Q1 2024 Tractor Supply Co Earnings Call

April 25, 2024

Yeah.

Alyssa: Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss first quarter 2024 results. And as a reminder, this call is being recorded.

Operator: Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss first quarter 2024 results. At this time, all participants are in a 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. And as a reminder, this call is being recorded. I would now like to introduce your host for today's call, Mary Wynn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Wendt, please go ahead.

Good morning, ladies and gentlemen.

Welcome to tractor supply company's conference call to discuss first quarter 2024 results.

At this time all participants are in a listen only mode.

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

Unknown Executive: Thank you, Alyssa, and good morning, everyone. Thanks for taking the time to join us today.

We ask that all participants limit themselves to one question and return to the queue for additional questions. Please.

Unknown Executive: On the call today are Hal Lawton, our CEO, and Kurt Barton, our CFO. After our prepared remarks, we'll open the call up for your questions. Seth Estep, our EVP and Chief Merchandising Officer, will join us for the question and answer session.

Please note that the questions the queue for our question and answer session will not open until the start of the call.

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of tractor supply company.

And as a reminder, this call is being recorded.

Speaker Change: I would now like to introduce your host for today's call Mrs. Mary Winn Pilkington Senior Vice President of Investor and public relations for tractor supply company.

Speaker Change: Mary Winn. Please go ahead.

Mary Winn Pilkington: Given the number of people who want to participate in the Q&A session, 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, I'll turn the call over to Hal.

Speaker Change: Thank you Olaf and good morning, everyone. Thanks for taking the time to join US today on the call today are Hal Lawton, our CEO and Kurt Barton our CFO. After our prepared remarks, we'll open the call up for your question southeast up our EVP and Chief merchandising officer will join us for the question and answer session.

Speaker Change: Please note that we've made a supplemental slide presentation available on our website to accompany today's earnings release.

Speaker Change: Let me reference the Safe Harbor provisions under the private Securities Litigation Reform Act of 1995.

Hal: Thank you, Mary Wynn, and good morning everyone, and thank you for joining us today. I would like to thank the Tractor Supply team for their ongoing commitment to each other and our customers. Before I get into our review of the first quarter's results, I want to take a moment to share what we're seeing in the macroeconomic environment and its impact on our business. In spite of sticky inflation, consumer spending remains strong.

Speaker Change: 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.

Speaker Change: Such expectations or any of its forward looking statements will prove to be correct and actual results may differ from expectations important 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.

Hal: As it relates to consumer spending, the shift in spending from goods to services continues to be a headwind for our business, in the first two months of the calendar year, whereas consumer spending on goods grew by less than 1%. Due to the inflationary benefits that we have had over the last 18 months that have substantially benefited our top line, we do not see additional downward deflationary pressures in the current environment. The transition from an inflationary cycle to a disinflationary cycle is playing out as we anticipate.

Unknown Executive: Please note that we've made a supplemental slide presentation available on our website to accompany today's earnings release. Now, let me reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risk and uncertainty, 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 from expectations.

Speaker Change: And Exchange Commission.

Speaker Change: The information contained in this call is accurate only as of the date discussed 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.

Speaker Change: Given the number of people who want to participate in the Q&A session. 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.

Speaker Change: Now I'll turn the call over to Hal.

Harry A. Lawton: Thank you Mary Winn and good morning, everyone and thank you for joining us today.

Harry A. Lawton: 2024 is off to a solid start with first quarter results in line with our expectations.

Hal: While rural migration trends have moderated from their recent peaks, rural America again gained population in 2023. 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. We grew net sales by 2.9%, with comparable store sales up 1.1%, and diluted earnings per share up 10.9% to $1.83.

Harry A. Lawton: I'd like to thank the tractor supply team for their ongoing commitment to each other and our customers.

Harry A. Lawton: As evidenced by our continuation of record high customer satisfaction scores and the team is always there for our customers as the dependable supplier for life out here.

Harry A. Lawton: Before I get into our review of the first quarter's results I want to take a moment to share what we're seeing in the macro economic environment.

Harry A. Lawton: And its impact on our business.

Harry A. Lawton: In our view the U S economy remains strong unemployment continues at a low level wages are growing at a steady clip.

Harry A. Lawton: In spite of sticky inflation consumer spending remains strong.

Unknown Executive: and Mobility has slowed as a consequence of the challenging housing market, but that said, we continue to see outsized population growth in rural markets. As it relates to consumer spending, the shift in spending from goods to services continues to be a headwind for our business. As a result, the mix of goods as a share of PCE is now only 100 basis points above its pre-COVID average. As a consequence, consumers continue to be anxious about inflation, particularly the lower income consumer. In the first quarter, our upper income consumer overindexed in big ticket categories and recreational purchases compared to our lower income consumer who was prioritizing their spend on needs.

Harry A. Lawton: And mobility has slowed as a consequence of a challenging housing market.

Harry A. Lawton: That said, we continue to see outsized population growth in rural markets.

Hal: Our comparable store sales growth was driven by transaction growth of 1.3%, offset by a small decline in average ticket of 0.2%. These results were very much in line with our expectations that we shared with you as we started the quarter and year. Overall, our customer base remains healthy and highly engaged. Total customer count grew by mid-single digits with growth in active, new, and reactivated customers as we invested in our Neighbors Club program and customer service.

Harry A. Lawton: As it relates to consumer spending shifted spending from goods to services continues to be a headwind for our business in.

Harry A. Lawton: In the first two months of the calendar year.

Harry A. Lawton: Sumer services spending growth was nearly 7%.

Harry A. Lawton: Reds consumer spending on goods growth was less than 1%.

Harry A. Lawton: As a result, the mix of goods as a share of PCE are now only 100 basis points above their pre Covid average. This progressive shift is in line with our expectations as we entered the year.

Harry A. Lawton: Also as expected inflation has remained sticky.

Harry A. Lawton: The outsized increases in shelter food away from home energy and insurance as a consequence consumers continue to be anxious about inflation, particularly the lower income consumer.

Hal: Neighbors Club continues to represent the majority of our sales. During the quarter, we significantly enhanced our Neighbors Club offering. As our points-based program enters its fourth year, it was appropriate for us to refresh our offering based on insights and customer feedback. The changes we made were all implemented with the goal to have customers receive rewards faster and to lower the spending required for tier qualifications. Our Neighbors Club members have responded positively to these changes.

Unknown Executive: 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. We grew net sales by 2.9%, with comparable store sales up 1.1%, and diluted earnings per share up 10.9% to $1.83. Total customer count grew by mid-single digits with growth in active, new, and reactivated customers as we invested in our Neighbors Club program and customer service.

Harry A. Lawton: In the first quarter, our upper income consumer over indexed in big ticket categories, and recreational purchases compared to our lower income consumer who is prioritizing their spend on needs.

Harry A. Lawton: In our needs based consumable usable and edible categories, we see very little difference in our performance by income cohort. Once again, our business has proven to be durable stable and very consistent.

Hal: The initial response from our customers on the collective changes has been very positive, and we're seeing increased spending across the board. In addition, we continue to improve relevancy to our members through more personalized offers and tailored incentives and experiences based on their interests and shopping patterns. Our customer service courts continue to run at all-time highs.

Harry A. Lawton: Broadly speaking in our economy goods continue to Disinflate and are generally running low single digits with some categories, having moderate deflation.

Harry A. Lawton: With the first quarter behind tractor supply, we've now successfully lapped our two most challenging compares.

Unknown Executive: The changes we made were all implemented with the goal to have customers receive rewards faster and to lower the spending required for tier qualifications. The initial response from our customers to the collective changes has been very positive, and we're seeing increased spending across the board. Our customer service courts continue to run at all-time highs.

Harry A. Lawton: Due to the inflationary benefits that we had over the last 18 months that had substantially benefited our topline.

Hal: This is an area where we have strategically invested in training, compensation, benefits, tools, and technology to help elevate our customer service. This has garnered the attention of our customers and, I believe, helped strengthen our scores. The strength of our portfolio products and shopping missions was evident very much so in the first quarter. Our performance this quarter was on top of the robust growth we've experienced over the last four years, as our Q customer trends remain strong as we continue to gain market share.

Harry A. Lawton: We do not see additional downward deflationary pressures in the current environment the transition from an inflationary cycle to a disinflationary cycle is playing out as we anticipated.

Harry A. Lawton: In spite of a very challenging housing market, we continue to see positive migration trends to our markets.

Unknown Executive: This is an area where we have strategically invested in training. This has garnered the attention of our customers and, I believe, helped strengthen our scores. We had robust growth in our seasonal category. Our consumable, usable, and edible products performed in line with our chain average. Our performance this quarter was on top of the robust growth we've experienced over the last four years, as our Q customer trends remain strong as we continue to gain market share. And we bring a unique retail experience in these categories with events like our annual Spring Chick Days. This year, the event is on track to have strong results.

Harry A. Lawton: While rural migration trends have moderated from the recent peaks Rural America again gained population in 2023.

Harry A. Lawton: This marks the fourth consecutive year of growth in rural population.

Harry A. Lawton: It is our view that the sense of community founded our market, but 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.

Hal: Our customers were certainly in the mindset to prepare for spring as we had strong big-ticket growth in the mid-single digits and strength in other early spring preparedness categories. Categories that performed below our comp sales growth were more in our discretionary businesses, such as clothing and gifts and truck tool and hardware. In our pet food and livestock categories, we continue to grow our market share. In pet food, we've seen growth moderate as category distance lates and pet ownership moderates.

Speaker Change: So with that let's now turn to a review of the business for the first quarter.

Speaker Change: We grew net sales by two 9% with comparable store sales up one 1% and diluted earnings per share up 10, 9% to $1 83 or.

Speaker Change: Our comparable store sales growth was driven by transaction growth of one 3% offset by a small decline in average ticket of 0.2%. These results were very much in line with our expectations that we shared with you as we started the quarter and year.

Speaker Change: Overall, our customer base remains healthy and highly engaged.

Unknown Executive: We continue to see growth from existing customers who are building up and adding to their flock. Organic feed and our assortment of premium breeds continue to lead the category in growth. Tractor Supply is the destination for backyard poultry. Today, nearly two-thirds of our backyard chicken owners consider them to be pets, and our customers over-indexed poultry ownership, with nearly one in five customers having chickens.

Speaker Change: Total customer count grew mid single digits with growth in active new and reactivated customers as we invested in our Neighbor's club program and customer service.

Hal: Our customer shopping trip in this category is highly differentiated, so we offer a broad assortment from value to super premium across private and exclusive brands in a pet-friendly environment, which now includes about 900 pet wash locations. Additionally, pet owners benefit from the one-stop shop convenience of our lifestyle retail format, in particular from the cross-purchasing synergy with animal and livestock feed. In Animal and Livestock Feed, we offer exclusive brands like Do More and Producers Pride, along with national brands from Purina, Cargill, Triple Crown, and more.

Speaker Change: Neighbor's club continues to represent the majority of our sales.

Speaker Change: During the quarter, we significantly enhanced our neighbor's club offerings.

Speaker Change: As our points based program enters its fourth year it was appropriate for us to refresh our offerings based on insights and customer feedback.

Speaker Change: The changes we made were all implemented with the goal to have customers receive rewards faster and to lower the spending required for tier qualifications.

Speaker Change: Our neighbor's club members have responded positively to these changes for example, the new rewards redemption at a $2 $5 level down from $10 is working as we design and is driving greater customer engagement and trips for this cohort.

Unknown Executive: Stepping back, we have a market share of about 20% in bagged livestock feed, and we continue to take share, and we are consistently outperforming the market across our Q categories. After nearly two years of pressure on our Big Ticket comps, we were pleased to see Big Ticket categories turn positive in the quarter. We experienced broad-based strength across seasonal categories, including zero-turn tractors, recreational vehicles, and outdoor power equipment. Additionally, almost 20% of our sales came through our mobile app.

Speaker Change: The initial response from our customers on the collective changes has been very positive and we're seeing increased spending across the board.

Speaker Change: In addition, we continued to improve relevancy to our members through more personalized offers and tailored incentives and experiences based on their interest in shopping patterns.

Hal: We continue to innovate across our key categories of equine, cattle, and poultry, in trends like organic and snack. And we bring a unique retail experience to these categories with events like our annual Spring Chick Days. This year, the event is on track to have strong results.

Speaker Change: With more than 34 million members Neighbor's club should continue to build our customers' loyalty and ability for tractor supply.

Speaker Change: As we go forward.

Speaker Change: Our customer service scores continue to run at all time highs. This is an area, where we have strategically invested in training.

Speaker Change: Compensation and benefits tools and technology to help elevate our customer service. This has garnered the attention of our customers and I believe helps strengthen our scores.

Hal: We continue to see growth from existing customers who are building up and adding to their flock. Organic feed and our assortment of premium breeds continue to lead the category in growth. Tractor Supply is the destination for backyard poultry. Today, nearly two-thirds of our backyard chicken owners consider them to be pets, and our customers over-indexed poultry ownership, with nearly one in five customers having chickens.

Speaker Change: The strength of our portfolio of products and shopping missions with evident very much so in the first quarter.

