operating income increased 22% and for the fiscal year. We had an operating profit margin of 10, 3% net income was just under $1 billion with diluted EPS growth of over two.

25% for the year.

Turning now to a few additional financial highlights the strength of our balance sheet and the consistency of our free cash flow continued to be a position of strength for tractor supply.

Fiscal 2021 was a year of strong cash flow from operations, which totaled $1.14 billion, our balance sheet remains incredibly healthy and we exited the year with a two times leverage ratio at the end of the year, our merchandise inventories were $2 $2 billion and on a per.

Store basis inventory increased about 15%. This increase reflects our commitment to support our strong sales trends and be in stock for our customers along with an increase from inflation.

In 2021, the team opened 80, new tractor supply stores, we continue to see very robust new store economics.

For the full year, we returned a total of around $1 billion in capital to shareholders through the combination of share repurchases and cash dividends.

With another year of remarkable performance in the books, let's now turn to our outlook for 2022.

We detailed our 2022 guidance in our press release, but I want to take a few moments to comment on the highlights.

We have momentum we will continue to invest in the business through our life out here strategy, we have the opportunity to create and define our future and extend our leadership for years to come.

And this team is committed to doing just that.

We continue to operate in a time of heightened uncertainty regarding the pandemic.

This uncertainty includes product cost inflation and supply chain constraints as well as the impact that these factors will have on the broader economy and the consumer.

As a needs based business tractor supply has a long history of resilience during volatility.

Starting with sales please.

Please keep in mind that we are cycling tailwind from generally favorable weather and government stimulus principally in the first half of the year.

With that backdrop, we believe we can comp the comp as our view is that our customer is healthy even despite their concerns over the state of the broader economy.

We anticipate the insights in initiatives, you'll hear more about today, including Neighbor's club digital fusion inside lot and investments in the customer experience to contribute to our positive comp range of 3% to 4.5%.

We are planning for positive comp transaction growth. We're also planning for positive ticket growth, which assumes an inflation benefit of approximately four percentage points.

This was partially offset by an average ticket decline from lapping the strength in big ticket and other select categories from last year's stimulus benefit the.

The 53rd week adds about one five percentage points of net sales growth for fiscal 2022, and about 15 cents of earnings per diluted share.

Please keep in mind, the prospective acquisition of orphan farm and home is not included in our guidance.

We believe gross margin and SG&A will remain flattish to the prior year.

Key drivers for gross margin include assumptions that transportation and inflation pressures will continue but at a slightly lesser pace offset by our price management and continued limited promotions.

Turning to SG&A, we are planning to make investments in strategic initiatives and wages offset by leverage of fixed cost normalized incentive compensation expense reduced COVID-19 costs and operational efficiencies.

As to the cadence of the business in 2020 to Q1 is our toughest compare at 39% sales comp benefiting from favorable weather and stimulus.

In 2021, we estimated those two had nine points of comp benefit on the first quarter.

The gross margin and overall operating margin are also the toughest compare in Q1, as we had favorable mix of product due to weather and strong leverage on comps and limited pressure from inflation.

We anticipate comps to be flat to slightly positive in Q1, driven primarily from positive comp ticket.

Q4 will have the strongest year over year sales growth due to the 50 <unk> week.

Sales comps are expected to be relatively consistent in Q2 through Q4, all within our guidance range.

Our ninth distribution center is expected to begin operating in the fall.

Our outlook is for capital spending in the range of $625 million to $675 million with 70% for growth initiatives depreciation expense is estimated to increase approximately $70 million up about 25% year over year due to the investments.

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We anticipate continuing our strong track record of returning capital to shareholders. We are planning on share repurchases of $700 million to $800 million with an expected 2% net reduction in weighted shares outstanding.

To wrap up 2022 is positioned to be a great year for tractor supply. There is no doubt that tractor supply is stronger than we were entering the pandemic, we are delivering against our goals and most importantly, we have a compelling incredible plan to continue to grow.

I look forward to sharing more on our long term outlook later in the presentation.

Now, let me turn it back to Hal to share a broader update on our life out here strategy, how thanks, Kurt Wow, what again outstanding 2021 on top of a record 2020, yes. The team did a great job. They did just fantastic.

Alright, let's say transition out of a typical earnings dialogue and look to the future.

We have a very bright passed with more than 83 years of serving life out here.

We're coming off a record two years of performance.

But from our point of view, we're just getting started.

We believe tractor supply is well positioned for a bright future.

We're in the early stages of the next transformation of tractor supply.

This transformation should allow us to both grow our topline and earnings sustainably over a long period of time, while operating at a higher margin profile.

Given the robust growth of our stores and online that have experienced we've had a step function change in our business that is evident in our market share gains sales growth and profitability.

We're dedicated to investing and to continue strengthening our position in the marketplace and separate ourselves from our competition.

We're committed to creating sustainable value creation for all shareholders for our team members our customers for the communities, we call home for our supply chain and vendor partners and ultimately our shareholders.

The roots of our long history of growth were established to 1938, we.

When thinking Schmidt founded a mail order catalog for tractor parts, we opened our first store in Minot North Dakota, the following year.

We serve life out here, we're focused on the needs of recreational farmers ranchers and all those who enjoy living the rural lifestyle.

As I mentioned earlier in December we celebrated our 2000th store opening and Whitehouse, Tennessee.

This is a testament to all of our team members, who continue to support each other our customers and our communities.

Not many companies have gotten to this milestone and I doubt CE Schmidt ever imagine this milestone when he started his tractor parts catalog business 83 years ago.

Our mission and values are the foundation for our success, our culture shaped around our mission and values. We live by these principles for over 80 years, and we'll continue to do so for decades to come.

Our mission and values help us in our business decisions and they serve as guiding beacons to ensure we maintain course, even in uncertain times.

It is not something that you can put in a financial model that it makes a huge difference on our bottom line.

But there are more than that our mission and values are what you feel when you walk into one of our stores and talk with one of our team members.

We're not like other retailers.

We are a relationship retailer our customers are passionate about family their land and animals and their communities and they count on us tractor supply to be their dependable supplier.

We're able to serve our customers so well because we know our customers so well we hire our customers our team members our members up and represented above the community. They are experts in equine and welding gardening and pets, they're involved in four H and FFA or team members of the large.

Just and most important strategic asset of our company.

And I encourage you all to visit it out here to experience it for yourself.

At tractor supply, we are committed to preserving life out here for future generations.

13 years ago, we launched our stewardship program.

ESG has emerged as a universal standard for good corporate citizenship we've.

We've adapted our stewardship program to align with this direction and over the past year. We've made significant progress in our ESG efforts. A few highlights include significantly reducing our energy and water consumption.

Materially increasing the gender and ethnic diversity of our board.

Management Executive Committee and our overall team member population.

Conducting unconscious bias training for over 40000 team members.

And implementing a new six week paid parental leave policy for fulltime salary and hourly team members.

In September of 2021, we announced new robust goals to further reduce our carbon emissions as well as continue our progress on diversity equity and inclusion.

After exceeding our initial carbon reduction goals set in 2018 tractor supply established more aggressive commitments.

By 2025, we will reduce our absolute greenhouse gas emissions by 20% from what they were in 2020.

By 2030, we will reduce those emissions by 50%.

And by 'twenty 40, we're committed to achieving net zero emissions across all our operations.

Over the past two years, we rallied around the theme of stronger together and made material investments to accelerate our initiatives for D. Eni.

Recently, we announced a five year goal to support and advance under represented groups across our workforce vendors suppliers and communities.

Our commitment to being a good corporate citizen has been broadly recognized.

Recently, we were named to Investor's business Daily 100, best ESG companies of 2021.

Just yesterday it was announced we were included in Bloomberg's gender gender equality index and today. It was announced that we received a perfect score from the human rights Council.

We are committed to being a leader in ESG.

This is authentic to our mission and values, while also making great business sense.

Over our rich 83 year history. This business has a strong track record of success complemented by consistency and resiliency highlights include 30 consecutive years of revenue get 12 consecutive positive comp store sales growth and an average share price performance of $28 three.

3% since the year 2000, and this ranks as the fourth best performing stock in the S&P 500 over the last 21 years.

Thank you to our investors for their confidence and we continue to strive to earn your trust and build on it.

And today is all about that the future of tractor supply.

As demonstrated by the highlights of 2021 that you saw on our opening video our business has never been stronger.

Our team has done an outstanding job navigating the challenges and ever changing environment over the last two years.

We're benefiting from many market trends they continue to be structurally sound.

We have strengthened our customer base, and we're gaining market share across our categories.

Importantly, our total addressable market has grown materially and we see significant opportunities for organic growth as well as an increased number of new stores.

And we will continue to invest from a position of strength to capture this growth through our life out here strategy.

Out here.

Raptor supply enjoy significant structural advantages. These advantages have allowed us to gain substantial share over the past two years.

Our unaided brand awareness is 55%.

And that puts us among the best in retail and well above our farm and ranch competitors with.

With a network of over 2000 stores and nearly $1 billion in digital business supported by 8 million square feet across our distribution centers, we have a unique ability to serve our customers wherever and however, they choose to shop.

We believe no other rural lifestyle retailer provides a comparable experience.

And we have deep relationships with our vendors and in many cases are their largest customer.

Our Neighbor's club program has $23 6 million members. It is engineered to drive customer behavior and it is the foundation for sophisticated marketing platform and enables deep customer insights.

Our brand scale, our supply chain, our digital capabilities, our loyalty program all in combination.

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Strategic advantages for our business.

Our structural advantages are the result of long term investments in the foundation of our business and the deep seeded values embedded in our culture.

These routes have enabled us to adapt in the face of the pandemic and the ripple effects of other impacts like the tight labor market unprecedented inflation and supply chain challenges that are impacting our industry at the same time.

Broad based macro category trends towards self reliance rural revitalization pet adoption homesteading. These things are benefiting our business and when you add to that the acceleration of trip consolidation as people are shopping single retailers more.

Think about the adoption.

Of digital trends and you put all these things together and they're working to our advantage as customers value us for our proximity as a one stop shop growth.

These lifestyle changes are accompanied by long term commitments by our customer to care for and maintain their land and animals.

We believe these trends have staying power and are structurally and substantially sound.

These changes align with our investments in the business and dovetail well with our strategic positioning as the dependable supplier for life out here.

And as the dependable supplier for life out here, we offer a wide assortment for our customers lifestyle.

Our total addressable market is large and growing and it's heavily fragmented.

In 2019, we estimated the total addressable market for tractor supply to be about 110 billion and we share that with you in October of 2020.

Today, we estimate our addressable market to be much larger at 180 billion.

The tailwind and structural changes that we just outlined earlier contributed an estimated 30 billion increase and the Tam.

And that's a 25% growth over the past two years in our market.

But by comparison, if you look at our business, we grew 50% over the past two years and consequently gained significant share in this market now in addition to our core market. We've expanded our Tam by over 40 billion, given our investments and initiatives like project fusion and <unk>, which have expanded.

I ended our category offerings in areas like pet and lawn and garden.

With a market share of about 7% of this $180 billion market, we see substantial opportunity for growth.

In an increasingly attractive market, both deepening our relationship with our current customers as well as reaching new customers.

Given our total addressable market growth continued strong performance of our new stores and our strategic initiatives. We're revising our long term store targets from 2500, 2700 tractor supply stores in the United States and we're excited to serve 700 plus more communities over the next decade of note.

We view the <unk> acquisition to be accretive to our overall store growth opportunity.

Opening highly productive new stores is a core strength and competency of tractor supply.

We continue to have strong new store productivity metrics with performance outpacing our historical investment thesis and.

And our stores are profitable in year one.

With compelling return we continue to have significant runway for growth with high return new stores.

Given the attractive market, we're investing in growth through our life out here strategy.

We shared this strategy with you in the fall of 2020 and as a reminder, there are five pillars of our strategy and they include deliver legendary customer experiences, which focuses on driving greater traffic and increasing conversion.

Number two advancing our one tractor capabilities to reach new customers and deepen our connection with existing customers they offering a truly omni channel experience.

Number three <unk>.

Operator, tractor way, which enhances the productivity and efficiency of our existing retail assets.

Four.

Go the country mile for our team to ensure we continue to support and show our appreciation for our team members, who drive our business every day.

And then number five generate healthy rich shareholder returns, which reinforces our commitment to effective stewardship of our shareholders' capital.

To support these transformational growth initiatives, we increased our capital investments from $275 million in 2019 to over 600 million in 2020 one.

We made excellent progress in year, one of our strategy and are on track with our expectations.

We continue to be very excited about our strategy given our customers' response the performance of the key initiatives and our robust long term growth prospects.

Two key tenants of our life out here strategy or the fusion and Si bought initiatives, they're designed to drive space productivity and sweat our existing assets project fusion is a multi year store remodel program. The both revitalize the store environment.

And introduces an improved layout and expanded offerings.

These changes are designed with our customer and our team members in mind to drive productivity.

Through areas like enhanced experiences like pet washes and wellness clinics.

The operational improvements as well to better support growing demand.

Things like our feed rooms.

Also though driving space allocation tradeoff, such as the service desk.

But also widening our assortment across departments like apparel and animal and tools.

Complementing project fusion is the sideboard initiative.

Which transforms and expands our existing outdoor sidelight retail space to drive greater productivity and convenience with the addition of a garden center and a drive thru pickup line to support our Omnichannel technology investments.

Importantly, these projects are delivering on the return expectations with material sales lift.

Existing customer sentiment improvement and new customer acquisition.

By 2026, nearly a 100% of the store base will be in the fusion layout and 60% to 70% will have had executed the sideline initiative in it.

By 2022, we plan to exit the year with nearly 30% of our chain in the fusion lay out and over 15% of our chain with sidewalk.

And Seth will take us through more detailed walk these exciting transformation later in the presentation.

Another key component of our life out here strategy is the enhanced focus on customer service.

This isn't just about training, but also about enabling our team members to spend more time with our customers.

To accomplish this we rolled out the fast program.

Field activity support team and.

And we started this program with 1200 team members in late 2020.

And we expanded it by another 202021 and plan to add three to 400 more team members in the first half of this year.

This team's sole focus is on merchandising execution.

This specialization improves our store merchandising, while simultaneously, enabling our store team members to focus more time on customer service.

And with over 95% on time, playing a gram completion, our stores have never looked better or been more shop able for our customers.

And this team enables improved store productivity and is funded significantly by our vendor partners. It's truly a winning winning program for all of our stakeholders.

And John will share more details on our initiatives to fuel our legendary customer service later on.

Tractor supply is fortunate to have a highly engaged and loyal customer base last year as we've discussed we converted our neighbor's club from an affinity program to a tiered points based rewards program simply said the more you spend the more you save and this conversion is resonating with our customers and year over year, we've added.

4.6 million new customers to the program and we're seeing broad strength.

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More customers than ever are shopping at tractor supply.

And these customers are making more trips and are spending more money per trip.

We're expensing experiencing strong retention of customers that have shopped with us over the last 12 months, our retention rates continue to run above our historical standards.

And I'm excited for you to hear more customer insights and details on how we intend to continue engage our new customers.

And drive retention of our existing customers from Christie.

More than five years ago, we introduced our one tractor strategy that drove significant progress in providing a seamless customer experience.

