Q4 2022 Tractor Supply Co Earnings Call
Speaker 1: Music
Speaker 2: ?
Speaker 3: Mary Wynn, I will now pass the call back to you. Thank you, operator. Good morning, everyone, and thanks for joining us. I hope you enjoyed watching the video of Tractor Supplies Year in Review. On the call today are Hal Lawton, our CEO , and Kurt Barton, our CFO . Our prepared remarks will open the call up for your questions.
Speaker 4: beyond our control. Although the company believes the expectations, reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations.
Speaker 5: Investors should not assume that statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. Given the number of people who want to participate, we respectfully ask that you limit yourself to one question. If you have additional questions, please feel free to get back in the queue. I appreciate your cooperation. We will be available after the call for follow-up. Thank you for your time and attention this morning. Now it's my pleasure to turn the call over to the House. Thanks, Mary
Speaker 6: I think the opening video was a great recap of the highlights of a record year for Tractor Supply. Your end is when we reflect on our accomplishments and I'm pleased to share the results from the team in 2022.
Speaker 7: We had sales growth of 11.6% and diluted earnings per share growth of almost 13%. And this is on top of a record performance in 2021.
Speaker 8: We had solid market share gains across all our product categories.
Speaker 9: At Tractor Supply, it all starts with the team. And my sincere thanks and appreciation goes out to the more than 50,000 team members of Tractor Supply who work diligently every day to live our mission and values. Regardless of the operating challenges throughout the year, and really over the last three years since we entered the pandemic, the team has delivered impressive results while also making significant progress on our Life Out Here strategy.
Speaker 10: I commend and thank the team for stepping up to every challenge that has come at us over this time period. Our team plus our business model are the reasons why we have a record of consistent and stable growth across all economic environments.
Speaker 11: The highlight of this phenomenal track record continues to be the consistency of our results and the broad-based strength of our performance. Including new stores in the 53rd week, our revenue on a three-year basis has increased about 70%, with a three-year comp stack of 46.5%. Over the same period of time, we've invested nearly 1.7 billion in our stores, distribution centers, technology, and other strategic initiatives as part of our life out here strategy.
Speaker 12: We also have significantly improved our operating capabilities, including relaunching our Neighbors Club program, creating our Field Activity Support Team,
Speaker 13: We've remained focused on introducing new capabilities, improving the shopping journey, and ensuring we have scalable platforms. All with the underlying goal to be the dependable supplier that our customers count on. As a company, we hit several significant billion-dollar milestones in 2022. We grew our sales to a record $14.2 billion, increased net income to over a billion dollars, and $1 billion in private label credit card sales.
Speaker 14: and return more than $1 billion in capital to shareholder for the second consecutive year.
Speaker 15: This culminated with diluted earnings per share of $9.71.
Speaker 16: Albeit, comp sales performance was stronger than forecast as the late December winter storm provided a comp sales lift of approximately 2 percentage points. Excluding the impact of the winter storm, importantly, our underlying results were in line with the high end of our expectations for the quarter. Now let's go through some of the highlights for the quarter and the fiscal year. For the fourth quarter, our comparable store sales growth was 8.6%, and it was driven by strong ticket growth of 6.3%, and transaction count increase of plus 2.3%.
Speaker 17: importantly, even without the winter storm benefit, our comp transactions would have been positive for the quarter.
Speaker 18: Both two- and three-year comp stacks were relatively consistent across the quarter. On e-commerce, it achieved mid-single-digit positive sales growth, and we continued to build out our one-tractor capabilities. As of year-end, the Tractor Supply app has had over 4.4 million downloads since it was launched mid-2020. For the seventh consecutive quarter, we continued to see our consumable, usable, and edible products outperform our overall comp sales results.
Speaker 19: And this is the fourth consecutive quarter for Q to run at about three times the rate of overall comp sales growth.