Speaker Change: We had robust growth in our seasonal categories, our consumable usable and edible products performed in line with our chain average.

Unknown Executive: We're leveraging the change of seasons across the storefront. It's the year shift to spring, and the team has come out of the gate strong to ensure we have a differentiated assortment and availability in time for the planting season. We now have nearly 500 garden centers across the chain.

Speaker Change: Our performance this quarter was on top of the robust growth we've experienced over the last four years as our key customer trends remained strong as we continue to gain market share.

Hal: Our digital sales returned double-digit growth in the quarter with increases in visits and an improved conversion rate. Nearly 80% of our orders were either picked up in store or fulfilled by a store. Additionally, almost 20% of our sales came through our mobile app.

Speaker Change: Our customer we're certainly in the mindset to prepare for spring as we had strong big ticket growth in the mid single digits and strength in other early spring preparedness categories.

Speaker Change: Categories that performed below our comp sales growth were more than our discretionary businesses, such as clothing and gifts and truck tool in hardware.

Unknown Executive: Based on our early read of spring, our expectation is that with more variety than ever and a grower network to support our garden centers, we should see customers respond positively to this multiyear growth driver. We believe in finding meaningful ways to support our core mission. Earlier this week, we issued our fifth annual Stewards of Life Out Here care sheet, and we're proud to share our progress towards our ambitious goal. In summary, we're relatively pleased with our start to the year, and customer trends are in line with our expectations. With the majority of the year remaining, we are reiterating our guidance for fiscal 2024.

Hal: It is great for our DC network to have this new capacity to better position our inventory and better service our stores, all the while allowing us to reduce our freight costs. Our supply chain investments over the last four years have provided us with a material structural gross margin benefit from the reduction in stem miles. We opened 17 new tractor supply stores and four PetSense by tractor supply stores in the quarter.

Speaker Change: In our pet food and livestock categories, we continue to grow our market share in pet food, we have seen growth moderate as the category Disinflate and pet ownership moderates our customers shopping trip in this category is highly differentiated as we offer a broad assortment from value to super premium across private and exclusive brands.

Speaker Change: Pet friendly environment with which now includes about 900 pet wash locations.

Speaker Change: Additionally, pet owners benefit from the one stop shop convenience of our lifestyle retail format in particular from the cross purchasing synergy with animal and livestock feed.

Hal: As I shared last quarter, 2024 will be the year of the garden. We're leveraging the change of seasons across the storefront. It's the year shift to spring.

Speaker Change: In animal and livestock feed we offer exclusive brands like do more producers pride along with the national brands from Purina Cargill Triple Crown and more we continue to innovate across our key categories of equine cattle and poultry and trends like organic and snack.

Unknown Executive: We compiled positive in March in spite of the limited arrival of spring across our market. All geographic regions performed in a tight band for the quarter.

Hal: The team has come out of the gate strong to ensure we have a differentiated assortment and availability in time for the planting season. We now have nearly 500 garden centers across the chain. Based on our early read of spring, our expectation is that with more variety than ever and a grower network to support our garden centers, we should see the customer respond positively to this multiyear growth driver. At Tractor Supply, we're grounded in our purpose as a company to serve life out here and our deep-rooted commitment to our mission and values.

Unknown Executive: We're encouraged by the trends we're seeing in unit growth and the underlying share gains in categories where deflation has had an outsized impact on AUR. Our gross margin rate of 36% increased 50 basis points compared to last year. We were very pleased with these results, which were driven primarily by ongoing lower transportation costs.

Speaker Change: And we bring a unique retail experience in these categories with events like our annual spring Chick days. This year. The event is on track to have strong results. We continue to see growth from existing customers, who are building out and adding to their block.

Speaker Change: Organic feed in our assortment of premium breeds continue to lead the category growth.

Speaker Change: Tractor supply is the destination for backyard poultry.

Speaker Change: Today, nearly two thirds of our backyard chicken owners consider them to be pets, and our customers over index to poultry ownership with nearly one in five customers having chickens.

Unknown Executive: Through disciplined product cost management and the continued execution of our Everyday Low Price Strategy, we were able to strategically provide great value for our customers while maintaining our gross margin. We remain committed to being the everyday low price leader in our market. This increase in SG&A as a percent of net sales was primarily attributable to our planned growth investments, which included higher depreciation and amortization, as well as the modest deleverage of our fixed costs given the level of comparable store sales growth.

Hal: We believe in finding meaningful ways to support our core mission. Earlier this week, we issued our fifth annual Stewards of Life Out Here care sheet, which highlights our stewardship priorities and progress. For all of us at Tractor Supply, we are highly committed to preserving life out here for future generations.

Speaker Change: Stepping back we have a market share of about 20% in bagged livestock feed and we continue to take share and we are consistently outperforming the market across our key categories.

Speaker Change: After nearly two years of pressure on our big ticket comps, we were pleased to see big ticket categories turn positive in the quarter.

Kurt D. Barton: We're proud to share our progress towards our ambitious goal. In summary, we're relatively pleased with our start to the year. Customer trends are in line with our expectations. The team is executing very well. We're controlling our controllables and making progress on our life out here strategy. With the majority of the year remaining, we are reiterating our guidance for fiscal 2024. And with that, I'll turn the call over to Kurt. Thank you, Haas.

Speaker Change: We experienced broad based strength across seasonal categories, including zero return tractors recreational vehicles and outdoor power equipment.

Speaker Change: Our digital sales returned to double digit growth in the quarter with increases in visits and an improved conversion rate.

Speaker Change: Really 80% of our orders where they are picked up in store are fulfilled by a store.

Speaker Change: Almost 20% of our sales came through our mobile app.

Speaker Change: The team made excellent feature updates such as New Express checkout feature and the addition of estimated delivery time and these have helped increase our conversion rate.

Kurt D. Barton: Thank you, Hal, and hello to everyone on the call. Let me start by building on Hal's comments about the quarter. Our first quarter performance was right down the middle when compared to our expectations on both the top line and the bottom line. Regarding the cadence of comp sales for the quarter, we started out with a very strong January as the month featured some spans of brutal cold. While February was warmer than normal and relatively soft, the best way to view the winter season performance is to look at weather categories across January and February combined.

Unknown Executive: Excluding depreciation and amortization, SG&A was essentially flat as a percent of sales. All together, operating income increased 7% with operating margin expansion of 34 basis points, net income increased 8.2%, and diluted EPS increased 10.9% to $1.83. Merchandise inventories were $3.0 billion at the end of the first quarter, representing a modest decrease of about 4% in average inventory per store.

Speaker Change: This year, we're opening our 10th and largest distribution center and mall Mel Arkansas, the startup of the distribution centers right on schedule a shipping will begin during June.

Speaker Change: Once again, we will be able to capitalize on the opportunity to realign the store servicing areas across the DC network to balance transportation costs, and DC capacity, while improving service levels to our stores.

Speaker Change: It is great for our DC network to have this new capacity to better position, our inventory and better service our stores, all the while allowing us to reduce our freight cost our supply chain investments over the last four years have provided us with material structural gross margin benefit from the reduction in stem miles.

Kurt D. Barton: And overall, we were pleased with our cold weather category performance. We compiled positive in March in spite of a limited arrival of spring across our market. Where the season had turned to spring, we were very pleased with how the business performed. All geographic regions performed in a tight band for the quarter.

Unknown Executive: Excluding freight and porcelain, our comp inventory was up modestly in dollar value and units. With strong annualized cash flows and improved working capital, we continue to maintain a healthy balance sheet with a leverage ratio of around 2%. We continue to expect full-year sales of $14.7 to $15.1 billion and project comparable store sales to be in the range of down 1% to a positive one and a half. Given the trends in our comp sales, our outlook assumes that strength in big ticket and seasonal will continue.

Speaker Change: We opened 17, new tractor supply stores and four patents by tractor supply stores in the quarter as I shared last quarter 2024 will be the year of the Garden Center, we're leveraging the change of seasons across the store front as the year shifts to spring. The team has come out of the gate strong to ensure we have a differentiated assortment.

Kurt D. Barton: Average unit retail was impacted by modest product deflation of about 1% in line with our expectation. We're encouraged by the trends we're seeing in unit growth and the underlying share gains in categories where deflation has had an outsized impact on AUR. Our gross margin rate of 36% increased 50 basis points to last year. We were very pleased with these results, which were driven primarily by ongoing lower transportation costs.

Speaker Change: <unk> and availability in time for the planning season, we now have nearly 500 garden centers across the chain based on our early read of spring our expectation is that with more variety than ever and a grower network to support our garden centers, we should see the customer respond positively to this multiyear growth driver.

Speaker Change: At tractor supply we are grounded in our purpose as a company to serve life out here and our deep rooted commitment to our mission and values.

Speaker Change: We believe in finding meaningful ways to support our core mission earlier.

Unknown Executive: For the second quarter, we expect gross margin expansion in line with the first quarter from continued supply chain efficiencies and benefits from effective cost management, partially offset by the mixed impact of growth in big ticket, which runs below the chain average. We anticipate the gross margin expansion to be offset by SG&AD leverage from our planned investments, including the incremental cost for the opening of our new distribution. As I mentioned earlier, there are approximately five million dollars shifting to the second quarter that we had initially anticipated in the first quarter, including staffing and training costs associated with the opening of the D.C. office. With the majority of the year still ahead of us, we believe these expectations are still appropriate.

Speaker Change: Earlier this week, we issued our fifth annual stewards of life out here tear sheet.

Speaker Change: That highlights our stewardship priorities and progress for all of US at tractor supply. We are highly committed to preserving life out here for future generations, we're proud to share our progress towards our ambitious goals.

Kurt D. Barton: Disciplined Product Cost Management and the Continued Execution of our Everyday Low Price Strategy. We were able to strategically provide great value for our customers while maintaining our gross margin. We remain committed to being the everyday low price leader in our market. Our first quarter SG&A expense rate, including depreciation and amortization, increased 16 basis points to 28.2%.

Speaker Change: In summary, we're relatively pleased with our start to the year customer trends are in line with our expectations.

Speaker Change: <unk> is executing very well, we're controlling our controllable and making progress on our lives have your strategy with the majority of the year remaining we are reiterating our guidance for fiscal 2024.

Speaker Change: And with that I'll turn the call over to Kirk.

Kirk: Thank you Hal and Hello to everyone on the call.

Kurt D. Barton: This increase in SG&A as a percent of net sales was primarily attributable to our planned growth investments, which included higher depreciation amortization, as well as the modest deleverage of our fixed costs given the level of comparable store sales growth. However, the leverage from our distribution center productivity gains did partially offset the loss of fixed cost leverage. Excluding depreciation and amortization, SG&A was essentially flat as a percent of sales. This was better performance than we anticipated entering the year, as there were approximately $5 million of expenses that we had planned to occur in the first quarter that we now anticipate incurring in the second. From my perspective, the team did a great job controlling what was controllable.

Kirk: Let me start by building on to <unk> comments about the quarter, our first quarter performance was right down the middle when compared to our expectations on both the topline and the bottom line.

Kirk: Regarding the cadence of comp sales for the quarter, we started out with a very strong January is the month featured some spans a brutal cold.

Kirk: While February was warmer than normal and relatively soft the best way to view. The winter season performance is to look at weather categories across January and February combined and overall, we were pleased with our cold weather category performance.

Unknown Executive: We continue to believe that the best way to look at our business is not by the quarters but by the halves of the year. In this environment, what sets tractor supply apart is our ability to effectively manage the top line and bottom line while investing in our life out here strategic growth drive.

Speaker Change: We comped positive in March in spite of a limited arrival spring across our markets, where this season had turned to spring we were very pleased with how the business performed.

Speaker Change: All geographic regions performed in a tight band for the quarter.

Kurt D. Barton: All together, operating income increased 7% with an operating margin expansion of 34 basis points, net income increased 8.2%, and diluted EPS increased 10.9% to $1.83. During the quarter, we repurchased approximately half a million shares and paid quarterly cash dividends totaling $118.8 million, returning $236.2 million of capital to shareholders. We also increased our dividend by 7%, marking our 15th consecutive year of growing our dividend, and turning out our balance sheet. Merchandise inventories were $3.0 billion at the end of the first quarter, representing a modest decrease of about 4% in average inventory per store. Lower freight costs were a contributor to the decrease in inventory dollars.

Speaker Change: Average unit retail was impacted by modest product deflation of about 1% in line with our expectations.

Unknown Executive: Tractor Supply has a proven business model that has been resilient over many business cycles and numerous levers to effectively control expenses. Across the store, we have a tremendous amount of newness for our customers' passions and lifestyles. We also continue to invest in customer service at our stores. In addition to our Hey Guru app to turbocharge the service our store team members provide to our customers, we are leveraging AI in our stores and garden centers through our Tractor Vision, which uses cameras and computer vision technology to provide data to deploy alerts that help our team members efficiently and effectively staff the store.

Speaker Change: We are encouraged by the trends, we're seeing in unit growth and the underlying share gains in categories, where deflation has had an outsized impact to AUR.

Speaker Change: Our gross margin rate of 36% increased 50 basis points to last year. We were very pleased with these results, which were driven primarily by ongoing lower transportation costs.

