Q1 2023 Tractor Supply Co Earnings Call

April 27, 2023

Listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

We ask that all participants limit themselves to one question and return to the queue for additional questions. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of tractor supply company and.

And as a reminder, this call is being recorded.

I'd now like to introduce your host for today's call Ms. Mary Winn Pilkington Senior Vice President of Investor and public relations for tractor supply company.

Mary Winn. Please go ahead.

Thank you operator, good morning, everyone. Thanks for taking the time to join US today on the call today are Hal Lawton, our CEO , Kurt Barton, our CFO and <unk>, <unk>, EVP and Chief merchandising officer. After our prepared remarks, we will open the call up for your questions. Please note that we have made a.

Couple of mental slide presentation available on our website to accompany today's earnings release now.

Now, let me reference the Safe Harbor provisions under the private Securities Litigation Reform Act of $19 95. This call may contain certain forward looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company in many cases these.

Risks and uncertainties are 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.

Risk factors that could cause actual results to differ materially from those reflected in the forward. Looking statements are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed.

Masters 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 now it is my pleasure to turn the call over to Hal.

Thank you Mary Winn and good morning, everyone and thank you for joining us today for today's call I'll go through some highlights of our first quarter, Jeff will then share some merchandising initiatives and updates and Kurt will review the quarter and our outlook in greater detail.

Before we get started I'd like to thank the tractor supply team for their ongoing commitment to each other and our customers no matter the operating environment or how the seasons of the year unfold. This is a team that is always there for our customers and our communities to be dependable supplier for the out here lifestyle.

Nearly 85 years, our business has proven to be resilient stable and very consistent as we provide a needs based demand driven product category as a lifestyle retailer.

Now, let's turn to review of the business for the first quarter of 2023.

We grew net sales by nearly double digits at nine 1% with comparable stores up two 1% and diluted earnings per share of $1 65.

We had seven points of non comp sales growth in the quarter.

The two primary drivers, where new stores and the <unk> acquisition.

We opened 17, new tractor supply stores and three pet since by tractor supply stores in the quarter.

The <unk> integration is running ahead of schedule.

Our comp sales results were below our expectations.

We attribute just over 200 basis points. The majority of our sales Miss to a delayed start to the spring and to a lesser extent a milder January we.

We continued to closely review customer data for trends and changes in their behavior.

While select discretionary categories were below the chain average this was offset by stronger demand in our consumable usable and edible products.

We believe our customers remain resilient, but are being judicious with their spending as they seek us out as a destination for value.

And are buying closer to need.

Excluding our seasonal categories. Our sales were in line with our expectations and our core business remains very strong.

Our comparable store sales growth was driven by ticket growth of two 8% offset by a decline in transactions of 7%.

Importantly, our comp transaction trends improved each month of the quarter and were positive in February and March with strong performance in our year round categories.

The strength in our year round categories was driven by key products, which exhibited ongoing impressive demand. This quarter. These products are needs based and demand driven and are what drive trips and transactions to our stores.

Across companion animal and livestock, we had strong performance the strength we've experienced over the last three years and our key customer trends remains robust as we continue to gain material market share.

In companion animal we continue to see substantial share gains throughout the category.

And we're seeing sequential increases in the number of customers shopping us for this category each week each month each quarter.

In livestock, our Chick days event is shaping up to be the largest ever for us with the poultry category up strong double digits.

Not only are we seeing growth from existing customers. We're also seeing robust growth in new customers to the category driving both trips and ticket.

One exciting aspect of the new customers to the poultry category is that they are gravitating to our unique offering of premium breeds and organic feed products for their checks.

<unk> is a great gateway for our new customers to explore tractor supply and use this as a resource for all things related to homesteading beyond poultry to categories like gardening.

Big tickets declines were driven by seasonal trends and to a lesser degree ongoing pullback in discretionary categories. The.

The slow start to spring impacted outdoor power equipment, which weighed on our big ticket results in average ticket.

The most significant pressure was in zero turn tractors generators and trailers.

Our customers have a long history of buying these items based on the current trends support that we're seeing purchasing consistently closer to the season or a moment of need overall, our big ticket trends were very similar to what has been reported in the recent March retail sales data.

Our mobile App currently represents more than 20% of our digital sales.

The App is now ranked in the top 100 shopping apps on the iOS store.

This is a major recognition of the progress on our one tractor strategy to offer our customers a more seamless shopping experience.

Our customer scores continue to run at all time highs.

Overall, our customer experience metrics continue to keep momentum into 2023 with strong improvements over the last quarter and year over year. Our store teams are doing a tremendous job servicing our customers.

Our neighbor's club just celebrated last week, a significant milestone with over 30 million members.

As our points based program enters its third year the strength of Neighbor's club continues to exceed our expectations. Our members are comping at a faster rate than our overall performance and we continue to see strong growth and retention in our high value customers.

As mentioned previously the <unk> farm and home integration is going very well I had the opportunity recently to visit one of our first store conversions to the tractor supply brand.

There is excitement across both our team members and importantly, our customers as they recognize that we're committed to providing the region with an elevated product assortment at meaningful loyalty offering an enhanced digital shopping experience and so much more that tractor supply is able to offer.

During the quarter, we opened our ninth and largest distribution center in Nevada, Ohio, the ramp of the distributions get centre is right on schedule.

With the opening of the new DC the integration of 81, <unk> stores, and addition of new TSA stores, we capitalized on the opportunity to realign the store servicing areas across the DC network to balanced transportation cost in DC capacity, while improving service levels to our stores.

It is great for our DC network to have this new capacity to better position, our inventory and better service our stores.

And allow us to reduce our freight costs, which youll hear more about from curve.

At tractor supply our purpose as a company is to serve life out here as we celebrate our <unk> anniversary. This year, we remain steadfast in our commitment to preserve and protect our way of life.

Two weeks ago, we issued our fourth annual stewardship tear sheet.

Highlighting the actions and progress that we've made on our sustainability, the Eni and community commitments I am proud of our progress towards our ambitious stewardship goals, but no. There is more to be done as we work towards achieving our net zero and other goals heading towards 2042.

While our first quarter sales were below our expectations, we have a lot of the year still ahead of us the.

The American consumer broadly remains challenged but we believe that our customer remains resilient.

<unk> continues to be cooler and wetter as we've turned into Q2.

That said, we're encouraged by quarter to date trends with comps mid single digit and comp transactions positive.

Based on our experience and the nature of our needs based demand driven business. We continue to believe that the best way to look at this business is all in the half as the timing of spring impacts the first half of the year.

While we acknowledge that the softer sales in January we will not be recouped. We are pleased with our lineup for spring and summer.

As a company we have numerous levers to continue to gain market share and numerous levers to effectively control expenses, we continue to see significant opportunities for growth and earnings growth as well with.

With the majority of the year remaining we are reiterating our guidance for fiscal 2023.

Before I turn the call over to Seth I'd like to share some background on Seth and the merchandising team at tractor supply.

Seth is an 18 year veteran of tractor supply, having held roles across marketing finance E Commerce and merchandising. He has a passion for this lifestyle and has served as our chief merchant since 2020.

Given our record sales growth over the last three years, we recently completed a realignment of our merchandising product categories and promoted to Vice President two senior Vice presidents to better support the growing needs of our business.