Our focus on engaging with our customers anytime anywhere and any way. They choose has allowed us to reach nearly a $1 billion in ecommerce sales last year.

Our customer is deeply engaged with tractor supply and this transformation that's happening across the whole shopper journey.

Our customer behaviors continue to evolve embracing convenient ways of shopping with a continued preference for mobility since launching our mobile app in late 2020, we've had 2 million plus downloads with the App already 100 plus million dollar platform for us.

We remain focused on introducing new capabilities, improving the shopping journey and ensuring we have scalable platforms.

As we enter 2022.

We are more excited than ever about the future tractor supply.

We see significant opportunity to continue to grow the business expand our competitive moat and drive business productivity, all the while creating value for our shareholders.

As we've completed the rollout of fast and Neighbor's club, we freed up some bandwidth and that's going to allow us to focus on two new initiatives as long as evolve the focus of our digital initiatives. The first one is lead with legendary service, we consistently rank in the top 10% to 20% of retailers on customer service right up there with them.

Best of them, but our goal is to be number one.

And we have all the assets to achieve it and you've got the right format. The right team the right culture.

And we have made and will be making investments in our team and their technology and their training.

And you're going to hear more from John on our plans in this area in his presentation.

Increasing mobile engagement.

Mobile will be the next mode that we create around our business, we're going to convert our nearly 24 million neighbor's club members into power users.

And Rob will share more highlights of our plans to accelerate our growth and achieve more than 2 billion in digital sales by 2026.

Deliver on Q.

We've talked often about how important this business is to us.

We have the number one market share in bag fee and we're in the top five in pet food.

And given our growth in these categories over the past two years.

We've increased cubic volume by 26% running through our stores compared to 2019.

These are destination categories and it is critical for us to ensure we have capacity for future growth.

And importantly that we are the lowest cost to serve in the market in these categories.

In our supply chain is a critical differentiator for us to deliver on Q and.

And Colin will share more details on our ability to continue to widen the gap with our competition.

Given our recent performance and the significant opportunity that I've just outlined we're updating our long term guidance.

We're maintaining our sales outlook of plus six to plus 7% in spite of a much higher base of sales, we're increasing our operating margin guidance to a range of $10. One to 10, 6% and that's an increase from our previous guidance of nine to nine 5%. We're also increasing the top end of our range for EPS growth to 11.

Per cent.

And notably we are increasing our dividend payout to 40%, while maintaining our commitment to share repurchases and we're spending approximately 650 million annually of capital. These are aggressive, but achievable targets that will create significant shareholder value over time.

And Curt will share more detail as he focuses on our ability to deliver strong and sustainable total shareholder return.

From our founding 83 years ago.

Tractor supply has proven to be a business model that has stood the test of time to be resilient and differentiate it.

This business has shown the ability to evolve over the years to reflect our customers' changing needs.

And we're investing to continue to evolve and capture the significant opportunities for growth.

And underpinning our strategy is an experienced retail team that knows retail and our culture and our team members and they are passionate about the out here lifestyle.

As we enter year two of our multi year life out Street life out here strategy, our business is substantially stronger than before the pandemic.

Our resilient and differentiated business model allows us to capitalize on the structural consumer trends benefiting our business with a long runway of growth ahead of us.

We have momentum in our business and our results demonstrate that our multi year life out here strategy is working.

We will continue to evolve our business from a position of strength.

And with that alternative as a team to walk you through more detailed plan. Thanks, so much.

Thank you Hal building Unhouse outlook on the positive momentum of our life out here strategy as senior Vice President of marketing Christy cores that glut Christie will share insights on our potential to capitalize on consumer behavior trends that emerged during the pandemic and several exciting initiatives to forge a deeper connection.

With our growing customer base Christy.

Thank you Mary Winn and good morning, as you've already heard from how and Kurt our future at tractor supply is extremely bright and promising that's why I'm excited to take a few minutes and give you an update on our customers provide some insights into what we know about our ever expanding marketplace and how we are using our industry, leading neighbor's club.

Graham to drive our growth. Most importantly, we continue to see significant growth in the farm and ranch market, which as previously mentioned, we estimate to be more than $180 billion and the pandemic continues to reshape and rewrite customer behavior and it's why we see such a large migration of customers from.

Urban centers to rural and suburban areas moving into tractor supply's neighborhoods.

We also see customers homes become their sanctuaries during the pandemic inspiring more home outdoor living and land projects and we only see that continuing as hybrid workforces are the new norm we've.

We've also seen more pets become family members with the record adoption across the U S.

And with the pandemic disruptions to daily life, and the broader supply chain, we're recognizing a growing interest in self reliance sustainability and the desire to consolidate shopping trips.

And this migration into a more rural self reliant lifestyle.

We call life out here, we believe is a continuing cycle with lasting tailwind.

And according to our analysis, we have the potential to capture the interest of more than 40 million additional customers in our trade areas, who do not shop at tractor supply today.

So let me share some insights into our current customers.

We're seeing significant expansion with increased participation from our core farm and ranch customers and a surge in new customers.

Core farm and ranch customers increase the number of animals and pets, they care for and they expanded their gardens and land projects.

They rely on tractor to be open and ready to support them and they prefer tractor over our competition.

Based on data from Ernest research since the onset of the pandemic tractor supply has seen six consecutive quarters of outpacing the farm <unk> ranch channel and market share gains.

And beyond our core customer we've seen record levels of new customers as more move into our trade areas adopt new pets startup flock and grow gardens.

What both customer groups share is a passion or growing passion for life out here and with the increase in share among existing customers and the addition of so many new customers our investment in and growth of the Neighbor's club to a best in class loyalty program. This past year.

Is key to our success.

We've re imagined our neighbor's club program to enhance our neighbor's club members benefits and experiences.

Based on feedback from our customers, we relaunched the Neighbor's club program last April creating a tier based program, enabling members to earn loyalty points tied to their spending levels. They can also access tier specific benefits such as same day delivery and trailer rentals in essence, the more they spend.

The more benefits they receive and we continue to enhance the program with new benefits and member exclusive experiences every day well.

We say this program is another differentiator for tractor supply.

No other farm <unk> Ranch program offers the scale and exclusivity of benefits. The neighbor's club can offer our members. The response to our Neighbor's club enhancements continues to be overwhelmingly positive as it increases customer retention and market share.

Our program enrollment is now 23.6 million members strong and we added over $4 6 million members in the last 12 months.

Our members represent 70% of our sales they shop more frequently and they spend three times more than non members.

We also annually retain over 97% of our high value Neighbor's club members and 90% of those members were active in the last three months.

Our overall customer retention and recency is industry, leading in addition, we're seeing new customers joined the program at record levels with over 30% of all new customers joining with their initial purchase.

We also continued to gain extremely rich and valuable insights about our customers and their shopping us more frequently and across more categories. For example, taking.

Taking a deeper dive into our core customers, we've seen explosive growth in our high value farm and ranch customers. The number of extremely loyal customers, those who spend greater than 1000 per year has grown over 50% since 2019.

While many of these customers rely on us for feed and supplies to take care of their growing pets and animals. We've learned they also shopped more broadly across our store as part of the continued change to consolidate all of their shopping trips.

We discovered their spending with structural across more high repeat categories, including pet food gardening tools home and outdoor living.

Supporting their self reliant mindset for their families homes animals and land.

Here's a snapshot of a customer from our highest loyalty tier preferred plus.

Jake has been a tractor supply regular for years, but we can see he's changed behavior over time shopping more of the store and more categories each year.

Many of them repeat consumable categories. He now spends approximately $4500 each year and shops over 30 times.

Analysis of his transaction shows he regularly shops or pet food and feed categories, but he also frequently expand tis basket with purchases in other categories like gardening and outdoor living.

It's so exciting to see millions of our high value customers shop us in a similar fashion.

But also playing a meaningful part in our growth are the 19 million new customers. We've welcomed since the beginning of the pandemic.

Many customers made initial trips in 'twenty 'twenty for home and yard improvement projects to shop for pets as well as for initial purchases in the backyard poultry and gardening categories.

Because of our Neighbor's club program, we quickly recognized this surge of new customers early in the pandemic.

And we were able to develop a dedicated relevant marketing messages to connect with these new customers drive awareness for our pet home and poultry related offerings.

These efforts help here a record number of our new customers with the highest recorded retention.

Over 55% of our new customers returned to tractor supply for another purchase.

These 10 million plus new customers are engaging and high repeat activities such as starting a new garden, adopting a new pet or starting a flock.

And to bring these new customers to life the data from our Neighbor's club regarding our new customers show they tend to be younger.

More female and digitally engaged.

We're also seeing more millennials, who represent 30% of our new customers.

Sarah is an excellent example visit is for the first time in the early part of 2020.

She is one of our more than 1 million customers, who started a backyard flock during the pandemic.

And that initial poultry trip led her to buying pet food clothing, and gardening supplies from us.

Like many new customers entering the poultry category for the first time, Sir and needed and continues to need trusted advice and expertise regarding her new flock and we're providing that.

Whether it's information we're sharing through our digital channels are our store team members. We believe that our welcome to life out here marketing campaign, and our offering and expert know how in the out here lifestyle is a significant differentiator for us.

I do want to point out something very important here, while tractor supply is enjoying record highs for attracting new customers. We're also seeing all time highs in their basket size.

Average sales for new customers in 2021 was up $26 from the prior year marketing expansion of nearly 40% since 2019.

The rich insights we gain from our Neighbor's club members also allows us to personalize, our messaging and a highly targeted and relevant manner. We can effectively segment our customers based on their interests, because we know which categories they shop.

Moreover, we know where they live and the local events they are passionate about.

This continues to allow us to personalize our messages to each customer based on their specific interests and reasons for childhood shopping tractor supply.

Our core farm and ranch customer is more likely to receive content regarding livestock and equine feed or bulk pricing on fencing, while our newer customers might receive pet or poultry messaging.

We have robust capabilities to target these personalized messages across various marketing channels and at significant scale in.

In digital advertising within our mobile apps.

Males push notifications, social media text messages and our sizeable website.

This ability to deliver highly relevant messages to the right customer at the right time has allowed us to build an even stronger relationship with our members.

Another major shifts we've made to capitalize on our rich and growing customer opportunity is a transition from traditional promotional print marketing to highly targeted and broader reaching brand building TV streaming and digital support.

Early in the pandemic, we expanded our brand marketing to leverage National cable news and digital streaming while also partnering with marquee TV properties and high impact programming that resonates with our customers. It was an approach centered on programs that genuinely support our.

Customers passions and life out here.

Clothing, the wildly popular Yellowstone series, it's prequel 18, 83 professional bull riding.

NFL sports and home networks, like discovery and H D T V.

Looking ahead to 2022 we plan to lean deeper into this strategy as we've seen it drive the significant increases in key brand awareness metrics.

At the beginning of the pandemic, we recognize that we were one of the best kept secrets in retail for new customers. Then there's more new customers shopped with us and became interested in living life out here, we can do to grow awareness with our television and digital strategies.

We know from our customers that our assortment convenience and knowhow, our significant reasons that they shop at tractor. So we highlight these and all of our marketing.

And as the metric show, our expanded and targeted marketing efforts are paying off our unaided brand awareness is up 2100 basis points cut.

Customers considering tractor for their lives out here needs is up 1000 basis points and we've seen a 25% increase in our ranking as their favorite retailer of choice.

These are remarkable results, we're incredibly excited about particularly as we look to future growth.

We're continuing to elevate our brand perception as our customers' retailer of choice and are well on our way to making tractor a household name synonymous with life out here.

So looking ahead, here's our game plan.

First tractor supply as part of a robust growing and attractive markets, we see significant opportunity for durable and sustained growth.

Second our customers are extremely engaged in oil and return again and again, making us their retailer of choice for life out here.

Third Neighbor's club is an industry, leading loyalty program continuing to grow at a record pace and is a key differentiator that allows us to drive expanses continuous growth of our highly engaged customer base.

We have one of the best marketing technology platforms in the industry, allowing us to customize messages that cultivate loyalty.

And last we will continue our meaningful investments in high profile marquee marketing partnerships reinforcing our position with our customers and all of those potential customers that we are synonymous with life out here.

I look forward to answering any questions that you may have in our upcoming Q&A session in just a bit but before we go to John to talk about legendary customer service, let's hear from one of our customers.

I wanted to take a minute and let you know about a great experience that I had to tractor supply last week as I was heading home I stopped by the Oak Hill store to see if you had some fencing and stock that I wanted.

As soon as I arrived I wish we didn't have to immediately by one of your employees the items I needed. We're in stocks, but I realize that I was in the wrong vehicle and we need a trailer to haul everything home upon getting my truck from the house I returned to the store and was met by a friendly and helpful manager.

Even at checkout, the cashiers were kind and attentive to me. It's this type of customer service that changes a single purchase customer into a lifelong exclusive customer.

At a time, where customer service seems to be taking a back seat the TSS employees and the managers interaction with me was a testament of how a company should treat a customer.

Thank you for doing it right.

Suzanne.

I love hearing stories like that from our customers.

Get a bunch of notes every week from our customers in their team members also another one wasn't even just a few minutes.

Well I'm excited to talk to you today about something I'm very passionate about taking care of our customers.

I believe we have the best customers in retail and our job is to always live up to their expectations at tractor supply enables them to live on their terms.

I will walk you through how we are going to lead with legendary service in 2022 and beyond.

We're going to talk about our mission.

Duran the country mile.

Our stores team members and customers.

Leading with legendary service and our game plan for growth.

Our mission is to work hard have fun.

And make money by providing legendary service great products at everyday low prices our store team members pick the words legendary very serious that.

That means your visit will be the best at any given time in any one of our stores.

Our team members are empowered to do whatever it takes to support our customers.

Our mission to be legendary is not new to us though.

My 24 years with tractor supply, we have had a dedication to be legendary.

We have been on a journey to deliver on this promise to our customers for many years.

Looking ahead. This is a significant step up in our commitment to legendary customer service.

We have strong foundational values and our culture, both in the field and at the store support center that puts the customer first and our decision making.

In 2019, we launched our tractor way operating model with continuously optimize the relationship between past time customer time, enabling more time for service.

Further we continue to invest and deliver on our omni channel roadmap to keep pace with our customers' demand for convenience and their store team members ability to execute our new offerings things like buy online pick up at store ship to store and their drive throughs.

Today above all things that we do it's our team members that make a difference to our customers.

When you have a horse you love talking about your horse when.

When do you will you love talking about welding and hold world.

That's why we hire our customers they live the out here lifestyle and his team members can provide seasoned advice.

We have a customer service approach called Dura garage are way of life, It's our battle Cry and it's how we drive our results.

The gene you as for Greening every customer should be greeted with an open I'd agree with you.

The USB and cover our team members ask the right questions to better understand exactly what the customer is looking for.

For example, the age of your dog, how many acres are you gonna be mowing once we know what the customer needs. We can move into the R. For recommend recommend is where the power of the Red Vest comes in and our team members Susan advised makes a difference.

Our customers Trust us to give them the best product recommendation.

It is for ask this where we offered to help the customer load up their purchase or take it to the register for them.

Our mobile P. O S units, we can ring up our customers anywhere in the store.

Our team members know, what we value and what we reward we value people, who make commitments and keep them.

Arc limits matter and our promise to be legendary as more than just words in our mission and values.