Speaker Change: Disciplined product cost management.

Speaker Change: And the continued execution of our everyday low price strategy.

Speaker Change: We were able to strategically provide great value for our customers, while maintaining our gross margin we remain committed to being the everyday low price leader in our markets.

Speaker Change: Our first quarter SG&A expense rate, including depreciation and amortization increased 16 basis points to 28, 2%.

Speaker Change: This increase in SG&A as a percent of net sales was primarily attributable to our planned growth investments, which included higher depreciation and amortization as well as the modest deleverage of our fixed cost given the level of comparable store sales growth.

Kurt D. Barton: Excluding freight and porcelain, our comp inventory was up modestly in dollar value and units. We are pleased with how we exited the winter season and the quality of our inventory as of the end of the first quarter. In our commitment to be the dependable supplier for our customers' lifestyles, we are at the highest in stock levels since pre-COVID.

Speaker Change: The leverage from our distribution center productivity gains did partially offset the loss of fixed cost leverage.

Unknown Executive: One scenario where this is incredibly beneficial is when customer traffic is building up at our register. We're also leveraging Tractor Vision to monitor our front apron of the store for dwell time. This allows a team member to better serve our customers, particularly in categories like outdoor riding lawnmowers. These are the types of investments and capabilities that separate us from our farm and ranch competition and really make us a leader in retail.

Speaker Change: Excluding depreciation and amortization SG&A was essentially flat as a percent of sales.

Speaker Change: This was better performance than we anticipated entering the year as there were approximately $5 million of expenses that we had planned to occur in the first quarter that we now anticipate incurring in the second quarter.

Kurt D. Barton: With strong annualized cash flows and improved working capital, we continue to maintain a healthy balance sheet with a leverage ratio of around 2%. As Hal mentioned, we are reiterating our guidance for 2024. We anticipate this year to be a continued story of ongoing share gains offset by macro headwinds. We continue to expect full-year sales of $14.7 to $15.1 billion and project comparable store sales to be in the range of down 1% to a positive one and a half.

Speaker Change: From my perspective, the team did a great job controlling the controllable.

Speaker Change: Altogether operating income increased 7% with operating margin expansion of 34 basis points net income increased eight 2% and diluted EPS increased 10, 9% to $1 83.

Unknown Executive: During the quarter, we repurchased approximately a half a million shares and paid quarterly cash dividends totaling $118 $8 million, returning $236 $2 million of capital to shareholders. We also increased our dividend by 7%, marking our 15th consecutive year of growing our dividend.

Unknown Executive: It's an exciting time at Tractor Supply. My thanks and appreciation go out to the team for their dedication to living our mission and values every day. And now, we'd like to open up the call to questions.

Kurt D. Barton: As we manage through the first half of the year, we expect to see second quarter comp sales in line with our full year outlook. Given the trends in our comp sales, our outlook assumes that strength in big ticket and seasonal will continue. We are playing for modest AUR pressure on Q with positive unit. Our expectation is that select discretionary categories will remain under pressure.

Speaker Change: Turning now to our balance sheet merchandise inventories were $3.01 billion at the end of the first quarter, representing a modest decrease of about 4% in average inventory per store.

Speaker Change: Lower freight cost was a contributor to the decrease in inventory dollars, excluding freight and Orson our comp inventory was up modestly in dollar value and units. We are pleased with how we exited the winter season, and the quality of our inventory as of the end of the first quarter in.

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. We ask that all participants limit themselves to one question and return to the queue for additional questions. If for any reason you would like to remove your question or your question has been answered, you may press star two. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. The first question comes from the line of Seth Sigman with Barclays. Seth, please go ahead.

Kurt D. Barton: For the second quarter, we expect gross margin expansion in line with the first quarter from continued supply chain efficiencies and benefits from effective cost management, partially offset by the mixed impact of growth in big ticket, which runs below the chain average. We anticipate the gross margin expansion to be offset by SG&AD leverage from our planned investments, including the incremental cost for the opening of our new distribution. As I mentioned earlier, there are approximately five million dollars shifting to the second quarter that we had initially anticipated in the first quarter, including staffing and training costs associated with the opening of the D.C. As a result, we expect the second quarter operating profit margin to be down slightly compared to the prior year.

Speaker Change: And our commitment to be the dependable supplier for our customers lifestyle. We are at the highest in stock levels since pre COVID-19.

Speaker Change: With strong annualized cash flows and improved working capital we continue to maintain a healthy balance sheet with a leverage ratio of around two times.

Seth Ian Sigman: As Hal mentioned, we are reiterating our guidance for 2024, we anticipate this year to be a continued story of ongoing share gains offset by macro headwinds. We continue to expect full year sales of $14 seven to $15 1 billion.

Seth Ian Sigman: And project comparable store sales to be in the range of down 1% to a positive one 5%.

Speaker Change: As we managed through the first half of the year, we expect to see second quarter comp sales in line with our full year outlook.

Seth Ian Sigman: Given the trends in our comp sales our outlook assumes that strength in big ticket and seasonal will continue we.

Seth Ian Sigman: Hey, good morning, everyone. Thanks for taking the question. I wanted to talk about the big ticket items.

Seth Ian Sigman: We are planning for modest AUR pressure on Q with positive unit trends.

Speaker Change: Our expectation is that select discretionary categories will remain under pressure.

Unknown Executive: Hey, Seth, good morning. And thanks for the question. We were very pleased with our big ticket performance in Q1. I'll highlight two trends and then provide some examples in the context of each of those. The first trend I'll highlight was in January, when we had the nice cold weather come through the country and, as a consequence of that, had some nice big ticket sales that went along with that, as we often do, whether that's things like snow throwers or log splitters.

Kurt D. Barton: As I shared when we initially provided guidance in February, there are a few factors that will impact operating margin in certain quarters. We anticipate the tailwinds of lower transportation costs to continue to benefit our results in the second quarter and begin to flatten year-over-year starting in Q3. In regards to SG&A, the second and third quarters will be pressured from the startup costs for the new distribution center, while the supply chain benefits will not begin to be realized in gross margin until late in the third quarter.

Speaker Change: For the second quarter, we expect gross margin expansion in line with the first quarter from continued supply chain efficiencies and benefits from effective cost management par.

Speaker Change: Partially offset by the mix impact of growth in big ticket, which runs below the chain average.

Speaker Change: We anticipate the gross margin expansion to be offset by SG&A deleverage from our planned investments, including the incremental cost for the opening of our new distribution Center.

Speaker Change: As I mentioned earlier Theres approximately $5 million are shifting to the second quarter that we had initially anticipated in the first quarter, including staffing and training costs associated with the opening of the D C.

Kurt D. Barton: For the full year, we continue to guide toward net income of $1.06 billion to $1.13 billion and diluted earnings per share of $9.85 to $10.50. With the majority of the year still ahead of us, we believe these expectations are still appropriate. We continue to believe that the best way to look at our business is not by the quarters but by the halves of the year. In this environment, what sets tractor supply apart is our ability to effectively manage the top line and bottom line while investing in our life out here strategic growth drive. And with that, I will turn the call back to Hal for some final remarks.

Speaker Change: As a result, we expect second quarter operating profit margin to be down slightly compared to prior year.

Unknown Executive: But then the other comment I'll make is that in the month of March, particularly the last couple of weeks, where we start to see that spring ramp occur, we saw a nice lift in big ticket items over those weeks. And we did highlight in the prepared remarks that in categories like riding lawnmowers, and outdoor power, we saw strong positive comps in those categories in those weeks. As we highlighted in the prepared remarks, we saw an overpenetration in those purchases by higher income consumers versus lower income consumers.

Speaker Change: As I shared when we initially provided guidance in February there are a few factors that will impact operating margin in certain quarters, we anticipate the tailwind of lower transportation costs to continue to benefit our results in the second quarter and begin to flatten year over year starting in Q3.

Speaker Change: In regards to SG&A, the second and third quarters will be pressured from the startup costs for the new distribution center, while the supply chain benefits will not begin to be realized in gross margin until late in the third quarter.

Speaker Change: To sum it up for the full year, we continue to guide towards net income of 1.06 billion to.

Speaker Change: 113 billion.

Hal: And diluted earnings per share of $9 85 to $10 50.

Hal: Tractor Supply has a proven business model that has been resilient over many business cycles. As a company, we have numerous levers to continue to gain market share, and numerous levers to effectively control expenses. Our life out here strategic priorities are on track and delivering on our expectations.

Hal: With the majority of the year still ahead of US. We believe these expectations are still appropriate we continue to believe that the best way to look at our business, it's not by the quarters, but by the halves of the year.

Unknown Executive: We talked about just kind of buying a bit more towards the need for lower income consumers. The last thing I'll add is that the trend on big ticket items that we saw in March for spring sales has continued into Q2.

Hal: 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 for some final remarks.

Harry A. Lawton: Thanks Kurt.

Harry A. Lawton: Tractor supply is a proven business model that has been resilient over many business cycles as a company we have numerous levers to continue to gain market share.

Hal: We continue to see fantastic opportunities for growth ahead. In-store and online, we're ready for the spring and summer seasons. Customers are responding positively to our new product assortments from Weber, Toro, Yeti, and more. We have several product test and learn initiatives in-store and online, like with Martha Stewart and Eddie Bauer. Cross Companion Animal, we're adding to our assortment with new brands like Akena, Real Mesa, and Native Pet and expanding our offerings across brands like Purina ProPlants, Sports Mix, and Hills Science Diet.

Unknown Executive: Hi, good morning, everyone. My question is also about the big ticket and how, maybe, I could put it in this way, if you look at it, relative to 2019. And I think we're trying to assess whether there's like a bottoming and a turn that's happening versus seasonal. I think your comments around March are normal versus not. But, you know, looking at it from that perspective, and then and if there's anything about these big ticket trends that informs you about the cadence of the year, it doesn't sound like it.

Unknown Executive: And numerous levers to effectively control expenses are lights out your strategic priorities are on track and delivering on our expectations.

Harry A. Lawton: We continue to see fantastic opportunities for growth ahead.

Harry A. Lawton: In store and online we are ready for the spring and summer season customers are responding positively to our new product Assortments from Weber Turo Yeti and more we have several product test and learn initiatives in store and online like Martha Stewart and Eddie Bauer.

Harry A. Lawton: Across companion animal, we're adding to our assortment with new brands like Arcana real Mesa native pet and expanding our offerings across brands like Purina Pro plan sports mix in Hill's science diet.

Hal: Our garden centers are set to help our customers prepare for their hobbies of gardening, especially with a focus on vegetables and fruit trees and just simply enjoying their property. Across the seasons, we have new product offerings specific to the Garden Center. We're currently showcasing our roses, plant of the month, and are prepared with hanging baskets for Mother's Day. As we move into the second half of the year, we will shift to fall harvest and Halloween, and then to Christmas with live goods and decor.

Harry A. Lawton: Our garden centers are set to help our customers prepare for their hobbies of gardening, especially with a focus on vegetables, and fruit trees and just simply enjoying their property.

Harry A. Lawton: Across the seasons, we have new product offerings specific to the Garden Center. We're currently showcasing our Roes as planned at the mine and are prepared with hanging baskets for mother's day.

Unknown Executive: And it sounds like the cadence had always been pretty static across the quarters. But anything that you think about maybe big ticket strength continuing into the second half that maybe you didn't plan for. Yeah, hey, Simeon.

Harry A. Lawton: As we move into the second half of the year, we will shift to fall harvest and Halloween and then to Christmas with live goods and decor. Overall. This is a great way for us to attract new customers and soften the front of our store.

Hal: Overall, this is a great way for us to attract new customers and soften the front of our store. Across the store, we have a tremendous amount of newness for our customers' passions and lifestyles. We also continue to invest in customer service at our stores. In addition to our Hey Guru app to turbocharge the service our store team members provide to our customers, we are leveraging AI in our stores and garden centers through our Tractor Vision, which uses cameras and computer vision technology to provide data to deploy alerts that help our team members efficiently and effectively staff the store.

Hal: Across the store, we have a tremendous amount of newness for our customers passions and lifestyles.

Harry A. Lawton: We also continue to invest in customer service at our stores. In addition to our <unk> App to turbocharge the service our store team members provide to our customers. We are leveraging AI in our stores and garden centers through our tractor vision, which uses cameras and computer vision technology to provide data to deploy alerts that help our <unk>.

Unknown Executive: If you'll recall, last year we commented that our big ticket categories were back to 2019 levels. So, I would articulate the growth that we're seeing now as kind of consistent and growth that would be on top of a normal, if you go back to 2019, to 2019 trend. So, we feel like it's healthy growth, compounding growth, and very much in the, you know, kind of stable on top of 2019 levels.

Unknown Executive: Team members efficiently and effectively staff the store.

Hal: One scenario where this is incredibly beneficial is when customer traffic is building up at our register. Tractor Vision will alert team members through their earpiece that another team member needs to come up to open another register. We're also leveraging Tractor Vision to monitor our front apron of the store for dwell time. This allows a team member to better serve our customers, particularly in categories like outdoor riding lawnmowers. These are the types of investments and capabilities that separate us from our farm and ranch competition and really make us a leader in retail.

