Q2 2024 Tractor Supply Co Earnings Call

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.

Unknown Executive: In actual results, they may differ materially 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 and Exchange Commission. 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.

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 and Exchange Commission. Information contained in this call is accurate only as of today 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.

Unknown Executive: Given the number of people in the Q&A, we would like to ask that you please limit yourself to one question and please get back in the queue if you have any additional questions. I appreciate your cooperation. We will be available after the call for follow up. Now, it's my pleasure to turn it all over.

Hal: Given the number of people in the Q&A, we would like to ask that you please limit yourself to one question and please get back in the queue if you have any additional questions. I appreciate your cooperation. We will be available after the call for follow-up. Now it's my pleasure to turn the call over to Hal.

Unknown Executive: Thank you, Mary Wynn, and good morning, everyone, and thanks for joining us. As always, I'd like to begin by expressing my thanks and appreciation to my fellow 50,000 plus tractor supply team members for their commitment to each other and our company. And for their dedication to serving life out here.

Hal: Thank you, Mary Wynn, and good morning, everyone, and thanks for joining us. As always, I'd like to begin by expressing my thanks and appreciation to my fellow 50,000 plus tractor supply team members for their commitment to each other and our customers.

Unknown Executive: And this quarter, I'd like to give a special shout out to our technology team, who did a tremendous job recovering our business from the CrowdStrike outage without a material impact. So let's start with the operating environment for our business before I discuss our second quarter results. Overall, the macroeconomic indicators that we all follow continue to be, The Consumer in the Second. While in line with our expectations at the beginning of the year, I would characterize the health of consumers as modestly more cautious than last quarter, but certainly still within the range of our forecast at the beginning of the year. Consumer spending on goods appears to be fatigued across income cohorts.

Speaker Change: and for their dedication to serving life out here. And this quarter, I'd like to give a special shout out to our technology team.

who did a tremendous job recovering our business from the CrowdStrike outage without a material impact.

Unknown Executive: While we've seen improvement in the consumer inflation rate, unemployment has ticked upwards to the highest rate since late 2021. Additionally, consumer sentiment and consumer confidence are both subdued, and the consumer spending landscape continues to be rather choppy. Additionally, in the recent personal consumption expenditures report, we saw another soft month for good. While in line with our expectations, the ongoing shift of spending from goods to services continues to be a headwind for our business. The mix of goods as a share of PCE is still about 90 basis points above the pre-COVID average.

So let's start with the operating environment for our business before I discuss our second quarter results.

Speaker Change: Overall, the macroeconomic indicators that we all follow continue to be rather mixed.

Speaker Change: for the consumer in the second quarter. While in line with our expectations at the beginning of the year, I would characterize the health of the consumers modestly more cautious than last quarter, but certainly still within the range of our forecast at the beginning of the year.

Speaker Change: Consumer spending on goods appears to be fatigued across income cohorts. While we've seen improvements in the consumer inflation rate, unemployment has ticked upwards to the highest rate since late 2021.

Speaker Change: Additionally, consumer sentiment and consumer confidence are both subdued, and the consumer spending landscape continues to be rather choppy.

Speaker Change: Additionally, in the recent personal consumption expenditures report, we saw another soft month for goods. While in line with our expectations, the ongoing shift in spending from goods to services continues to be a headwind for our business.

Speaker Change: The mix of goods as a share of PCE is still about 90 basis points above the pre-Tesla average.

Unknown Executive: As it relates to retail sales for the second quarter, U.S. retail was flat to modestly positive with growth in non-durable categories, which was in line with our performance as a company. And in the Farm and Ranch channel, we estimate that that channel experienced a mid-single-digit decline, which is indicative of our continued share gains in the channel. With that said, our business for the first half of 2024 has performed right down the middle of our guidance.

Speaker Change: As it relates to retail sales for the second quarter, U.S. retail was flat to modestly positive with growth in non-durable categories, which was in line with our performance as a company.

Speaker Change: And in the Farm and Ranch Channel, we estimate that that channel experienced mid-single-digit decline, which is indicative of our continued share gains in the channel.

Speaker Change: With that said, our business for the first half of 2024 has performed right down the middle of our guidance.

Unknown Executive: For instance, half of the months of the year have had positive comp sales, and our year-to-date comp sales are up about 0.2%. And overall, our profitability is also right in line with our expectations, and the team has continued to manage our business exceptionally well. As we look at our business in halves and reflect back on the spring season, as we always talk about, weather can certainly shift sales between quarters. Given this year, the early Easter and then the couple of weeks of warm weather that we had there in late March, we estimate a potential pull-forward of $15 to $20 million in sales from the first quarter into the second quarter.

Speaker Change: For instance, half of the month of the year have had positive comp sales, and our year-to-date comp sales are up about 0.2%.

Speaker Change: And overall, our profitability is also right in line with our expectations, and the team has continued to manage our business exceptionally well.

Speaker Change: And given this year, the early Easter and then the couple of weeks of warm weather that we had there in late March, we estimate a potential pull forward of $15 to $20 million in sales from the first quarter, from the second quarter into the first quarter.

Unknown Executive: And so if you think about it, this kind of balances out our performance across the two quarters. And additionally, we thought we'd have some potential for an elongated spring, particularly in late June, but that did not materialize.

Speaker Change: And so if you think about it, this kind of balances out our performance across the two quarters. And additionally, we thought we'd have some potential for an elongated spring, particularly in late June , but that did not materialize.

Unknown Executive: On the customer front, of note, we did see our higher income customers moderate just modestly, as spending for vacation travel has surged for this group. And conversely, though, our lower income customer cohort moderated up sequentially from the first quarter, and NetNet our overall customer base so continues to grow and be very strong. Now, let's shift to some performance highlights for the quarter. We grew net sales by 1.5% with a comparable store sales decline of 0.5%. The Diluted EPS was $3.93.

Speaker Change: On the customer front, of note, we did see our higher-income customers moderate just modestly, as spending for vacation travel has surged for this group. And conversely, though, our lower-income customer cohort moderated up sequentially from the first quarter.

Speaker Change: and NetNet, our overall customer base, so it continues to grow and be very strong.

Speaker Change: Now let's shift to some performance highlights for the quarter.