Speaker 20: as well as C for poultry, equine, and wild birds. As we've talked about many times, Q is one of our structural advantages, and the products represent the strength of our core business and they're what drive trips to our stores. Our outperformance and year-round categories offset the declines in big ticket categories. And we continue to gain share across our categories, both online and in-store. Shifting down to Neighbors Club, our Neighbors Club membership exceeded 28 million members.
Speaker 21: and represented nearly 75% of our sales for the year. Neighbors Club is successfully helping us migrate customers to a higher threshold of spending with us.
Speaker 22: During the quarter, we reached a new record in the number of high-value customers. Overall, our best customers are shopping with us more frequently and spending more money per transaction.
Speaker 23: both in-store and anywhere visas accepted. This marks exciting progress on our journey to drive sales, build loyalty, and reduce tender expense through our credit offerings. And as I mentioned earlier, this past year, we crossed over $1 billion in private label credit card sales. For the fourth consecutive quarter, our overall customer satisfaction score hit a new all-time high as we continued to invest in our team to provide best-in-class customer service. Our team continued to make advancements in our supply chain through the expansion of our mixing centers to a total now of 15.
Speaker 24: Our supply chain continues to be a competitive advantage for us. In 2022, we moved more than 8 billion pounds of consumable, usable, and edible product through our supply chain, as we are the world's largest seller of bagged feed and food for livestock and companion animals. Our scale and reach provide us with a cost to serve that is lower than our competition. We continue to advance on our commitment to be stewards of life out here. We're making progress on our absolute carbon reduction goal to further reduce emissions from our operations by 20% by 2025 and by 50% by 2030 from our 2020 baseline.
Speaker 25: Additionally, in 2022 of April , we announced an ambitious three-year water conservation goal to conserve 25 million gallons of water by 2025. These commitments to the climate and society reinforce our vision that a healthy environment, properly managed resources, and vibrant communities are keys to secure and prosperous future for life out here. As a result, our efforts to enhance our sustainable business practices have been recognized by various third parties. We now have nearly 30% of our store base that are in our Project Fusion layout.
Speaker 26: and our garden center build-out is now active in over 300 locations. With nearly 1,800 team members, our Field Activity Support team has made powerful contributions to our in-stock performance and execution of our sales driving initiatives.
Speaker 27: This was the year that we made significant progress on our Life Out Here strategy. And building on our performance for 2022, our outlook for 2023 is right in line with our long-term guidance. And Kurt will share more details on our outlook, as well as more details on our performance in 2022 in just a moment. Now shifting a bit to 2023. As we plan for the year, we anticipate continuing to operate in an ever-challenging and changing macro environment.
Speaker 28: in areas such as housing, agriculture, and oil markets are expected to be collectively neutral and individually modest. Whatever economic environment plays out this year, or any year for that matter, we're confident that our business will remain resilient and build on our strong track record of consistent and stable growth across all economic environments. Tractor Supply is a unique, highly differentiated retailer.
Speaker 29: As we started out the year, we anticipated that our business would continue to exhibit consistent performance, as we have a proven business model that has stood the test of time. The team delivered against our goals and exceeded our expectations. The impact of the 53rd week on our performance is detailed in our press release. To recap, the 53rd week added about $225 million to our net sales in the fourth quarter, representing 6.8 points of our net sales growth. On a full year basis, it represented 1.8 points of the 11.6% growth.
Speaker 30: year over year. Diluted EPS benefited by 16 cents for the quarter and the year. For the fourth quarter, all regions of the country once again delivered positive sales comp. All months were comp positive. As for the cadence of the quarter, our comp store sales were performing at the high end of our outlook.
Speaker 31: as we moved into mid-December. Then as winter storm Elliott moved across the country, our sales accelerated, given the storm's impact on our customers' needs for heat, insulated outerwear, livestock feed and forage, and some load-up of other Q products. As Hal shared, we estimate the storm provided about
Speaker 32: two percentage point benefit to our comp sales. Much like any emergency response event such as hurricanes, the profitability of these sales from winter storm events of this magnitude is lower due to the mix of products and higher incremental operating costs.