Unknown Executive: One scenario, where this is incredibly beneficial as when customer traffic is building up at our registers tractor visual alert team members through their ERP that another team member needs to come up to open another register.

Unknown Executive: We're also leveraging tracker vision to monitor our front apron of the store for dwell time. This allows for a team member to better serve our customers, particularly in categories like outdoor riding lawnmowers.

Harry A. Lawton: These are the types of investments and capabilities that separate us from our farm and ranch competition and really make us a leader in retail it's an exciting time at tractor supply my thanks, and appreciation go out to the team for their dedication to living our mission and values every day.

Unknown Executive: The final thing I'll add is, you know, we've called out numerous times the drought conditions and the heat conditions that have occurred in a number of our key markets the last two years, whether that's the Midwest or Texas. Given the cooler weather that we've had and the nice precipitation we've had, you know, grass is green across the country right now. And, you know, we all just returned from our executive walks across the whole country last week, and we all came back and kind of talked about the same things. You've got really green grass, and it's growing well, and the temperatures are staying cool.

Hal: It's an exciting time at Tractor Supply. My thanks and appreciation go out to the team for their dedication to living our mission and values every day. And now, we'd like to open up the call to questions.

Speaker Change: And now we'd like to open up the call for questions.

Speaker Change: Thank you.

Speaker Change: We'll now begin the question and answer session.

Seth Ian Sigman: If he would like to ask a question. Please press star one on your telephone keypad.

Seth Ian Sigman: We ask that all participants limit themselves to one question and return to the queue for additional questions.

Operator: If for any reason you would like to remove your question or your question has been answered you May press star two.

Unknown Executive: As a reminder, if you are using a speakerphone. Please pick up your handset before asking your question.

Operator: The first question comes from the line of Seth Sigman with Barclays.

Seth Ian Sigman: Please go ahead.

Seth Ian Sigman: Hey, good morning, everyone. Thanks for taking the question. I wanted to talk about the big ticket items.

Speaker Change: Hey, good morning, everyone. Thanks for taking the question I wanted to talk about the big ticket improvement obviously, that's a nice change from what we've seen if I recall when you talk about big ticket Youre looking at transactions over a certain size can you try to separate for us the difference between sales from high price point product. So you mentioned in writing.

Seth Ian Sigman: <unk> have you actually seen comps in those specific high ticket categories go positive or is it more basket building youre seeing the benefit from more units per transaction as part of the spring activity. Thank you.

Unknown Executive: So, you know, the conditions are right for big ticket sales as well for us. But we're very pleased with the big ticket activity, strong exit in Q1 and continuing that pace into Q2, healthy on top of 2019, and the conditions are favorable for it as well this year. Thank you. Good luck.

Seth Ian Sigman: I wanted to talk about the big ticket in...

Hal: Hey, Seth, good morning. And thanks for the question. We were very pleased with our big ticket performance in Q1. I'll highlight two trends and then provide some examples in the context of each of those. The first trend I'll highlight was in January, when we had the nice cold weather come through the country and, as a consequence of that, had some nice big ticket sales that went along with that, as we often do, whether that's things like snow throwers or log splitters.

Speaker Change: Yeah, Hey, good morning, and thanks for the question.

Unknown Executive: We were very pleased with our big ticket performance in Q1, I'll highlight two trends and then provide some examples in the context of each of those the first two and I'll highlight within January where we had a nice cold weather come through the country and as a consequence of that had some nice big ticket sales that go in.

Hal: All of that as we as we often do whether that's things like snow throwers or log splitters and.

Unknown Executive: And to your point the cutoff that we use for big ticket is $350 price point.

Seth Mckain Basham: Thank you. The next question comes from the line of Seth Basham with Wedbush. Seth, please go ahead.

Unknown Executive: But then the.

Hal: But then the other comment I'll make is that in the month of March, particularly the last couple of weeks, where we start to see that spring ramp occur, we saw a nice lift in big ticket items over those weeks. And we did highlight in the prepared remarks that in categories like riding lawnmowers, and outdoor power, we saw strong positive comps in those categories in those weeks. As we highlighted in the prepared remarks, we saw an overpenetration in those purchases by higher income consumers versus lower income consumers.

Unknown Executive: The other comment I'll make is in the month of March, particularly the last couple of weeks, where we start to see that spring ramp occur.

Unknown Executive: Hey Seth, good morning. As it relates to inflation, the probably most important point to take away from us is that we've lapped our two most difficult quarters as it relates to coughing on top of inflation. As we remarked at the end of our Q4 call, we were lapping 11% inflation from Q3 of 2022, and then we're lapping substantial inflation from last year in Q1 of 2023. So as we look ahead, we have significantly fewer lapping issues.

Hal: We saw a nice lift in big ticket over those weeks and we did highlight in the prepared remarks in categories like riding lawn mowers outdoor power, we saw strong positive comps in those in those categories in those weeks as we highlighted in the.

Hal: In the prepared remarks, we saw an over penetration in those in those purchases of higher income consumers versus lower income consumers.

Hal: We talked about just kind of buying a bit more towards the need for lower income consumers. The last thing I'll add is that the trend on big ticket items that we saw in March for spring sales has continued into Q2.

Unknown Executive: Yes.

Unknown Executive: We talked about just kind of buying a bit more towards need for the lower income consumers. The last thing I'll add is the trend on big ticket that we saw in March for spring sales has continued into Q2.

Unknown Executive: Okay.

Seth: Okay. Thank you Hal.

Seth: Thank you.

Operator: The next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Hal: Question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Simeon Ari Gutman: Hi, good morning, everyone. My question is also about the big ticket and how, maybe, I could put it in this way, if you look at it, relative to 2019. And I think we're trying to assess whether there's a bottoming and a turn that's happening versus seasonal. I think your comments around the March volume sound like there may be a turn, but if we compare it to 2019 or 2020, it's hard to understand what baseline is normal versus not.

Simeon Ari Gutman: Hi, Good morning, everyone. My question is also on big ticket and how maybe I could put it in this way if you look at it.

Unknown Executive: Thank you.

Simeon Ari Gutman: Relative to 2019, and I think we're trying to assess whether there's like a bottoming and a turn that's happening versus seasonal I think your comments around the March.

Christopher Michael Horvers: Thank you. The next question comes from the line of Chris Horvers with JP Morgan. Your line is now open. Please do ensure your line is unmuted.

Christopher Michael Horvers: Volume it sounds like there may be a turn but if we compare it to 2019 or 2020 granted it's hard to understand what baseline.

Steven Paul Forbes: Thank you. The next question comes from the line of Steven Forbes with Guggenheim Partners. Steven, please go ahead.

Simeon Ari Gutman: As normal versus not but.

Simeon Ari Gutman: But, you know, looking at it from that perspective, and then if there's anything about these big ticket trends that informs you about the cadence of the year, it doesn't sound like it. And it sounds like the cadence had always been pretty static across the quarters. But anything that you think about maybe big ticket strength continuing into the second half that maybe you didn't plan for. Yeah, hey, Simeon.

Speaker Change: Looking at it that perspective and then.

Unknown Executive: So I was wondering if you can maybe expand on the changes you made to the program? Is there anything you sort of notable in terms of acquisition? You know, maybe converting those non-Neighbors Club members into members or repeat or retention trends that change how you're thinking about that program membership evolving over time? And, in any way, to sort of size up what the true opportunity is for the 20% of sales that are coming from non-members today. We're, we're very

Simeon: If theres anything about these big ticket trends.

Simeon: <unk> informs you about the cadence of the year it doesn't sound like it and it sounds like the cadence had always been pretty static across the quarters, but anything that you think about maybe big ticket strength continuing into the second half that maybe you didn't plan for.

Simeon Ari Gutman: Okay.

Hal: I'll reread a couple of the comments that I had on the previous question just to tee up the discussion. So on Big Ticket as it relates to spring, we saw a nice Big Ticket ramp in absolute dollars and comps as we exited Q1. And those trends have continued into Q2, and we're very pleased with our Big Ticket spring sales. As we look at a multi-year history of that, If you'll recall, last year we commented that our big ticket categories were back to their 2019 levels.

Simeon: I'll reiterate a couple of comments that I had in the previous.

Hal: Question just on TFS.

Hal: A discussion so.

Hal: On big ticket as it relates to spring, we saw a nice big ticket ramp in absolute dollars and comps as we exited Q1 and those trends have continued into Q2, and we're very pleased with our big ticket spring sales.

Hal: As we look at a multi year history on that.

Unknown Executive: We're very pleased with the, you know, continued progress we're making in our Neighbors Club platform. And clearly, our customers are engaging with it and using it, finding value in it. And it's a key retention driver and behavior driver for our business. And, you know, it's certainly, you know, become an integral part of how we go to market and a key area of competitive advantage for us.

Hal: If you recall last year, we commented that our big ticket categories, we're back to 2019 levels.

Hal: So, I would articulate the growth that we're seeing now as kind of consistent and growth that would be on top of a normal, if you go back to 2019, to 2019's trend. So, we feel like it's healthy growth, compounding growth, and very much in the, you know, kind of stable on top of 2019 levels. The final thing I'll add is, you know, we've called out numerous times the drought conditions and the heat conditions that have occurred in a number of our key markets over the last two years, whether that be the Midwest or Texas.

Hal: So I would articulate the growth that we're seeing now is kind of consistent and growth that would be on top of our normal 2000. If you go back 2019, 2019 trends. So we feel like its healthy growth compounding growth.

Hal: And very much in the kind of <unk>.

Hal: Stable on top of 2019 levels. The final thing I'll add is we called out numerous times the drought conditions in the heat conditions that occurred in a number of our key markets. The last two years, whether thats, the Midwest or Texas, given the colder weather that we've had in the night.

Unknown Executive: This quarter, we were pleased with the number of customers that we added to the Neighbors Club platform. I called out that we had new customer growth this quarter. And that was, you know, new customers are a key driver of Neighbors Club program growth. We're very pleased to have new positive customer counts in the quarter. The second thing I'd call out is, to your point, we made adjustments to our membership program to allow for lower dollar increments to be redeemed in terms of points, both $2 and $5.

Hal: Given the cooler weather that we've had and the nice precipitation we've had, you know, grass is green across the country right now. And, you know, we all just returned from our executive walks across the whole country last week, and we all came back and kind of talked about the same things. You've got really green grass, and it's growing well, and the temperatures are staying cool.

Hal: Imitation, we've had no grass is greener across the country right now and we.

Hal: We all just returned from our executive walks across the whole country last week and we all came back and kind of talked about the same things <unk> got really green grass and it's growing well and the temperatures are saying cool. So the conditions are right for big ticket sales as well for us.

Operator: So, you know, the conditions are right for big ticket sales as well for us. But we're very pleased with the big ticket activity, strong exit in Q1 and continuing that pace into Q2, healthy on top of 2019, and the conditions are favorable for it as well this year. Thank you. Good luck.

Operator: But we're very pleased with the big ticket activity strong exiting Q1, and continuing that pace into Q2 healthy on top of 2019.

Operator: And the conditions are favorable for it as well this year.

Operator: Thank you good luck.

Speaker Change: Thank you.

Operator: The next question comes from the line of Seth Basham with Wedbush.

Operator: Thank you. The next question comes from the line of Seth Basham with Wedbush. Seth, please go ahead.

Speaker Change: Please go ahead.

Operator: Okay.

Operator: Yes.

Seth Mckain Basham: Thanks, a lot and good morning, I'm, just trying to understand year inflation deflation outlook a bit more as we see a rise in oil prices here do you think that could lead to any material in place to actually move through the year.

Unknown Executive: We also modified our tier structure a bit to allow people to earn more dollars sooner, and the entire goal of that was to drive that opening tier and that behavior to get them more engaged. As we've talked about on these calls over the last two or three years, the best performance we've seen has been in our preferred plus tier, and the second best performance has been in our preferred tier.

Seth Mckain Basham: Hey Seth, good morning. As it relates to inflation, the probably most important point to take away from us is that we've lapped our two most difficult quarters as it relates to coughing on top of inflation. As we remarked at the end of our Q4 call, we were lapping 11% inflation from Q3 of 2022. And then we're lapping substantial inflation from last year in Q1 of 2023.

Seth Mckain Basham: Hey, good morning.

Seth Mckain Basham: As it relates to inflation.

Seth Mckain Basham: Probably the most important point to take away from US is that we've lapped our two most difficult quarters as it relates to comping on top of inflation.

Seth Mckain Basham: As we remarked at the end of our Q4 call we were lapping 11% inflation from Q3 of 2022.

Seth Mckain Basham: Hi.

Seth Mckain Basham: And then we're lapping substantial inflation from last year in Q1 of 2023.

Unknown Executive: And our basic Neighbors Club tier was really what we wanted to revitalize that group, re-energize that group. And the changes we made, we saw a significant response to them. We're very pleased, and we've got a number of things on the horizon that will continue to help us grow that program. As we called out at the beginning of the year, we've got a Heroes program that we'll be rolling out towards the end of the second quarter or beginning of the third quarter, right around July 4th timeframe.