Speaker Change: We grew net sales by 1.5% with a comparable store sales decline of 0.5%.

Unknown Executive: Our comparable store sales performance was driven by a modest transaction decline of 0.6%, with our average ticket coming in at 0.1% positive. As we shared on our last call, we anticipated that the quarter would be in line with our full year guidance. As we move through the quarter, many of the same trends from the first quarter continue to play out. Importantly, we continue to see healthy customer engagement. The investments we've made in Neighborhood Club, our world-class loyalty program, are our competitive advantage for us, as we continue to see solid growth in both customer counts and customer retention. If you recall, in the first quarter, we significantly enhanced our Neighbor Club offer. The changes were implemented with the goal to have members receive rewards faster and lower the spending required for tier qualifications.

Speaker Change: Diluted EPS was $3.93.

Speaker Change: As we shared on our last call, we anticipated that the quarter would be in line with our full year guidance. As we moved through the quarter, many of the same trends from the first quarter continued to play out.

Speaker Change: Importantly, we continue to see healthy customer engagement. The investments we've made in Neighbors Club, our world-class loyalty program, are a competitive advantage for us as we continue to see solid growth in both customer counts and customer retention.

Speaker Change: If you recall, in the first quarter, we significantly enhanced our neighbor club offerings.

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

Unknown Executive: This quarter, as part of our ongoing and continued improvements in the program, we launched Hometown Hero, which recognizes military service members, veterans, and first responders. This program brings together under one banner our longstanding support for the selfless men and women who serve America. A highlight of the program is that our hometown heroes receive the highest level of status and benefits in our Neighbors Club Loyalty Program.

Speaker Change: This quarter, as part of our ongoing and continued improvements in the program, we launched Hometown Hero, which recognizes military service members, veterans, and first responders.

Speaker Change: And this program brings together under one banner our longstanding support for the selfless men and women who serve America.

Speaker Change: A highlight of the program is that our hometown heroes receive the highest level status and benefits of our Neighbors Club Loyalty Program. And while still very early, we're pleased with their enrollment. Of note, about 20% of our hometown heroes to date are new to Neighbors Club, and about 15% are new to Tractor Supply.

Unknown Executive: And while still very early, we're pleased with the enrollment. Of note, about 20% of our hometown heroes to date are new to Neighbors Club, and about 15% are new to Tractor Supply. Once again, our Neighborhood Club comp sales outpaced our overall sales growth. At the same time, we also reached an all-time high in our sales penetration and record membership of more than 36 million members. And that means we've added nearly 5 million new members over the last 12 months.

Speaker Change: Once again, our Neighborhood Club comp sales outpaced our overall sales growth. At the same time, we also reached an all-time high on our sales penetration and record membership of more than 36 million members.

Speaker Change: And that means we've added nearly 5 million members over the last 12 months.

Unknown Executive: And our Neighbors Club retention rate remains remarkably consistent, as our best customers continue to shop with us more frequently and remain extremely loyal. At the same time, though, we are seeing slight disengagement among our non-core customers. It's down just modestly.

Speaker Change: And our Neighbors Club retention rate remains remarkably consistent, as our best customers continue to shop us more frequently and remain extremely loyal.

Speaker Change: At the same time, though, we are seeing a slight disengagement of our non-core customers. It's down just modestly. We believe this is attributable to the overall macro headwinds that I mentioned in my opening remarks.

Unknown Executive: We believe this is attributable to the overall macro headwinds that I mentioned in my opening remarks. And given that this customer is not as highly engaged in the kind of life-out-of-your-lifestyle, our belief is that this customer cohort is a little floggish or fatigued given the duration of inflation and the higher cost of living since 2022 and is just being judicious in their spend. And as we look forward, though, our Neighborhood Club is laser focused on this opportunity as we improve our personalization capabilities, particularly with our customer data platform that we'll be implementing later in the year.

Speaker Change: And given that this customer is not as highly engaged in the kind of life out of your lifestyle, our belief is that this customer cohort is a little sluggish or fatigued given the duration of inflation and higher cost of living since 2022 and just being judicious in their spend.

Speaker Change: and as we look forward though our neighbors club is laser focused on this opportunity as we improve our personalization capabilities particularly with our customer data platform that we'll be implementing later in the year.

Unknown Executive: Our customer service scores continue to run at all-time highs, with improvements every week for more than two and a half years. Customer service is a consistent differentiator for tractor supply, and our commitment to excellence in customer service and the investments we made in training tools and technology are really paying off with our customers. These efforts have also received national recognition by various third parties, including USA Today and Forbes.

Speaker Change: Our customer service scores continue to run at all-time highs, with improvements every week for more than two and a half years.

Speaker Change: Customer Service is a consistent differentiator for Tractor Supply and our commitment to excellence

Speaker Change: and Customer Service, and the investments we made in training, tools, and technology are really paying off with our customer. And these efforts have also, though, received national recognition by various third parties, including USA Today and Forbes.

Unknown Executive: Also, it's worth noting that the team received a CIO 100 award recently for our groundbreaking work to utilize AI to enhance the customer experience in our stores. Great job by everyone around our customer. Moving to category performance, a highlight was the strong positive comps and big ticket items for the second quarter, notably in categories like riding lawnmowers, recreational vehicles, and sporting goods. And the commonality in these categories is strong innovation and newness, and our customers really responded. Additionally, we continue to be pleased with our live kids performance, which comes well above the chain average, despite the hot weather that impacted many of our other seasonal categories.

Speaker Change: Also, it's worth noting that the team received a CIO 100 award recently for our groundbreaking work to utilize AI to enhance the customer experience in our stores. Just great job by everyone around on our customer service.

Speaker Change: Moving to category performance, a highlight was the strong positive comps and big-ticket items for the second quarter, notably in categories like riding lawnmowers, recreational vehicles, and sporting goods.

Speaker Change: And the commonality in these categories is strong innovation and newness, and our customers really responded to this.

Speaker Change: Additionally, we continue to be pleased with our live goods performance, which comes well above the chain average, despite the hot weather that impacted many of our other seasonal categories.