We have strategic programs, let's high five and a country mile program that reward desired selling behaviors.

Hi Fi was all about uncovering and recommending.

Our country mile program is all about recognition well.

Whether its peer to peer team a team or a supervisor to team. This program is an opportunity for team members to recognize one another for going above and beyond and our commitment to the customer and to each other.

Last year alone, we gave over 300000 country mile badges.

By rewarding what we value we are further positioning ourselves as a relationship retailer.

Let me give you an example about Jacob our team member in our Jonesboro, Tennessee store.

This was from Jacobs manager.

I had a customer come to me. This morning to let me know what a great team member we haven't Jake.

Last week, the customer went outside about 730 P. M to find they had a brand new baby goat.

The mother was not allowing it to nurse so they jumped in their vehicle and drove straight to our store.

They barely made it before we close but they realized once they were there they had forgotten their wallets at home.

Jake said, that's not a problem and pay for everything the customer needed to save the baby goat.

The customers came in this morning, it's a P J back and let him know that the babyhood survive it was doing well.

Jake was taken aback and said he had truly done it out of the kindness of his heart Jake.

Jake Thank you for demonstrating what true kindness and community is all about.

Our customers are special to us at tractor supply I get thousands of positive letters from customers with great experiences insiders or just like that one.

What our team members do inside of our stores every day is making a difference.

They love this lifestyle because they live it.

Tractor supply is already really good when it comes to the customer experience, while we're on the journey to being legendary and being legendary means best in class, we hire for winning attitudes were enhancing our training for selling skills and product knowledge.

The size of our box allows us to see the customer at any given time and get them out of the store as quick as they would like.

We are moving all three of these metrics to be the best.

Our trucker way operating model is the foundation and will continue to be.

Our process efficiency mindset is what allows us to compete on key aspects like team member knowledge and friendliness without over investing in payroll do.

Through the tractor way, we unlocked value for our customers through improved on shelf availability and more efficient processes that create a time for selling.

Our field activity support teams are another example of applying the tractor way philosophy to remove task work from the stores and make that work more efficient for the teams that are doing it.

Our fast teams are doing an outstanding job and we are seeing significant increases in completing test on time.

By removing this highly variable work from the stores and giving it to the specialized team. We have again provided more time for our store meat team members to execute <unk>.

We have spent 2021 adjusting the tractor way operating model to reflect the needs of our higher volume stores.

We've also begun to further defined roles and responsibilities and related metrics, including that of the sales team versus the operations team versus the fast team.

Expanding on these delineation of roles, we have optimized our scheduling to define when work to get done and what type of work is best done off hours, which allows us to sell during the power hours.

We're also working on one of their tests, we can take to eliminate to repurpose to make sure that we are selling and we're an hour of labor investment is best spent we will measure this operating model through metrics, we know work like dura implementing new traffic counters and measuring conversion to better optimize our scheduling capabilities to identify.

And coat lost sales opportunities.

This is a full contact retail in a tractor supply we believe in belly to belly selling.

We know that execution of Bureau has a direct impact on our customers' experience sales and our units per transaction.

In fact, when all four stuffs agoura are executed we see an over 15% increase in that transaction.

As such to support our operating model changes, we will heavily focus on improving our training and ability to execute Bureau.

Our leadership team will champion this program through how we message what we message and our actions always starting with the customer and the why behind what we were asking.

We will begin this shift with the relaunch of euro at our upcoming leaders meetings and annual sales meetings.

Everyone in operations, we will be talking about the customer experience and Goo rah.

There'll be new garage sales leader scorecards and improved visibility for our district managers.

All of our communications meeting celebrations will be centered around the customer experience and euro.

We will also train to drive confidence in executing here are part.

Part of this trade will focus on vendor sponsored product training selling skills training and product knowledge training.

On her team members birthday, as we track the rise them. They will have enhanced <unk> training to make sure we onboard them the right way and we continue to invest in her district learning centers to make sure our management teams understand how to coach selling.

Enable convenience is all about equipping our team members to sell both within the four walls of the store and beyond.

Our single integrated team member mobile device is putting all the power of information in the hands of our team.

We continue to expand on theatrical capabilities for driving sales and team member efficiency.

Our team loves these communication devices, and we are already seeing efficiency and communication improve.

We are getting to our customers faster than ever before.

We are teaming up cross functionally to bring the best tools to our team members and customers like things like way finder conversion metrics and ask the expert.

And we are building upon our current strategy to rollout greenhouses with drive throughs.

Alright, so here's our game plan for growth and how we're going to lead with legendary service.

Our team members provide a differentiated relationship driven customer experience.

Our customers trust, our team members' seasoned advice and product recommendations.

Our operating model will be used to create more customer time.

We will continue to reduce test and moved task work to off peak hours, new and existing technology will be used to create even more convenience for our customers.

Our team members are our number one strategic asset they are the backbone of this company, we will drive productivity be more efficient with tasking and service leverage expenses continue investing in our fast team and we are going to deliver on our commitment to provide legendary customer service to every tractor supply customer.

Sure.

We will be best in class customer service.

Thank you John will take a moment here for a quick break when we return Chief Technology Digital Commerce and strategy Officer, Rob Nails will share details on consumer facing digital initiatives.

<unk>, Vice President and Chief Merchandising Officer, Seth East that will provide an update on remodeling effort inside and outside of our stores and our chief supply chain officer, Colin Yankee will share our vigorous efforts to meet strong consumer demand and a challenging supply chain environment, We'll see you back in a few minutes.

So all you folks who have recently discovered the joy of life out here welcome from your new neighbours at tractor supply out here as anywhere you can have an extra home or three.

Where the fruits of your labor or vegetables.

And if the best seat in the house isn't in our house well whatever you're into you can do it out here.

And tractor supply has all of the suppliers, you'll need to make your corner of out here feel miles away from in their tractor supply everything for life out here.

I strive for authenticity strive to show people the world I grew up in.

The jobs and the American West haven't changed very much over the past century, you still do the job the same way in order to get food on the table and involves your hands.

Gather them together, we're going to push them around and put them in this round and then that's it everybody right.

Yes.

You were apparent to the CD rates you wake up in the morning, you take care of everything you've fetus waters doctorate teachers.

To this way of life at this way of life gets back to you.

Every great storyteller told stories in the world as they now I don't try to create dramatic stories are dramatic characters or try to create real scenarios based on people, who I've known who ever imagine and then I hold a mirror up to that world and I believe that if I make something look real it will be dramatic because life is dramatic.

Keep watching Yellowstone unparalleled Edwards brought to you by tractor supply company everything for life out here.

Life out here goes back as simpler times when your trusted your hands to feed and fix everything your family needed out here as the land has been shaped by generations of hard working.

Planting fields, raising their herds and watching their families group since 1938 tractor supply has been a neighborhood of those raising cattle core cutting horses ready to help you get back to similar dollars tractor supply for life out here.

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Welcome back a reminder, that a Q&A session with members of our executive team is coming up after this round of executive presentation. So please stay with us joining us now to share how investments in our digital platforms are providing better customer experiences it's Eva.

P <unk> Chief Technology, and digital officer, Rob Nails. Thank you Mary Winn I am very excited about being here today to talk about the activities that we will continue to grow our legendary customer experience. It's great to be here, we have made significant opportunities to continue to grow and capture.

And build momentum on our digital business, we have seen over the past few years.

We have accelerated our digital journey focus on creating a seamless experience regardless of how our customer shops anytime anywhere any way when we introduced our life out here strategy. In 2020. This continued to be a focus for tractor supply continuing to advance our one tractor digital capabilities.

Over the past 12 months, we have made significant progress on this journey. The team is living our values every day driving change taking initiative and being accountable to the expectations of our customers and our shareholders introducing new capabilities to enhance our customer interactions such as curbside.

Pick up in our customer mobile App, we have taken a mobile first approach in everything we do using geo fencing, which enables store efficiency and enables fast and convenient service for our customers. We have also worked to enrich the customer experience across browse search and checkout, we're leveraging.

The rich data from our Neighbor's club loyalty program to serve personalized and relevant content to our customers.

And we have expanded the ability to purchase from inventory beyond our stores, allowing our customers to buy items that are in transit from our D. C to our stores ensuring that they have access to the products they always need.

You have heard Hal mentioned, we continue to grow our online presence completing our 38th quarter of double digit growth our customers continue to leverage the digital convenience.

Buy online pick up in store and curbside pickup.

We have seen continue adoption of our customer mobile app as we rolled out capabilities that provide convenience and interaction with our customers within one year, we have grown 10% of ecommerce sales occurring on the mobile app, we have grown visitors to our website and our mobile app nearly 20 per.

Percent year over year, and attracted 1.4 million first time customers through the digital channel over the past 12 months, we have driven over 2 million downloads within the mobile app and even with this digital growth that we've seen there is still a tremendous opportunity ahead of us compared to other hardline.

And specialty retailers, we are definitely the digital leader in the farm and ranch industry.

In just two years, we have doubled our digital sales now representing 7% of our total business and have plans continue to grow share to over 15% by 2026 exceeding $2 billion of our total sales I'll share more about our plans for growth today.

For which focuses on our mobile experience that house here earlier.

Our customers' behaviors continue to evolve embracing convenient ways of shopping and continued preference and mobility.

Over 70% of our customer interaction with us on a mobile device outpacing the industry and their satisfaction directly ties to the convenience. The mobile interaction provides our customer satisfaction scores are 500 basis points higher when our customer shop on their mobile App, we will differentiate our digital.

<unk> for our customers through the mobile App for example, we deployed the ability for a customer to request propane refill from the at.

This capability simplifies the purchase process, giving the customer the ability to notify a team member that they need assistance with the refill there a tap of a button a team member is notified that the customers in the parking lot and need to refill. The team member can acknowledged the request proceed to the refill station and complete the transaction.

And then on a mobile device, making it simple and convenient for the customer.

By extending the team member and the customer interactions beyond the store, we are able to improve the customer experience by providing two way communication, allowing the team member to know and plan for the next customer interaction, which ultimately leads to the legendary customer experience. So let's talk a little bit about what's ahead of us.

On the digital front our activities in 2022 will focus in three primary areas areas that Hal referenced earlier when he talked about advancing the one tractor capabilities and that are part of the life out here strategy first increasing mobile engagement by creating the best in class digital interactions.

Second connecting our customers to care for their pets and animals capitalizing on the strength in these categories and third advancing the omnichannel delivery experience by leveraging conversational commerce, let's look at each of these.

Our customers tell us your data they prefer to interact with us through a mobile device.

We will continue to increase engagement by providing legendary customer service through frictionless experiences by using data analytics powered by artificial intelligence, we will drive personalized experiences and we will continue to differentiate the experience by introducing capabilities that improve.

Customer interactions and convenience.

We will leverage our neighbor's club loyalty program to drive engagement with easy access to program benefits, including rewards and the market catering to our top tier customers, providing tools to make their life out here easier.

Our neighbor's club power users will easily view rewards status offers and coupons as well as stored payment options within a newly redesigned wallet, we will integrate reorder options and introduce way finding to make locating products easier and faster for our customers and our team members and we will all.

Customers to obtain on demand assistance from anywhere in the store or outside the store.

The mobile App will drive a personalized experience to our customers and we will talk to our customers of our products and services they need using data and analytics, we will offer knowledge to our customer base on their shopping trends, while introducing one stop shop for all customers pet needs within the mobile app.

My pet feature will provide customers with easy access to pet prescriptions that services and managing their product subscriptions and scheduling interactions will make the experience for the customer embedding the capabilities and to the shopping experience and updating the customer pet profiles based upon their shopping habits.

And purchase.

We will continue to differentiate ourselves by integrating the in store and digital experience to create a best in class Omni channel experience integrating our digital shopping cart with the in store card, allowing check out on a mobile device or with the team member introducing one shopping cart regardless of.

How you shop or this channel you shop, and we will offer our customer connections to our team members from any locations introducing conversational commerce embedded in the mobile app.

This will allow us to provide seasoned advice about their projects land in animal anytime anywhere anyway.

Providing connections to both the products and services, our customers need for their pets and animals as a part of what enables our ability to deliver legendary service and be the authority for out here lifestyle.

But my Pet feature I mentioned will create a one stop shop experience for all things related to our customers' needs for their pets from prescription medications to reoccurring feed or food needs.

Offering product subscriptions delivered to their home or set aside for pick up in store, we want to make any item our customer needs easily available, making it convenient and dependable as a lifestyle leader, we have a significant opportunity to continue to widen the gap with our competition and.

This space one of the most important parts of the digital interaction is the delivery experience.

Ensuring that no matter, how our customers want their products, we exceed their expectations.

By continuing to bridge the customer team member experience across the digital lines, we can improve their customer experience and the ability to meet their needs while gaining market share.

Look at a quick example.

Kelly has placed an online order for curbside pickup she has purchased several items, including bags of chicken feed and a bag of oyster shell.

And calix customer profile and our mobile App. She has designated a preference to be contacted by team member in the event of product is unavailable, allowing the team member to suggest a substitution.

When Kelly's order submitted a team member in the store received the notification on his personal communication device that a curbside order is ready to be picked he picks the chicken feed and then realizes the store doesn't have the oyster shell. She ordered mark prices of substitution button on his mobile device and is mutually connected to Kelly V.

Chad he apologizes for the out of stock and provides her with two similar options, including one of our exclusive brands Kelly chooses to substitution and Mark completes the order by keeping our customer and our team members always connected we can extend a legendary customer service tractor supply is known for beyond.

The four walls of the store I am very excited about the opportunities that lie ahead of us as a company and in the digital business as you hear from stuff and Colin you'll see the items I have shared support our broader life out here strategy from continuing to evolve the neighbor's club loyalty program to supporting legendary customer service.

As to how we move product efficiently from our distribution centers to our stores each element of the life out here strategy is tied together and ensuring that the work. We are doing is focused on supporting the needs of our customers and the out here lifestyle, providing a great team member experience and a best in class.

As Omnichannel experience.

The three key highlights I want to leave you with today are first we will capture significant market share by creating a best in class digital experience.

Second we will deploy best in breed technology that capitalizes on our unique strengths and that patent animal categories widening the gap with our competition and we will own the relationship with our customers at all times through conversational commerce, maintaining our position as the out here.

Already we are uniquely positioned to deliver against the significant digital opportunity, we see for tractor supply.

The tractor supply team continues to be excited and passionate about the digital vision and how it is fueling our growth I am thrilled and proud to continue to be a part of this great organization, Seth I'll hand, it over to you. Thanks, Rob.

Good morning, everyone tractor supply has been busy making headway with our life out here strategy in 2020, we outlined initiatives to grow space productivity as a major opportunity to deliver consistent comp store sales.

This was a primary goal of our operated detract away pillar.

When we launched the strategy, we knew we had significant opportunity for improvement in sales per square foot compared to our hardline specialty retail peers.

Since then we've been focused on our project fusion and the sidelight transformation to drive convenience and to optimize our indoor and outdoor assortment importantly, we're making progress and we are driving significant productivity gains.

Today I want to walk you through a local store updating you on the improvements and how we've continued to evolve our store layout with fusion inside lot highlighting some of the successes, we're seeing as we roll out these strategic initiatives, let's get started.

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Welcome to one of our tractor supply stores, where we recently completed a combo project fusion and sidewall transformation remodel.