Hal: So as we look ahead, we have significantly fewer lapping issues. And in particular, as it relates to things like animal feed, as we get towards the end of Q2, we really start to get back to a more normalized environment. And, by the way, by the time we get to mid-Q3, we're in, we've basically lapped it all.

Seth Mckain Basham: So as we look ahead, we have significantly less lapping issues.

Hal: And in particular as it relates to things like animal feed as we get towards the end of Q2, we really start to get back to a more normalized environment and by the way. It by the time, we get to mid Q3, we are in.

Hal: We basically lapped at all so feel really good as we look forward.

Hal: So I feel really good as we look forward, that we're kind of, you know, getting close to hitting the bottom on disinflation and starting to get back as we get towards the end of the year, towards a more normal outlook. We're not seeing anything different in our margin expectations, pricing expectations, and cost of goods expectations than we saw at the beginning of the year. As we've mentioned, we worked closely with our vendor partners in the middle of last year to pull back on a lot of those cost increases we've seen that were successful. You see that in our gross margin rate results. At the same time, where appropriate, we've moderated on prices. Our pricing has never been sharper in the industry.

Hal: That where tonnage.

Hal: Close to hitting the bottom on disinflation and starting the fact as we get towards the end of the year towards a more normal outlook, we're not seeing anything different.

Hal: In.

Hal: In our margin expectations pricing expectations cost of goods expectation than we saw at the beginning of the year.

Hal: As we've mentioned we've worked closely with our vendor partners middle of last year to pull back on a lot of this cost increases we've seen that's been successful you would see that in our gross margin rate results at the same time, we're appropriately moderated on prices our pricing has never been sharper in the industry, we monitor that very closely and we've got multi.

Unknown Executive: So great performance in Neighbors Club during the quarter, new features being launched already that are going to keep driving that, and then we've got a number of new things on the horizon. And as I said, this is a distinct part of Tractor Supply and an area of competitive advantage for us.

Hal: We monitor that very closely, and we've got multi, multi-year trends on that. Never been sharper than we have been in Q1 and coming into Q2, and we don't see anything on the horizon that would change our retail price and cost of goods outlook. We did just complete all of our container kind of shipping negotiations. Those are basically coming in kind of flat for last year, so there's not, you know, we don't see headwinds in the future there.

Hal: The multiyear trends on that never been sharper than we had been in Q1 and coming into Q2.

Hal: We don't see anything on the horizon that would change kind of our retail price cost of goods.

Hal: <unk>, we did just complete all of our <unk>.

Steven Emanuel Zaccone: Great to hear. Thank you. Thank you. The next question comes from the line of Steven Zaccone with Citigroup. Your line is now open.

Hal: Container.

Hal: Kind of shipping.

Hal: The negotiations those are basically come in and kind of flat to last year. So theres not we don't see headwind in the future there.

Unknown Executive: Great. Good morn

Hal: And I don't think that there's been a significant amount of oil fuel cost type increases to impact certainly first cost types at this point at all. And the freight market, given the status of the freight market and the overcapacity that's there, we haven't started to see prices come up to reflect fuel in that area as well. So, pretty stable. There was no real change to our outlook either in this call or versus our last call. Yeah, and Seth, this is Kurt. Just to tie that back to our guide.

Hal: And I don't think that theres been a significant amount of oil.

Unknown Executive: on our products. And there's really been a very disciplined strategic approach toward that that began last year. But really, we started to see the benefit modestly in Q4, and our merchants and our vendors really partnered together to drive down some of that cost. And we're actually even creating some of that AUR deflation so that in our Q categories, our key drivers, we're able to offer the best value at an even better gross margin rate.

Kurt: Oil fuel kind of cost type increases too.

Kurt: The impact certainly raw first.

Kurt: Cough type at this point at all and the freight market given the status of the freight market and the overcapacity. This there is.

Kurt: <unk> started to see prices come.

Kurt: Come up to reflect fuel in that in that area as well so pretty stable no real change to our outlook either in this call are versus our last call.

Hal: Yes, Seth this is Kurt just to tie that back to our guidance.

Kurt D. Barton: Yeah, and Seth, this is Kurt. Just to tie that back to our guidance, as we entered 2024, I had said that we could see in our planning for 2024 inflation deflation, relatively neutral, plus or minus a point. And we expect, as we're starting to lapse some of those inflation quarters last year, Q2 may have a similar impact as we saw in Q1. But then if you were to play out the current environment, it would really put us in an expectation for the year, sort of from that neutral standpoint. And we'll know more on, you know, how the back half looks, you know, after Q2, but we're still pretty much playing right in line with our guidance. Thank you.

Kurt: As we entered 2024 I had said that we could see in our planning for 2024 from an inflation deflation relatively neutral plus or minus a point.

Unknown Executive: And that's some of the pressure that I mentioned on AUR, that we feel very confident that we're bringing the best prices in our categories, regardless of competition. And that's what's helping us really gain market share. So for the second half of the year, transportation, cost management, and lower-cost drivers will contribute. And then in the second half, the third item that will begin will be supply chain benefits from the new distribution center.

Kurt D. Barton: And we expect.

Kurt D. Barton: We're starting to lap some of those inflation quarters last year Q2 may have a similar impact as we saw in Q1, but then if you were to play out the current environment today. It would really put us in an expectation for the year sort of that neutral standpoint, and we'll know more on how the back half looks.

Kurt D. Barton: After Q2, but still pretty much playing right in line with our guidance.

Kurt D. Barton: Sure.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Chris <unk> with Jpmorgan. Your line is now open.

Speaker Change: Please go ahead, Sir your line is muted.

Speaker Change: Hi, Thanks for the question first time on the call.

Speaker Change: I wanted to expand on that big ticket commentary.

Kurt D. Barton: Thank you. The next question comes from the line of Chris Horvers with JP Morgan. Your line is now open. Please do ensure your line is unmuted.

Kurt D. Barton: Alright.

Speaker Change: And focus on.

Christopher Michael Horvers: Whats happening with spring can you contrast, what you saw in March in markets, where spring broke where did it break where it hasn't broken and how are you thinking about whats April telling you about the business so far in the quarter.

Unknown Executive: As transportation costs are the highest one, that's why we've said the second half may be a slightly lower gross margin growth in the first half as we start to cycle it. But it's really been the main three things that will benefit throughout the year, but just beginning to see less of a benefit on the transportation side in the second.

Christopher Michael Horvers: Yeah, hey, Chris. We've been where the sun has been out and conditions have been right. We've been very pleased with spring. Our big ticket sales are strong. Our live goods are selling well. Our garden centers are performing. Categories like grilling, other categories like fertilizer, and grass.

Christopher Michael Horvers: Yeah, Hey, Chris.

Christopher Michael Horvers: Right.

Christopher Michael Horvers: Where the Sun has been out and conditions have been right. We've been very pleased with spring our big ticket sales are strong our live goods are selling well our garden centers are performing.

Christopher Michael Horvers: Categories like grilling.

Christopher Michael Horvers: Okay.

Michael Lasser: Thank you. The next question comes from the line of Michael Lasser with UBS. Michael, please go ahead.

Christopher Michael Horvers: Other categories like fertilizer and grass seed.

Hal: We're seeing real strength across the board when the sun is out and conditions are right. Interestingly, in the first quarter, conditions were stronger, really more in the northeast and the Midwest, as there was a decent bit of cloudiness and precipitation through the southeast and over into Texas throughout the back of the last couple of weeks of the quarter. And that's kind of continued a bit into the second quarter. But, you know, we feel very optimistic about the southern markets. They always turn in spring, and, you know, it's beautiful here in Nashville today.

Christopher Michael Horvers: We're seeing real strength across the board witness Sade is whereas it started out and conditions are right interestingly in the.

Unknown Executive: Good morning. Thank you so much for taking the time to answer my questions.

Hal: In the first half and the first quarter conditions were stronger really more in the northeast and the Midwest.

Hal: As there was a decent bit of cloudiness of precipitation through the southeast and over into taxes throughout the back the last couple of weeks of the quarter.

Unknown Executive: How can you give us a sense for how the pet food category has been performing as of late? Have you been surprised that there's been general softness in these trends? And how has Tractor Supply's market share compared this quarter to the last couple quarters, especially as it seems like the company's been taking more aggressive steps, whether it's price investments or changes to the loyalty program. And then finally, there's been a lot of parsing of your words on quarter-to-date trends.

Hal: Instantly kind of continued a bit into the.

Hal: The second quarter, but yes.

Hal: We feel very optimistic about about southern markets They always turn.

Hal: Turning to spring and it's beautiful here in Nashville today, but very pleased with our spring performance as we've headed into Q2 here. We see Q2 really very similar to Q1, just right down the middle of our fairway, we expect Q2 to be very similar to the Q1 end.

Hal: But very pleased with our spring performance as we've headed into Q2 here. And, you know, we see Q2 really very similar to Q1, just right down the middle of a fairway. We expect Q2 to be very similar to Q1. And, you know, with the one notable call that Curt had around, we think it's the bottom quarter for us on disinflation as it relates to Q2. But, you know, otherwise, it's kind of a streak down the middle, a very similar quarter to Q1. And, as I said, we're very optimistic and pleased with our spring start.

Hal: With the with the.

Hal: The one notable call out that they occurred had around we think it's the bottom quarter for us on disinflation as it relates to the.

Hal: Q, but otherwise.

Hal: It's kind of a straight down the middle very similar quarter to Q1.

Hal: And as I said, we're very optimistic and pleased with the spring spring start.

Unknown Executive: Can you give us an explicit example?

Operator: Thank you. The next question comes from the line of Steven Forbes with Guggenheim Partners. Steven, please go ahead.

Unknown Executive: Hey Michael, I'll comment first on PET. First off, I'll just step back on PET and say it's a, you know, incredibly attractive market. It's one that's outperformed the broader retail market for decades. It's been a long-term source of growth for us. And, you know, I think that the slowdown in the, in that industry this year has been well documented, with that slowdown being driven really by two macro drivers.

Steven Paul Forbes: Got it thanks very much.

Operator: Okay.

Steven Paul Forbes: Thank you.

Operator: Next question comes from the line of Steven Forbes with Guggenheim Partners. Steven. Please go ahead.

Steven Paul Forbes: Morning, everyone. I think you noted 34 million members in the program, which is sort of surprising on the upside here a little bit, at least for our expectations. So I was wondering if you can maybe expand on the changes you made to the program? Is there anything you sort of notable in terms of acquisition? You know, maybe converting those non-Neighbors Club members into members or repeat or retention trends that change how you're thinking about that program membership evolving over time? And, in any way, to sort of size up what the true opportunity is for the 20% of sales that are coming from non-members today. We're, we're very

Steven Paul Forbes: Good morning, everyone. How I think you noted 34 million members in the program, which.

Steven Paul Forbes: Sort of surprise to the upside here, a little bit at least versus our expectations. So.

Steven Paul Forbes: I was wondering if you could maybe expand on the changes you made to the program. There is there anything sort of notable in terms of acquisition.

Steven Paul Forbes: Maybe converting those non neighbor's club members.

Steven Paul Forbes: Members were repeat or retention trends change.

Steven Paul Forbes: Change, how youre thinking about that program membership evolving over time.

Steven Paul Forbes: And any way to sort of size up what the true opportunity is for the 20% of sales that are coming from non members today.

Steven Paul Forbes: We're very pleased with the continued progress we're making in our neighbor's club platform.

Hal: We're very pleased with the, you know, continued progress we're making in our Neighbors Club platform. And clearly, our customers are engaging with it and using it, finding value in it. And it's a key retention driver and behavior driver for our business. And, you know, it's certainly, you know, become an integral part of how we go to market and a key area of competitive advantage for us.

Hal: Clearly our customers are engaging in it and using it finding value in it and it's a key retention driver behavior driver for our business.

Unknown Executive: The first is moderation in PET ownership. And the second is kind of stagnant pricing, right? That's an industry that's historically been able to claw out two or three points of price increases every year, given the substantial price increases that have occurred in that category over the last two years. Basically, that category is flat in pricing for the year. So you've got some moderation in the category just for this year.

Hal: It's certainly become an integral part of how.

Hal: How we go to market and a key area of competitive advantage for us.

Hal: This quarter, we were pleased with the number of customers that we added to the Neighbors Club platform. I called out that we had new customer growth this quarter. And that was, you know, new customers are a key driver of Neighbors Club program growth. We're very pleased to have new positive customer counts in the quarter. The second thing I'd call out is, to your point, we made adjustments to our membership program to allow for lower dollar increments to be redeemed in terms of points, both $2 and $5.

Hal: This quarter, we were pleased with the number of customers that we added to the neighbor's club platform I called out that we had new customer growth in the quarter.

Hal: And that was new customers are a key driver to Neighbor's club program growth. We're very pleased to have positive new customer counts in the quarter.

Hal: The second thing I'd call out is to your point, we made adjustments to our membership program.

Unknown Executive: We have an incredibly distinct value proposition in that category. That our value proposition includes, I think importantly, the co-mingling of purchases with animal feed. 88% of our customers have animals or pets, and the vast majority have both.

Hal: To allow for a lower dollar increments to be redeemed in terms of point, both $2 $5. We also modified our tier structure a bit to allow people to earn more dollars sooner than the entire goal of that was to drive that opening tier in that behavior to get them more engaged as we've talked about on these calls over the last two or three years.