Unknown Executive: As we shared last quarter, we anticipated our consumable, usable, and edible products would run modestly below the chain average in the second quarter as deflation weighed on our average unit retail. We once again grew units in these categories, and we believe we're continuing to gain market share. The needs-based, demand-driven nature of our product categories of these product categories continues to drive unit velocity. In this segment of our video, clicking down into our Q category, pet food, recent industry data suggests that the overall category was flat to negative in Q.

Speaker Change: As we shared last quarter, we anticipated our consumable, usable, and edible products would run modestly below the chain average in the second quarter as deflation weighed on our average unit retail.

Speaker Change: We once again grew units in these categories and we believe we're continuing to gain market share. The needs-based, demand-driven nature of our product categories, of these product categories, continues to drive unit velocity in this segment of our business.

Speaker Change: Clicking down into our Q category.

Speaker Change: In pet food, recent industry data suggests that the overall category was flat to negative in Q2. As it relates to our business, we continue to take share, but we have seen growth continue to moderate as the category disemploys and pet ownership trends remain soft.

Unknown Executive: As it relates to our business, we continue to take share, but we have seen growth continue to moderate as the category is increasingly unemployed and pet ownership trends remain soft. Our customer shopping trip in this category is highly differentiated. We offer a broad assortment from value to super premium across national and exclusive brands in a pet-friendly environment, which now includes more than 900 pet wash locations.

Speaker Change: Our customer shopping trip in this category is highly differentiated.

Speaker Change: We offer a broad assortment, from value to super premium, across national and exclusive brands, in a pet-friendly environment, which now includes more than 900 pet wash locations.

Unknown Executive: Through the second quarter, we've had strong double-digit growth in our pet wash service. Additionally, the value of our mobile pet vet clinic is another great gateway for pet customers to find tractor supply. Year-to-date, we also have seen mid-double-digit growth rates in visits to our clinics offered across more than 1,600 stores. Two of these, in combination with the rest of our services and product benefits, create a great opportunity to reinforce our value proposition. Additionally, pet ownership benefits from the one-stop-shop convenience of our lifestyle retail format, in particular from the cross-purchasing synergy with animal feed.

Speaker Change: Through the second quarter, we've had strong double-digit growth in our pet wash service.

Speaker Change: Additionally, the value of our mobile pet vet clinics is another great gateway for pet customers to find tractor supply. Year-to-date, we also have seen mid-double-digit growth rates in visits to our clinics offered across more than 1,600 stores.

Speaker Change: The two of these in combination with the rest of our services and product benefits creates a great opportunity to reinforce our value proposition.

Speaker Change: Additionally, pet ownerships benefit from the one-stop-shop convenience of our lifestyle retail format, in particular from the cross-purchasing synergy with animal feed. As we've mentioned, the vast majority of our customers have both an animal and a pet.

Unknown Executive: As we've mentioned, the vast majority of our customers have both an animal and a pet. In Equine Livestock and Poultry Feed, we continue to gain market share. While our average unit retails were down mid to high single digits in this category in Q2, conversely, we had strong mid-single-digit unit growth across all... As large animal counts continue to pressure, we are certainly a share winner in the large animal categories with our strong unit growth, and in poultry, our annual spring chick days was another positive highlight in the quarter. The event builds on our reputation as the destination for backyard.

Speaker Change: In equine livestock and poultry feed, we continue to gain market share. While our average unit retails were down mid to high single digits in this category in Q2, conversely, we had strong mid-single digit unit growth across all species.

Speaker Change: As large animal counts continue to pressure, we are certainly a share winner in the large animal categories with our strong, unique growth. And in poultry, our annual spring chick days was another positive highlight in the quarter. The event builds on our reputation as a destination for backyard enthusiasts.

Unknown Executive: From economy to organic feed, as well as our assortment of premium breeds, our lineup continues to resonate with our customers. Much like the first quarter, categories that performed below our comp fields were in our discretionary businesses, such as clothing, footwear, and decor, and also in the hard lines of the business, such as things like ag fencing and pet kennels. Our digital sales continue the trend from last quarter of double-digit growth.

Speaker Change: From economy to organic feed, as well as our assortment of premium breeds, our lineup continues to resonate with our customers.

Speaker Change: Much like the first quarter, categories that perform below our comp fields were in our discretionary businesses, such as clothing, footwear, and decor, and also in the hard lines products of the business, such as things like ag fencing and pet kennels.

Unknown Executive: Our digital sales continue to trend from last quarter of double-digit growth. We'd accelerate our digital capabilities, and that's feeling engaged in our customers, and also improving our conversion rate.

Speaker Change: Our digital sales continue the trend from last quarter of double-digit growth. We've accelerated our digital capabilities and that's fueling engagement of our customers and also improving our conversion rate.

Unknown Executive: We've accelerated our digital capabilities, and that's fueling the engagement of our customers and also improving our conversion. Our 10th and largest distribution center in Maumelle, Arkansas, opened during the second quarter. The start-up of the distribution center was right on schedule, and shipping began last month. It was a great job by the Once again, we are capitalizing 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 customers. Our supply chain investments over the last four years have provided us with a structural gross margin benefit from the reduction in STEMI. Our garden center had a strong performance during the important second quarter. We now have more than 500 garden centers across the chain.

Unknown Executive: Our tips and largest distribution center, and Momela, our art and saw, opened during the second quarter. We started with a distribution center with right-on schedule, and shipping began last month. It was a great job by the team. Once again, we are capitalizing on the opportunity to re-align the store servicing areas across the DC network, to balance transportation costs and DC capacity while improving service level to our store. Our supply cadence that's in the last quarter years, and provide us with a structural growth margin benefit from the reduction in stem model. Our garden center kept strong performance during the important second quarter.

Speaker Change: Our 10th and largest distribution center in Maumelle, Arkansas opened during the second quarter.

Speaker Change: The startup of the distribution center was right on schedule and shipping began last month. It was a great job by the team.

Speaker Change: Once again, we are capitalizing on the opportunity to realign the store servicing areas across the D.C. network to balance transportation costs and D.C. capacity while improving service level to our store.

Speaker Change: Our supply chain's investments over the last four years have provided us with a structural gross margin benefit from the reduction in stem miles.