For today's tour, we're starting outside in a roughly 4000 square foot Garden Center.

When we first introduced our space productivity initiatives, we highlighted that our most significant opportunity to drive incremental sales traffic and market share with fewer sidelight transformation program.

This we convert a space that's traditionally been utilized for storage to a garden center, that's tailored to the lifestyle of her out here customer.

We knew from customer research that the lawn and garden category, specifically live goods and bag products was the number one hobby of our shoppers where they did not look to tractor supply as their primary destination.

And as the weather turns warmer and we enter spring 2022, we're excited to have more than a 160 garden centers to start capitalizing on this opportunity.

Our merchants have been aggressively adding growers to prepare for the season and these garden centers will be offering a broad assortment of live goods with a focus on vegetable gardening shrubs trees as well as a full assortment of color to create excitement with our customers.

Our offering is differentiated for the out here lifestyle. We're also introducing additional products and seasonally relevant categories, such as furniture planners grilling and outdoor living.

From our early reads, we believe that these additions will drive share of wallet with both our core customers and attract new customers to tractor supply.

From a performance perspective, we're seeing positive lifts in our seasonal departments. Despite very few stores, having the garden center in 2021 during the peak season.

In our 27 stores, where we added only a garden centers and did not do a fusion remodel we're seeing triple digit lifts in our live goods and the lift for package. She leaves the change with strong double digit lifts on top of triple digit lift in 2020.

Let's now shift to the exciting trends of our fusion inside like condos, particularly the 15 combo stores that were opened for the 2021 spring selling season.

And those stores, we're seeing double digit sales lift performance for the entire store and strong performance across all merchandising divisions.

Specific to our seasonal division, which includes our lawn and garden categories. The total seasonal product division lifts in these stores is up more than 30% and we're getting incredible feedback from our customers as a shopper updated sidelined and are updated seasonal corner interferes in lay up.

In aisle, we're seeing successes in handheld products belts blades and everyday lawn and garden items.

Looking ahead to 2022, all garden centers will be built in combination with a fusion remodel as well as the vast majority of new stores will open with a garden center.

As we know we get the greatest sales lift when we combine our project fusion and our sidelight initiatives.

These categories are a key focus for tractor supply to continue to capture share as identified in our total addressable market opportunities.

I hope you share our excitement with our satellite transformation.

Now, let's walk a few of the other areas inside the store and highlight some of the updates and the initial results that we're seeing from our project fusion Remodels.

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As you enter the store our customers immediately experienced a dramatic update us are greeted by the customer service hub, which consolidates, our cash registers and customer service desk.

Sightlines are also dramatically been improved with the implementation of the new Department light boxes.

Customer feedback to these changes has been overwhelmingly positive our shopper survey results show positive increases and cleanliness speed ease of checkout and availability of team member assistance.

Also our score for variety of merchandise in store has improved more than 120 basis points and our fusion customer survey results and by moving the customer service desk. It up we added approximately 300 square feet of selling space in the center of the store that is more effectively being used to drive space productivity and show additional merchandising programs.

Okay.

So as we move to a pet department, we have reworked adjacencies updated space allocations and increase the number of pallet positions.

What are the biggest changes in our fusion pet layout is leading the flow of the department with cat products.

We know we have significant opportunities to grow sales and share of wallet and cat.

And by placing it on the first pet aisle infusion, we're giving greater visibility and access.

And when looking at the results we're excited to see that our fusion stores are over indexing in new customer growth in this category and existing tractor supply customers buying in this category is up 600 basis points versus non fusion stores.

We're also seeing positive sales lift and wet cat food and supplies across all time periods post remodel.

Since we first introduced you to infusion lay out we've also adding additional run of dry dog food in select stores like you see here.

Which maximizes holding power and increase the space allocations to accelerate growth in this key category.

We believe approximately 40% of the fusion Remodels will have the space to add this additional footage and our pet department.

We are confident that these changes will continue to drive our market share gains in pet.

In addition to pet products, we continue to enhance the services we offer our pet parents like self service pet wash stations, which are now in more than 500 locations.

And a small subset of stores. We're also piloting wellness centers, which operate in 44 stores to date with a fulltime veterinarian staff five days a week.

Wellness centers are also complemented with mobile pet vet clinics the operate in more than 1400 stores today and.

And in 2020 , one we serviced over 1.2 million pets, two pet wash wellness centers pet vet clinics and television solutions. We will continue to look to grow our pet services as an opportunity to increase customer lifetime values and bring in new customers.

Yeah.

In our fusion stores, we continue to drive space productivity in our livestock feed health and supplies categories, just like dog food. These sections along with the entire pet department are among the most highly productive areas of the store already.

We've updated Adjacencies reallocated square footage and visually improve the department to support this important category.

The most significant positive impact is the equine supplement leg care and fly control categories, which are trending between 408 hundred basis points above trend and in select stores. We've added a feed barns that gives the stores the inventory holding power needed to stay in stock. It allows customers to drive thru and load heavy animal feed fencing and other core.

Borys directly into their vehicles. These are trip driving categories, where we will win is the 100% dependable supplier Carl will share more details on how we will widen the gap versus the competition in this key area.

Yeah.

Moving into our truck tool and hardware area. This part of the store experience some of the most significant merchandising updates with the introduction of new brands, new fixtures and significant changes to space allocation.

As a result, we're seeing growth in traffic counts attachment and cross shopping and a powerful department we.

We see that existing customers are finding and shopping the power tool while for the first time.

And these customers are much more likely to attach an accessory to the powerful purchase at a fusion store versus the non fusion store.

We've also rolled out this tool crowd concept to more than 300 additional non fusion stores based on the early results and.

And what really excites me is that our Tam assessment indicates that these are categories, where we continue to have significant share opportunities.

[music] and finally, let's take a look at our apparel section, which is experiencing the most significant lifts inside the store across all of our fusion remodel categories.

And many remodels, we actually reduced the footprint of the department by consolidating our presentation with new fixtures and merchandising.

And these fusion stores apparel is running a comp above 35% with high single digit lift as compared to control stores.

This is a category that gets an immediate response from the consumer and the lifts have been sustained over time.

We believe this is attributed to the visual impact post conversion updated space allocations of categories and brands as well as the expansion of women's with brands like carhartt area and railroads.

Apparel is now a key customer mission for people to come to tractor supply.

We're also excited to showcase brands throughout the department like Carhartt that you can see here and out of his store within a store concept in 19 locations, which are running departmental comps above company averages.

We will continue to look for ways to differentiate our offering in apparel that support our customers' lifestyles.

So thanks for coming along with me on the store tour today I Hope you get the opportunity to get in store yourself and see our new fusion inside life upgrade soon.

I Hope you found our store tour insightful today, we believe that investing in our stores is just table stakes to win in today's Omnichannel retail environment.

Overall, we're encouraged by the early results, we're seeing from our fusion inside a lot of initiatives with the biggest impact coming when their renovations have reached a maturity of about nine months post completion.

As we look ahead, our target for fusion only stores is a mid single digit sales lift post project maturity and we're targeting a high single digit sales lift on the fusion inside like combo stores.

Our goal is to have 100% of the chain in the fusion format by the end of 2026, while our combo fusion inside that stores will ultimately be across 60% to 70% of the chain.

We're making significant progress towards our space productivity goals and delivering on the strategic pillar of operate the tractor way.

We have a best in class customer focused merchant team that will continue to grow sales and profit by driving innovation and optimizing a differentiated merchandising assortment.

We're highly focused on capturing market share of our expanded Tam and we have a compelling game plan for growth that will serve our core customers, while bringing in new customers to the tractor supply family. All in all we are committed to being the indispensable supplier for life out here and widening the gap versus our competition.

Thank you again for going on this fusion inside light store tours me today.

Next up is Colin who play such a key role in serving our customers with the recent complications to the supply chain Colin and his team have done an amazing job keeping our stores in stock.

I really appreciate that Seth thank you so much.

Great to be here with you to share the transformation that we're on across our supply chain tractor supply as differentiated as the largest retailer for bagged animal feed in the country and the leader in meeting our customers' needs for poultry equine dog and cat food Forge and other Q4 consumable usable and edible products that are core to living the out here lifestyle.

Last year, we moved 8 billion pounds of Q through our supply chain and as we've grown our sales and market share in Q, our logistics network, our distribution centers and our stores have stepped up to handle that volume and meet the demand.

That compared to 2019 last year, the average tractor supply store moved 18% more units and 26% more cubic volume of Q product.

And those volumes in total and per store are continuing to grow.

We've seen a significant growth in Q customers because of our product portfolio with breadth across national local and exclusive brands and products that cover the spectrum of species for all stages of life.

No Q products, our traffic drivers, attracting new and younger customers.

We know that customers, who shop for Q attract supply or some of our most loyal customers on average, making four times more transactions and shopping across a larger set of categories than a noncore customer.

And we know how important being in stock and a price leader or to customer satisfaction and retention.

With the success of our fusion and satellite Remodels and the Neighbor's club loyalty program, the increased volume velocity and variety of queue products moving through our supply chain and through our stores presents an opportunity to use our scale and sophistication to widen our leadership position with acute customer.

While we always take an end to end view of our supply chain the growth we've already experienced and the growth we anticipate in Q cars, a fresh look at the operations and that's exactly what we're going to do with our effort to deliver on Q.

We're bringing together a powerful new technology with the strength of our distribution centers and mixing center network and continuous improvement within our store processes drive more volume through the same store footprint with maximum efficiency.

And we're going to deliver best in class on shelf available for our customers, where they shop with us in store use buy online pick up in store or we access that inventory to fulfill orders from stores.

As Hal mentioned earlier, we're continuing to invest in our supply chain capacity.

We're currently building our ninth distribution center located in Nevada, Ohio, and we're on track to open that facility later this year.

And 2022 we will also start construction on our 10th distribution center, which will be located in Arkansas.

Finally on the facility opening in late 'twenty 'twenty three and.

And we will continue to look for locations to best support our operations as we grow the store network.

Turning our attention next towards distribution points in the Pacific Northwest.

To leverage our expanded distribution network with the power of our vendor base, we're deploying a new inventory forecasting and replenishment system in 'twenty 'twenty. Two this new system takes and more data on demand patterns like seasonality and day of the week variations.

Decisions like promotions price changes and changes in display and space and external factors like weather traffic and local events.

Using advanced mathematical techniques and near real time information, we're creating an even better picture of future demand supporting higher in stock rates with less inventory.

The new platform allows us to be more collaborative with our vendors by sharing information that is fed directly to our vendors production planning processes. We.

Can create more accurate orders for these fast turning products.

In our initial test and use cases, the forecast accuracy improvement has lowered total inventory increased our in stock rates driven production efficiencies and improve our response and recovery to changes in demand.

We're also deploying new capabilities that allow us to be faster and more responsive inside of our distribution centers.

The new replenishment logic allows for high velocity and large cube products to get picked loaded and dynamically routed to source faster and more frequently and we're able to do today and that speed reduces the amount of inventory held in the backrooms.

While this new replenishment logic is geared towards our queue items will also strategically apply it to big ticket items like gun safes, and riding lawnmowers, helping us get the right product in the right stores at the right time to optimally use inventory and the storage capacity.

To further support more just in time replenishment, we will continue to expand the number and reach of our mixing centers.

Mixing centers are rapid replenishment centers designed to deliver the 100 fastest moving to items and full pallet quantities.

Over the last several years are mixing centers have proven to reduce the days of inventory coverage required in stores to support sales relieving pressure on our store backrooms, while increasing in stocks.

Today, we operate 12 mixing centers covering about half of the stores in the chain as part of delivering on Q will service more stores from our existing mixing centers and look to add more mixing center locations to the network over the next several years.

Our store teams are agile and they do an incredible job managing the volume and tonnage and the number of deliveries that backup against their store every week.

But we're going to get them, even greater visibility to that workload.

With a new set of visibility dashboards, they use a historical data real time tracking and predictive analytics, our stores will have greater insight on estimated time of arrival, allowing them to attract inbound deliveries from distribution centers mixing centers and vendors equipping them to manage tasks and equipment and the storm more effectively throughout the day.

At the network level. This new visibility provides a rich source of data for analyzing and optimizing inbound workload to form staffing and operational support for continued optimization efforts.

So, we're applying new technology and logistics processes to impact product flow, but we're also focused on maximizing efficiency in the stores.

And our stores were optimizing the backroom lay out to reduce the number of touches and the amount of travel our team members' needs to take while moving product from the trailer to the sales force.

For our highest volume or more space constrained stores, we've seen the success of creating dedicated feed rooms that add pallet drops and storage capacity by the end of 'twenty 'twenty. Two we anticipate having 160 to 180 feet rooms in our network and we'll continue to build out dedicated fee rooms, as either when the stores going through the fusion inside a lot remodel process.

These layout changes supporting an increased level of efficiency building on the existing operating procedures in the store.

Because two items are the most space and labor intensive products in our stores, we're focused on new levels of process standardization and engineering and our freight and replenishment task.

Our stores are adapting staffing models to handle more frequent deliveries more throughput and faster replenishment to the shelf by.

By driving greater process engineering, and optimizing the back rooms of our stores.

We will free up time, they could go back to delivering legendary service to our customers.

We see the growth in our Q categories as part of an enduring consumer shift and a central part of our long term growth plans.

To support our long term sales per store projections, we'd solutions to drive more cube more deliveries and more units through the same store footprint with greater visibility predictability and cost efficiency.

We're embarking on a multi year program to optimize the entire cue supply chain from the vendor to the store using new technology logistics processes and store operating procedures. The benefits of these continuous improvement efforts will ultimately drive greater efficiency across the entire assortment.

Further enhancing the competitive advantage our supply chain provides within farm and ranch space, but importantly, ensuring we are the most dependable supplier for those consumable usable and edible essentials.

Thanks for taking part in the event today and I'll hand, it over to Mary Lynne.

Thank you Colin before how joins us to share his closing thoughts EVP, Chief financial Officer, and Treasurer, Kurt Barton rejoins us to deliver tractor supply strategy for robust shareholder retiring.

Thank you Mary Winn.

It's been 15 months since our October 'twenty 'twenty enhanced earnings event and I'm excited to talk to you again about tractor supply's strategy, our new supporting strategic initiatives and our plan to continue to deliver strong and sustainable total shareholder return.

At that time, we outlined our life out here strategy and our focus on T. S. R. We are pleased with the strong progress that we've made against all elements of the life out here strategy.

We've continued to deliver on our highly differentiated proposition as the number one farm and ranch retailer, we've accelerated execution of all our strategic priorities and we have remained disciplined and focused on how we have allocated our capital.

This team has worked hard to deliver outstanding financial results and are honored that our shareholders have benefited from the S&P 500 top decile T. S. R that we've delivered over the last two years.

Despite our strong progress we are not resting on our laurels, we continue to add important new strengths to reinforce our focus on delivering strong and sustainable T. S. R. Our topline revenue growth is compelling not only in magnitude, but also in its quality and durability.

The life out here strategy continues to expand and we have added new strategic initiatives.

As you heard from John we plan to lead with legendary service and aim to achieve that number one position in customer experience.

And as you heard from Rob we are deeply focused on digital as part of our Omnichannel approach and intend to dramatically lift our mobile engagement and as you heard from Colin we are investing in our supply chain to support the growth in Q products that are core to living the out here lifestyle. We are proud that our.