Hal: We also modified our tier structure a bit to allow people to earn more dollars sooner, and the entire goal of that was to drive that opening tier and that behavior to get them more engaged. As we've talked about on these calls over the last two or three years, the best performance we've seen has been in our preferred plus tier, and the second best performance has been in our preferred tier.

Hal: The best performance, we've seen has been in our preferred cloths here. The second best performance had been in our preferred tier and our basic Neighbor's club tier was really what we wanted to re re galvanized that group Reenergize that group.

Unknown Executive: So they appreciate being able to shop for both their pets and pet food at the same time. We complement that key kind of portfolio advantage, obviously with customer service, with a pet-friendly environment now having over 900 pet washes, which, by the way, we see nearly 50,000 pets a week in our stores with pet washes, pet clinics, etc. And that's true just for animals in our in our store. So we have a very distinct value proposition. We have all the kind of publicly available brands, right, the national brands, but we also have two very leading private label brands. We cover the full range of assortments.

Hal: The changes we made we saw significant response to it we're very pleased and we've got a number of things on the horizon that will continue to help us grow that program.

Hal: And our basic Neighbors Club tier was really what we wanted to revitalize that group, re-energize that group. And the changes we made, we saw a significant response to them. We're very pleased, and we've got a number of things on the horizon that will continue to help us grow that program. As we called out at the beginning of the year, we've got a Heroes program that we'll be rolling out towards the end of the second quarter or beginning of the third quarter, right around July 4th timeframe.

Hal: As we called out at the beginning of the year, we've got a.

Hal: Heroes program that will be rolling out towards the end of the second quarter or beginning of the third quarter.

Hal: Right around July 4th timeframe will share more about those details on our next call, but that's a lot that's going to allow us to to embrace another set of customers that we have provide them incremental value and we're excited about that we've gotten great feedback from the customers that we've tested that with and we're also in the process of implementing a <unk>.

Hal: Customer data platform.

Hal: It's going to allow us to significantly improve our personalization and that time for implementation in the back ended back back half of the year and that's.

Unknown Executive: So a credible value proposition there, one that's distinct and, I think, in particular, one that really holds up well in this market, given the various competitive dynamics that are going on. And as I said, but I want to reinforce, we are absolutely still taking share in that category. Albeit, it's a lower growth rate because of the moderation in the category, but we are absolutely still taking share in that category, and we're only doing things to reinvest and lean in further to continue to capture that share.

Hal: Allow us to just take our personalization capabilities and our targeting capabilities to the next level in which we already do an excellent job thats a market leading job on that just keeps the improvement there. So great performance in neighbor's club in the quarter New features being launched already that are going to keep driving that and then we got it.

Hal: So great performance in Neighbors Club during the quarter, new features being launched already that are going to keep driving that, and then we've got a number of new things on the horizon. And as I said, this is a distinct part of Tractor Supply and an area of competitive advantage for us.

Hal: A number of new things on the horizon as I said this is a distinct part of tracks find an area of competitive advantage for us.

Speaker Change: Great. Thank you.

Hal: Yeah.

Speaker Change: Thank you.

Hal: Our next question comes from the line of Stephens account with Citigroup. Your line is now open.

Hal: Yes.

Speaker Change: Great. Good morning, Thanks, very much for taking my question.

Operator: Great to hear. Thank you. Thank you. The next question comes from the line of Steven Zaccone with Citigroup. Your line is now open.

Speaker Change: I wanted to ask on gross margin so given the guidance for the second quarter that it should be similar in terms of expansion.

Steven Emanuel Zaccone: Can you just talk through the back half of the year, because you start to face some tougher comparisons.

Steven Emanuel Zaccone: Great. Good morn

Steven Emanuel Zaccone: Just talk through some of the expectations in the back cash. Thank you.

Kurt D. Barton: Yeah, Steven, this is Kurt. The gross margin drivers are very similar throughout the year. But yet, as I mentioned in some of my remarks, it has a bit of a difference in impact by quarter. So our biggest opportunity and biggest growth driver and gross margin will be, throughout the year, our transportation and freight. And in transportation, freight, it's both transitory or rate related where we are coming off of those higher costs, particularly for ocean freight.

Kurt D. Barton: Yeah.

Kurt D. Barton: Yes, Steven this is Kurt.

Unknown Executive: And as we look forward, we fully expect that pet will continue to be a long-term growth category for us and a driver of our overall growth. As it relates to Q2... As I said, we expect it to be another just straight down the fairway quarter for us. We don't need, you know, meaningful acceleration, to use your words, to deliver that performance for the quarter. One of the things I've already highlighted is that it's the last quarter of real material disinflation, particularly in animal feed.

Kurt D. Barton: Gross margin drivers are very similar throughout the year, but yet as I mentioned in some of my remarks.

Kurt D. Barton: Has a bit of a difference in impact by quarter. So our biggest opportunity and biggest growth driver in gross margin will be throughout the year, our transportation freight and in transportation freight, it's both transitory or rate related where we are coming off of those higher cost, particularly in.

Kurt D. Barton: The ocean freight.

Kurt D. Barton: But also, the more sustainable is the structural where the new improvements in the supply chain, the distribution centers are driving down our stem miles. And even as we open up our 10th distribution center, we'll re optimize the lanes and reduce stem miles be able to optimize by finding the lowest, better rates. And that happened with our Navarro, Ohio, DC last year.

Kurt D. Barton: But also the more sustainable as the structural where the new improvements in the supply chain. The distribution centers are driving down our stem miles and even as we open up our 10th distribution center will re optimize the lanes.

Kurt D. Barton: And reduce stem miles and be able to optimize by finding the lowest better rates and that happened with our Navarro, Ohio DC last year. So.

Unknown Executive: So it'll be great to have that behind us, and our outlook takes that into consideration. And, if anything, I think there could be some modest upside as we look ahead. If you look at our quarterly comps last year, we had mid-single digit comps in the months of April and May, and then basically dropped off to a flat comp in the month of June.

Kurt D. Barton: So those will that'll be the biggest driver will start to lap up in q3 and heavily in q4, some of the rate-related benefits. So it'll begin to moderate on that aspect. But then on the other aspect of that is our cost management on our products. And there's really been a very disciplined strategic approach toward that that began last year. But really, we started to see the benefit modestly in Q4.

Kurt D. Barton: Those that'll be the biggest driver will start to lap.

Kurt D. Barton: In Q3 and heavily in Q4 some of the rate related benefits. So it'll begin to moderate on that aspect, but then on the other aspect of that is our cost management.

Kurt D. Barton: <unk> are our products and Theres really been a very disciplined strategic approach towards that began last year, but really we started to see the benefit modestly in Q4, and our merchants and our vendors really partnered together to drive down some of that cost and we're actually even creating some.

Scot Ciccarelli: Thank you. The next question comes from the line of Scott Ciccarelli with Truist. Your line is now open. Good morning, Scott Ciccarelli.

Unknown Executive: Hey, two things on that. So we've gotten so much better at sorting our garden centers, staffing our garden centers, and putting technology to use to drive our garden centers. I would encourage everyone on the call if you hadn't had a chance to visit one of our garden centers this spring to do so. We've got things this year, like our Plant of the Month, as I mentioned on the call, which are knockout roses right now. We're deploying our tractor vision software in all the garden center stores to optimize and improve customer service.

Kurt D. Barton: And our merchants and our vendors really partnered together to drive down some of that cost. And we're actually even creating some of that AUR deflation so that in our Q categories, our key drivers, we're able to offer the best value at an even better gross margin rate. And that's some of the pressure that I mentioned on AUR, because we feel very confident that we're bringing the best prices in our categories, regardless of competition.

Kurt D. Barton: Of that AUR deflation, so that in our Q categories are key drivers, we're able to offer the best value at an even better gross margin rate and that's some of what the pressure that I mentioned on AUR is that we feel very confident that we're bringing the best prices in our categories rigs.

Kurt D. Barton: <unk> competition, and Thats whats, helping to really gain the market share so for the back half of the year transportation.

Kurt D. Barton: And that's what's helping really gain market share. So for the back half of the year, transportation, cost management, and lower cost drivers will contribute. And then in the second half, the third item that will begin will be the supply chain benefits from the new distribution center. As transportation costs are the highest one, that's why we've said the second half may be a slightly lower gross margin growth in the first half as we start to cycle it. But it's really been the main three things that will benefit throughout the year but just beginning to show less of a benefit on the transportation side in the second.

Kurt D. Barton: Cost management and lower cost drivers.

Kurt D. Barton: We will contribute.

Kurt D. Barton: And then in the second half the third item that will begin will be the supply chain benefits from the new distribution center.

Unknown Executive: Our grower network, now that we're in year three, and many of these stores are now really lined up to produce tailored products for us. And we're seeing those results in our live good sales broadly across the country for us, even in areas where conditions haven't been ideal, we're seeing good results there, over 100,000 bulbs for Easter with real nice packaging around them, and blew those things out. It just gives us even more confidence that we can perform in those sorts of ways.

Kurt D. Barton: As the transportation costs are the highest one that's why we've said the second half maybe maybe a slightly lower gross margin growth in the first half as we start to cycle. It but it's really been the main three things that will benefit throughout the year, but just beginning to be less of a benefit on the transportation side in the second half.

Operator: Thank you. The next question comes from the line of Michael Lasser with UBS. Michael, please go ahead.

Speaker Change: Okay. Thanks for the detail.

Michael Lasser: Thank you.

Operator: Next question comes from the line of Michael Lasser with UBS Michael. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking the time to answer my questions.

Michael Lasser: Good morning. Thank you so much for taking my question, how can you give us a sense for how the pet food category has been performing as of late have you been surprised that there has been general softness in these trends and how has tractor supply.

Hal: How can you give us a sense for how the pet food category has been performing as of late? Have you been surprised that there's been general softness in these trends? And how has Tractor Supply's market share compared this quarter to the last couple quarters, especially as it seems like the company's been taking more aggressive steps, whether it's price investments or changes to the loyalty program. And then finally, there's been a lot of parsing of your words on quarter-to-date trends.

Hal: <unk> market share compared this quarter to the last couple of quarters, especially as it seems like the company has been taking more aggressive steps, whether it's price investments king to the loyalty program.

Unknown Executive: And so very pleased with our live goods and our garden center performance. In addition to the live goods piece, which was about half of the list that we're looking for, we also this year have gotten much better at what goes outside in our live garden centers versus what goes inside. You'll see all of our pasta assortment out there this year. And you'll see organic soils closely cross-merchandised besides our fruit and vegetables this year. You'll see soil and mulches lined up in our side lots to be able to facilitate the drive-through and load up there.

Hal: And then finally.

Hal: There's been a lot of parsing of of your words on quarter to date trends can you give us an indication of what's been happening quarter to date. So we can understand if you have to see an acceleration.

Michael Lasser: Can you give us an explicit example?

Hal: From here in order to get to that.

Hal: Hey Michael, I'll comment first on PET. First off, I'll just step back on PET and say it's a, you know, incredibly attractive market. It's one that's outperformed the broader retail market for decades. It's been a long-term source of growth for us. And, you know, I think that the slowdown in the, in that industry this year has been well documented, with that slowdown being driven really by two macro drivers.

Michael Lasser: Down the fairway commentary about the second quarter. Thank you very much.

Michael Lasser: Hey, Michael.

Hal: I'll comment first on pet.

Hal: First off I'll, just step back on patents HSA incredibly attractive market.

Hal: It's one that outperformed kind of the broader retail market for decades.

Hal: It's been a long term source of growth for us.

Hal: And I think that the.

Hal: The slowdown in the in that industry. This year has been well documented with that slowdown being driven really by two macro drivers. The first is moderation in pet ownership and the second is kind of stagnant pricing right. That's an industry. It's an industry that's.

Unknown Executive: So you know, we've really got those things primed this year. And then, as we look towards the back half, this year, you'll see us have much more expansive programs and things like Harvest, and that's really blowing that out this year with mums, pumpkins, a harvest product, a Halloween product, building a real kind of harvest destination in our garden centers. And then similarly, you'll see Winter Wonderland really brought to life this year, like we've not yet done for Christmas.

Hal: The first is moderation in PET ownership. And the second is kind of stagnant pricing, right? That's an industry that's historically been able to claw out two or three points of price increases every year, given the substantial price increases that have occurred in that category over the last two years. Basically, that category is flat in pricing for the year. So you've got some moderation in the category just for this year.

Hal: <unk> been able to the cloud two or three points of price increase every year given the substantial price increases that have occurred in that category over the last two years.

Hal: Basically that category is flat in pricing for the year.

Hal: So you've got some moderation in the category just for this year.

Hal: We have an incredibly distinct value proposition in that category. That our value proposition includes, I think importantly, the co-mingling of purchases with animal feed. 88% of our customers have animals or pets, and the vast majority have both.

Hal: We have an incredibly distinct value proposition in that category.

Hal: Our value proposition includes I think importantly, the co mingling of purchases with animal feed 88% of our customers have animals and Pat the vast majority have both so they appreciate being able to shop for both their animal and pet food at the same time.