Speaker Change: Our garden center has strong performance during the important second quarter. We now have more than 500 garden centers across the chain. The merchants did a great job with a differentiated assortment and strong in stocks on top of the planting season.

Unknown Executive: We now have more than 500 garden better to crop the chain. The merchants had a great job with a differentiated assortment and strong and stocked in top of the planting season. With more variety and live goods, as well as the Jayson category catered out the living, we saw the customer spawn popular within the multi-year growth driver. We have in 21 new track splice doors and three petsons by track splives in the quarter. Our new store productivity continues to form very well.

Unknown Executive: The merchants did a great job with a differentiated assortment and strong stocks on top of the plant. With more variety in live goods as well as adjacent categories catered to outdoor living, we saw the customer respond positively to this multi-year growth driver. We have 21 new tractor supply stores and three pet cents by tractor supplies in the quarter. Our new store productivity continues to perform very well. In a year since announcing our expanded real estate capabilities, allowing for own development.

Speaker Change: With more variety in live goods as well as adjacent categories catered to outdoor living, we saw the customer respond positively to this multi-year growth driver.

Speaker Change: We have 21 new Tractor Supply stores and 3 pet centers by Tractor Supply in the quarter. Our new store productivity continues to perform very well.

Unknown Executive: In a year since announcing our expanded real estate capabilities, allowing for own development, we continue to anticipate material benefits through the revenue growth and operating margin rate. Our team has built out capabilities to allow us to scale this initiative. We now have nearly 50% of our pipeline and own development, with our first locations already available. This development allows for that revenue reduction to 15% or more compared to our traditional build estate. And we continue to believe that we have a robust pipeline of low-risk organic growth opportunities ahead of us.

Speaker Change: In a year since announcing our expanded real estate capabilities allowing for own development, we continue to anticipate material benefits to both revenue growth and operating margin rates.

Unknown Executive: We continue to anticipate material benefits to both revenue growth and operating margins. Our team has built out capabilities to allow us to scale this. We now have nearly 50% of our pipeline in our own development, with our first locations already open. This development allows us to have rent reductions of 15% or more compared to our traditional bill to suit.

Speaker Change: Our team has built out capabilities to allow us to scale this initiative. We now have nearly 50% of our pipeline in own development, with our first locations already open.

Speaker Change: This development allows us to have rent reductions of 15% or more compared to our traditional bill-to-suit.

Unknown Executive: We continue to believe that we have a robust pipeline of low-risk organic growth opportunities ahead of us. To wrap up, I believe the team is pleased but not satisfied with our first half performance. We set high expectations for ourselves. Customer trends are relatively in line with our expectations, and the team is executing well. In typical traction supply fashion, we're effectively managing the factors that we can control and making progress on our life out here strategy.

Speaker Change: And we continue to believe that we have a robust pipeline of low-risk organic growth opportunities ahead of us.

Unknown Executive: To wrap up, I believe the team is pleased but not satisfied with our first half performance. We set high expectations for ourselves. Customer trends are relatively in line with our expectations. The team is executing well. In typical traction supply fashion, we are effectively managing the factors that we can control and making progress on our lives out of your strategy. As we plan for the second half of the year, we anticipate that our customers will meet crewed it with their sending as a typical election year. At the halfway point of the year, we are nearing our guidance for fiscal 2024 to reflect our performance year-to-date and our outlook for the second half of the year.

Speaker Change: To wrap up, I believe the team is pleased but not satisfied with our first half performance. We set high expectations for ourselves. Customer trends are relatively in line with our expectations.

Speaker Change: The team is executing well. In typical traction supply fashion, we're effectively managing the factors that we can control and making progress on our life out here strategy.

Unknown Executive: As we plan for the second half of the year, we anticipate that our customers will be prudent with their spending, as is typical in an election year. At the halfway point of the year, we are narrowing our guidance for fiscal 2024 to reflect our performance year to date and our outlook for the second half of the year. We continue to create more separation between us and our competition thanks to our team members and the meaningful relationships they have with our customers in combination with our strategic initiatives. Our dedication to serving life out here remains unwavering.

Speaker Change: As we plan for the second half of the year, we anticipate that our customers will be prudent with their spending as is typical in an election year.

Speaker Change: At the halfway point of the year, we are narrowing our guidance for fiscal 2024 to reflect our performance year-to-date and our outlook for the second half of the year. We continue to create more separation between us and our competition thanks to our team members and the meaningful relationships they have with our customers in combination with our strategic initiatives.

Unknown Executive: We continue to create more separation between us and our competition. Thanks to our team members and the meaningful relationships they have with our customers, in combination with our strategic initiatives. Our dedication to serving life out here remains unwavering.

Kurt: We will always strive to do the right thing, and now I'll turn the call over to Kurt. Thank you, Hal, and good morning to everyone on the call. In many ways, our second quarter top line results were consistent with the results in the first quarter, with solid seasonal growth and exceptional big ticket sales, while our year-round discretionary categories remain pressured. As we expected, Q2 performance was slightly below the chain average, given the retail price deflation and moderating category trends the industry is experiencing. Retail price deflation, which was just over 1%, was in line with our expectations.

Unknown Executive: We will always drop to do the right thing.

Speaker Change: Our dedication to serving life out here remains unwavering. We will always strive to do the right thing.

Kurt Barton: And now I'll turn the call over to Kurt. You think you have and good morning to everyone on the call. In many ways, our second quarter top-line results were consistent with the results in the first quarter. With solid seasonal growth and exceptional big ticket sales, while our year-round discretionary categories remain pressure. As we expected, Q performance was slightly below the chain average, given the retail price deflation and moderating category trends the industry is experiencing. Retail price deflation, which was just over 1%, was in line with our expectations. The vast majority of deflation came from our few categories.

Unknown Executive: The vast majority of this deflation came from our few categories. As Hal mentioned, we are pleased with our unit movement in Q as we successfully managed through the impact of deflation this year. Our comp sales growth was relatively consistent across all regions of the chain, within a range of down 2% to up strongest regional performance within the Northeast and Commonwealth due to easier comparisons and better overall weather compared to last year. This strength was offset by pressure in the Far West and Texas for the exact opposite, as they had tougher comparisons and less than ideal weather conditions. As for the cadence of the quarter, all months were also in a relatively tight band of essentially plus or minus one percent.