And durable free cash flow enables power band.

Ensuring that we can fully support and fund all of our most important growth investments and return significant capital to shareholders at the same time.

The growth of tractor supply has generated over the past two years is highly differentiated within retail and it's firing on all cylinders.

Rarely can a retailer founded more than 80 years ago demonstrates the magnitude diversity and quality of growth that tractor supply has delivered over the past two years.

Almost one third of our growth came from new customers and over two thirds has come from increasing share of wallet with our passionate and loyal existing customers.

The volume and basket growth that we have delivered has meaningfully exceeded any topline tailwind that we've seen from inflation.

Our e-commerce growth continues to accelerate with two year CAGR of 80% in our digital channel, forming a larger part of our growth that we've ever seen before.

And new and expanded categories in lawn and garden grilling apparel power tools and pet drove almost one third of our comp growth along with strong increases in our core businesses such as cute the diverse mix of growth that we have seen highlights the underlying strength of tractor supply top.

<unk> organic growth this gives us deep confidence in the strength and quality of our growth trajectory.

As we look to the future, we expect to deliver a high quality and sustainable topline organic growth trajectory that builds on the substantially higher revenue base that we have achieved in the last two years.

Our long term financial outlook includes a revenue growth of 6% to 7% with a 45% contribution from comps and 2% contribution from new store openings.

4% to 5% comps outlook is underpinned by growth in customer demand from our loyal customer base and new customer growth expansion of our Tam through the new and expanded categories. I mentioned earlier, such as lawn and garden, grilling and pets and continued execution of our life out here strategy.

With key roles being played by the lift in store productivity from fusion and sidewalk our goal of being the number one legendary customer experience and our strong focus on customer retention and further engagement through our powerful neighbor's club loyalty program. We are pleased that our most recent mark.

And analysis has indicated that we have more new store growth headroom than we shared with you in the fall of 2020 and as a result, we are increasing our total store target by 200 2700 stores.

Our target of 2700 stores will be achieved organically. We're excited that with this increased target will have a decade of future growth runway and non comps growth ahead.

As Hal mentioned, we remain optimistic about the FTC process regarding arslan, which would be additive to our total store target of 2700.

Given our recent performance.

Increased scale and greater line of sight into some of our most important cost drivers we are raising our long term operating margin target to a range of 10.1 to 10, 6%.

Since initially providing this guidance in the fall of 2020, we have gained greater line of sight into the operating margin drivers that you see on the left side of this page.

As a result, we believe we can sustain an operating margin above 10% and feel that there is upside margin potential beyond last year's operating margin of 10, 3%.

We have seen favorable impacts from pricing and promotion.

Expansion of our product mix, our operating efficiency program and the improved operating leverage generated from our high quality growth.

Despite the headwinds from inflation higher transportation costs as well as maintaining the significant investments program. We have underway, we see our current margin levels in the 10, one to 10, 6% range as sustainable longer term.

As I mentioned earlier, our operating margin guidance for fiscal year 'twenty 'twenty. Two is in the range of $10. One to 10, 3% and from this you can infer that over the next five years, we feel that we have the opportunity at least to maintain and potentially grow margins towards the top of that range.

In addition to the operating margin outlook range. We believe there are other opportunities that while uncertain provide the potential for further margin upside if they progressed favorably.

Include the normalization of investment levels to sustain our growth trajectory lower transportation and COVID-19 related costs and reduced inflationary pressures such as wages.

We have made enormous progress in the execution of our life out here strategy. The rollout of our two key store remodel programs fusion and Sidelock has accelerated.

<unk> shared with you our expectation for fusion only stores is a mid single digit sales lifts post project maturity and a high single digit sales lift on the fusion and Sidelock combo stores by end of 2026, we are targeting 100% of our stores to have the completed fusion remodel and 60% to 70% of.

Our stores base to have the new side lot with Garden Center.

Our neighbor's club loyalty program is seeing very strong growth and helping us provide even greater value and engagement with our deeply loyal life out of your customers.

As Christie mentioned, our Neighbor's club members remain one of our most valuable assets driving approximately 70% of total sales and spending three times more than non loyalty customers.

Our E Commerce performance has been fantastic delivering 80% annual growth in sales over the past two years.

Our mobile App just launched late 2020 already makes up 10% of our digital sales revenue.

We are excited to targeted digital penetration of approximately 15% and over $2 billion in sales by the end of 2026, and we will continue to invest behind and strengthen our digital capabilities. We continue to focus on our disciplined capital allocation with a clear.

Set of priorities and how we think about optimal capital allocation to support the delivery of strong and sustainable T. S are investing in the business to drive organic growth remains our number one priority with the clear ambition of sustaining our high quality growth trajectory long term.

We remain committed to outstanding return of capital to our shareholders firstly through our growing dividend at least as fast as earnings and secondly by returning excess cash through our strong and consistent share repurchase program.

Where appropriate we will pursue tuck in acquisitions to add to our growth in key capabilities for the future. All of this is underpinned by our commitment to cash flow generation, our healthy balance sheet and an investment grade credit rating.

This compelling free cash flow that we expect to generate over the next five years, which includes accumulative $8 billion operating cash flow $5 billion of free cash flow puts us in a very attractive position and enables the power of and.

The strength and durability of our future cash flow delivery means that we can fully fund all of our growth oriented high return initiatives and return a significant amount of capital to shareholders simultaneously.

Over the next five years, we plan to invest $3 billion in Capex infusion inside like distribution centers technology and customer experience with the objective of delivering our long term growth ambition.

While organic growth investments are our highest priority the strong and growing free cash flow enables us to remain fully committed to our capital return.

In our October 'twenty 'twenty enhanced earnings call I indicated that our five year return of capital to shareholders would be approximately $4 billion.

Based on the expectation of our stronger cash flow generation and our updated long term financial outlook. We now expect to return more than $6 billion in capital over the next five years.

This return of capital is expected to exceed our free cash flow by utilizing existing cash on the balance sheet and modestly increasing our leverage ensuring we are putting every dollar of cash and cash flow to us.

As announced in our earnings release today, we will significantly increase our quarterly dividend by 77% to 92 cents per share.

This level were approximately equate to a target 40% payout ratio as a percent of net income.

Moving forward, we plan to grow our dividend per share at a rate that is equal to or greater than our earnings per share over the next five years.

It is important to note that future quarterly dividends are subject to board of directors, a discretion and approval.

This dividend increase and future growth highlights our strong commitment to disciplined capital allocation and our confidence in tractor supplies trajectory.

Now we also remain committed to a consistent share repurchase program and our increased dividend should not be seen as being at the expense of our share repurchase program, but reinforcing the power of and let's.

Let's now look at our long term financial outlook.

When comparing back to our 2019 long term outlook, we have pulled forward six years of targeted growth into the past two years.

We expect to build from our stronger revenue base and deliver 4% to 5% comps, 6% to 7% total sales on average over the next five years.

Just on the solid evidence of the success of our life out here strategy and the structural shifts in our markets as you heard from the team today.

As I mentioned earlier, our greater line of sight into the cost drivers has enabled us to lift our long term operating margin outlook from 10, one to 10, 6% range. This means that our compelling top line growth operating margin outlook.

And consistent share repurchase program will enable us to deliver an 8% to 11% earnings per share growth over the next five years.

Pulling this strong financial outlook together highlights tractor supply's long term double digit CSR delivery potential this double digit CSR potential includes 8% to 11% EPS growth and an approximate 1.5% current dividend yield with further room to grow relative to earnings.

Beyond this double digits CSR, we see further potential upside that can be achieved by accelerating strategic initiatives and executing on tuck in acquisitions.

As I wrap up I'd like to leave you with some final thoughts the strong financial performance and outlook I've talked through with you today is reflective of our success with our customers.

The tireless and dedicated work of all of tractor supply team combined with the deep and growing loyalty of our customers is what makes tractor supply the company that it is.

Building on my statements at our last enhanced earnings a vet, whether I look at our strong and sustainable growth outlook operating margin potential.

Power of and and our double digit T S. Our potential.

In my 22 years at tractor supply I cannot recall, a time in which I've been more proud and excited about the future of the company and I Hope you all feel the same way with that I will turn it back over to Hal.

Thanks Kurt.

We appreciate everyone in the audience, it's been in the last couple of hours with them.

As we transition to Q&A I hope you've found compelling the updates we shared with you today.

A quick summary of the incremental news we discussed one we're capitalizing on the many macro structural benefits such as rural revitalization self reliance homesteading and pet ownership and we're investing in our capabilities like digital and loyalty to continue to widen our moat with the.

Competition.

Two.

We provided an update to our long term financial outlook that includes raising our operating margin.

10.1 to 10, 6%.

Three we operate in a large attractive and fragmented growing market.

We now estimate to be $180 billion.

Four with our growing total addressable market and the vibrancy of our trade areas. We now see the opportunity for an additional 200 tractor supply stores.

Bringing our total store opportunity to 'twenty 700 locations.

Five we had the financial flexibility to invest in our life out here strategy.

And return capital to shareholders through the combination of dividends and share repurchases.

Today, we announced our board's approval to increase our quarterly dividend by 77%.

And an additional share repurchase authorization of $2 billion.

We remain committed to maintaining a disciplined capital allocation strategy to create value for our shareholders.

Tractor supply has a deep history and a track record of success, we're coming off a record two years, we have compelling opportunities for continued growth and the team to execute.

The future Tomorrow is bright for tractor supply.

Thank you now we'll take a five minute break before we go to the Q&A segment see in a minute.

I strive for authenticity strive to show people the world I grew up in the.

The jobs and the American West hasn't changed very much over the past century, you still do the job the same way in order to get food on the table and involves your hands.

Gathering together, we're going to push them around and put them in this round and then that that everybody ready.

Yes.

Your parents to the thing you're right you wake up in the morning, you take care of everything you feed it water. It's doctor. It teaches you give to this way of life in this way of life gets back to you.

Every great storyteller told stories in the world as they now I don't try to create dramatic stories or traumatic characters or try to create real scenarios based on people, who I've known who ever imagine and then I hold a mirror up to that world and I believe that if I make something look real and it will be dramatic because life is dramatic.

Keep watching Yellowstone unparalleled Edwards brought to you by tractor supply company everything for life out here.

Life out here it goes back to a simpler times when your trusted your hands to feed and fix everything your family needed out here's the land has been shaped by generations of hardworking planting fields raising their herds and watching their families group since 1938 tractor supply has been a neighborhood of those rates.

In Kettle corn, we're cutting horses ready to help you get back to similar dollars tractor supply for life out here.

You folks who have recently discovered the joy of life out here welcome from your new neighbours at tractor supply out here as anywhere you can have an extra home or three.

Where the fruits of your labor or vegetables.

And if the best seat in the house isn't in the house well whatever you're into you can do it out here in <unk>.

Factory supply has all the suppliers you'll need to make your corner about here feel miles away from in their tractor supply everything for life out here.

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Welcome back to the Q&A session of tractor supplies enhanced earnings event, we've assembled all of today's presenters and they are ready to take your question. A couple of housekeeping notes first please limit your question to one per call with a clarifying follow up only if necessary within there.

Ari proactive in trying to shot show plenty of it and allow plenty of time for this Q&A session. So you're welcome to get back in the queue to ask any additional questions. If time allows.

For anyone just tuning in a quick introduction of our team President and CEO Hal Lawton.

CFO Kurt Barton.

Christy course act with SVP of marketing.

John Ortis Chief stores Officer.

Rob Nails, Chief Technology, Digital Commerce, and strategy Officer, Seth <unk>, Chief Merchandising officer, and Colin Yankee Chief supply chain Officer.

We have a line of folks already standing by so let's take our first question. Our first question comes from the line of Kate Mcshane from Goldman Sachs. Good morning, Kate.

Hi, good morning, nice to see everyone.

Our question is centered around the operating margin opportunities. So I guess this question is for Kurt we wondered about the cadence of the operating margin expansion over the next five years.

Is it fairly even each year and what is the biggest difference in this outlook versus what you gave us in October when it was a 99, 5% range I'm just thinking that since the last time, we spoke with you transportation and labor is higher while the top line outlook is staying the same.

Yeah, Hey, good morning, Kate and thank you for the questions.

On operating margin as you think about the long term targets one of we're extremely pleased with the performance of the business in the last 15 months have really shown in regards to is it structural is a transitory in regards to the performance of the company a lot more visibility.

City and confidence in the structural nature of our business and really that was one of the key factors. When you look back to our enhanced earnings event 15 months ago. So what we've seen first from the topline is that the belief and the structural nature of that really gives us the confidence on the SG&A that you've got that leverage.

In regards to your question about how do you look at the cadence and what are some of the factors I'll break it down between gross margin and SG&A and overtime. So with gross margin you know certainly we recognize right now we're in unprecedented inflationary times managing that really well, we expect that inflation as I mentioned in our twenties.

'twenty two guidance to persist and over the next few years, we expect a general inflationary environment, but more typical modest inflation and we believe we can manage that through our scale and through our retail price management transportation and the supply chain disruptions. We believe those may be a little bit longer in nature.

It might take a few more years to be able to actually normalize on it but in the back end of that timeframe some of that transportation easing a normalization.

In addition to that on the SG&A side, we look at it in our investments right now we're hitting some of the peak investments we understand that those investments put.

Put pressure on the SG&A and it's the right thing for the long term along with investments in wages. So the next couple of years have a stronger pressure in operating margin, but when you take the easing on the gross margin pressures of inflation. When you think about us beginning to have traction on the investments and our ability to drive if.

Fishing season, I'll, even mentioned really proud about our profit improvement our operating efficiency programs that we've got we believe those are key drivers along with leverage from scale that allows us to be able to invest for the long term grow the topline and during this time of investment where you heard from Seth really transforming.

Many of our stores that we can do that while maintaining and potentially even growing our operating margin. The next five years. So that's it.

It again will be a little bit of easing into that and maybe perhaps in the back end of it is more the upside of it but we like that algorithm and the excitement that having a operating margin above 10% with phenomenal growth.

Thank you.

Yeah.

All right and our next question will come from Peter Benedict with Baird.

Good afternoon, I guess in New York time, Peter Nice to see you. This morning is from that area win nice nice to see you all congratulations great great event today, I guess, maybe I just wanted to ask one about the cadence around fusion.

And side lots of the Rollouts. There maybe you can talk a little bit more about how you see that over the next few years I know you gave some guidance on 'twenty two.

Maybe something on the cost and the time to complete their side lot tougher to get done here with some of the supply chain.

Issues out there and then maybe just an updated view on your lawn and Garden Tam.

Are you really going after here with side laden and what type of share do you think you guys can get within those incremental categories over the next few years. Thank you.

Hey, Peter and thanks for joining us today and appreciate your question.

If we look backwards last year I, just can't say enough about our the fortitude and and grit determination.

Team to get 80, new stores open to.

To have 300, plus fusion stores and over 150 sideline stores and as you mentioned you know given all the disruption from Covid as it relates to permitting and construction crews and the availability of things like fixtures and other materials to be able to still achieve our goals from the beginning of the year. It's just a real tribute to that team in.

In light of those those issues, which we expect to persist for the all of this year, we kind of kept our cadence.

For this year similar to last year, you know as we've talked about a couple of hundred fusion stores around 150, sidelight stores and again, another 80 new stores.