Looking back, when excluding the December winter storm, comparable store sales have been remarkably consistent across all four quarters of the year. Similar to trends through the year, retail price inflation contributed about 11 points to our comparable store sales in Q4 as the team continues to navigate the ongoing cost pressures across the supply chain. The comparable average ticket growth of 6.3% benefited from inflation.
partially offset by a shift in sales mix to needs-based consumables versus the larger ticket items.
Demand for cute categories with nearly three times the chain average, while big ticket sales performance was down mid single digits.
The performance in these big ticket categories somewhat offset the declines we saw in more discretionary categories like utility and recreational vehicles and trailers. Moving on to gross margin. For the fourth quarter, our gross margin improved by 28 basis points to an even 34% of sales. Our price management actions and other margin driving initiatives were able to offset the pressures from year-over-year product cost inflation, higher transportation costs, and product mix due to the strength of Q categories. During the quarter, we experienced a significant moderation in the rate of price increases.
Of note, it's our belief that transportation costs most likely peaked in the fourth quarter. As a percent of net sales, SGA expenses, including depreciation and amortization, increased 14 basis points year-over-year to 25.1%. As we indicated in Q3, this increase was primarily attributable to three factors. One, the impact of transaction expenses and early integration costs associated with our acquisition of Orson Farm and Home. Two, our strategic growth initiatives...
including depreciation and amortization. And three, our investments in team member compensation and benefits.
Diluted EPS was $2.43, an increase of 25.9% from the fourth quarter of last year. Our balance sheet remains incredibly strong. At the end of the quarter, merchandise inventories were $2.7 billion, representing an 18% increase year over year in average inventory per store. Overall, we continue to believe that our inventory position is in good shape. Today, we believe we are better positioned to drive sustainable long-term growth than we were before the pandemic.
Adjusting for the impact of the 53rd week, our outlook for 2023 is right in line with our long-term target as we continue to see the power of compounding from our compelling top-line growth, operating margin outlook, and consistent capital return to shareholders to the dividends and share repurchases. For fiscal 2023, we are forecasting net sales of $15 to $15.3 billion, including at least $300 million in sales from Orslund.
Comparable store sales growth is anticipated to be in the range of 3.5 to 5.5 percent. We expect gross margin expansion of about 20 to 40 basis points from supply chain benefits and a moderation in both product cost increases and the mixed impact of Q. We anticipate SGA will deleverage modestly due to a few factors. Depreciation amortization is anticipated to increase by 17 to 20 percent relating to our strategic growth initiatives.
Also, we opened our ninth distribution center just this month. As a reminder, the operating costs for the new DC are reflected in SGA, while the supply chain benefits are reflected in gross margin.
The benefit and gross margin will not completely offset this pressure since it takes time for the new facility to fully ramp to maturity and realize the supply chain benefits. And lastly, the integration of Orson Farm and Home is expected to impact S&A by approximately five basis points. These factors are partially offset by the normalization incentive compensation and leverage occupancy and other operating costs from the increase in comparable store sales.
We plan to maintain a healthy leverage ratio of two times or below. We expect our effective tax rate to be in the range of 22.7 to 23%. We continue to expect the Orslan acquisition to be accretive to diluted earnings per share by at least 10 cents in 2023. All in, diluted EPS is forecast in a range of $10.30 to $10.60. We continue to believe the best way to look at our business is not by the quarter, but by the halves of the year.
As you model 2023, I want to point out a few things that will impact comparability. And I'd like to give a little color on the flow across quarters.
From a sales perspective, we are planning for all four quarters to have comp sales performance generally within our guidance range.
We anticipate retail price inflation to benefit comp sales by 3-5 points.
with the benefit being higher in the first half than the second half as inflation pressures begin to moderate.