Unknown Executive: So, really excited about our garden center performance in the current spring period, but also as we look forward to plans that we have. The team's doing an excellent job across all functions, really lining us up. As an example, for that Easter program, we shipped that through our DCs. It was the first time we ran plants through our DCs.

Hal: So they appreciate being able to shop for both their pets and pet food at the same time. We complement that key kind of portfolio advantage, obviously with customer service, with a pet-friendly environment now having over 900 pet washes, which, by the way, we see nearly 50,000 pets a week in our stores with pet washes, pet clinics, etc. And that's true just for animals in our in our store. So we have a very distinct value proposition. We have all the kind of publicly available brands, right, the national brands, but we also have two very leading private label brands. We cover the full range of assortments.

Hal: We complement that GE kind of portfolio advantage, obviously with customer service with a pet friendly environment now having over 900 pet watches which by the way we see nearly 50000 tests a week in our stores with pet watches pet clinics et cetera.

Hal: And that's true just animals in our in our store.

Hal: So we have a very distinct value proposition, we have all the pre all of them.

Unknown Executive: So a lot of learnings and a lot of continued execution there. Is there a way to quantify the complus, though, Hal? Yeah, so as we exit Q2, we'll have a much better sense of that. As you all will certainly recall, over the last year, we said our garden centers were not performing at our expectations because of the suboptimal spring conditions that we operated in last year, but that we had high expectations for this year and noted it as the year the garden centers would perform at those expectations.

Hal: Kind of publicly available brands right the national brand, but we also have two very leading private label brands.

Hal: We cover the range of Assortments.

Hal: So a credible value proposition there, one that's distinct and, I think, in particular, one that really holds up well in this market, given the various competitive dynamics that are going on. And as I said, but I want to reinforce, we are absolutely still taking share in that category. Albeit, it's a lower growth rate because of the moderation in the category, but we are absolutely still taking share in that category, and we're only doing things to reinvest and lean in further to continue to capture that share.

Hal: Incredible value proposition there one that's distinct and I think in particular, one that really holds up well in this market given the various competitive dynamics that are going on and as I said, but I want to reinforce we are absolutely still taking share in that category.

Hal: Albeit at a lower growth rate because of the moderation in the category, but we are absolutely still taking share in that category and we're only doing things to reinvest in lenient further to continue to capture that share and as we look forward.

Hal: And as we look forward, we fully expect that pet will continue to be a long-term growth category for us and a driver of our overall growth. As it relates to Q2... As I said, we expect it to be another just straight down the fairway quarter for us. We don't need, you know, meaningful acceleration, to use your words, to deliver that performance for the quarter. One of the things I've already highlighted is that it's the last quarter of real material disinflation, particularly in animal feed.

Hal: We fully expect that Pat will continue to be a long term growth category for us and a driver of our of our overall growth.

Hal: As it relates to Q2.

Hal: As I said, we expect it to be another just straight down the fairway quarter for us.

Hal: Don't need meaningful acceleration to use your words to deliver that performance for the quarter.

Hal: One of the things I've already highlighted the last quarter of real material. This inflation, particularly in animal feed so it'll be great to have that behind us and our outlook takes that into consideration.

Unknown Executive: But again, you know, six, seven weeks into spring with, you know, another six, seven, eight strong weeks to go. So more to come on that. But I think the short answer I would say is they're performing at our expectations kind of season so far.

Hal: So it'll be great to have that behind us, and our outlook takes that into consideration. And, if anything, I think there could be some modest upside as we look ahead. If you look at our quarterly comps last year, we had mid-single digit comps in the months of April and May, and then basically dropped off to a flat comp in the month of June.

Hal: If anything I think there could be some modest upside as we look ahead. If you look at our quarterly comp last year, we had mid single digit comps in the months of April and May and then basically dropped off to a flat comp in the month of June we can all recall June last year, when immediately hot and you had the <unk>.

Peter Sloan Benedict: Thank you. The next question comes from the line of Peter Benedict with Baird. Your line is now open.

Hal: In forest fires, our outlook does not count on that performance improvement, but it's an opportunity.

Operator: Thank you. The next question comes from the line of Scott Ciccarelli with Truist. Your line is now open. Good morning, Scott Ciccarelli.

Unknown Executive: Hey, good morning, guys. Thanks. Thanks for taking the question. Just curious, I believe the Ursuline stores are running the comp base in the second quarter. Just curious how we should think about that. Anything that those stores are doing from a year ago standpoint that we need to think about? And kind of related to that, or maybe a little unrelated, I was curious if Seth would talk a little more about some of the merchandising innovation and newness that's in the store and maybe what he's most excited about as we look out over the balance of the year. Thank you.

Scot Ciccarelli: Should should we get the right conditions for that for that month.

Scot Ciccarelli: Thank you very much.

Scot Ciccarelli: Thank you.

Scot Ciccarelli: The next question comes from the line of Scot Ciccarelli with Truest. Your line is now open.

Scot Ciccarelli: Hey, two things on that. So we've gotten so much better at sorting our garden centers, staffing our garden centers, and putting technology to use to drive our garden centers. I would encourage everyone on the call if you hadn't had a chance to visit one of our garden centers this spring to do so. We've got things this year, like our Plant of the Month, as I mentioned on the call, which are knockout roses right now. We're deploying our tractor vision software in all the garden center stores to optimize and improve customer service.

Scot Ciccarelli: Good morning, Scot Ciccarelli.

Scot Ciccarelli: I know, it's still a somewhat limited data set but you talked about seeing good results from your garden centers, where spring has broken I know you guys have previously provided a framework for what you expect to happen, but can you provide any kind of real time updates in terms of what youre seeing on actual results.

Speaker Change: Hey, Jay.

Scot Ciccarelli: <unk>.

Scot Ciccarelli: On that so we've gotten so much better at sourcing our garden Center staffing our garden centers, putting technology at play to drive our garden centers.

Scot Ciccarelli: I would encourage everyone on the call. If you haven't had a chance to go visit one of our garden centers. This spring to do so.

Kurt D. Barton: Yeah, Peter, this is Kurt. I'll start with the first part of your question, then hand it over to Seth to address the back end part of it. Orslan is running right in line with our expectations. The first quarter, for instance, is still lapping a lot of the liquidation in Orslan. And then in the second quarter, as we transition, you begin to get outside of a lot of that liquidation. So as we convert it into our point of sale, it's somewhat in line with the timeframe of having all the tractor supply inventory in this tractor supply system. So we begin to lap a more normal timeframe, particularly in the back half of the year.

Scot Ciccarelli: We've got things this year like our plan of a months as I mentioned on the call with it which are knockout Roses right now were deploying our tracker vision software and all the garden center stores to optimize and improve customer service.

Hal: Our grower network, now that we're in year three, and many of these stores are now really lined up to produce tailored products for us. And we're seeing those results in our live good sales broadly across the country for us, even in areas where conditions haven't been ideal, we're seeing good results there, over 100,000 bulbs for Easter with real nice packaging around them, and blew those things out. It just gives us even more confidence that we can perform in those sorts of ways.

Scot Ciccarelli: Our grower network now that we're in year three and many of these stores are now really lined up to produce tailored product for us and we're seeing those results in our in our live goods sales broadly across our country for us even in areas where.

Hal: <unk> had other than ideal we're seeing good results. There. The team is doing things like bringing for Easter. This year for the first time, we brought in kind of in and out we bought at.

Hal: Over 100000 bulbs for Easter with the.

Hal: Real nice packaging around and in Blue those things out and it just gives us even more confidence that we can execute and those sorts of ways and so very pleased with our live goods in our Garden Center performance. In addition to the live goods piece, which was about half of the lift that we're looking for we also this year have gotten much better at what.

Hal: And so very pleased with our live goods and our garden center performance. In addition to the live goods piece, which was about half of the list that we're looking for, we also this year have gotten much better at what goes outside in our live garden centers versus what goes inside. You'll see all of our pasta assortment out there this year. And you'll see organic soils closely cross-merchandised besides our fruit and vegetables this year. You'll see soil and mulches lined up in our side lots to be able to facilitate the drive-through and load up there.

Hal: Outside in my Garden centers versus what goes inside you'll see all of our parts assortment out there this year youll see organic soils closely.

Unknown Executive: The Orslan stores are running in line with a lot of our Midwest performance. We're pleased with Orslan. Again, as we said, when we made the acquisition, it's such a great value proposition opportunity for us. And it's playing out well in that some of the things that we've done, we've got 81 stores that were sized very differently, we've been able to right size and put many of the stores right in line with a tractor supply 15, five square foot, we've got some larger ones that allow us to do some tests in those but for the bulk, you know, over the period of the last 12 months, we've been go in rebrand, put the fusion in there and make sure that it fits the best tractor supply, streamlined, efficient shopping experience there.

Hal: Cross merchandise, besides our fruit and vegetables. This year youll see soil and mulch is lined up in our side lots to be able to facilitate drive through a load up there. So we really got those things Prime this year and then as we look towards the back half this year Youll see us have much more expansive programs.

Hal: So you know, we've really got those things primed this year. And then, as we look towards the back half, this year, you'll see us have much more expansive programs and things like Harvest, and that's really blowing that out this year with mums, pumpkins, a harvest product, a Halloween product, building a real kind of harvest destination in our garden centers. And then similarly, you'll see Winter Wonderland really brought to life this year, like we've not yet done for Christmas.

Hal: Things like harvest and Thats really blowing that out this year with moms pumpkin harvest product Halloween product building.

Hal: Building, a real kind of harvest destination in our in our garden centers and then similarly, Youll see winter Wonderland really brought to life. This year like we have not yet done for Christmas. So really excited about our garden Center performance in the current spring period, but also as we look forward. The plans that we have the team is doing an excellent job.

Hal: So, really excited about our garden center performance in the current spring period, but also as we look forward to plans that we have. The team's doing an excellent job across all functions, really lining us up. As an example, for that Easter program, we shipped that through our DCs. It was the first time we ran plants through our DCs.

Hal: Across all functions really lining us up like as example on those.

Hal: <unk>.

Hal: That Easter program, we ship that through our Dcs that was the first time, we ran plants through our DC to a lot of learnings and a lot of extra continued execution there.

Hal: So a lot of learnings and a lot of continued execution there. Is there a way to quantify the complus, though, Hal? Yeah, so as we exit Q2, we'll have a much better sense of that. As you all will certainly recall, over the last year, we said our garden centers were not performing at our expectations because of the suboptimal spring conditions that we operated in last year, but that we had high expectations for this year and noted it as the year the garden centers would perform at those expectations.

Hal: Is there a way to quantify the comp lift so hal.

Hal: Yes, so as we exit Q2, we will have a much better sense of that at.

Unknown Executive: The team is engaging and learning a lot about the tractor, you know, the optimized tractor process. So across the board, very pleased with that. And Seth can talk a little bit about some of the other aspects on the merchandising side with Orslan.

Hal: As you all will certainly recall our last over the last year, we set our garden centers were not performing at our expectations because of the sub optimal spring conditions that we operated in last year.

Hal: But that we had high expectations for this year noted it's the year of the Garden Center, we're performing at those expectations, but again six seven weeks into spring with.

Hal: But again, you know, six, seven weeks into spring with, you know, another six, seven, eight strong weeks to go. So more to come on that. But I think the short answer I would say is they're performing at our expectations kind of season so far.

Unknown Executive: Yeah, hey, Kurt. Hey, thanks, Peter. Thanks, Peter, for the question.

Hal: Another 678 strong weeks to go so more to come on that but I think the short answer I would say is they are performing at our expectations.

Unknown Executive: So I just say, if we look out to the back half, I'd speak a little bit more broadly, even outside of Orsland, and even go back to kind of last quarter's call and how we really talked about this being the most innovation that we've seen in our stores since the start of the pandemic with all the reset activity, newness, partnership with our supplier base, their supply chains are kind of back, kind of back to A couple things that I would highlight that we're really excited about. First, I would just say, you know, you know, we talked about strength and the big ticket right now.

Hal: Kind of season to date.

Operator: Thank you. The next question comes from the line of Peter Benedict with Baird. Your line is now open.

Speaker Change: Thank you very much.

Operator: Yes.

Peter Sloan Benedict: Thank you.

Operator: Question comes from the line of Peter Benedict with Baird.

Peter Sloan Benedict: Your line is now open.

Peter Sloan Benedict: Hey, good morning, guys. Thanks. Thanks for taking the question. Just curious, I believe the Ursuline stores are running the comp base in the second quarter. Just curious how we should think about that. Anything that those stores are doing from a year ago standpoint that we need to think about? And kind of related to that, or maybe a little unrelated, I was curious if Seth would talk a little more about some of the merchandising innovation and newness that's in the store and maybe what he's most excited about as we look out over the balance of the year. Thank you.

Speaker Change: Hi, Good morning, guys. Thanks, Thanks for taking the question.

Peter Sloan Benedict: Just curious I believe the <unk> stores are in the comp base in the second quarter. Just curious how we should think about that any anything that those stores are cycling from a year ago standpoint that we need to that we need to think about and and kind of related to that or maybe a little unrelated I was curious if Seth would talk a little more about.