And then it would be kind of our all of our new stores also will be done with fusion and many of our new stores also have garden centers and then if you kind of take the balance it'll be really equally spread over the remaining four years as we lead to 2020 six so that does assume a slight step up in a in annual cadence from 23 and <unk>.

The arm.

On the on the returns we're very continue to be very pleased with the returns of both the fusion inside lot as we shared on our last earnings call. The fusion only stores are running in that kind of mid single digit comp once they get kind of you're at 12 months.

Kind of cycled maturity cycle, and then our combo stores are right at that kind of a high single digit comp. We're very excited that we've got about 150 stores at our sidelight combos that'll be hitting that 12 month Mark right around the time spring hit so it's gonna be a great opportunity for us to drive some.

Sales and drive some share with those those fresh doors.

On the Tam you know, we talked about that in my presentation about adding $40 billion to our Tam and that you know is dominantly lawn and garden in kind of light goods and you know, it's a fresh category for us and one we think is this is a great opportunity our customers are qualitatively.

As we've talked about and talked about it being the number one category that they participate in that we leased serve them in.

And we're seeing great results as we've talked about in the first cohort of stores.

On the on the cost you know, it's hard to get into each individual store because theres. So much nuanced depending on the set up of the store and the age of the store.

But roughly the way to think about it is we took our capital from 300 million to 600 million roughly about $100 million of that is supply chain with a little technology that leaves about a couple of hundred million left that involves our store investments and then if you take the kind of 350 comp you know fusion side lot stores. This year, you can kind of divide those.

And to each other and get a sense you know the range is anywhere from a half a million to $1 million of stored it really just depending upon our you know the the nuances around that store, but again really pleased with the returns we're getting strong return on investment capital, it's hitting on all of our business cases, and as I said, we're really excited about having.

Over 150, a sidelight stores opened.

Opened for business that when we hit the spring garden season.

That's super helpful. Thanks, So much guys.

And our next question comes from Zacks item with Wells Fargo.

Zach.

Hey, Thanks for taking the question and thanks for all the great data today. So following up on the last question you noted that combo stores with fusion inside lot, our CNS high single digit lift in year, one which alone looks like about a 1% to 200 basis point comp lift per year through 2026, So first of all it sounds like the Earth.

Early 2021 cohorts performed closer to a double digit lift so I just wanted to confirm that and then curious if you have any thoughts on what those stores could do in year, two and beyond and whether they will continue to out comp the fleet or fall back.

More in line with the broader company average.

Yeah, Hey, Zach and I appreciate your question and thanks for joining us today.

Say two.

Two things.

First off kind of clarify you know high single digits I think is kind of what we're on the record at a right now on around the 12 month Mark for the combo stores.

As it relates to the impact on comp I, you know I think that's around that's roughly right. You know you take a call at 910% lift on kind of 10% of the store base annually do the math and that's about what the contributions should be that certainly baked into our guidance and as Curt said you know, it's the thing that really gives us confidence in our guidance.

The last time, we did an investor enhanced earnings call is in October 2020, you know, we're roughly 35, 40% bigger in revenues right larger revenues from that date and yet we're still holding to our you know 4% to 5% long term comp growth in 6% to 7% revenue growth in it.

Because of these are investments, we're making in the side lot in infusion and you know.

And there are other areas that we're confident they're really going to go after that growth and drive those sales and that we can do that mid single digit comp on top of you know revenue growth of over 50% in the last two years and as I said again, we're very excited about having a well over 150 sidelight stores opened for business here in the spring.

Season, and we're getting even a better read on the impact that it can have on our business.

Thanks, So much really appreciate the time today. Thanks Zack.

And our next question comes from Peter Keith with Piper Sandler Hi, Peter.

Thanks, everyone. Good to see you in a terrific presentation today I.

I wanted to dig into some of the gross margin discussion.

I think in thinking about the forward gross margin drivers.

Mix was mentioned as a as a positive driver.

That kind of goes counter to what we've seen historically with our business with the growth in Q I would think that product mix could also be hindered by the garden Center expansion. So maybe you can unpack that a little bit on how you feel about product mix and what categories. You think can drive that positive shifts and then Furthermore, just thinking about the other positive drivers to gross margin price you can.

<unk> there might be some skepticism on lower promotions because there just hasn't been a lot of promotions. The last two years. So maybe you could unpack how youre thinking about delivering.

Delivering margin expansion on those too.

Yeah, Hey, Thanks, Peter success, Hey, Great question.

<unk> good to see you today and when we look at gross margin as we manage forward I would say you know if you look where we were historically when we've talked about Q outpacing the fleet and how potentially could put a little bit of pressure on the company. What I would say today is that the balance of the four walls is really performing so well chew is outpacing our we're continuing to have.

Premium is even our Q were pushing people call it into that premium segment, but outside of that we're also seeing the apparel segment do really well for us today right. We're seeing our trucking tour area is doing really well for us today I could go around the four walls of the store and we look at you know.

Our sales forecast when we look at particularly this upcoming year, we're anticipating all four walls continued to contribute to that sales number and that estimate that we have out there. So while Q has continued to outperform our we're looking to continue to drive that you drive those footsteps are coupled with the balance of the store along with our pricing technology that we have today, which is much more sophisticated.

And then we continue to have in the past, we feel confident in the ability to be able to to look at the pressures that are coming into the business manage the mix of the product and be able to deliver upon those gross margin targets that we have out there.

Okay. Thanks, so much guys. Good luck.

And our next question comes from Steve Forbes Guggenheim.

Good afternoon everybody.

Hey, Steve.

I wanted to focus on e-commerce and digital growth.

How are Rob you mentioned, 15% penetration by 2026, which is a thing.

Think about mid 'twenty CAGR.

The next couple of years. So can you comment on how the average customer engages with this channel the profitability of this channel how that's evolved.

And whether your initiatives behind this channel has increased the average numbers of transactions that youre seeing with in all customer cohorts.

Yeah, absolutely Steve Thanks for your question and I will toss it over to Rob to address that I appreciate it.

Good morning, Steve Great to see you and thank you for the question.

So in regards to the customer and the customer interaction there definitely engaging with us from a digital perspective and as you heard through my presentation. The focus around mobility first is very key as well as leveraging the power of the data that we have with neighbor's club, we have seen tremendous growth we are extremely confident with.

That penetration rate and we're holding and to really drive a personalized experience with that customer tailoring, what they need for the product their services and just really simply how do you remove any of their friction and really driving that convenience you know from a profitability perspective.

We're profitable we deliver contributions back to tractor supply we have a profitable online business will continue of course to look at profitability ways to improve their profitability leveraging all the great work, that's being driven through either the analytics and understanding of our business through the product assortment mix as well.

Well as the work that's being done in Colonsay them.

We look at the store as our primary hub, how do we fulfill from the store.

Same day delivery delivering from the store capability as well as buy online pick up as well as curbside pickup which has been a tremendous growth opportunity. You know lastly, I shared some core capabilities that were focusing on and going back to the mobile piece. It is around how we're putting mobile first you know we're using the <unk>.

Our of the Neighbor's club in that analytics, and knowing that customer to ensure that we're always connected with that customer at all times you know when they're researching an item so leveraging as the expert to always all the all the way through the ordering process when you're actually fulfilling their customer order and how do you draw.

That connection back to the store the store hub and being connected back to that team members. So we're providing that knowledge that trust and the authority that our customer trusts that and so I guess I'll leave you with that we have a clear roadmap a strategy to move forward. Both how we're engaging to the customer we listened to the customer we leverage the data.

MRI as well as we'll continue to focus on the profitability, but we're strong and we're ready.

Thank you.

Thanks, Dave and our next question.

It will come from Scot Ciccarelli at Truest, Hey, Scott and nice to see you.

Thanks, a lot and Irwin good to see you as well.

So my question has to do with the new customers, obviously, new customers within a significant source of growth for the last two years.

And I think we can call it kind of all get our heads around kind of 2000 twenty's patterns people moved away from urban centers, but I guess my question is when you look at your cohort.

The new customer cohort from 'twenty. One is it the same kind of a cause and effect or is this a new customer acquired because some of the changes that tractor supply has been able to institute or the last few years.

Yeah, Hey, Scott. Thanks, so much for the question of the day appreciate you joining us for the for the event and I'll toss it over to Kristy to talk about our new customers and the customer insights for saying Hi, Scott. Thanks for the question I'm looking forward to talking to you about our new customers and you're right. I mean, we've had we had record growth in 2020 during the pandemic a new customer.

But that really didn't wane during 2021 we saw very similar if not even a larger a pre pandemic number in 2021. So those new customers are coming back to us are coming to us even in 2020 . One we see that that has a lot to do with those structural changes.

That are happening in a with the pandemic relative to rural revitalization and more millennials moving in from urban to suburban ex urban and rural areas and what we're finding is that 30% of our.

Sales are coming from these new customers. So we feel incredibly positive about the growth of the new customer and it will continue a lot of that get given to the structural nature of our business needs base, they're moving into our trade areas. Our tractor supply neighborhoods. They are buying homes, they're they're they're starting gardens.

We're starting flocks pet adoptions at record highs. So just incredibly optimistic that our runway is still far from <unk> at an end and certainly we've identified 40 million customers that we can still talk to that shouldn't be shopping us that are within our trade areas. So just a lot of momentum and a lot.

Of power behind those new customers just excited about it.

So just just to clarify if I might so this isn't because you guys has expanded garden in live goods. This is just the pure my customer migration towards kind of your areas and regions.

Which is what's driven it I would say, it's a combination of many things I would say it is certainly the fact that we have a lot of customers moving into our trade areas. Its because we have our individuals' maturing into a lifestyle I would say, it's because of our merchandising mix I would say, it's because of the trends and the <unk>.

Work from home. So there's many factors that are attributing to the growth certainly glad that we have a lot of runway with a 40 million customers that shouldn't be shopping is in our trade areas that we're going to be attracting over the next years to come.

Thank you very much thank you.

Our next question comes from Simeon Gutman with Morgan Stanley , Hey, Sammy and nice to see you.

How are you doing it looks I look funding on camera.

[laughter].

I wanted to go at Kurt a follow up to the question of Kate asked you about operating margin.

If you look at your business in 2021 versus 2019 your sales per store were up just over 40% and your SG&A per store were up about 39%. So you spent into all of your growth and Thats about the tightest spreads you get across all of the companies we follow.

So if your business continues to grow at 4% to 5% comps and you compound going forward.

And your investment cycle is going to peak.

Unless your SG&A continues or your gross margin comes down it would seem like theres a lot of upward pressure on that on your EBIT margin way past the numbers you guided today, so what's wrong with that logic.

Simeon yes. Thank you for the question I think it's a great one and this team is basically.

Focused on managing our operating margin overall, here's a couple of the.

Things to look at in regards to over the next three to five years.

You pointed out the investments that we're making on the business.

When we look at our operating margin, we look at what we're doing to invest from a position of strength for the future, we're making key investments in the SG&A and we're making investments in our supply chain and those investments in the supply chain will help drive the market share in the sales, but the help drive gross margin we're making.

Investments in our field activity support team, we're making investments in our I T technology. So we're making the right investments and yes that puts some pressure on the SG&A, but our focus on driving market share for the long term and the ability to be able to enhance that gross margin it's going to differ.

Tween the years.

But we're gonna be really focused on top line being competitive and giving a good price to our customer and maintaining a good operating margin and keeping that even balance I've mentioned in in my presentation I put in that slide that we recognize there are some uncertainties in in the financial algorithm today.

Unprecedented inflation, we're seeing wage inflation and we want to make sure that were.

Position again to invest in our stores and in our technology by doing all of those things along with just.

Having COVID-19 expenses still in the business like most of retail all of those costs. We have some expectations will continue to play into the you know the financial algorithm and there is opportunity we wont be wont be careful only prudent in our operating margin and we feel like if some of those factors turned positive in the law.

Long term that does give us the opportunity for that but we're being pretty prudent in that approach and making sure that we're doing the right thing for the business and real steady throughout these five years.

Thank you everyone. Thanks, Amy and thanks to you.

Our next question comes from Michael Lasser of UBS, Hey, Michael.

Good morning, Thanks, a lot for taking my question your guidance for this year assume that youre going to get 400 basis points of an inflation contribution.

You mentioned you expect traffic to be up so let's assume that's going to be up 50 basis points that gets you to the high end of your comp range. You also mentioned that you expect big ticket to me under pressure this year.

Presumably your core customer also saw an extraordinary amount of government support from stimulus enhanced unemployment.

And child tax payments last year, how have you factored that into your guidance for this year.

And as a follow up on a quick clarifying after we get through this global supply chain disruption whats the prospect for some potential deflation in your categories.

Yeah, Hey, Michael and Doug and Thanks for the question I mean, I think the math you provided is really kind of the math that our guidance is reflective about four points of inflation in the year that'll.

That'll drive ticket up kind of a give back on ticket of a couple of points because of stimulus due to last year's kind of surge in big ticket kind of netting to a couple of points and then the balance of our comp range may made up a lot of our comp transactions to kind of get there. So you know in kind of that that wanted it to two.

Per cent range on the on the comp transactions on and we feel a.

Very good about that about that formula and we're committed of unit growth and we're committed to comp transaction growth. This year and we gained substantial share over the past years, we talked about and we think theres a big opportunity to continue to do that.

And then on on deflation.

You know I think there is a likely there's you know that's always out there I think it's really unlikely for the foreseeable future for a variety of reasons are dominantly that the majority of the inflation. We've seen is I think structural in terms of the new level that we're at whether that our wages.

You know many of the cost of goods.

<unk> freight imports I think we're going to see a.

Kind of a structural holding of a lot of those costs out or they will continue to see inflation, but I don't know, we're going to see significant deflation on that certainly in the next 18 24 months or so.

And the other thing I'd say is and there are past cycles on inflation, it's been really kind of the core commodities that drove it.

And here, it's really across the board I mean were seeing cost of goods increases due to wages cost of goods due to steel cost of goods do you have other raw materials.

And you know our manufacturers wages. So I think it's more structural in nature. The final thing I would leave is a we have a lot more sophistication around our pricing tools and are competitive that are.

Competitive pricing engines that we had before and so we're just a lot more sophisticated in the way we can navigate navigate through that.

But regardless of how the environment evolves I think we've shown our ability to be flexible agile deliver performance stay priced in the market continued to gain share and deliver results and that's our commitment whether it's an inflationary environment or a deflationary environment.

Thank you and good luck.

Thanks, Michael.

Yeah.

Okay.

Our next question is going to come from Chris Whoever's at J P. Morgan.

Hey, Chris how are you.

Thanks. Good afternoon. Thank you for the presentation.

So a bit of a follow up question to Michael's so.

As you think about.

Elasticity and inflation you saw some headwinds to gross margin rate from product cost inflation is that simply you managing the business from a gross profit dollar perspective versus not a gross margin rate perspective, and then similarly on the on the macro side.

As you think about your potential sensitivity to wealth effect and higher rates and housing have you taken any in any of that into account when considering your expectation for continued realization.

Yeah.

Yeah, Hey, Chris good to speak with you today, and you know I'd say.

First off on pricing I think the team's done a fantastic job navigating the cost environment, finding offsets to the many of the inflation factors in productivity and efficiency.