As to earnings, we expect our EPS growth to be fairly balanced between first half and second half. There are a couple of discrete items that will impact operating margins in certain quarters. The first quarter will likely be our toughest comparison from an operating margin rate perspective. Startup costs for the new distribution center will pressure the first quarter, while the supply chain benefits will not begin to be realized until the second quarter. The transportation costs are expected to continue to be higher year over year in Q1 and then begin to moderate through the remainder of the year with the second half expected to see.
and we expect to improve the cadence of openings in 2023 with more balance throughout the year. We remain committed to returning cash to shareholders through the combination of a growing dividend and share repurchases. For 2023, we anticipate share repurchases in a range of $575 to $675 million, which is estimated to have a benefit of a net reduction in weighted average shares outstanding of approximately 2%. Our business model has stood the test of time and has proven to be resilient. While we are closely monitoring consumer behavior and the impact of economic growth on consumer demand, we believe that we are well positioned for any consumer and economic environment.
To wrap up, we're continuing to separate tractor supply from the competition. In prior cycles, we've made investments that strengthened the company. We believe the current environment is an opportunity for us to lean into our strengths and further expand our lead for years to come. And with that, I'll turn the call back over to Hal.
Thank you Kurt. As we celebrate our 85th anniversary this year, Tractor Supply is a business that continues to have significant opportunities for growth ahead of us.
Our position in our customer spending is for stable, need-based, and demand-driven product categories.
At the same time, we are playing offense to capture organic growth opportunities. We have idiosyncratic growth drivers that are separating us from the competition. As a company, three words that really summarize Traxler Supplies performance are, one, consistent, two, reliable, and three, sustainable. And I'd like to walk through these three words and share what I see as structural tailwinds across them to support our future performance. Let's start first with consistent performance. We have a track record of delivering positive sales growth for over 30.
Our marketplace has shown consistent growth for decades and decades. Our total addressable market of $180 billion continues to benefit from numerous trends that we believe are structurally sound. Additionally, by all accounts, we are gaining substantial share in our market. For instance, our Q product categories are driven by livestock feed for cattle, equine and poultry, and companion animal food. In addition to categories like heating fuel, wildlife feed, pest control, and lubricants.
We're entering new product categories through our Garden Center transformations, then open up new queue categories that provide a halo to the store as new and existing customers shop our expanded lawn and garden categories.
Our stores with the Fusion layouts and garden center transformations are gaining more customers than the balance of the chain. In just over two years since we started our Life Out Here strategy, we have gained significant scale in our Fusion remodel and the transformation of our sidewalk to garden center.
We have a substantial runway for growth ahead of us, as we still have 70% of the chain to convert to the fusion layout and the opportunity for another 1,000-plus garden center transformations. The comp lift for the fusion remodels continues to run in the mid-single digits. When we execute a combination fusion remodel and a garden center transformation of our side lot, we have a comp lift in the high single digits. These projects provide us with the opportunity to continue our track record of consistent growth. The second word I would use to describe Track Supply is reliable. We are a needs-based, demand-driven business.
And these product categories differentiate tractor supply from the bulk of retail. Our customers count on us for the products they need to deliver life out here.
Additionally, our high-value customers are shopping us more frequently and spending more money. Our retention rate for our high-value customers is about 80%, with our retention rate for our highest tier customers at over 95%. Our Neighbors Club program is a true competitive advantage for tractor supply. Once our customers in the flywheel of Neighbors Club, their spending becomes much more reliable. Sustainable is the third key word to characterize our company. We have had tens of millions of new customers shop us the past three years. We have retained the majority of these customers.
and a substantial portion have become active Neighbors Club members. We've added over 13 million members since 2019.