Jeff will provide a review of our sales by category and our plans to continue to gain market share.

Now I will turn the call over to Seth to discuss them further insights. Thank.

Thank you Hal I am excited to share with you some insights into our merchandising categories and market share position.

We are committed to driving sales productivity as we deepen our relationships with our customers.

I would like to start by congratulating, Nicole Logan SVP of animal and soft line divisions, and Randall dogs SVP of seasonal and hardline divisions on the recent promotions they each bring significant retail and industry experience that complement their tenure at tractor supply.

These new roles each have three merchandising divisions reporting to each of them.

It is exciting to have this new organizational structure to allow us to operate at greater scale have deeper category insights and enhanced strategic partnerships.

Overall, we are now organized into six merchandising divisions.

So let's start with our largest division companion animal that represents more than 20% of our 2022 sales.

This business includes both the consumables and hard lines across companion animal.

Around 75% of the tractor supply customers have a pet and approximately 50% have more than one pet.

Also our customer's dog way on average about 20 pounds more than the U S average.

With the ongoing Humanization of companion animals. These key structural tailwind support our positive outlook on this category.

We are a destination for pet customers with a comprehensive and differentiated assortment at an everyday low price and we continue to gain share for example, our growth in pet food treats and litter continues to lead the market in both dollar and pound growth gaining another 33 basis points of share in Q1.

Our business model of private brands strong National differentiated partners club pack sizes, and legendary customer service sets us up to continue gaining share perhaps even more if we see the consumer more pressured for value.

Moving onto our second largest division livestock in equine, which represents just under 20% of cells.

This is a key category for farm <unk> Ranch, and we continue to consistently outperform the market.

Of note. This category is almost solely the consumables portion of our livestock feed categories.

In other words this business does not include sensing, which in many ways can be considered containment for large animals.

With strong exclusive brands like do more and produces pride along with national brands from Purina Cargill Triple Crown anymore, we continue to innovate across our key categories of poultry decline in cattle. We are the clear leader in this space with approximately 20% market share.

<unk> one out of every five bags of animal feed is bought at tractor supply and we continue to take share consistently outperforming the market by five percentage points.

Next up in our category lineup at an equal weighting are seasonal in our truck tool and hardware divisions. We were excited to get our spring seasonal business often running.

This is an area, where we think we have substantial share opportunities.

We are a leader in core categories like outdoor power as the destination for zero turn mowers and categories like grass seed and fertilizers also our live goods assortment is included in this division.

As of today, we have more than 350 garden centers ready for spring with the vast majority of just entering year two of operations.

We're spring weather has cooperated we are very excited about our customers' response to the expanded product offering and layout in our fusion and Garden Center stores.

More broadly this season, we are offering a differentiated garden assortment of live goods, including vegetables, and plants soils, and mulch and chemicals tailored to life out here.

We like our initial reads for seasonal products, where the weather has turned and are excited for the spring season.

Our fourth division as truck tool and hardware that includes lifestyle items like trailers power tools welders and truck accessories.

Historically and tools, we have serviced as a convenience play in power tools and hardware.

As part of our fusion layout, we have made significant investments and corresponding progress on elevating our powerful selection and it has resulted in one of the highest sales lift categories in our fusion stores.

The additions of Makita, Bosch and dremel, coupled with being the exclusive retail destination for Porter cable power tools has allowed us to have consistent share gains over the last three years.

Next is our AG and outdoor Recreation Division, which includes categories, such as fencing and sprayers as well as our outdoor sport categories. We are in the business of helping people maintain their land and contain their animals, we have the largest share in the country and have outgrown the market by mid single digits.

And for outdoor recreation, we are very excited about the growth prospects for this segment as we test and expanded assortment in several or some farm and home stores.

Our final segment ranked on sales volume as clothing, and decor, which is exhibited rapid growth since the pandemic trending well above the company average.

This business includes apparel footwear and farmhouse decor.

It's one of the largest retailers of carhartt, along with other brands like Wrangler in Colombia, our customers are finding our assortment meets their workwear needs and their lifestyle for.

For years, we've known there was a market opportunity in women's workwear at tractor supply.

And the team has leaned into this category and the shopper is responding well.

While still off a relatively small base our women's apparel business grew 24% in Q1 led by growth in our exclusive brands of Blue Mountain and rich cut we will continue to look for ways to grow these high margin categories by growing both leading national and best in class exclusive brands.

In closing with our new alignment and additional resources tractor supply is well positioned to continue to be the market leader and operate with speed agility and efficiency to capture growth and drive sales productivity.

We are in the midst of one of the most exciting times at tractor supply as we are in the spring season, and I Hope you get a chance to get out to our stores and see all of the exciting merchandising experiences and product innovation now I will turn it over to Kurt.

Thank you Seth and Hello to everyone on the call I will add onto <unk> comments about the quarter and our outlook for the year, let's start with our first quarter results.

Regarding the cadence of comp sales for the quarter, we started out with a soft January last year's January was strong. So we expect it to start soft, but we did not anticipate that the month would be the second warmest in 30 plus years.

February was more normalized and in line with our expectations, but the mild winter continued to pressure results to put it in perspective, our heating categories were down nearly 50% insulated outerwear was down over 30% and emergency response categories were also down significantly.

As a result, our winter seasonal products were down double digits for the quarter.

Our expectation was that as we move through the quarter, we would see a more normalized spring selling season unfolds.

Where we saw the majority of the shortfall was really in the last three weeks of March which were abnormally wet and much cooler than normal as.

As well as winter weather continued in the Midwest and northeast.

To put it in historical context March was the coldest in four years with below average temperatures nationally the wettest in eight years and the Snowiest and 30 years correspondingly our spring seasonal products were flat to the prior year well below our expectations.

Sales in the quarter benefited in the high single digits from retail price inflation.

Most of this inflation reflects retail price changes that were put in place in the second half of 2022 that we have not lapped as of yet.

The benefit of price inflation to our average ticket growth was offset by three key factors first the majority of the pressure on average ticket all revolved around seasonal goods. This includes the softness in big ticket declines in seasonal which runs at a higher average ticket and higher winter clearance.

Second faster growth in consumable transactions in particular companion animal and poultry, which typically have a lower average ticket and then third to a lesser extent a reduction in units per transaction and impulse or add on items like dog treats and candy and snacks.

Moving down our income statement gross margin was 35, 5% an increase of 52 basis points from 34, 9% last year.

We were very pleased with these results we remain committed to being the everyday low price leader in our markets promotional activity was in line with last year with a modest increase in winter clearance as we look to exit the season clean.

Moderating freight costs for import and domestic shipments provided a net gross margin benefit.

Our price management initiatives and lower freight costs more than offset the impact from cost inflation and product mix from the robust growth of our key categories.

As a percentage of sales SG&A expenses, including depreciation and amortization increased to 119 basis points to 28, 1% from 26, 9% a year ago.

For perspective about a half of this growth was anticipated for strategic initiatives as.

As a reminder, our planned investments included higher depreciation and amortization from the step up in capital spending to support our growth agenda.

And the addition of our new distribution center and the impact from the <unk> acquisition.

The remaining increase in SG&A as a percent of net sales was primarily attributable to deleverage given the moderate comparable store sales growth.