Also being that advocate for the customer on price and making sure we're staying priced right every single day.

And then where we have found it necessary and needed to you know we have pass through price I mean to the tune of a 7% price inflation in Q3, and 8.5% price inflation in Q4.

I think our guidance since we talked about a 4% inflation for 2022 reflects kind of the higher single digits comp price inflation through the first half starting to cycle that and settle back into it to low single digits in the second half.

If you look at all the puts and takes I think there's more risk to the upside on our inflation assumption in there is to the to the downside.

But the team will continue to navigate navigate through that as a as we go forward and remind me Chris the second part of the question.

So as you think about clearly you have had a strong wealth effect for the consumer low rates, how is price increases stock market benefit.

Surely that's had some impact to your consumer and the sort of rural nation that you've seen as people spend more time in rural rural homes. So have you taken any potential headwinds into accounts from <unk>.

Rates, moving up and decelerating housing in wealth and Jen.

Yeah, It's something we certainly watch closely Christy and the team are you don't have a number of ways that they monitor the health of our customer whether its quantitative and qualitative you know I'd say.

Right now the whole market is really strong right. There is less than a million homes that are available in the market around I think 900000 last month, 1.6, 1.7 million new homes being built right now on an annualized basis existing home sales well above 6 million I think that's going to continue for really for the next couple of years at a minimum even in.

In spite of interest rates are and even likely in spite of you know within reason a home prices you just got a millennial generation. It's now wanting to purchase homes and you know I think in general that's good for us, it's when people buy homes or transact around homes. It creates projects its a big project starter and we see there.

That in our business and I think it's going to continue on you know the consumer still has over two trillion dollars of pent up savings I think the last month or two if you look at the data they have started to tap into that a little bit, but there's runway certainly for the balance of this year as they draw down so to speak on those that pent up savings.

To drive the GDP growth that I think you know as being a forecasted really across the country and I think rural customers have navigated this environment better than the average you know kind of a consumer out there and I think we're in a very favorable market as we head into 2022.

Thanks, So much Chris. Thanks, Kristen next is Scott and I skin with our five Hey, Scott how are you today.

Hi, everyone. How are you guys doing thanks, Thanks for having me and thanks for conducting this is great. So I wanted to actually attack the revenue side of things your revenue growth algorithm.

It seems to me if you look over the next.

Several years.

And I think you guys said it right like you've kind of only just begun to make these changes let me clearly lawn and garden as an adjacent category, but theres a lot more.

As you guys transition into this world kind of lifestyle superstore.

It seems like there's a lot of other categories, you could get into that would become bigger than some of our available online. So I wanted to ask you about that I also wanted to ask about the making the store more experiential we have the chick days and stuff like that but it's obviously more you can do that way and then and then finally on services again another enormous.

The opportunity for the company to layer in additional services.

So there's a lot here you guys have speed to attack all this and it seems like revenue growth could actually come in significantly higher.

Yeah, Hey, Scott. Thanks, so much for the for the question and I think well maybe break that up into two parts with the SaaS can maybe talk a little about the assortment and how we're evolving and much of that he shared in the video and AR and kind of recap some of that and then maybe John can talk a little bit about the experiences in our stores, whether its chick days pet wash.

As clinics and many of the other things before H FFA type stuff that we do but you really hit the assortment expansion first yeah, absolutely Hey, Scott great to see thanks for the question.

No.

Credibly excited about exactly what you're talking about and you know how outlined earlier our expansion of our total addressable market and from a merchandising perspective, that's what really really excites us because we know we have opportunities across our businesses. We're seeing both our core shopper and these new shoppers that are finding tractor supply as we're introducing them to this life.

Style, they're they're finding us they're buying us and where we know we have that considerable market share opportunity. Our merchants are continuing to attack that with our partnerships exclusivity going after differentiation driving experiences in the store that John will talk about both inside the box, but it also looking outside the box obviously with what we're looking at with our God.

And centers are front aprons could go on and on and so we're looking at this year again, I mean, you're talking about things like apparel and the trends that we're seeing like in carhartt area as well as our own exclusive brands, whether it be like enriched cut and expanding into womens those are the things that we're really looking to attack as well as like in pet.

Constant constant newness with the teams going after whether it would be like the introduction of brands like Victor at tractor supply as well as doubling down on our brands that were really seen growth like getting a that would be considered a pet specialty for the rural market place like Hill's science diet Pro plan etcetera, and I could go around the store and do you think about things like where we have big opportune.

<unk>, we're approaching spring and you mentioned Chick days, we've talked about live goods, but we've also got things like the electrification of these new shoppers that are coming are the O. P. E market with these new shoppers coming in we announced this past week, our partnership but I'm really excited about with Green works with Green works Pro we know shoppers had been trending towards the battery market, but.

We've been we've been really waiting on a product that we believe that would stand up to the demands of our consumer and that's where we really went after it and and have created this partnership with them. That's just like one area in one category that we continue to talk to what were really not playing in today, but we're going after and we're going to continue to go after that with market share in play in the future.

So absolutely agree that Ah I could talk about product all day long and within our store and not just in the store, but also in line with with Rob and team with the product expansions. There. So John ill turn it over to talk about experiences yeah. He's got good to see you again.

Hey, D. So I'm gonna break it out in a couple different parts. One is we hire our customers. So our team members loved talking about everything that we have inside of a store. So he brought up chick days event side of our store, where we have CIT captains in there. They know the checks they worked with the chips.

Has come in here Theres, good conversation that goes back and forth between that customer and team member. The only things. We do is you'll suffer a green works like we love theater and the size of the store. So some events. We're doing this year like try before you buy you know we are having event a weekend, where all team members are all gonna be outside and we're gonna be test driving the green works and using tableau.

And using the weed weapons and different things in using a different power equipment materials. The other thing is as we love to be able to have community involvement. So we bring in things like four H F. F. Hey, we do things like hotdogs outside we've come in our customers do donations for them, but we have a we haven't where they can talk to each other to chicken swaps and different things upfront. So we kind of bring.

Up into many different possible, we'd love to be part of those individual communities.

Yeah. Thanks, so much Scott for the question and as you were mentioning just in wrap up here. You know we are literally pushing every corner of the store really into kind of a more modern contemporary assortment right Assaf shared you know expansion of our power tools into kind of a really legitimate tool Corral you know expansion of pet into a full fledged.

Pat offering deepening our commitment around animal feed expanding into live goods, bringing in services like Pat Walsh, John has over 250 stores now doing delivery with our own trucks odd. So just so many things that we're pushing the envelope so to speak on every dimension of the store all around just.

Sweating, our assets more getting more productivity out of those stores and delivering those those mid single digit comps you know our R. R. R. R.

Our goal is to gain market share every single year, you know to grow above GDP to grow above retail them to grow above our market growth rates and you know we think we've got an exciting plan to do that.

Thanks, guys. Thanks, Scott. Thanks, Scott next is Joe Feldman with Tag Hey, Joe. Please go ahead with your question.

Hey, guys. Thanks for taking the question.

Wanted to ask.

And everything you just said about all the opportunities that you do have in front of you you've mentioned tuck in acquisitions, a few times I'm just wondering what youre thinking there is that more.

To acquire small competitors is it more about getting into new product lines or categories or or even just for infrastructure to to run the business better and I. Just wanted to ask you just share some thoughts on that.

Yeah, Kirk do you want to share our capital allocation strategy, and then talk about tuck in acquisition of that yeah definitely just to I'll start with I'm reiterating the capital allocation I mean, certainly our number one priority is investing in our stores and we see still significant opportunity as I mentioned nearly a decade of growth in the runway of new store.

Ours are the investments, we're making to sweat those assets and put more productivity in the stores that already have the occupancy and the rent there. So Joe to your 0.1st we've got so much opportunity in the growth of the business and grabbed the the total addressable market and grab market share. There then.

Of course after that we feel with the.

Tremendous step up in growth in the consistent operating cash flow will return to shareholders.

With with the opportunity in both dividend and share repurchase is thrilled to be able to announce the the board's approval of a 77% increase in dividends as far as the tuck in acquisitions, then where there are opportunities we've not been highly acquisitive, we feel theres so much opportunity in our core.

Where there are opportunities tractor supplies is sometimes that an exit strategy in our niche industry, where theres area that we are not in I mean, we're open to that opportunity. If we look at and say hey, theres opportunity to grab the real estate, we're not in or to complement and so if there's any inappropriate acquisition.

If there's a capability that builds on one of these strategic initiatives that you hear from us as part of life out of your strategy to buy versus build we will look at that opportunity, but it's certainly more of that opportunistic we keep things on our radar.

And really excited about what we've got right in front of us and there may be complementary opportunities.

Thank you.

Thanks, Joe.

Our next question comes from Brian Nagel at Oppenheimer, Hey, Brian how are you doing.

How are you doing Greg.

Great question relation thank you.

So my question.

I know, it's a bit of a follow up to some of the prior questions, but maybe clearly one of the big themes in today's <unk>.

Meeting all the comments is just the re basing higher of sales and it was I think about that dynamic.

You clearly.

Theres no theres more people sort of say there is a large portion of the population living the lifestyle of a winch tractor supply, but at the same time you have you've taken market share gains. There's always been this market share opportunity for trucks why did we talked about that for years, but I guess as you look.

Maybe more color on what youre actually seeing with market share I mean through the pandemic, where they are where they are more permanent changes in your competitive set that went to these the sustainability as market share gains.

On the other side are you seeing as this has happened are you starting to see some competitors that maybe ceded share starting to fight back more now.

Yeah, Hey, Brian Thanks for the question I'll break it into three buckets.

First off as we talked about over the last two years, our market grew at about 25% in aggregate over those two years.

And I think that does speak to all the structural trends that we've outlined and you implied in your in your in your question.

The second two things I'll highlight are really around investment.

We've got substantial structural advantages in our digital business are in our neighbor's club and our supply chain in our store base and the way we train our team members. The technology, we use inside of our stores for our team members like our theatrical headsets and our Uh huh.

Meanwhile, the handheld devices.

And so and those are things that we have historically invested in and there are things we invested significantly in over the last two years. You know it was mentioned earlier about our operating margins come up in the context of our sales, but perhaps not grown as much as some others out there and the reason is because we put a lot of that expense back.

Back into the business, we kept our stores heavily staff, we paid the appropriate wages, we invested in marketing we invested in digital and I think we you know as we talked about we gained our sales grew over 50% over the last two years and it's really the reason we were able to double the market growth rate is because we had the inventory in our stores. We have the people to service them we had.

<unk> buy online pick up in store when others didn't you know we had a neighbor's club program talking to those customers and bringing them back into the stores, we had a supply chain and vendor partnerships that allow product to flow in a way that others couldn't and and you know once people over two years changed their shopping behaviors, it's really.

Quite infrequent for them to slip to slip back and less unless we let them down. The third thing is all of the structural and all the incremental investments we made in our life out here strategy. The fusion stores. The Garden Center stores, all the incremental technology investments, we made last year as we talked about mid single digits on fusion doubled.

High single digits on sorry on the sidewalk combo stores and that was only on three of 300 and 150 stores. So we are starting to see kind of the the initial impact of those in our comps and we're excited about those continuing to drive our business in the future plus us holding onto those customers and having a higher sales base, but I'd kind of break it into those.

Three bucks its structural trends driving the overall market us being committed to operating with excellence in the midst of the last two years and then investing on top of that with that momentum to gain even more share.

Yeah.

No. Thanks, John that's really helpful.

Thanks, Brian .

Our next question comes from Karen short with Barclays Hi, Karen how are you today.

Hi, Thanks, very much everyone and yeah, a couple of questions just actually.

Oh I'm not when you think about your top line growth.

In the context of algorithms.

We think about that relationship.

The scenarios.

It's growing a little bit.

You're right on the algorithms.

And then the second question I had on your increase unit potential I was wondering if you could just talk about that analysis in more detail.

Given the 40 million you know.

Incremental customers I actually would've thought media units in terms of it was higher.

Yeah. So I'll take the unit potential question, and then turn it back to Curt to talk about operating margin leverage on the unit potential you know what you.

What we have is John and the team at the very sophisticated kind of map of our country kind of ZIP code by ZIP code. We know what the demand potential is we know where our stores are we know where competitive stores are and we look at those voids spaces that are in that and that we then take those voids bases and balance them up against the <unk>.

Model and say you know does it create value if we put a store there and historically that analysis had led us to 2500 stores now with the growth in our market.

That creates one some new void spaces, but also it makes some voids spaces that were not previously financially attractive more financially attractive now as I mentioned, our new stores over the last three years have significantly outperformed their their basically their business case, our new stores are profitable in the first year and so the combination of.

Those factors led us to take our new store target up from 2500, 2700, and we felt very confident in that number and hopefully in a couple of years you know, there's there's more on top of that but we feel very good about that number and Kirk can talk about you know our our operating margin leverage Yep, Hey, Karen good.

See let me ask for clarification, because you broke up a little bit on the question on EBIT. So I know it was an EBIT margin question in irrigation.

And also referencing sales growth, but maybe just clarify that.

Well no it was thinking about the EBIT growth at percent relative to the sales growth rate. So we all know what you've done historically, but within your guidance.

Two decent range where like.

Growth growth in sales growth or slightly at a greater rate. So just wondering how you think about that in the context of the algorithm yeah. Great. You know from from an operating margin standpoint, I mean, the again I'll just reference to key if if the question is regarding to our long term outlook and we think about the EBIT margin in there.

Is that we see in important opportunity right now to make investments in a lot of that investment will be in the stores technology and in our supply chain and so as we as we make the investments in those investment pressures are on SG&A. We also see great leverage through our.

Operating efficiencies are the leverage from the growth in the sales and so we haven't over the next three to five years, we see.

Definite.

Inflation and pressure from investments that we can offset with the leverage and with the operating efficiencies on the gross margin side. We also see over over time that we've got the opportunity from those investments to be able to grow our gross margin. So there's some good opportunity in here with our scale.

And with the work that Collyn and Seth are doing to be able to grow some of that gross margin at.

At a faster rate and really see that opportunity there so from the algorithm.

Our assumption is that these investments are growing the topline, but also giving our gross margin and opportunity to grow in and there's likely to be more growth in the operating margin over that five year period, and our assumption from the gross margin side as we balance out our efficiencies our investments in the SG&A side.

Great. Thank you very much and care and the only thing I'd say is like in a really simple way for me is.

You've got a revenue growth of kind of 6% to 7% and then you've got the EPS growth, which Kurt took us through at 8% to 11% and then you were buying a couple of.

Per cent a share back so if you take those out we're kind of grown EPS kind of six to nine organically, which means E. P. Our earnings are going to grow kind of with sales or slightly better on an annualized basis on average since which means kind of particularly after this next year or two cycle of investment will grow kind of operating margin.

And about a 10th of a point a year and that kind of leads you up to that 10 six.

That's great clarification their house and next on the line is Chuck Grom from Gordon Haskett.

Hey, Thanks, Great presentation, everyone a lot of great statistics today, but the one that really caught my eye was the $40 million additional customers in your trade area. So it's open Christy could speak to the timeline for acquiring these new shoppers and then as a follow up for Hal on the gross margins I believe you spoke to roughly flattish for 2022.

How should we think about the cadence of gross margins throughout the year.

Yeah go ahead.