Another important customer cohort that supports the sustainability of our outlook are the Millennial customers, and they continue to have more significant spending with us and in the years ahead of them. This group will make up nearly a quarter of the U.S. population by 2032, just 10 years from now. Our sales comps for Millennials have outpaced non-Millennials' attractive supply for five consecutive years. Sales over index in sales per customer, units per customer, and average tickets. We view this strength with our Millennial customer not as a pull forward, but rather as a catch up as this group delayed family formation.
and the pandemic really shifted their behaviors to be much like prior generations. This cohort of the population is showing the accelerated rate of homeownership and household formation.
Today, 50% of millennials own homes versus 30% just a decade ago. So while they may have started a little bit later, we see an inflection point in the pace of homeownership and household formation.
And if they continue shopping with us for five years, we experience a threefold increase in transactions and sales per customer within five years of their initial purchase. Rural revitalization also continues to be a strong structural benefit for us. Millennials are increasingly choosing to move out here. This is not just a phenomenon of the pandemic, but rather a decade-long trend of net migration out of urban areas that skew disproportionately among this younger generation. The rural lifestyle appeals to millennials and it offers greater affordability, safety, self-sufficiency, a slower pace, and the ability to pursue hobbies and passions.
Whether it's a pursuit as simple as making memories with family and friends, or caring for pets and animals, or getting outside to hunt, fish, or camp, or being more self-sufficient and sustainable, Tractor Supply serves a key resource in our local communities for millennials to come to for trusted advice and expertise. Our passion for the lifestyle connects with our customers and allows us to serve them at scale. These three words, consistent, reliable, and sustainable, allow us to be an earnings growth compounder.
both the top line and bottom line. As I started my remarks this morning, year-end is when we reflect on our accomplishments, but more importantly this is a key moment to look ahead and to focus on the opportunities ahead of it.
With our Life Out Here strategy, we have ignited traction supplies next horizon of strong and sustainable growth.
2023 is poised to be another great year for tractor supply. With that, operator, we'd now like to open the line for questions.
Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one.
As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question.
Scott, your line is now open. Hi, this is Joe Civello on for Scott. Great quarter, guys. I was just wondering if we could talk about the transaction growth you guys are projecting for 2023. Can you talk about how the expectations are driven by weaker comps, weather-driven, or other things like that, or potentially incremental visits driven by garden centers, fusion remodels, or the things you are implementing in the store that's helping to drive growth? Thank you. Hey, good morning, and thanks for your question. Appreciate you joining the call today.
We're very pleased with the guidance we provided on our comp sales for 2023 to be between 3.5 and 5.5%, very much in line with our long-term guidance range as well. As Kurt said in his prepared remarks, we expect it will be a blend of Transact's positive comp.
GDP kind of flat to low single digits growth. And we are taking significant share in the marketplace. As we've said several times over the last three years, our sales growth, half of that can be attributable to share gain. And we certainly are expecting that to continue in 2023.
And the share gain is really a composition of the competitive advantages that we have, as well as the investments we're making in our Life Out Here strategy, and the fact that we're reaching scale on a number of those now, particularly our fusion and garden centers, and they will continue to add material growth to our comps.
But again, we're very positive on our outlook for 2023 and expect the momentum that we exited 2022 to continue into the year.
Again, we're very positive on our outlook for 2023 and expect the momentum that we exited 2022 to continue into the year.
Our next question comes from the line of Karen Short with Credit Suites. Karen, your line is now open. Hi, thanks for taking my question. Good to talk to you again. So just two questions if I could blend them in. So, you know, just looking at your algorithm.
Obviously you're looking for sales growth just on a one-year basis to be lower than EBIT growth. I guess I would argue that's probably, or so sorry, sales growth to be higher than EBIT growth. I would look at that as a good thing because you are one of the few companies that have invested and not harvested as it relates to the market.
into potentially a weaker macro.
even inclusive of all the capital expenditure and the kind of underlying DNA that comes along with that, as well as all the other investments we're making in the business. But we're very optimistic and confident in the outlook that we've provided. On the mixed by category, we've roughly talked about discretionary being more like 15% of our business. Big ticket is kind of in the low, double digits. There's a few other categories that would be plus or minus in that discretionary area as well. And I think the way we think about that business is that some categories will have, continue to be negative in their comps. But there's others when it...