As we've mentioned the quarter was trending in line with our expectations, leading up to the last three weeks of March providing limited opportunities to adjust the cost structure.

Specifically, we chose to continue to fully fund payroll for the last two weeks of the quarter to support the spring season utilizing the hours to get ahead on product Assembly and other sales driving tasks.

For the quarter operating income was essentially flat with last year with a modest decline in net income.

Diluted EPS was $1 65 also flat with the prior year's first quarter.

We opened 17 tractor supply stores and three <unk> by tractor supply stores in the first quarter. This represents a significant improvement in the cadence of our new store openings.

Turning now to our balance sheet merchandise inventories were $3 billion at the end of the first quarter, representing an increase of about 12% in average inventory per store.

This increase is primarily attributable to inflation.

Better in stock position from last year and the delay in the spring selling season.

We are pleased with how we exited the winter season, and the quality of our inventory as of the end of the first quarter.

Strong annualized cash flows we continue to maintain a healthy balance sheet with a leverage ratio of around 2.0 times.

Our guidance for 2023 is unchanged, we continue to expect full year sales of $15 to $15 3 billion.

And project comparable store sales to increase three 5% to five 5%.

As we manage through the first half of the year, we expect to see comp sales towards the top half of our guidance for the second quarter.

We anticipate some increased pressure on discretionary categories, but are pleased with the growth in Q products, along with DIY categories like repairs and maintenance.

Let me share further insights on the outlook for the remainder of the year.

We anticipate Q2 and Q3 to have the strongest comp sales growth potential. While Q4 is expected to be closer to the low end of the guidance range due to the strong compares with the prior year.

Operating margin performance is expected to improve as we move through the year with Q4, having the highest potential principally from the lap of the onetime acquisition related cost of <unk>.

As a reminder, our Navarre, Ohio distribution center is expected to begin to benefit gross margin in the second quarter with a ramp up in the second half of the year as we capture freight savings.

The benefits in gross margin will be offset by approximately 15 basis points of negative drag on SG&A as the cost of the distribution center are reflected in SG&A.

We have confidence in our earnings in a variety of sales scenarios for example at times, a cooler and wetter start to the spring can provide an extended selling season.

We've seen this type of seasonal cadence before such as 2013, and we are cautiously optimistic of the upside it can bring to the third quarter.

Regardless of the state of the consumer we are confident in the resiliency of our business model and our ability to manage the business.

In a scenario, where we do not make up Miss January sales, we see opportunities for further operating leverage specifically, we are seeing an easing of our supply chain capacity constraints, which should drive additional efficiencies in the second half.

And we now anticipate greater accretion for <unk> in the back half we are raising our accretion assumptions of <unk> 15 per share compared to our prior expectation of <unk> 10 per share.

To sum it up for the full year, we continue to guide toward net income of $1 3 billion to $1 7 billion.

Diluted earnings per share of $10 30.

To $10 60.

Over my 23 years with tractor supply. It has been proven time after time weather can be transitory and the best way to look at our business is not by the quarter, but by the halves of the year.

In this environment what sets tractor supply apart is our ability to effectively manage the topline and bottom line, while investing in our life out here strategic growth drivers and with that I will turn the call back to Hal Thanks Curt.

Tractor supply has a proven business model that has been resilient over many business cycles.

Throughout our 85 year history, we have successfully navigated all types of business environments and emerge stronger each time we.

We continue to see positive migration trends through our markets. This marks the third consecutive year of positive population growth in Rural America. This reflects an increased desire to seek out more space and take advantage of the affordability that country's suburban ex urban and rural markets offer with a lower cost of living.

And the ability to live life out here.

It is our view that the sense of community found in our markets and perhaps more importantly, the ability to secure a piece of property at a reasonable price has ensured the rural migration trend is one that's here to stay for the time being the millennial generation has embraced life out here our customers have been resilient thus.

<unk> in the face of slower macroeconomic growth elevated inflation and higher interest rates and they prioritize their lifestyle and passions.

With significant growth in market share opportunities. We're excited about the balance of the year and remain confident in our business.

My Thanks, and appreciation go out to the team for their dedication to living our mission values every day.

And now we'd like to open up the call for questions. Thank you so much.

We will now begin the question and answer session.

I would like to ask a question. Please press star followed by one on your telephone keypad.

If for any reason you would like to move that question. Please press star two.

Again to ask a question press star one.

Our first question comes from the line of Steven <unk> with Citigroup you May proceed.

Great. Good morning, everyone and thanks for taking my question I wanted to start just thinking about the context of the year. So given the slightly weaker than expected same store sales in the first quarter can you just talk about the confidence to recover these spring sales over the balance of the year. It sounds like January can't be made up but how material is that to.

The full year and then just you sounded a bit more cautious on discretionary from what you've seen from your consumers. So just elaborate on how much that could be an impact to the full year. Thanks very much.

Yeah, Hey, Stephen Good morning, it's Hal and thanks for your question and thanks for joining our call.

We remain very confident in our in our sales guidance or in our earnings guidance for the year.

As we stated on the call about 200 basis points.

We were below our sales comp expectations by about 200 basis points due to weather about 80% of that was due to the spring fall off in the last three weeks of the quarter with about 20% of that being in January . So January is a much smaller component, particularly when you look at it over the fullness of a year.

As Curt said there are a number of ways that we see path to recovery not only the spring sales, but potentially.

The winter sales as the year progresses.

He mentioned in the year 2013, and there are several other years that have similar profile, where you've got a cooler wetter spring that has pushed the season into the summer time as yards remain kind of grow remained green and growing passengers remained growing cultivation and farms continue to happen and.

Our business remains strong into those years into those months in particular, if you recall last year in the midst of summer we had a one in 10 year drought. So the lapping of that looks very promising.

On the consumer more broadly that we've not seen a sequential change in consumer behavior.

<unk> Q3, and Q4 last year into Q1 of this year. The same themes that we were sharing last year are the same themes that we would reiterate here on this call discretionary which only represents 15% of our business continues to perform under average that the pace of that is about the same.

As it was in Q3 and Q4, our units per transaction continue to face modest pressure low single digits as consumers continue to be judicious in their basket, but that's we've been calling that out for the last couple of quarters, but otherwise we've really not seen any sequential change in consumer spending there are some categories, where we're seeing.

Spend consumer shift up in their spin and poultry are organic fee continues to be the strongest kind of segment in our feed and dog food. We are seeing economy continued to be strong, but that's actually due to the increased customers that Seth called out if you look at our core customer base from one year ago and two years ago. They.

Haven't changed at all of their food buying behavior, so really not a lot of change in the consumer behavior from last year Big ticket continues to run about the same the January .

Falloff was was measurable, but small and really it came down to the last three weeks of the quarter, which were cooler weather and snow here.

Than we anticipated on top of a underperforming spring last year.

Great. Thanks for all the detail ill cede the floor.

Yes, Thanks, Tim.

Thank you for your question.

The next question comes from the line of Scott <unk> with <unk> you May proceed.

Good morning, guys, Scot Ciccarelli and how this may be a function of my memory, but I.

Don't recall, you guys talking about customers buying closer to need before.

I'm wrong about that I apologize, but.

If that's the case can you give us an idea of how much that has changed over the last.

Six months in terms of buying closer to need and did you guys expect that behavioral shifts when you provided your initial outlook.

Hey, Scott.