Speaker Change: And now, I'll turn the call over to Kurt.

Kurt: Thank you, Hal, and good morning to everyone on the call.

Kurt: In many ways, our second quarter top-line results were consistent with the results in the first quarter, with solid seasonal growth and exceptional big-ticket sales, while our year-round discretionary categories remained pressured.

Kurt: As we expected, Q performance was slightly below the chain average, given the retail price deflation and moderating category trends the industry is experiencing.

Kurt: Retail price deflation, which was just over 1%, was in line with our expectations. The vast majority of this deflation came from our few categories.

Kurt Barton: As Hal mentioned, we are pleased with our unit movement in Q, as we successfully managed through the impact of deflation disorder. Our cop sales growth was relatively consistent across all regions of the chain, within a range of down 2% to up 2%. The strongest regional performance within the Northeast and Commonwealth, do the easier compares and better overall weather compared to last year. This strength was offset by pressure in the far west and Texas Homa for the exact opposite reasons, as they had tougher compares and less-than-ideal weather conditions this quarter. As for the cadence of the quarter, all months were also in a relatively tight band of essentially plus or minus 1%.

Speaker Change: As Hal mentioned, we are pleased with our unit movement in Q as we successfully managed through the impact of deflation this quarter.

Hal: Our comp sales growth was relatively consistent across all regions of the chain, within a range of down 2% to up 2%.

Hal: The strongest regional performance was in the Northeast and Commonwealth, due to easier compares and better overall weather compared to last year.

Speaker Change: This strength was offset by pressure in the Far West and Texahoma for the exact opposite reasons, as they had tougher compares and less than ideal weather conditions this quarter.

Speaker Change: As to the cadence of the quarter, all months were also in a relatively tight band of essentially plus or minus 1%.

Kurt Barton: As Hal mentioned, we believe April was negatively impacted by the pull forward of Easter into the first quarter, as well as a slow start to the spring season. Moving down our income statement, our gross margin entries 43 basis points to last year. We continue to be very pleased with these results, which were driven primarily by ongoing lower transportation costs, along with disciplined product cost management and the continued execution of an everyday low price strategy. These improvements were partially offset by the mixed impact from strong growth and big ticket categories, which have below chain average margins.

Unknown Executive: As Hal mentioned, we believe April was negatively impacted by the pull-forward of Easter into the first quarter, as well as a slow start to spring. Moving down our income statement, our gross margin increased 43 basis points to last. We continue to be very pleased with these results, which were driven primarily by ongoing lower transportation costs, along with disciplined product cost management and the continued execution of an everyday low price strategy. These improvements were partially offset by the mixed impact of strong growth in big-ticket categories, which have below-chain average margins. As a percentage of net sales, SG&A expenses increased 58 basis points to 23.4%.

Hal: As Hal mentioned, we believe April was negatively impacted by the pull forward of Easter into the first quarter, as well as a slow start to the spring season.

Speaker Change: Moving down our income statement, our gross margin increased 43 basis points to last year.

Speaker Change: We continue to be very pleased with these results, which were driven primarily by ongoing lower transportation costs, along with disciplined product cost management and the continued execution of an everyday low-price strategy.

Hal: These improvements were partially offset by the mixed impact from strong growth in big-ticket categories, which have below-chain average margins.

Kurt Barton: As a percentage of net sales, SGMA expensive increased 58 basis points to 23.4%. This increased was primarily attributable to our planned growth investments, which included the onboarding of a new distribution center and higher depreciation averageization. As well as modesty leverage about fixed cost given to decline into perable store sales. These factors were partially offset by productivity improvements and strong cost control. During the quarter, our ongoing sale lease tax strategy benefited SGA by approximately $5 million net of transaction and repair costs from the sale of two tractor supply locations. This transaction and the related benefit represent a timing shift out of the third quarter and into Q2.

Hal: As a percentage of net sales, SG&A expenses increased 58 basis points to 23.4%. This increase was primarily attributable to our planned growth investments, which included the onboarding of a new distribution center and higher depreciation amortization.

Unknown Executive: This increase was primarily attributable to our planned growth investments, which included the onboarding of a new distribution center and higher depreciation amortization, as well as modest leverage of our fixed costs given the decline in comparable store sales. These factors were partially offset by productivity improvements and strong cost control. During the quarter, our ongoing sale leaseback strategy benefited SG&A by approximately $5 million net of transaction and repair costs from the sale of two tractor supply locations. This transaction and the related benefit represent a timing shift out of the third quarter and into Q2. For the quarter, the operating profit margin was 13.2%.

Hal: as well as modesty leverage of our fixed costs given the decline in comparable store sales.

Hal: These factors were partially offset by productivity improvements and strong cost control.

Hal: During the quarter, our ongoing sale leaseback strategy benefited SG&A by approximately $5 million net of transaction and repair costs from the sale of two tractor supply locations.

Hal: This transaction and the related benefit represent timing shift out of the third quarter and into Q2.

Kurt D. Barton: For the quarter, operating profit margin was 13.2%. We had strong cost control, as evidenced by our underlying operating profit margin that was essentially flat with prior year. Deleted EPS was $3.93 compared to $3.83 last year. Turning now to our balance sheet, merchandise inventories were $3.0 billion at the end of the second quarter, representing an increase of 10.2% in average inventory per store. As we improve our in stock position in Q and invested in big tickets given its strength, our in stocks are up nearly four points to our best level since before the pandemic. We are pleased with the quality of our inventory as we enter the second half of the year.

Hal: For the quarter, Operating Profit Margin was 13.2%. We had strong cost control as evidenced by our underlying Operating Profit Margin that was essentially flat with prior years.

Unknown Executive: We had strong cost control as evidenced by our underlying operating profit margin that was essentially flat with prior; diluted EPS was $3.93 compared to $3.83 last. Turning now to our balance Merchandise inventories were $3.0 billion at the end of the second quarter, representing an increase of 10.2% in average inventory per store as we improved our in-stock position in Q and invested in big ticket items given its. Our in-stocks We are pleased with the quality of our inventory as we enter the second half.

Hal: Deleted EPS was $3.93 compared to $3.83 last year.