And we think it will play out that way much of this year. As an example, as we get into the end of Q1 and early Q2 when we had the drought last year, that disproportionately affected, as we commented last year, things like riders. And we expect those to come back as the drought is abating in many areas of the country, even in spite of the consumer shifting more towards needs-based spend. And that's the changmakers demand of the transportation model or their education model. We expect critical
Thanks Karen for joining the call. I appreciate the question. Thank you. Our next question comes from the line of Liz Suzuki with Bank of America.
Thanks Karen for joining the call. I appreciate the question. Thank you. Our next question comes from the line of Liz Suzuki with Bank of America. Liz, your line is now open.
Thank you. I don't mind being confused or caring because she dresses better than I do. I appreciate it. Thanks for your time. The guidance you gave for 2023 in terms of the operating margin, it sounds like the investments in new DCs and in store transformations.
in the call. As we said several times last year and this year are two biggest peaks in investments and as we talked about in our enhanced earnings call a couple years ago the first part of this five-year cycle that we're in for our life after your strategy would be towards more the bottom end of our middle end of our range.
And then as we move towards the out years, call it 24, 25, 26, we see opportunities to increment up on our op margin towards that higher end and kind of get back to a nice leverage across our P&L of say 5 or 10 basis points a year.
And, you know, really the biggest determinant of the 10.1 to 10.3 this year will just be the sales range. And, you know, if we're up more towards the 5.5, we would expect to leverage more on some of our fixed costs and be more towards that 10.3. If we're down more towards the 3.5, we think we'll be more in that, you know, 10.1 to 10.2 range.
There's a little less leverage on some of our fixed costs and we pull some other leverage to kind of manage the business. But certainly as we look out towards the back half of this five-year investment cycle, we see opportunities for our margin rate to increment up.
Just a follow-up, you may have mentioned this, in Outlook for 23, how many Project Fusion Remodels and Side Lots do you have baked in?
Yes, so the mix of our remodels in 2023 will be a little different than last year because of the Orsalan acquisition. This year, as we shared in our open remarks, you know, it's kind of 70 to 80-ish new stores that will open this year. We'll also be integrating the 81 Orsalan stores. This will be spread among our state producers. This year, according to the on site research, we're going to be breaking down the listing of hangovers with L we're talking about all codes of temperatures. This is an almostavourable method for story
It's basically a fusion remodel. And then we'll do around 150 more fusion remodels as well. And that's in line with what we did this year, kind of in that 2 to 250 range. It's just the fact that 80 of those will be taken up by the Ursuline integration this year. We continue to be very excited about fusion and very excited about our side lot.
Congratulations. So I'll have two quick questions. I'll merge them into one. First off, with regard to the, so to say the weather bump in sales late in Q4, should we think about that as incremental demand or is that potentially the pull forward demand that would have happened?
in Q1. And then the second question I have, Kerry, you mentioned in your script that you are seeing the price increases moderate. So that's from your suppliers. The question I have is what action, if that's occurring, what action will track your supply chain? Are you maintaining your retail prices or are you actually adjusting your retail prices?
to account for those now moderating input costs. Thanks. Hey Brian , I'll take the first part of it and then Kurt will take the second part. On the weather bump, we don't see that as pull forward from Q1. And we see it dominantly as just incremental in Q4.