So I'll reference that really just in the context dominantly a big ticket and the fact that historically if you were to take out 2021, when you have the.

The stimulus and you were to take out 2020, when there was a modest stimulus combined with obviously Covid I think if you were to go back over like my 20, plus years history in retail and home improvement and farm and ranch Saps incurred I think we would all say that like things like riding lawnmowers bigger ticket items like that customers typically buy them.

When they need the vast majority of those categories are purchases are needs based.

And Thats really what we were trying to signal is we're seeing more of that.

Then we did kind of in 2020 in 2021 really more of a reversion to kind of historic purchasing patterns of those sorts of categories nothing otherwise intended to be implied.

Got it okay. So just a normalization of what you have historically seen prior to pandemic related changes.

Exactly exactly nothing otherwise intended to be implied and thanks for the clarification.

Got it thank you.

Thank you for your question.

The next question comes from the line of Chris <unk> with Jpmorgan you May proceed.

Thanks, and good morning so.

My follow up question on the on the weather and the April trend is April was pretty historically bad last year as well and spring really broke in May and June so I'm, assuming may and June got a lot better for you. So how are you thinking about.

You talked about <unk> being at the high end of the range for the year. How are you thinking about the current trend versus a harder compares is it just April still cold and wet so the mid single digits not necessarily reflective of the potential <unk>.

Despite the harder compares.

Yeah, Hey, Chris.

We called out.

Quarter to date, we're nearly done with April is mid single digit comps.

And low positive single digit comp transactions.

And so given the cool wet weather Thats continued into April we're relatively pleased with that performance.

As a recollection from last year June was not a strong spring selling season. The last year's spring only had a handful of really good weeks and then it went very hot and Thats, what I was referencing earlier about the drought. If you recall on our Q2 call. We started to talk about the drought in the back half of <unk>.

Half of June and into July and then we reiterated that that we saw that impact us for the first six to eight weeks of Q3 as well so.

We are optimistic that we can have a solid may comp on top of a weaker June and have an extended selling season into July and August this year.

Particularly in core areas for us like Florida, Texas and California.

<unk>, Texas in particular, we are under extreme drought conditions by the time, we got to mid June last year and really extended into September .

As we know those those areas have had extreme weather the first half of the first quarter of this year, we're all reading about the flooding in California, and such and we think that will bode well for us.

As we get into the summer time in those areas of the country.

Yes.

Got it and then as a follow up on the margin line.

Historically, our first quarter gross margins, a decent indication of what the year looks like but it also sounds like some things are breaking your way on the freight side and inventory is very clean. So is there just a general bias upward.

Over the year on the gross margin line.

Could that lead to some potential operating margin upside is.

If sales come in line with plan.

Yeah.

Yes, and Ed Thanks for calling that out Chris as Curt mentioned in his prepared remarks, we see a variety of ways for us to achieve our guidance. This year, both on the sales side and on the earnings side.

And as it relates to earnings there is a number of.

<unk> expense opportunities that are starting to show.

Show up if you will particularly in our supply chain.

And in the <unk> integration cost on the gross margin side.

This is the benefit of being a scale player in our market and when you start to see kind of just a little bit of moderation in pricing, we're able to take advantage of that and drive some upside in our gross margin rate and still remain incredibly price competitive and lead the market there.

Total operating margin upside as if.

Additionally, we've seen container costs come down significantly and that starting to flow through.

If sales come in line with plan.

Yeah.

Yes, hi, thanks for calling that out Chris.

And it had some impact in Q1, but it will have more impact in Q2 and Q3.

Curt mentioned in his prepared remarks, we see a variety of ways for us to achieve our guidance. This year, both on the sales side and on the earnings side.

Also domestic freight is starting to trend down as well.

There was a couple of I think recently one of the big break companies mentioned that we were in a freight recession or depression.

And as it relates to earnings there's a number of.

Expense opportunities that are starting to.

And that bodes well for us in terms of being able to leverage our scale to drive down freight costs in particular, because we've got new routes to market coming online with our new DC and obviously with the 150 stores. We have that we're building plus with <unk>. So we feel really good about our gross margin rate performance do you feel like there is continued upside as we look towards the <unk>.

Show up if you will particularly in our supply chain.

And in the <unk> integration cost on the gross margin side.

This is the benefit of being a scaled player in our market and when you start to see kind of just a little bit of moderation in pricing, we're able to take advantage of that and drive some upside in our gross margin rate and still remain incredibly price competitive and lead the market there.

Year and Thats one of the reasons that gives us strong confidence to be able to reinforce our guidance.

Thank you have a great finish to spring.

We have seen container costs come down significantly and that starting to flow through.

Yeah.

Thank you for your question.

The next question comes from the line of Simeon Gutman with Morgan Stanley You May proceed.

And it had some impact in Q1, but it will have more impact in Q2 and Q3.

Also domestic freight is starting to trend down as well there was a couple of I think recently one of the Big break company had mentioned that we were in a freight recession or depression.

Hey, good morning, everyone. A quick follow up to the last question. Your Q1 gross margin it looks like it's the highest ever. So can we just talk about the conceptual drivers not some of the seasonal movement, but why is it the best ever and then the 200 basis points of weather I think Hal called out in the prepared remarks.

Is that a spread between certain markets was there anything in that regarding the <unk>.

Judicious comment you made on the consumer or is that pure weather.

Here and Thats one of the reasons that gives us strong confidence to be able to reinforce our guidance.

Hey, Simeon this is Kurt I'll hit both of those why don't I start with the second one first it's a quick one.

Dean.

Thank you have a great finish to spring.

The variation between geographies between weeks all reinforce what Hal was just saying to your question. If you take like the Midwest Northeast Commonwealth States, you compare that to the rest of the geographies you did see a disparity because those states had a very mild winter, where it's really strong.

Thank you for your question.

The next question comes from the line of Simeon Gutman with Morgan Stanley You May proceed.

Hey, good morning, everyone. A quick follow up to the last question. Your Q1 gross margin it looks like it's the highest ever. So can we just talk about the conceptual drivers not some of the seasonal movement, but why is it the best ever and then the 200 basis points of whether it's in Cal called out in the prepared remarks.

<unk> for them and then they saw no spring they basically source more snowfall in March than they did in January . So we did see a very clear disparity between those from low or mid single digit negative to mid single digit positive in the other geographies, which again just gives us the confidence in the trends of the.

Is that a spread between certain markets was there anything in that regarding that you just did.

Judicious comment you made on the consumer or is that pure weather.

Business.

On the gross margin question I'll give the primary drivers and I'll just give you the order of magnitude on what we're seeing in gross margin and these are these are all areas of structural improvements. These are things that we planned for but are as Hal said, we see.

Hey, Simeon this is Kurt I'll hit both of those why don't I start with the second one first it's a quick one.

<unk>.

<unk> upside in gross margin first is our price management.

The biggest driver of that that was offset by the second which was the mix impact from Q and then the third was benefit from freight freights. The one that we believe continues to have potential benefit going forward.

Long for them and then they saw no spring they basically source more snowfall in March than they did in January . So we did see a very clear disparity between those from low or mid single digit negative to mid single digit positive in the other geographies, which again just gives us the confidence in the trends of the <unk>.