Hal: Turning now to our balance sheet. Merchandise inventories were $3.0 billion at the end of the second quarter, representing an increase of 10.2% in average inventory per store, as we improved our in-stock position in Q and invested in big ticket given its strength.

Hal: Our in stocks are up nearly four points to our best level since before the pandemic.

Hal: We are pleased with the quality of our inventory as we enter the second half of the year.

Unknown Executive: With strong annualized cash flows, we continue to maintain a healthy balance sheet with a leverage ratio of around two times. Additionally, year to date, we've returned nearly $500 million of capital to our shareholders through our share repurchases and dividends. Now let me turn to our updated fiscal 2024 financial guidance. Given our performance in the first half of the year and our forecast for the balance of the year, we believe it's now appropriate to narrow our guidance. For the year, we now anticipate net sales in the range of $14.8 to $15 billion, with comp store sales in the range of down 0.5% to up 1%.

Kurt Barton: The strong annualized cash flows we continue to maintain a healthy balance sheet with a leverage ratio of around two times. You're today, we've returned nearly $500 million of capital to our shareholders through our share purchases and dividends.

Hal: With strong annualized cash flows, we continue to maintain a healthy balance sheet with a leverage ratio of around two times. Year-to-date, we've returned nearly $500 million of capital to our shareholders through our share repurchases and dividends.

Kurt Barton: Davis. Now, let me turn to our updated fiscal 2024 financial outlook. Given our performance in the first half of the year, and our forecast for the bounce beer, we believe it's now appropriate to narrow our guidance range. For the year, we now anticipate that sales in the range of 14.8 to 15 billion dollars, with contour sales in the range of down half a point to up 1%. Our operating margin rate is expected to be in the range of 9.8 to 10.1% with net income of 1.08 to 1.12 billion dollars. The Litter DPS is forecast to be $10 to $10.40.

Hal: Now let me turn to our updated fiscal 2024 financial outlook.

Hal: Given our performance in the first half of the year and our forecast for the balance of the year, we believe it's now appropriate to narrow our guidance range.

Hal: For the year, we now anticipate net sales in the range of $14.8 to $15 billion, with comp store sales in the range of down 0.5% to up 1%.

Unknown Executive: Our operating margin rate is expected to be in the range of 9.8 to 10.1% with net income of $1.08 to $1.12 billion. The diluted EPS is forecast to be $10 to $10.40. As to the calendarization between the third and fourth quarters, let me share with you a bit more of how we are thinking about the various scenarios; we're approaching the back half with balance. We are forecasting comp sales in the third quarter to be within a tight band of scenarios and generally similar to the first half. The shift of the seasons doesn't occur until late in the third, and we don't begin to notice the deflationary effect of seed until the fourth.

Hal: Our operating margin rate is expected to be in the range of 9.8 to 10.1% with net income of $1.08 to $1.12 billion.

Hal: The Luded EPS is forecast to be $10 to $10.40.

Kurt Barton: As to the calendarization between the third and fourth quarter, let me share with you a bit more of how we are thinking about the various scenarios. We are approaching the back half with balanced optimism. We are forecasting comp sales in the third quarter to be within a tight band of scenarios and generally similar to the first half of the year. The shift of the season doesn't occur until late in the third quarter, and we don't begin to laugh at the deflationary effect of feed until the fourth quarter. The only meaningful swing factor in Q3 tends to be weather, particularly large storms, which produce emergency response activity.

Speaker Change: As to the calendarization between the third and fourth quarter, let me share with you a bit more of how we are thinking about the various scenarios.

Hal: We're approaching the back half with balanced optimism. We are forecasting comp sales in the third quarter to be within a tight band of scenarios, and generally similar to the first half of the year.

Hal: The shift of the seasons doesn't occur until late in the third quarter, and we don't begin to lap the deflationary effects of seed until the fourth quarter.

Unknown Executive: The only meaningful swing factor in Q3 tends to be weather, particularly large storms, which require emergency response. We see the fourth quarter having a wider range of potential outcomes. For our base case, we do anticipate stronger growth in the fourth quarter, given the easier comparison, while acknowledging that we could see more volatility in consumer spend. On the high end of our outlook range, in addition to the easing comparisons, factors we considered include a more normalized start to winter, laughing net deflation which began in the fourth quarter of 2023, and the Potential for Greater Emergency Response Act.

Hal: The only meaningful swing factor in Q3 tends to be weather, particularly large storms which produce emergency response activity.

Kurt Barton: We see the fourth quarter having a wider range of potential outcomes. For our base case, we do anticipate stronger growth in the fourth quarter in the easier compares, while acknowledging that we could see more volatility and consumer spending. On the high end of our outlook range, in addition to the easing compares, factors we considered include a normalized start to winter, laughing net deflation which began in the fourth quarter of 2023, and the potential for greater emergency response activity. Now, on the low end of the range, dynamics we contemplated include moderation and big ticket trends, potential consumer uncertainty due to the federal election, and a shorter holiday selling season with five less selling days between Thanksgiving and Christmas.

Hal: We see the fourth quarter having a wider range of potential outcomes.

Hal: For our base case, we do anticipate stronger growth in the fourth quarter, given the easier comparison, while acknowledging that we could see more volatility in consumer spending.

Hal: On the high end of our outlook range, in addition to the easing compares, factors we considered include a more normalized start to winter, laughing net deflation, which began in the fourth quarter of 2023, and the potential for greater emergency response activity.

Unknown Executive: Now on the low end of the range, dynamics we contemplated include moderation in big ticket trends, potential consumer uncertainty due to the federal election, and a shorter holiday selling season with five fewer selling days between Thanksgiving. As for retail price, our plans continue to reflect a headwind from deflation in the third quarter, with a moderation towards neutral in the fourth quarter, as we start to lap the lower cost which began in late Q3 of Our guidance In the fourth quarter, we'll be lapping our most difficult comparison with 129 base of Expansion in the prior year, where we began to see the benefits from lower transportation costs and our product cost management initiatives. As a result, we are forecasting our fourth quarter gross margin rate to be consistent with the prior year.