I go back to some of the comments we made saying our 2-3 earnings call and our 2-2 earnings call where we said, you know, our business has been very consistent in that 5 to 6% comp range all last year. And as Kurt said in his prepared remarks, and I think I did as well, we were trending towards the high end of our comp guidance for 2-4 when the...
point, our business is very consistent, very stable, very reliable right now in that kind of mid-single digits. And then if we get some good weather on top of that that benefits us, we get that benefit. And that's what we saw in Q4 when the weather is bad, we're there for our customers.
event like the hurricane events have been. You heard my commentary on there. The exciting thing though is with those types of events consistent with this storm is it introduces tractor supply as a needs-based business to other new customers. And that's what we do is we capitalize on that. We see it as part of our opportunity in 2023 as new footsteps into the business. So great opportunity from that one event as we continue to serve our markets in a significant widespread winter storm such as that.
and seems to be staggering because I don't think you know some of the items in that category are growing that fast and then I'll flip it and say then why are you not converting or is it converting to the rest of the store are you seeing that conversion because it seems like it's a pretty good halo to have on one side of the business
Hey, Simeon, and thanks for joining the call. It's good to speak with you this morning.
On the queue, I would say our AUR is in line with the rest of the market. So kind of high single digits, generally speaking, across food and feed. But our market share is on a dollar basis, we're running 2X the market, and on a pound basis, we're running 3X the market.
numbers in poultry feed, in equine feed, in livestock, etc. And I would say it is pulling through to the rest of our business, you know, in terms of driving positive footsteps and transactions into our store. And then also, you know, our average ticket continues to remain very solid with very modest reduction in our UPT. In fact, this is the lowest.
We're seeing strong growth, it's market share gains in Q that we're taking. We're confident we will be able to continue to take those gains. We're the lowest cost to serve in the market, the fastest supply chain, the lowest prices, the best customer service. When they get in there, they shop the whole lifestyle and we're seeing that in our average ticket and also in our own customer data. Thank you.
There's anything we need to keep in mind on a flow through or margin-based for those sales. And then second, on your gross margin outlook, to what extent are you incorporating reinvestment to drive traffic growth versus flowing those lower freight and input costs to the bottom line?
really strong Q4. We talked about the winter storm. So those are all things that factor into our model as we plan the comps. And on the gross margin question, maybe remind me again your question on the gross margin. Yeah. Are you incorporating any reinvestment to drive traffic growth versus just flowing the lower freight to the bottom line? Not yet. Of course, we always prioritize market share gains, competitive in pricing. We are the lowest cost to serve. We've invested in our supply chain and distribution.
Our next question comes from the line of Chris Horbert with JP Morgan. Chris, your line is now open. Thanks. Good morning, everybody. I wanted to follow up on the discretionary question that was posed earlier by Karen. As you think about what you saw in the fourth quarter, we're hearing a lot of retailers talk about a very late Christmas season. I recognize it's a small portion of your mix, but in some of those seasonal categories, it's like fashion apparel and characters are also involved in visual filmmaking.
footwear and toys, did you see any sort of deterioration? And then similarly, if you look at the data around pet inflation, that's been very strong, but it does seem like there's some unit degradation and some sort of,
sacrificing treats and the accessory business. So can you talk about those two buckets in terms of how that behavior has changed, I guess, in the back half of the year in the fourth quarter?
Hey Chris, and good morning. Thanks for your question and for joining the call. First, we were very pleased with our 2-4 business in general. As I said, and Kurt, absent the storm, we were still at the high end of our comp expectations and we would have still had positive comps transactions for the quarter regardless of the storm.
And we were also very pleased with our seasonal businesses. They performed in line with our expectations. And then in the last week of right before Christmas, you know, for us, when we have a winter storm like that, it drives more footsteps into our stores and they end up, you know, shopping the entire lifestyle when they're in there. So we saw excellent performance that.
pets, we are seeing unit growth and double digit comps across all categories in pets. Whether it's dog, whether it's cat, whether it's hard goods, whether it's consumables, whether it's food, whether it's sundries or accessories. The food is outpacing the other categories.
But all categories in our pet business are seeing very strong growth. Very impressive. Thanks very much. We've hit the top of the hour, but we'll let the call go just a few minutes longer because our prepared remarks were longer.