Peter Sloan Benedict: Some of the merchandising innovation and newness in the store.

Peter Sloan Benedict: What he's most excited about.

Peter Sloan Benedict: As we look out over the balance of the year. Thank you.

Peter Sloan Benedict: Okay.

Kurt D. Barton: Yes, Peter this is Kurt I'll start with your first part of your question and then hand, it over to Seth to address the back end part of it or someone is running right in line with our expectation.

Kurt D. Barton: First quarter for instance is still lapping a lot of the liquidation in <unk>.

Unknown Executive: And Hal talked a minute ago about Tractor and Riders; I will tell you that the exclusive lineup that we have, like the Toro Havoc, is performing very well; we see that innovation really responding, again, a product built for our life out here. You know, some things that we don't speak much about, we think about the garden itself, like we just launched a comprehensive assortment of groundwork, soils, and our exclusive brands, which have been very strong.

Kurt D. Barton: And then in second quarter as we transition you begin to get outside of a lot of that liquidation. So as we converted into our point of sale. It's somewhat in line with the timeframe of having all of the tractor supply.

Kurt D. Barton: Inventory in this tractor supply system. So we begin to.

Kurt D. Barton: Lap a more normal timeframe, particularly in the back half of the year.

Kurt D. Barton: The Orslan stores are running in line with a lot of our Midwest performance. We're pleased with Orslan. Again, as we said, when we made the acquisition, it's such a great value proposition opportunity for us. And it's playing out well in that some of the things that we've done, we've got 81 stores that were sized very differently, we've been able to right size and put many of the stores right in line with a tractor supply 15, five square foot, we've got some larger ones that allow us to do some tests in those but for the bulk, you know, over the period of the last 12 months, we've been go in rebrand, put the fusion in there and make sure that it fits the best tractor supply, streamlined, efficient shopping experience there.

Speaker Change: The <unk> stores are running in line with a lot of our Midwest performance. We're pleased with <unk> again, as we said when we made the acquisition such a great value proposition opportunity for us and it's playing out.

Kurt D. Barton: And that some of the things that we've done.

Kurt D. Barton: We've got 81 stores that we're sized very differently, we've been able to right size and put many of the stores right in line with the tractor supply 15, five square foot. We've got some larger ones that allow us to do some test in those but for the bulk over the period of the last 12 months.

Unknown Executive: We just launched Weber, and we're very pleased with that start and how that's going. And then, if you go to the back half, I would just say, you know, we mentioned in the prepared remarks some of the newness coming in pet supplies, but even things like Econoclassics, where we'll be the first brick and mortar here in the US to launch Econoclassics. Real Mesa, which has been a strong new digital brand, will be the first brick and mortar launching pad for Real Mesa in pet food, but it's really targeted to kind of our consumer and that approach.

Kurt D. Barton: But if I win rebrand put the fusion in there and make sure that it fits the best tractor supply a streamlined efficient shopping experience. There. The team is engaging and learning a lot of the tractor optimized tractor process. So.

Kurt D. Barton: The team is engaging and learning a lot about the tractor, you know, the optimized tractor process. So across the board, very pleased with that. And Seth can talk a little bit about some of the other aspects on the merchandising side with Orslan.

Kurt D. Barton: The board very pleased with that and Seth can be able to talk a little bit about some of the other aspects on the merchandising side with ocean.

Seth: Yeah, hey, Kurt. Hey, thanks, Peter. Thanks, Peter, for the question.

Seth: Yes, Kurt.

Seth: Hey, Thank Peter for Thanks, Peter for the questions. So I would just say if we look out to the back half of it speak a little bit more broadly even outside of <unk> and even go back to <unk>.

Seth: So I just say, if we look out to the back half, I'd speak a little bit more broadly, even outside of Orsland, and even go back to kind of last quarter's call and how we really talked about this being the most innovation that we've seen in our stores since the start of the pandemic with all the reset activity, newness, partnership with our supplier base, their supply chains are kind of back, kind of back to A couple things that I would highlight that we're really excited about. First, I would just say, you know, you know, we talked about strength and the big ticket right now.

Seth: Last quarter's call and how really talked about this being the most innovation that we've seen in our stores since the start of the pandemic with with all the recent activity New news partnership with our supplier base their supply chains are kind of.

Seth: Back kind of back to normal normal levels, a couple of things that I would highlight that that we're really excited about first I would just say we talked about the strength in big ticket right now and how talked a minute ago about tractor and writers I will tell you that exclusive lineup that we have like in the Toro havoc is performing very well when you see that innovation.

Seth: And Hal talked a minute ago about Tractor and Riders; I will tell you that the exclusive lineup that we have, like the Toro Havoc, is performing very well; we see that innovation really responding, again, a product built for our life out here. You know, some things that we don't speak much about, we think about the garden itself, like we just launched a comprehensive assortment of groundwork, soils, and our exclusive brands, which have been very strong.

Unknown Executive: And then just the garden centers themselves and all the new activities that we have going throughout the course of the year, and just lean into those activities and then and then REC. We think about Orson Farm and Home, like some of the learnings that we're getting out of Outdoor REC; you'll see us launch new programs there midyear, getting really towards that kind of hunting customer. And we believe that those will be some categories that we can take across to the tractor supply stores from a regional perspective and some localization perspective to really drive some business. So again, just reiterate this kind of from 2024, a lot of new innovation, a lot of newness, and some of the most newness we've had over the past few.

Seth: Responding again, a product built for our life out here.

Seth: Things that we.

Seth: We don't speak much about we think about garden itself like we just launched a comprehensive assortment of groundwork soils in our exclusive brands that that had been very strong. We just launch Webber very pleased with that start and how thats going and then if you go to the back half I would just say we mentioned in the prepared remarks.

Seth: We just launched Weber, and we're very pleased with that start and how that's going. And then, if you go to the back half, I would just say, you know, we mentioned in the prepared remarks some of the newness coming in pet supplies, but even things like Econoclassics, where we'll be the first brick and mortar here in the US to launch Econoclassics. Real Mesa, which has been a strong new digital brand, will be the first brick and mortar launching pad for Real Mesa in pet food, but it's really targeted to kind of our consumer and that approach.

Seth: The newness coming in pet.

Seth: But even things like iconic classic so it will be the first brick and mortar here in the U S launching iconic classics, Rio Mesa, which has been a strong new digital brand will be the first brick and mortar launching real Mesa.

Seth: In pet food with it's really targeted to kind of our consumer and that approach and then just the garden centers themselves and all the new activity that we have gone throughout the course of the year and just lean into those activities and then Rick when you think about <unk> farm and home like some of the learnings that we're getting out of outdoor rec Youll see us launch new programs there mid year.

Seth: And then just the garden centers themselves and all the new activities that we have going throughout the course of the year, and just lean into those activities and then and then REC. We think about Orson Farm and Home, like some of the learnings that we're getting out of Outdoor REC; you'll see us launch new programs there midyear, getting really towards that kind of hunting customer. And we believe that those will be some categories that we can take across to the tractor supply stores from a regional perspective and some localization perspective to really drive some business. So again, just reiterate this kind of from 2024, a lot of new innovation, a lot of newness, and some of the most newness we've had over the past few.

Seth: Getting really towards that kind of hunting customer and we believe that those will be some categories that we can take across to the tractor supply stores from a regional perspective, and some localization perspective to really drive some business. So again just reiterate this kind of from 2020 for a lot of new innovation a lot of newness in some of those newness we've had over.

Seth: The past few years.

Speaker Change: Okay. Thank you.

Speaker Change: One more question just tenant that we make sure we end at the top of the hour.

Seth: Great. Thank you. Our final question comes from the line of Peter Keith with Piper Sandler Peter. Please go ahead.

Speaker Change: Thank you everyone for squeezing me in nice results by the way so.

Alyssa: So Alyssa, thank you. We've got maybe one more question just so that we can be sure we end at the top of the board hour. Great, thank you. Our final question comes from the line of Peter Keith with Piper Sandler. Peter, please go ahead.

Seth: Wanted to just ask around the broader economy housing remains quite sluggish.

Operator: So Alyssa, thank you. We've got maybe one more question just so that we can be sure we end at the top of the board hour. Great, thank you. Our final question comes from the line of Peter Keith with Piper Sandler. Peter, please go ahead.

Peter Jacob Keith: How do you see the economic backdrop in general.

Peter Jacob Keith: For the rural economies, where you guys operate versus maybe the broader U S economy.

Peter Jacob Keith: We are in housing into that discussion would be helpful. As well I guess as rural outperforming or do you think performance performing more in line with the broader U S.

Peter Jacob Keith: Hey Peter, thanks for the question. And start by the highest level, rural America is very, I think rural America is doing very well right now. We see our highest performance across our store base in rural America right now. If you look at the national statistics, you see net urban migration out positive, you know, kind of more migration coming out of cities than in. And you see that migration going to rural America. I think there are a variety of drivers for that.

Peter Jacob Keith: Hey, Peter Thanks for the question.

Peter Jacob Keith: Start buying at the highest level rural is very rural America is doing very well right now.

Peter Jacob Keith: We see our highest performance across our store base in Rural America right now.

Peter Jacob Keith: If you look at the National Statistics, you see net urban migration out.

Peter Jacob Keith: More migration can be out of cities and in.

Peter Jacob Keith: And you see that migration going to rural America, I think there is a variety of drivers for that but that trend benefits.

Hal: But that trend benefits us. You know, stepping back, we, as we acknowledged at our earnings call last quarter, we acknowledge 2024 being a non-algo year for us, and that we look forward to getting back to our long-term algorithm as economic conditions become more neutral for us. Most importantly, the two economic conditions that were most impacting us were the expectation that Q2 would be our bottom on that.

Unknown Executive: But that trend benefits us. You know, stepping back, we, as we acknowledged at our earnings call last quarter, we acknowledge 2024 being a non-algo year for us, and that we look forward to getting back to our long-term algorithm as economic conditions become more neutral for us. Most importantly, the two economic conditions that were most impacting us were the expectation that Q2 would be our bottom on that.

Hal: Stepping back as we acknowledged at our on our earnings call last quarter, we acknowledged in our 2024 being non algo year for us and that we've looked forward to getting back to our long term algorithm.

Hal: <unk> kind of economic conditions became more neutral for us.

Hal: Most importantly, the two economic conditions that were most impacted us was the transition from goods to services in the context of PCE spin and the notion and kind of disinflation. Those two trends are playing out as we expected at the beginning of the year as I commented, we're 100 basis points away from goods to services being at it.

Unknown Executive: And so I feel really good about that as well, and that that's nearly behind us. And so the two major conditions that are affecting our business, you can see light at the end of the tunnel. As it relates to housing more broadly, as we call it out in last quarter, we really don't see housing as a primary driver of our business. And I know there's been some conversation around, you know, hiring for longer on rates and the impact that might have on the housing market, and then any delay and how 2025 results may occur.

Hal: And so I feel really good about that as well, and that that's nearly behind us. And so the two major conditions that are affecting our business, you can see light at the end of the tunnel. As it relates to housing more broadly, as we call it out in last quarter, we really don't see housing as a primary driver of our business. And I know there's been some conversation around, you know, hiring for longer on rates and the impact that might have on the housing market, and then any delay and how 2025 results may occur.

Hal: Pre COVID-19 levels, we've already traveled almost 400 basis point on that journey. So.

Hal: Unclear, where it'll obviously stopped but you would say where the vast majority of the way along on that journey disinflation, we've called out that Q2 will be our bottom on that and so I feel really good about that as well and that that's nearby near behind us and so the two major conditions that are affecting our business you can see light at the end of the tunnel as it relates to.

Hal: The housing more broadly as we called out last quarter, we really don't see housing as a primary driver of our business and I know theres been some conversation around higher for longer on rates and the impact that might have on the housing market and then any delay in how 2025 results may occur obviously.

Hal: And obviously, talking about 2025 results right now is very premature for us, but we don't see the hire for longer kind of notion impacting our business anywhere near to the degree that it impacts those that are very housing sensitive.

Unknown Executive: And obviously, talking about 2025 results right now is very premature for us, but we don't see the hire for longer kind of notion impacting our business anywhere near to the degree that it impacts those that are very housing sensitive.

Hal: Really talking about 2025 results right now, it's very premature for us, but we don't see the higher for a longer kind of notion impacting our business anywhere near to the degree that it impacts those that are very housing sensitive.

Unknown Executive: All right, everyone, that will wrap up our call today. I'm around, we're available for calls, and if you need anything, please don't hesitate to reach out. And we'll look forward to talking to you at the end of our second quarter. Thank you.

Operator: All right, everyone, that will wrap up our call today. I'm around, we're available for calls, and if you need anything, please don't hesitate to reach out. And we'll look forward to talking to you at the end of our second quarter. Thank you.

Speaker Change: Thank you Peter for the question.

Speaker Change: Thank you.

Speaker Change: Alright, everyone that that will wrap up our call today.

Operator: And we're available for calls and if you need anything please don't hesitate to reach out and we'll look forward to talking to you at the end of our second quarter. Thank you.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect your lines.

Q1 2024 Tractor Supply Co Earnings Call

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