Price management, just a couple of points on there when we talked price management. It really includes more than just managing a retail price is the retail pricing. It's the management of everyday everyday low pricing at our promos and then even the cost negotiation and concessions and Seth and the team did an excellent job.

Business.

Leveraging our scale our size in this environment to produce a strong enough price management direct margin to offset more than offset the Q. So between retail price management and pressure from Q that was about half the benefit transportation was about the other half.

<unk> upside in gross margin first is our price management.

The biggest driver of that that was offset by the second which within mix impact from Q and then the third was benefit from freight freights. The one that we believe continues to have potential benefit going forward on price management, just a couple of points on there when we talk price management. It really include.

Thank you good luck.

Thank you for your question.

The next question comes from the line of Seth Sigman with Barclays.

You May proceed.

Good morning, Thanks for taking the question I wanted to follow up on a couple of last points. So I think you've raised the accretion by <unk>, which is obviously encouraging you did keep the full year guidance and.

More than just managing the retail price is the retail pricing, it's the management of everyday everyday low pricing at our promos and then even the cost negotiation concessions and set the team did an excellent job leveraging our scale our size in this environment to produce a strong enough.

Probably appropriate just given the Q1 challenges, but can you just help frame what some of the underlying changes may be in that guidance because it sounds like the message is that it should be able to recoup a lot of the sales from Q1, maybe not January but.

Reiss management direct margin to offset more than offset the Q. So between retail price management and pressure from Q that was about half the benefit transportation was about the other half.

The bulk of the rest and then gross margin seems to be tracking ahead SG&A.

It was elevated it does seem to be as planned and maybe just we were all mis modeling. It. So is there anything else that you could sort of point to within that.

Thank you good luck.

Yeah, Hey, good morning, and thanks to that for the question.

Thank you for your question.

I'll speak just about <unk> integration for a moment.

The next question comes from the line of Seth Sigman with Barclays.

First off it's the integration is going very well.

You May proceed.

But most importantly, its being well received by the <unk> team members as they are converting to tractor supply team members.

Good morning, Thanks for taking the question I wanted to follow up on a couple of last points. So I think you've raised the accretion by <unk>, which is obviously encouraging.

And it's also being really.

Receipt, well received by customers and even more so than I anticipated secondly, the team is doing a fantastic job.

To keep the full year guidance.

Cadence in the stores and transitioning Nam over to tractor supply banners. We have several done already we've got new moments 20 that are converted from our point of sale transaction.

While it was elevated it does seem to be as planned and maybe just we were all mis modeling. It. So is there anything else that you could sort of point to within that.

Implementing the fusion remodel and all of them and we are on we are ahead of schedule on those those transitions.

And then what that allows us to do is to take our back half plan and optimize a bit how the.

Yeah, Hey, good morning, and I think set for the question.

The expense structure that we had planned and so.

I'll speak just about <unk> integration for a moment.

And specifically there are two elements that are driving that the first is our integration cost where our team is doing an excellent job integrating from an it perspective, and we're finding some leverage there and some need to not have to spend what we had previously anticipated and.

First off it's the integration is going very well.

Most importantly, it's being well received by the <unk> team members as they are converting to tractor supply team members.

As also being really.

Receipt, well received by customers and even more so than I anticipated secondly, the team is doing a fantastic job.

And the second is around.

The sale of the SFC and the DC, we previously planned out to the end of the year, we're not optimistic that we can pull that forward by maybe a month or two or three and we will save some dollars there as well from an operating cost perspective. So the in general the <unk> acquisition is going very very well, we're very pleased with how it's progressing and wanted.

Cadence in the stores and transitioning Nam over to tractor supply banners. We have several done already we've got new moments 'twenty that are converted from our point of sale transaction.

We're implementing the fusion remodel and all of them and we are on and we were ahead of schedule on those those transitions.

Sure that outlook today more broadly what I'd say is I think like most companies that are reporting this weekly cycle.

Everyone is kind of you seem to see a lot of people are holding guidance in spite of like what you just articulated some upside for us on gross margin rate on expense and others.

And then what that allows us to do is to take our back half plan and optimize a bit.

The expense structure that we had planned.

And specifically there are two elements that are driving that the first is our integration cost where our team is doing an excellent job integrating from an it perspective, and we're finding some leverage there and some need did not have to spend what we had previously anticipated and.

Just in the spirit of because Theres a lot of year left to go.

Okay understood thanks very much.

Thank you for your question.

The next question comes from the line of Brian Nagel with Oppenheimer You May proceed.

And the second is around.

Yes.

Hi, good morning.

Thanks for taking my question.

Sorry, sorry for appeal.

The dead horse here, but with regard to whether I just wanted to make sure I am.

I'm hearing this correctly.

Clearly there was a weather disruption here in.

In Q1, it sounds like in early Q2, you've seen sales.

Sure that outlook today more broadly what I'd say is I think like most companies that are reporting this weekly cycle.

Pick up meeting where sales grew comp sales pick up meaningfully.

In the more in markets across the country, where there was no weather disruption or sales, they're tracking consistent with how you would expect them to track.

Everyone is.

You seem to see a lot of people are holding guidance in spite of like what you just articulated some upside for us on gross margin rate on expense and others.

Hey.

Hey, Brian This is Kurt yes.

Just in the spirit of because Theres a lot of year left to go.

On that I'll give I will just continue to give a few points in areas, where they're not as impacted by weather you heard me mentioned to the previous question the South the Texas area far West all of those areas. We saw performance in line with our expectations versus the.

Okay understood thanks very much.

Thank you for your question.

The next question comes from the line of Brian Nagel with Oppenheimer You May proceed.

Yes.

Hi, good morning.

Thanks for taking my question.

The areas of the North and Midwest, where it was below our expectations. I'll also add it also is so evident to us is that internal and when we look at the variation by categories in merchandising the categories that we that are not impacted by.

Sorry, sorry for appeal.

Beating a dead horse here, but with regard to whether I just wanted to make sure.

I'm hearing this correctly.

Clearly there was a weather disruption here in.

In Q1, it sounds like Q2, you exceed sales.

Pick up meeting where sales grew comp sales pick up meaningfully.

Weather variations right in line with expectations when we look at the weeks within it you can look at the first few weeks in the last three weeks and you see which weeks are not like the others and then when we look at our.

More in markets across the country, where there was no weather disruption or sales. They are tracking consistent with how you would expect them to track.

Hey, Brian Hey, Brian This is Kurt yes.

External measurements, where we've utilized market industry.

On that I'll give I'll just continue to give a few points in areas, where they're not as impacted by weather you heard me mentioned to the previous question the South the Texas area far West all of those areas. We saw our performance in line with our expectations versus the.

Information on that it also confirms that tractor supply outperform outperformed the market and farm and ranch, we've seen in market industries, its running negative in those especially in those areas, where there is a lot of farm and ranch.

The areas of the North and Midwest, where it was below our expectations I'll also add it would also was so evident to us is that internal and when we look at the variation by categories in merchandising the categories that we that are not impacted by.

Competition from all the data points that we see for <unk>.

For Q1.

The any of the softness was seasonal and then as we look throughout the rest of this quarter. It's really a matter of when does spring start it is not if but when and it's a matter of whether its ideal typical poor, but tractor supply has been able to pivot and be able to manage each of those quarters and to.

<unk> point.