Hi, Chuck Thanks for the question Love talking about our customers and just thinking about our customers pre pandemic. When the pandemic first started through 2020, we acquired 11 million new customers. We're still comping. The pre pandemic numbers in 2021, we have more new customers in 2021.

Did pre pandemic, so $10 million to $11 million a year is what we're attracting and 50% of those are returning to us after they shop. So we are retaining all attracting and retaining a lot of new customers and with the new work with the Tam and the opportunity.

<unk> and fusion inside lot, there's so much more opportunity for us to really begin to attract even more than those $10 million a year in new customers, but we are on a trend line right. Now of 11 10 to 11 million new customers every year and I would see us just accelerating that overtime.

Yeah, and I'd just speak Christine the team are just doing an outstanding job raising the awareness of our business you know going from 34.2 years ago to 55 points now that 21 point awareness increase I think has really helped it you know kind of drive traffic into our stores and then whether it's through online and.

Product assortment or John and the team of customer service that conversion in the store and then holding those customers and then I think you know just continues to build on top of itself.

Is that as we continue to grow that awareness and had that fantastic experience in our stores and online as.

As it relates to the kind of operating margin algorithm I think the way we think about it is very similar to the way we've talked about at the last couple of years, which is we.

We would see.

It's continuing to you know kind of that 10, one to 10 six you know last year, we did a 10 three the year before that it was a 10 one.

And the bulk of that gain was really in gross margin rate as we held SG&A kind of roughly flat as we think about the next few years, particularly once we get through this peak investment over that this year and next year.

I think you know gross margins will hold to maybe moderate some and then the leverage is where what that we'll see will be will be in SG&A.

And that's what kind of gives us that range between 10, one and 10 six with us creeping up towards the middle to higher end of the range as we get into the out years of the five year range and Seth and the team are doing are doing a fantastic job navigating all the cost inflations that are coming through us off.

Setting any ways. They can and then and then passing through some on price and.

And importantly, maintaining little to no promotions and then also a little to no clearance.

And the Great thing is you know with last time last year, we were asking whether or not the little to no promotion could remain kind of structural in nature or whether or not that would creep back in and I think after a couple of years, you know really the behaviors in the market has evolved.

Evolved, particularly as we look at this year and continuing to be constrained still in supply chain. So we feel really good about maintaining kind of little to no promotions as we look in the future and kind of staying quarter R. E. D. L. P trip routes.

Great. Thank you.

Thanks Jack.

And our next question comes from Ali Winter mantle with Evercore ISI.

How are you today.

Good things are you.

Thanks, very much for the presentation today.

I had a question regarding the longer term outlook on your transactions or traffic within to comps.

If you think about what drives your traffic within the stores and then on an inflation basis as that normalizes over the next five years, how do you think about the mix between traffic and transactions.

Yeah, Hey, Oliver I'll I'll take that.

First I'll start by just talking about 'twenty 'twenty. Two is a quick reminder, and then beyond that so for 'twenty 'twenty. Two what we've said is we we plan and are targeting positive comp transaction and positive comp ticket and.

And ticket likely to lead more than transaction in 2022 beyond 2022, while every year could be a bit different but we think about it is it's really going to be pretty balanced and if you. If you refer back to some of the real drivers of our comps that we've talked about you've got fusion inside lots that are drive.

<unk> traffic into the store with new categories. Theyre also driving ticket digital doing the same thing the work that John .

John and Colin talked about on delivering on Q legendary service. These types of things, we really see the strategic initiatives that we've got and the momentum in the business that in the 2023 to 2026 period of time is that we've got the opportunity to be really balanced between.

Both of those because these strategic initiatives are focused long term on driving market share, which means traffic, which means footsteps into the stores and clicks on the website.

Thanks, very much good luck.

Thanks, so much.

Our next question comes from Daniel Enbrel at Stephens, Hey, Daniel how are you.

Hey, good morning, everybody. Thanks for all the info today and taking the question.

A two parter for how and Collin just as we think about growth on your existing infrastructure, maybe how in the stores as we think about store efficiency are you seeing any throughput issues as the team is handling more volume how store turned overdoing as the team members are being asked to handle more and then Colin you talked about the DC investments, but can you talk about any <unk>.

Best in existing Dcs to improve efficiencies and then maybe provide an update on turnover given the wage investments you've made.

Yeah, Hey, Daniel and thanks for joining us today and appreciate the question.

I'd start by saying, we thought you know we've seen some modest increases in our turnover. This year certainly relative to last year when turnovers were at all time lows.

But you know I think we fared much better than most companies, one first and foremost because of our culture and our commitment to mission and values and all the things that John talked about earlier around our commitment to the communities in hiring our customers are and then secondly, we've made substantial investments in wages and benefits and other other.

It's over the last couple of years, which have served us well in terms of retention.

And then in terms of kind of flow through the business you know, our we're up substantially on Q over the last couple of years.

No one sells more animal feed and bagged animal feed the country than we do you know, we're one of the top retailers on pet food as well and interestingly on the on particularly on our pet side, you know our customers skew larger on their pets right. So we sell more than anyone 50 pound bags of dog food and certainly the vast majority of our animal food.

Or 50 pound bags, and that's a lot of flow through and a lot of tonnage through we are the lowest cost to serve all of those in the market. We're committed to being the lowest cost to serve we're committed to be able to be in stock on those and that's really a lot of what Collins you know presentation and focus is going to be on for the next couple of years and let him elaborate a bit on that sure Daniel Thanks for the question.

As far as turnover I think Hal answered that but with investment in our existing distribution centers to drive throughput I just can't thank our team enough. They hit record level throughput. This last year and I would say, it's more than just the distribution centers, it's really tough to execute your way out of a planning problem. So it starts upstream with working with our <unk>.

Anders with our replenishment allocation with our transportation team to make sure. We set the distribution center is up for success. So the team did that phenomenally in 'twenty 'twenty and 2021 given all the different disruptions that we've you know well publicized across the supply chain within the four walls of our existing distribution centers were really re.

And the benefits this last year and going into into 2022 of investments we made in profit improvement over the previous years with.

Bringing all of our systems up to a common execution platform across all distribution centers to our engineered labor standards within our facilities to drive throughput and efficiency to schedule flexibility and communication with our team members and most importantly to the quality of leadership that we have in developing our frontline leaders because we know our team members can go work.

Our other distribution centers in these distributions distributions center, our intense kind of geographical areas, but they choose to work at tractor supply because of our culture because of our mission because of the way they're treated in those facilities and that is an enduring strength, that's going to carry us through for the for the next foreseeable future.

Thanks, Joe and good luck.

Got it.

And our next question comes from Steve The cone at Citi, Hey, Steve.

Great Hey, Mary Lynne Thanks for taking my question. Thanks for the thorough presentation today.

I had a question on 2022, and then just a follow up on like the longer term targets.

We think about 2022 from an inflation perspective could you talk about the level of inflation for maybe a category perspective relative to what you saw in 2021. It seems like it's more broad based in nature than the other question I had just on the longer term targets. The last time, you met with US you talked about a potential get back year just cycling some of this.

It doesn't seem like this is factoring in a give back year, what's really driving the confidence that you don't have that give back here.

Okay.

Yeah.

Hey, Steve Yes SaaS.

Hey, it's relative to inflation and what that outlook is this year versus this past year. What I'd say is if you were to go back to 2021 and the beginning of that year. It really started with the commodity markets right and when you think about grains. Then we move more into steel are the other cost pressures continued you know on our supplier side continue to.

Roland to call it cost of goods pressure, whether it'd be getting components from overseas to hear their labor rates et cetera, and what I would say is we're in to have as we have entered into 2022 and where we are today. It is more broad based.

And so relative to last year, you'll hear more broad based across the four walls are what are the what I'd say about that though is when we think about our pricing sophistication. We know what we know are the prices coming at us and we know what's in front of us and I and the team has done a fantastic job from an analyst perspective, utilizing our tools.

To be able to go out and make sure that we're gonna be priced right in the market to drive market share a measure elasticities and at the same time make sure that we can manage the P&L. Accordingly, so as you look at last year again. It did really started commodities really went into steel now it is more broad based and that's where we see it hitting in 2022.

It's Steven I'll take the question on the the reference back to the last enhanced earnings call, where we had that give back year and you referenced I'm assuming it goes back to that line graph that many have referred back when they talking with me about it and really back then the question was all about structural or trans.

Tori and really how resilient is this step up in growth in 15 months ago. There was that legitimate question of how much of this growth is a temporary shift in behavior. That's in favor of tractor supply, but all the things that we've talked about and what Christy mentioned in regards to.

The permanent shifts in some of the customers not only geographic locations, but we're what their hobbies or in and people entering into a lifestyle millennials buying homes. Those types of things began to get answered over an 18 month period of time I'll reference back to as an example.

One of the slides I presented I think is really powerful that over this period of time, what we saw that we had.

Had growth from new customers, 30%, but then growth in existing new new categories of the product as well as the existing digital as well as in.

Brick and mortar and the fact that our growth was from transactions and ticket and when you look at transaction and basket. It was the biggest piece of it so really broad diverse growth in it and the fact that we've had consistency best way to give an example, and the consistency last three quarters, 40% almost.

To achieve each of those quarters two year stack on the comps. So as we worked through that it really solidified that these are enduring customer relationships that are benefiting tractor supply. It's really the difference between what our outlook was 15 months ago versus what we're presenting today and really excited about that.

The future.

Great very helpful guys. Thanks, very much thanks, Stephen appreciate it.

And our next question comes from Liz Suzuki with Bank of America, Hey, Les.

Hey, thanks, so much for hosting this event I just had a follow up to Karen's question about the store base is it correct to assume that essentially all of the 2700 stores will ultimately have the fusion lay out and the vast majority will have sidelined or are there any alternative store formats that might be considered in that 2700 number and a related <unk>.

Western about pet sense, and what you view as the long term opportunity for that store base.

Hey, listen.

Yes, that's correct all new stores are being built with the fusion lay out so and that was the case in 2021. It will be the case moving forward as it relates to the Garden Center.

Really on a store by store basis.

Whether or not the store is built with a garden center it depends on what the market opportunity assessment tells us what I would say is this year in 2022 the vast majority of our new stores will have the garden center and that's incremental to.

So some of the guidance that we gave on our existing store base through the presentation.

And then as it relates to pet since we haven't had a chance to talk about that business today, but the business is doing very well I Matthew Ruben joined US last year about this time to lead the business did an excellent job of kind of driving the business had an excellent year strong sales growth of profit growth a number of new stores.

<unk> built a we've made several and Ah integral elements of integration there are customer facing like we now sell for health branded food in in inside of Pet says we're in the process of doing some things in terms of integration later in the year on Neighbor's club and also some integration on branding were also taken our planet Graham software.

There are now implemented that inside of pet sense, and we're also working on a kind.

Kind of a centralized inventory platform, whereas right now the stores are done a V. A.

Kind of an individual store base and so a lot of work's going on to leverage the breadth of tractor supply to make pet sense better the team's doing a great job driving it we've got a number of new stores that will be built for pet since this year and we're excited about the future of that business.

Great. Thank you so much.

We've got time for two more questions. So we'll go up to two more questions and up next is Bobby Griffin with Raymond James Hi, Bobby.

So I think we're having a little bit.

A little bit of trouble hearing you say get there you go.

Mary Lynne, yes, sorry about that I guess I just wanted to quickly unpack the long term growth targets is the right and what the embedded market rate is in those targets is the right way to think about it the market grow say three to four tractor then picks up a point of market grow share in comps or is the market going to grow in line with comps and then the market share gains.

From the new store growth.

Yeah, It's a great question and.

I think as we think about it the ladder that kind of long term you know GDP the.

The country is kind of 2% to 3%.

Our market typically maybe grows kind of a half ish point above that two and a half to three and a half maybe except for you know with our comp guidance of four to five we're certainly taking share in the markets that we're already in and then the building of new stores just allows us to take incremental share on top of that so it's a bit of a blend of the two scenarios you you mentioned, but it is.

Certainly taking share with our existing stores growing that sales productivity and then on top of that also gaining it through both new store build outs as well as digital.

Thank you.

Best of luck.

Bobby and our last question will come from John Lawrence with Benchmark. John . Please go ahead with your question.

Great. Thanks for doing this today that's great.

And congrats on the year.

Can you talk a little bit about the pet business and you mentioned.

The pet washes in the in the wellness clinics can you talk a little bit what happens when you add one of those into the business.

Does that customer go around and shop.

So how much does he pull from other categories.

You mentioned you had over 40, how big could that business be.

What are you seeing with the availability of veterinarians in this environment.

Yeah, Hey, Thanks for the question first off I'd start out by saying our pet business is incredibly strong.

We talked about our Q and its performance over the last handful of quarters out comping or overall store and then made mention that a.

Pet pet, particularly dry dog food is outperforming even our Q business. So our pet business is very strong both in store and online and then we'd certainly want to make sure. We're providing a full suite of services around that and I'll, let John talk a little bit about the dynamics and we have a pet wash or a pet clinic or a mobile clinic and how how that plays out.

Our source yeah. Thanks, John for the question, so our pet losses.

So as soon as we have a customer use the pet was they continue to come back and back and back they love using the pet was they like to come back we have pet washes, where you'll have some stores will do over 100, a week in pet washes, so the customer really likes it they enjoy it they love that theater and they like being able to take care of their pets. It doesn't have to always be a dog, though sometimes it's something else you asked about.

What they do after that those go into the store and the number one thing they buys a collar because the first thing you do after you ask your Pud as you wanted to get something new for the person you're getting the car will also pick up some other pet goods, whether they're going to get the rest of their shopping done out of the pet wellness clinics or the mobile clinics that have come up to the front of our stores, we have lines out in front of our stores for these clinics customers use them, we advertise them up.

Chris and her team get it out there and then customers will come in they'll sign up and then they love getting their dogs, taking care about this so it's something that our customers really like they love. The fact that we do it for them they love the convenience about it.

How many of those stores could you add over time.

Those projects yeah. So.

Pet wash is now kind of a core component of SAP outline of our fusion stores really the only time, it's not going into a fusion stores when theres a legit, you know kind of a real space limitation.

So we see over time, the vast majority of our stores, having a pet wash.

The mobile clinics, the vast majority of our stores already have mobile clinics at a minimum. It's every two weeks, but theres a lot of our stores that have it twice a week.

And then on the wellness clinics that would I think it's still a bit more in a testing mode for US is Seth talked we're in that kind of 50 60 store range will add some more this year through fusion, but we're really excited about the benefits and the performance of those in and we'll look to do more as as we see the performed the performance over the next year or two.

Great. Thanks congratulations.

Thanks, Sean.

All right well that's going to be our final question as always says for some great questions. So thank you everybody for your time today, we really appreciate you joining us virtually to learn more about what we think makes tractor supply such a special company I also wanted to take a minute to thank Marianne denenberg and a multitude of others at the <unk>.

Company, who helped pull off today's event to showcase tractor supply an event of this scale. It takes a lot of partnership to all of that is that tractor supply that supported our Investor Relations program. Please accept my sincere appreciation and gratitude on behalf of the investment community and thanks to all of you for taking time out of your day to join us.

We look forward to speaking to you again on our first quarter 2022 call in April and Marianne and I will be around today to take any questions. This afternoon take care and please stay safe.

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