Certainly. Our next question comes from the line of Steven Forbes with Guggenheim Partners.
Hey, Stephen, and good morning. This is a great news story for Tractor Supply. What I've seen historically in my career in retail is it takes time when you have a new customer for them to ramp up through your high-spending cohorts until they become kind of a mature customer. What we've seen is the customers, as you mentioned, I said in my prepared remarks, that we've had tens of millions of new customers shop us in the last three years. The majority of those have continued to be active shoppers with us, and a huge portion has become Neighbors Club members. That cohort is basically shopping us, and we're seeing purchase frequency, average ticket, number of categories shop.
total spend in a year, very much in line with our kind of long time core customers. So they've ramped up very fast. And that's why when we say things like our neighbors club is outperforming our overall comp, our total company comp, even at 75% penetration. And even with the growth we've had, that's why I think it's so exceptional, because historically, in my past, as you see your membership program become such a large portion of your sales, it is a tendency to be used in stock and live marketing.
to revert to the mean, right, revert to your overall comp. And I think that the data set you can see, both that we're providing and also in our underlying data, just shows you how fast those customers have ramped up and become core customers for us. And it's what gives us confidence as we head into 2023. Thank you, best of luck. Our next question comes from a line of Peter Keith with Piper Saylor. Peter, your line is open.
Hi, thanks. Good morning, everyone. One thing that we're hearing in the channel right now, and it's kind of a funny dynamic for farm and ranch, but that the chicken category is on fire. And certainly there's been some well publicized discussion of price increases with eggs. So I guess I'm wondering, is that a kind of an emerging trend that chickens have perhaps re-accelerated for you? And is that a category that actually could be big enough to move the needle as we look at 2023?
Hey Peter, this is Seth. Hey, thanks for the question. Yeah, when we look ahead to this next year, we are incredibly excited about our poultry business. And just to go back to some of Hal's comments earlier, I would just say even in Q4 for us, poultry was a primary driver. We have...
Unlike some maybe commentary you've heard elsewhere, we have not seen the entire year over the course of the last three years any slowdown in our poultry business. And when we look ahead to this year, we think it could be another record year for us. Our stores are setting chick days here over the coming months when we look out to our center court activity.
And as you step back, CapEx is running around 5% of sales. The last couple of years, I think your outlook for 23 would suggest a similar ratio. How do we think about the path to CapEx beyond 23? Historically, you guys used to run around 3% of sales. You've been investing aggressively for good reason. But just curious how you would have us think about maybe the CapEx path as we move beyond 23. Thank you. Hey, Peter. This is Kurt. In regards to CapEx and your two questions, the growth in CapEx in 2022 at the high end of our expectations reflected a couple things. Certainly, there's inflation in…
the cost of building a distribution center, the new stores, etc. That was a piece of it. But also, in this environment, the team has done an excellent job of ramping up and ensuring that all of the pieces that go into these fusion remodels that...
We've got the fixtures and all of the equipment ready to go. So the pipeline is in good shape for what we plan to use to grow into the 200 to 250 remodeled stores next year. And there's some timing of that capital that impacted 2022.
in those years. And that leads to the second question that you had. Going forward, we really believe that, as we said, these would be the two peak years, that the biggest investment over the other years is really on the supply chain side. And it's reverting back more to that over the next few years, 600, 650 million in capital going forward. And it's a very planned, purposeful five-year growth to convert the supply chain and the stores into the new life out here strategy look and shopping experience for our customers. So I would expect to see that number come down a bit after 2023.
That's great. Very helpful. Thank you. Sure thing. For that, we'll wrap up our call. Thanks, everyone, for joining us, and we'll look forward to speaking to you on our first quarter earnings call in April . I'm around. If anybody wants to reach out, please let me know, and we'll get you on the calendar. Thank you all. Have a great day. This concludes today's TSCO fourth quarter 2022 earnings call. Thank you for your presentation. You may now disconnect your line.