It's very much shaping up like one of those years, where it gives us the opportunity for a good extended selling season.

And Brian This is al just to just to add onto that I mean.

If you if you go back and look at week, eight nine and 10, where we were starting to comp on some tougher weather from last year and kind of late spring early March was actually good weather kind of reasonably across the country. We had high single digit comps those three weeks.

Competition from all the data points that we see for <unk> for Q1.

And then as you get into the last three weeks, we had negative comps those three weeks and it was driven by the geographies that Curt mentioned kind.

The any of the softness was seasonal and then as we look throughout the rest of this quarter. It's really a matter of when does spring start it's not if but when and it's a matter of whether its ideal typical poor, but tractor supply has been able to pivot and be able to manage each of those quarters.

From the state of Virginia, all the way up through the northeast through the Midwest and they were Comping on top of tough weather from last year and it was worse weather than they had that we had this year. If you look at areas like Curt that in Florida, and Texas and elsewhere. We had we had good seasonal spring seasonal businesses in those areas that really just point to those three.

And the house point.

It's very much shaping up like one of those years, where it gives us the opportunity for a good extended selling season.

Weeks, and then as we said.

We bought we bounce back here in April at the mid single digit comp.

And Brian This is how just to just to add onto that I mean.

Right.

If you if you go back and look at week, eight nine and 10.

No that's very very helpful and just one quick follow up so.

Where we were starting to comp on some tougher weather from last year and kind of late spring early March was actually good weather kind of reasonably across the country. We had high single digit comps those three weeks.

Again, I'm, not asking you necessarily to be meteorologist, but.

As you look at the dynamic here, because we've had this which seems to be a very wet.

Late winter early spring.

And then as you get into the last three weeks, we had negative comps those three weeks and it was driven by the geographies that Curt mentioned.

Historically has.

Has that ever do that.

Led towards extended Springer.

Kind of from the state of Virginia, all the way up through the northeast through the Midwest and they were Comping on top of tough weather from last year and it was worse weather than they had.

Spring that was actually better for tractor supply.

We'd love to be a weather predict here and be good at it as you know most of the weather forecast you get to read our 12 months out and it had like three weeks out.

This year, if you look at areas like Hertz that in Florida, and Texas and elsewhere. We had we had good seasonal spring seasonal businesses in those areas. So really we just point to those three weeks and then as we said as we bounce bounce back here in April at the mid single digit comp.

Hi.

But the reason we brought up 2013 2014 by the way was that kind of reasonably similar year pattern, where you had a similar back we went back and pulled our earnings transcripts from those dates and looked at them and we all know it's had a very similar earnings call, where we talked about weather in Q1 cold weather could.

<unk>.

Right.

No that's very very helpful and just one quick follow up so.

Again, I'm, not asking you necessarily to be meteorologist, but.

Generally lead to an extended selling season into the summer and that showed up is exactly what happened in both of those years and that's why we brought it up let's say there is very much a precedent for it and in particular this year, we'll be comping on top of a one in 10 year drought last year. So we're cautiously optimistic that we can have an extended selling season this year.

As you look at the dynamic here because we've had this what seems to be a very wet.

Late winter early spring.

Historically has that ever Nash.

Led towards an extended spring spring that was actually better for tractor supply.

Here, which would be on top of tougher comps.

Your comps from last year.

We'd love to be a weather predict here and be good at it.

Got it I appreciate it thank you.

You know most of the weather forecast you get to read our 12 months out and like three weeks out.

Yes, Thanks, Brian .

Yes.

Hi.

Thank you for your question.

But the reason we brought up 2013 2014 by the way was that kind of reasonably.

The next question comes from the line of Kate Mcshane.

With Goldman Sachs You May proceed.

Similar year pattern, where you had a similar back we went back and pulled our earnings transcripts from those dates and looked at them and we all know it's had a very similar earnings call, where we talked about weather in Q1 cold weather could potentially lead to an extended selling season into the summer and that churn happens exactly what happened in both of those years and that's why we.

Hi, good morning, Thanks for taking our question we wanted to ask about market share there seem to be a lot of commentary on mix and I Wonder if you could remind us what assumption youre, making some market share in your guide for this year what was it.

Brought it up let's say there is very much a precedent for it and in particular this year, we'll be comping on top of a one in 10 year drought last year. So we're cautiously optimistic that we can have an extended selling season, this year, which would be on top of tougher comps easier comps from last year.

Nissan acceleration.

In the first quarter and with some of the changes you're highlighting with the new leadership in merchandising.

Those categories.

Are you expecting more of a lift in market share than maybe originally planned or is that more for 'twenty four.

Hey, this is Kurt our original expectation and guidance just to reiterate that we see as we entered this year GDP growing 1% to 2% was our assumption and then tractor supply has historically been growing outside of that as we're grabbing market share so another one or 2%.

Got it I appreciate it thank you.

Yes, Thanks, Brian .

Thank you for your question.

The next question comes from the line of Kate Mcshane.

With Goldman Sachs You May proceed.

Hi, good morning, Thanks for taking our question we wanted to ask about market share there seem to be a lot of commentary on mix and I Wonder if you could remind us.

Net of growth beyond that and we're we're Seth talked about.

We're gaining market share.

We're certainly gaining market share in categories like companion animal in poultry and other areas and so that get that gain is part of what we expect to be able to do but I would also say as we look at this year, where there where there may be.

What assumption you are making some market share in your guide for this year what was it.

Nissan acceleration.

In the first quarter and with some of the changes you're highlighting with the new leadership in merchandising.

In those categories.

Any challenges in regards to the consumer this is a great opportunity just like we saw were some discretionary saw some softness offset by a robust gain in market share and I think that's the that's the resiliency of the business and that's one of the exciting things is that if there is some softness in some categories.

Are you expecting more of a lift in market share than maybe originally planned or is that more for 'twenty four.

Hey, this is Kurt.

Our original expectation guidance just to reiterate that we see as we entered this year GDP growing 1% to 2% was our assumption and then tractor supply has historically been growing outside of that as we're grabbing market share. So another one or 2% of growth beyond that and we are.

We've got opportunity in live goods companion animal others to gain market share and we see upside to our.

Our market share gains compared to our staff our standard model for this year in the next couple of years.

Seth talked about where we are.

We're gaining market share we are certainly gaining market share in categories like companion animal in poultry and other areas and so that get that gain is part of what we expect to be able to do but I would also say as we look at this year, where there where there may be.

Just just to add a couple of points on that thanks for your question. This is Seth in general right now if we look at our business and we think about where we're going to continue to grow market share again to curts point.

We are very excited to see market share gains, particularly like in our companion animal or a pet and our dog.

Businesses as well as on the cat side.

Our entire portfolio, if you call it like in pet food is growing extremely strong.

As Hal mentioned earlier, we're seeing our current customer base, our previous customer base really maintaining those categories in which they were purchasing they are coming more often and we're gaining a lot of new shoppers across the portfolio and we think our merchandising strategy and our portfolio strategy, particularly in things like pet and pet food is very much a strategic advantage for us.

We've got opportunity in live goods companion animal others to gain market share and we see upside to our.

Our market share gains compared to our staff our standard model for this year in the next couple of years.

To continue to gain market share.