Kurt Barton: As for the retail price, our plans continue to reflect a headwind from deflation in the third quarter, with a moderation towards neutral in the fourth quarter, as we start to lap the lower cost which began in late Q3 last year. Our guidance reflects ongoing gross margin expansion in the second half of the year. The third quarter is expected to have our best gross margin expansion, as we anticipate transportation costs will remain favorable. In the fourth quarter, we'll be laughing at our most difficult comparison with the 129 basis point of expansion in the prior year, where we began to see the benefits from lower transportation costs and our product cost management initiative.

Hal: As for the retail price, our plans continue to reflect a headwind from deflation in the third quarter, with a moderation towards neutral in the fourth quarter, as we start to lap the lower cost which began in late Q3 of last year.

Hal: Our guidance reflects ongoing gross margin expansion in the second half of the year.

Hal: In the fourth quarter, we'll be lapping our most difficult comparison with 129 basis points of expansion in the prior year, where we began to see the benefits from lower transportation costs and our product cost management initiative.

Kurt Barton: As a result, we're forecasting our fourth gross margin rate, consistent with the prior year. I view our gross margin performance as strong in this current environment. Moving on to SGA, for the second half of the year, there are a couple of items I would highlight for our expectations, especially for the third quarter. First, please remember that we are laughing last year's appreciation benefit of 35 basis points or eight cents per share in the third quarter. Second, given our comp sales outlook specific to third quarter, we anticipate modest fixed cost delivered. And third, we will continue to see pressure from the start-up cost of the new distribution center in both the third quarter and fourth.

Hal: As a result, we are forecasting our fourth quarter gross margin rate consistent with the prior year.

Unknown Executive: I view our gross margin performance as strong in this current environment. Moving on to SG&A, for the second half of the year, there are a couple of items I would highlight for our expectations, especially for the third quarter. First, please keep in mind that we are lapping last year's depreciation benefit of 35 basis points, or 8 cents per share, in the third quarter. Second, given our comp sales outlook specific to the third quarter, we anticipate modest fixed cost delivery. And third, we will continue to see pressure from the startup cost of the new distribution center in both the third quarter and fourth.

Hal: I view our gross margin performance as strong in this current environment.

Hal: Moving on to SG&A, for the second half of the year, there are a couple of items I would highlight for our expectations, especially for the third quarter.

Hal: First, please keep in mind that we are lapping last year's depreciation benefit of 35 basis points or 8 cents per share in the third quarter.

Hal: Second, given our comp sales outlook specific to the third quarter, we anticipate modest fixed-costy leverage.

Hal: And third, we will continue to see pressure from the startup cost of the new distribution center in both the third quarter and fourth quarter. Thus, our SG&A performance will be the softest in the third quarter with more modesty leverage in the fourth quarter.

Kurt Barton: Quarter, thus our S.G.A. Performance will be the softest in the third quarter with more modesty leverage in the fourth quarter. In total, we remain on track to the benefits of our sale lease backs to the relatively consistent with last year's, albeit with a slight variation by quarter due to the timing shift of two stores into the second quarter. We continued to forecast the return of capital shareholders in the range of $1 billion, reflecting the strength of our cash flow and the confidence we have in the long term. At Tractor Supply, we believe in playing offense.

Unknown Executive: Thus, our SG&A performance will be the softest in the third quarter with more modest leverage in the. In total, we remain on track for the benefits of our sale leasebacks to be relatively consistent with last year's, albeit with a slight variation by quarter due to the timing shift of two stores into the second. We continue to forecast the return of capital to shareholders in the range of $1 billion, reflecting the strength of our cash flow and the confidence we have in the long term. At Tractor Supply, we believe in playing it safe. This is a team that will stay on offense and continue to invest for the long term.

Hal: In total, we remain on track to the benefits of our sale leasebacks to be relatively consistent with last year's, albeit with a slight variation by quarter due to the timing shift of two stores into the second quarter.

Hal: We continue to forecast the return of capital shareholders in the range of $1 billion, reflecting the strength of our cash flow and the confidence we have in the long term.

Kurt Barton: This is a team that will stay on offense and continue to invest in the long term.

Speaker Change: At Tractor Supply, we believe in playing offense.

Hal: This is a team that will stay on offense and continue to invest for the long term.

Unknown Executive: We are excited about our progress on our life out here strategy, our leadership position in the industry, and our ability to build on our track record of long-term value creation for our shareholders. Now I'll turn the call over to Hal to wrap. Thanks, Kurt. Despite the temporary softness in our channel, structural elements remain very attractive for tractor supply. We have numerous tailwinds, including our Life Out Here strategic initiative, our market being a beneficiary of continued net world migration.

Kurt Barton: We are excited about our Life Out Here strategy progress, our leadership position in the industry, and our ability to build on our track record of long-term value creation for our shareholders.

Hal: We are excited about our life out here strategy progress, our leadership position in the industry, and our ability to build on our track record of long-term value creation for our shareholders.

Unknown Executive: Now we'll turn the call over to House for wrap up. Thanks, Kurt. Despite the temporary solstice in our channel, structural elements remain very attractive for Tractor Supply. We have numerous tail width including our life out here strategic initiative, our market being a beneficiary of continued net-world migration. I return new store growth opportunity and ongoing sharegame. Tractor Supply has extremely well positioned as the leader in a large fragmented market.

Hal: Now I'll turn the call over to Hal to wrap up.

Hal: Thanks, Kurt.

Hal: Despite the temporary softness in our channel, structural elements remain very attractive for tractor supply. We have numerous tailwinds, including our Life Out Here strategic initiative, our market being a beneficiary of continued net world migration.

Unknown Executive: I return to new store growth opportunity and ongoing share, Tractor Supply is extremely well positioned as a leader in a large fragmented market. Before we go to the Q&A session, I'd like to wrap up with three comments. One, as we head into the back half of the year, I am very excited about our robust innovation pipeline, the compelling values we have in our market, and our new brand line. We just said our annual deer event and Halloween decor program, and both are off to a strong start.

Hal: High Return New Store Growth Opportunity, and Ongoing Share Gains.

Speaker Change: Tractor Supply is extremely well positioned as a leader in a large fragmented market.