Newness and innovation is critical our merchants are continuing to drive comprehensive resets across the box and where they are planned and if you also look at other items that are relative to the lifestyle would that be like poultry feed forage sporting goods as we mentioned earlier.

Just just to add a couple of points on that thanks for your question. This is Seth.

Hey in general right now if we look at our business and we think about where we're going to continue to grow market share again to curts point.

We are very excited to see market share gains, particularly like in our companion animal or a pet and our dog businesses as well as on the cat side.

We are continuing to.

To lead in those categories. So for US we are by far leading share in the industry and in farm <unk> Ranch faraway, a leading pet share gains and we don't anticipate that slowing down based off of the activity that we're seeing and the customer response, we're seeing in our database today.

Our entire portfolio, if you call it like in pet food is growing extremely strong.

Thank you.

Okay.

Thank you for your questions.

The next question comes from the line of Scott Myshkin with our size capital you May proceed.

US to continue to gain market share.

Hey, guys. Thanks for thanks for taking my question a little bit of the.

<unk> innovation is critical our merchants are continuing to drive comprehensive resets across the box and where they are planned and if you also look at other items that are relative to the lifestyle would that be like poultry feed forage sporting goods as we mentioned earlier.

Focus on the merchandising management team, obviously beefing it up.

So I was wondering what drove that decision do you see significant opportunities to expand the total addressable market.

And if yes, where do you think those opportunities are.

We are continuing to lead in those categories. So for US we are by far leading share in.

Okay.

Hey, Scott Yeah. Thanks for the question absolutely on on those questions today for us kind of what we said earlier for US as we've continued to grow rapidly over the course of the last few years, we saw an opportunity to continue to double down.

The industry in our farm <unk> ranch far away, a leading pet share gains and we don't anticipate that slowing down based off of the activity that we're seeing and the customer response, we're seeing in our database today.

And drive at a greater scale, our merchandising activities really driving towards innovation and really driving towards strategic partnerships driving into categories driving into our regionalization and localization. So that we can really maximize all the work we're doing with like our fusion our garden centers all.

Thank you.

Okay.

Thank you for your questions.

The next question comes from the line of Scott Myshkin with Archive capital you May proceed.

Yeah.

Hey, guys. Thanks for thanks for taking my question little bit.

Focus on the merchandising management team, obviously beefing it up.

Of those type things. So if we look at our portfolio strategy, we see share opportunities across many of the areas of our addressable market. We just mentioned we see that we continue to have opportunities there we reorganized our feed in our core.

So I was wondering what drove that decision do you see significant opportunities to expand the total addressable market.

And if yes, where do you think those opportunities are.

Livestock and equine divisions to species, where we're really driving our category management approach, we're basically taking the way in which we manage our pet business over the course of the last few years and applying those same category management principles on new items shopper insights adjusting the flow localization.

Okay.

And drive at a greater scale, our merchandising activities really driving towards innovation really driving towards strategic partnerships driving into categories driving into our regionalization and localization. So that we can really maximize all the work we're doing with like our fusion our garden centers all.

Regionalization to continue to make sure that we are offering the best in class shopping experiences we have new shoppers entering today mentioned, we're going to be piloting some things like in <unk> farm and home sporting goods did very well for us in Q1, and we're going to continue to lean in where we have our strengths a lot of those categories. Today are just in our center core for six months, we think we have an opportunity.

<unk> to drive those businesses.

Our round I can go on and on but we think that the new structure that we're putting in place today is allowing us to have more agility continue to move fast operate at scale and continuing to drive deeper partnerships and innovation. So very excited about this and we're starting to really see.

Some programs come to life under this new structure.

And do you see the data from.

The frequent shopper card, helping you with the vendors and the relationships getting stronger and more beneficial.

Absolutely.

Leveraging our 30 million members in our database is such a strategic advantage for us not only in farm <unk> ranch, but just in broader retail in the categories in which we serve we are continuing to deep dive into those categories and we are partnering in a significant way with our vendor base to say, hey, where do we continue.

<unk> to drive those businesses.

To end up.

<unk> opportunities.

Those cohorts that we need to continue to go after.

And how do we continue to drive regionalization localization and use that into our assortment planning process. So absolutely. It is neighbor's club is fundamental to everything we're doing not only from a marketing perspective, but it is a core driver of everything we're doing in merchandising because the customer is what we're looking to continue to drive to make sure we know where their needs are today, but where they're going in the future.

Some programs come to life under this new structure.

And do you see the data from.

The frequent shopper card, helping you with the vendors and the relationships getting stronger and more beneficial.

Thanks, guys.

Yes.

Absolutely.

Thank you for your question.

The next question comes from the line of Steven Forbes with Guggenheim Partners. You May proceed.

Yeah.

Good morning, how theft Kurt.

Wanted to revisit the sidelight plus fusion remodels in terms of cost per sales lift as we sort of approach to the core of the spring selling season here. So two part question. One can you remind us of the net costs of such projects and whether you've been able to sort of improve.

We are partnering in a significant way with our vendor base to say, Hey, where do we continue.

To end up.

<unk> opportunities.

Those cohorts that we need to continue to go after.

And how do we continue to drive regionalization localization and use that into our assortment planning process. So absolutely. It is neighbor's club is fundamental to everything we're doing not only from a marketing perspective, but it is a core driver of everything we're doing in merchandising because the customers. What we're looking to continue to drive to make sure we know where their needs are today, but where they're going in the future.

The net spend behind these projects as you scale the initiative.

And then two has the spring selling season, albeit early changed your expectation for the overall sales lift or the ROIC.

That you expect to generate behind their spend as well.

Yeah, Hey, Steven Thanks, so much for the question.

Thanks, guys.

Yes.

Thank you for your question.

The next question comes from the line of Steven Forbes with Guggenheim Partners. You May proceed.

A key area of focus and one of our primary metrics that we are evaluating our performance on our strategic initiatives. This year.

Good morning, how theft Kurt.

Second thing is the performance of our fusion and sidelight Remodels are continuing to perform at the same rate as they have been the last couple of years, which we're incredibly pleased with because we are now reaching significant scale on both inside of our company. The third thing is we are very pleased with the live goods performance I think it's strategically.

The net spend behind these projects as you scale the initiative.

And then two has the spring selling season, albeit early changed your expectation for the overall sales lift or the ROIC.

<unk> going to be big for us this year, it's a low cost way for people to two beautified their yards kind of and theres going to be a lot of refreshing coming out of the December and November storms that happened.

That you expect to generate behind their spend as well.

Yeah, Hey, Steven Thanks, so much for the question.

We're well positioned for that and kind of one of the things. We always talk about is you can now see live goods sale quote unquote from space in our daily and weekly sales reporting which is exactly what.

I'll hit three things quickly just in the sake of time first off the capital spend for both the Garden center projects kind of satellite transformations and inside the store fusion transformation continues to reduce its a key area of focus and one of our primary metrics that we are evaluating our performance on our strategic initiatives. This year.

The plan was at the beginning of the year now with 350 garden centers.

Thank you one more question.

Good thing is the performance of our fusion and sidelight Remodels are continuing to perform at the same rate as they had been the last couple of years, which we're incredibly pleased with because were now reaching significant scale on both inside of our company. The third thing is we are very pleased with the live goods performance I think it's strategically.

Absolutely.

The final question comes from the line of Peter Benedict with Baird. You May proceed.

Alright, guys. Thanks. Thanks for sneaking me said, so I guess I'll ask one about inflation, Kurt just curious I know high single digit retail price inflation in the first quarter your thoughts on <unk> and then in the back half of the year is that changing at all and.

<unk> going to be big for us this year, it's a low cost way for people to to beautify their yards kind of and theres going to be a lot of refreshing coming out of December and November storms that happened and we are well positioned for that and kind of one of the things. We always talk about is you can now see live goods sales quote unquote from space in our daily and we.

As you here, you've talked a lot about some costs coming down supply chain costs coming down Im curious if youre at a point where you are.

We're actually seeing some some some kind of all in product costs coming coming lower year over year in certain areas and how youre dealing with that from a pricing standpoint are there areas of the business, where you're actually seeing.

<unk> sales reporting which is exactly what.

The plan was at the beginning of the year now with 350 garden centers.

Let's call it.

Deflation on a at a retail level year over year or is that not something that's.

Alright, well. Thank you one more question.

And at that point, yet that's my question. Thank you.

Absolutely.

The final question comes from the line of Peter Benedict with Baird. You May proceed.

Yeah, Peter I'll hit those on the inflation or our outlook on the retail price inflation for the year hasn't changed much at all.

Yes.

Alright, guys. Thanks, Thanks for taking the said so I guess I'll ask one about inflation, Kurt just curious I know high single digit retail price inflation in the first quarter your thoughts on <unk> and then in the back half of the year is that changing at all and.

Vast majority of retail price inflation as I mentioned in Q1 was what was put in place in.

The second half of last year, and we're seeing a bit of a steady plateau, maybe some categories like pet will continue to see some so our expectation is high single digit Q1 moving into the mid single digit.

You've talked a lot about some costs coming down supply chain costs coming down I'm curious.

If you are at a point, where you are.

Are you seeing some.

Q2, maybe slightly lower in Q3, and then getting into low single digit Q4, and we're not seeing.

All in product costs coming coming lower year over year in certain areas and how youre dealing with that from a pricing standpoint are there areas of the business, where you're actually seeing.

Significant cost deflation. So at this point there may be some deflation in certain areas of the business, but overall there is some disinflation that we've expected in there. The great thing is this year, we expect to see comp transactions really.

Let's call it price deflation on our re at a retail level year over year or is that not something.

It's gotten to that point yet that's my question. Thank you.

Yes, Peter.

Get those on the inflation or our outlook on the retail price inflation for the year Hasnt changed much at all.

Being a key driver to it and Thats what were seeing right now as Hal mentioned and our expectation as the year unfolds. It really is a good balance between ticket and transactions Lastly, I'd say what is exciting you heard this from both Hal and I as in other parts of the business in cost in SG&A.

Vast majority of retail price inflation as I mentioned in Q1 was what was put in place in the.

We are taking advantage of our ability to use the scale, where there is either excess capacity or there is cost coming down the operating expenses have have efficiencies there and you heard that in some of our messaging so.

Q4, and we're not seeing.

That helps answer the question a lot of great expectation of our ability in any sales scenario to really have increased operating margin in 2023.

No.

Helpful. Just a follow up on something you mentioned that you brought up transactions in it.

Being a key driver to it and Thats what were seeing right now as Hal mentioned in.

It's encouraging to see them up.

The soft seasonal stuff I know that it would not have been the case several years ago with this business.

Our expectation as the year unfolds. It really is a good balance between ticket and transactions Lastly, I would say what is excited and you heard this from both Hal and I as in other parts of the business in cost in SG&A. We are taking advantage of our ability to use the scale, where there is either.

I'm just curious maybe you guys can talk a little bit about the role that neighbor's club might be playing in this I mean, just how those members are shopping.

More frequently if they are how you are expanding your wallet with those members and it was a lot of marketing initiatives underway on that front. So just maybe a little bit more on on the behavior of your neighbor's club.

Excess capacity or there is cost coming down the operating expenses have have efficiencies there and you heard that in some of our messaging. So hopefully that helps answer the question a lot of great expectation our ability in any sales scenario to really have increased <unk>.

Members and how that might be something thats, helping maintain the traffic during periods of seasonal weakness. Thank you.

Yes, absolutely Peter Neighbor's club has been a integral part of driving our business and enabling customer behavior, particularly on our consumables.

Operating margin in 2023.

No.

Helpful. Just a follow up on something you mentioned that you brought up transactions in it.

More and more of our customers are taking are signing up for our private label credit card, we announced last quarter that we'd reached for the first time, a $1 billion in sales on that credit card you get a 5% discount when you use the credit card and your purchases which drive.

It's encouraging to see them up.

The soft seasonal stuff I know that would not have been the case several years ago with this business.

I'm just curious maybe you guys can talk a little bit about the role that neighbor's club might be playing in this I mean, just how those members are shopping.

Repeat behavior.

On food and feed in particular as Steph talked about we are outgrowing the feed market by five points.

More frequently if they are how you're expanding your wallet with those members and it was a lot of marketing initiatives underway on that front. So just maybe a little bit more on on the behavior of your neighbor's club.

Repeatedly every single quarter.

Our members and how that might be something thats, helping maintain the traffic during periods of seasonal weakness. Thank you.

Yes, absolutely Peter Neighbor's club has been a integral part of driving our business and enabling customer behavior, particularly on our consumables.

And even new customer accounts every single week, our new customer counts for dog food are going up and those are what those are what we can count on to drive our transactions and I think one of things you mentioned is.

The business has is kind of changing to some degree.

More and more of our customers are taking are signing up for our private label credit card, we announced last quarter that we'd reach differ for the first time $1 billion in sales on that credit card you get a 5% discount when you use the credit card and your purchases, which drive kind of repeat behavior on food and feed in particular as set top.

From kind of 345 years ago in terms of having the scale we have in pet food now to complement the scale, we've always had in in.

In animal feed.

And that's driving positive comp transactions for us as we said even in March where we had.

Soft whether on the seasonal side its still allowed us that positive comp transactions.

About we are outgrowing the feed market by five points.

Repeatedly every single quarter.

Operator.

Matt.

And we have a 20% share far and away the largest share in the market in that category same thing on dog food I mean, we are far and away the share leader in dog food doesn't matter what metric you look at pounds unit dollar growth and even new customer count every single week, our new customer counts for dog food are going up and those are.

Thank you Peter and operator that will conclude our remarks today. Thank you to everyone for joining US we look forward to speaking to you on our second quarter call in July and around all day. So please reach out if anything that I can tell you and I look forward. Thank you. Thank you.

That concludes today's tractor supply company's conference call to discuss first quarter 2023 results. Thank you for your participation you may now disconnect your line.

Those are what we can count on to drive our transactions and I think one of the things you mentioned is it.

The business has is kind of changing to some degree.

From kind of 345 years ago in terms of having the scale we have in pet food now to complement the scale, we've always had in in.

In animal feed.

Yeah.

And that is driving positive comp transactions for us as we said even in March where we had.

Soft whether on the seasonal side its still allowed us that positive comp transactions.

Okay, great very helpful.

Okay.

<unk>.

That concludes today's tractor supply company's conference call to discuss first quarter 2023 results. Thank you for your participation you may now disconnect your lines.

Okay.

Sure.

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