Unknown Executive: Before we go into the next session, let's wrap up with three comments. Once, as we head into the back half of the year, I am very excited about our robust innovation pipeline. The compelling values we have in our market and our new brand launches. We just said our annual deer event and how to link the core program, and both are off to a strong start. And Pat, we have a number of upcoming activities, including our expanded penetration months, a new lineup for Muttonation by Miranda Lambert, and an expansion of Four Health, our exclusive brand premium dog food.

Speaker Change: Before we go to the Q&A session, I'd like to wrap up with three comments.

Speaker Change: One, as we head into the back half of the year, I am very excited about our robust innovation pipeline, the compelling values we have in our market, and our new brand launches.

Speaker Change: We just set our annual deer event and Halloween decor program and both are off to a strong start.

Unknown Executive: And Pat, we have a number of upcoming activities, including our expanded Pet Appreciation Month, a new lineup for Mutt Nation by Miranda Lambert, and an expansion of 4Health, our exclusive brand premium dog food. Additionally, we have an exciting new NCAP program, as well as new center court and dry ball events that are focused on compelling values that are core to our lifestyle.

Hal: And Pat, we have a number of upcoming activities, including our expanded Pet Appreciation Month.

Speaker Change: A new line-up for Mutt Nation by Miranda Lambert, and an expansion of 4Health, our exclusive brand of premium dog food.

Unknown Executive: Additionally, we have an exciting new end-cap program, as well as a new center-court drive, all of them that are focused on compelling values that are core to our lifestyle.

Hal: Additionally, we have an exciting new NCAP program, as well as new center court and dry ball events that are focused on compelling values that are core to our lifestyle.

Unknown Executive: The second common I'd have is that we continue to believe that, as and when economic conditions become more neutral for us, that we will return to our long-term algorithm. As mentioned, there's really two economic conditions that are impacting us the most. The first is the transition from good to the services and the context of PCE's then and the second is deflation. We believe both of these are transitory, and we don't need them to improve, but rather just to normalize for us to return to our long-term algorithm.

Unknown Executive: The second comment I'd have is that we continue to believe that as and when economic conditions become more neutral for us, we will return to our long-term algorithm. As mentioned, there are really two economic conditions that are impacting us the most. The first is the transition from goods to services in the context of PCE spend, and the second is deflation. We believe both of these are transitory, and we don't need them to improve, but rather just to normalize for us to return to our long-term outcomes. And the third comment is that the team is playing offense.

Speaker Change: The second comment I'd have is that we continue to believe that as and when economic conditions become more neutral for us, that we will return to our long-term algorithm. As mentioned, there's really two economic conditions that are impacting us the most.

Speaker Change: The first is the transition from goods to services in the context of PCE spend, and the second is deflation. We believe both of these are transitory, and we don't need them to improve, but rather just to normalize for us to return to our long-term algorithms.

Unknown Executive: And the third common is that the team is playing often, and we're not only executing our existing initiatives but working on plans to the back half of the decade and working on our next growth drivers of our lifestyle of your strategy. Practice supply does not lack for opportunities, and we believe we have multiple new opportunities that could expand on our $180 billion total of stressful markets. I'm very excited to share more detail of the next drivers of our strategy in the near future. Our stores in online are ready for the changes of season as we enter the third quarter.

Unknown Executive: And we're not only executing our existing initiative, but we're working on plans for the back half of the decade and working on the next growth drivers of our Life Out Here strategy. Tractor supply does not lack for opportunities. We believe we have multiple new opportunities that could expand on our $180 billion total addressable market. I'm very excited to share more detail of the next drivers of our strategy in the near future. Our stores and online are ready for the changes of season as we enter the third quarter. Tractor Supply is well prepared to meet the needs and expectations of our customers.

Speaker Change: And the third comment is that the team is playing often and we're not only executing our existing initiative but we're working on plans for the back half of the decade and working on the next growth drivers of our Life Out Here strategy.

Hal: Tractor supply does not lack for opportunities, and we believe we have multiple new opportunities that could expand on our $180 billion total addressable market. I'm very excited to share more details of the next drivers of our strategy in the near future.

Hal: Our stores and online are ready for the changes of season as we enter the third quarter. Tractor Supply is well prepared to meet the needs and expectations of our customers. We've invested in our store base, in inventory, in our supply chain, in our digital capabilities, in customer service.

Unknown Executive: Practice supplies well prepared to meet the needs and expectations of our customer. We've invested in our store bay and in the store bay and in our supply chain, in our digital capabilities, in customer service. Harris, to ensure that we can deliver an off-promise, providing the best product and solutions for life out here. We've also enhanced our neighbor's cloth to provide more benefits and rewards to our loyal customers. We're excited about the upcoming event promote and promotion that will showcase our unique and differentiated seasonal sortment of merchandise and the expectancy continuing to prove it's across our categories.

Unknown Executive: We've invested in our store base, in inventory, in our supply chain, in our digital capabilities, and in customer service to ensure that we can deliver on our promise of providing the best products and solutions for life out there. We've also enhanced our Neighbors Club to provide more benefits and rewards to our loyal customers. We're excited about the upcoming events and promotions that will showcase our unique and differentiated seasonal assortment of merchandise, and we expect to see continued improvements across our category. In particular, I'm incredibly proud of her.

Hal: to ensure that we can deliver on our promise of providing the best products and solutions for life out here.

Hal: We've also enhanced our Neighbors Club to provide more benefits and rewards to our loyal customers.

Hal: We're excited about the upcoming events and promotions that will showcase our unique and differentiated seasonal assortment of merchandise, and we expect to see continued improvements across our category.

Unknown Executive: To conclude, I'm incredibly proud of our team. Throughout our 85-plus year history, no matter what issue we face, our team members have always come together. We have unique and special culture. It's our special thought and key differentiator. And this one gives me great confidence in the future of tractors support.

Unknown Executive: Throughout our 85-plus year history, no matter what issue we face, our team members have always come together. We have a unique and special culture. Special Sauce, and Key Differences.

Hal: To conclude, I'm incredibly proud of our team.

Hal: Throughout our 85 plus year history, no matter what issue we faced, our team members have always come together. We have a unique and special culture.

Hal: It's our special sauce and key differentiator, and it's what gives me great confidence in the future of tractor supply.

Unknown Executive: And that's what gives me great confidence in the future of tractor supply. And with that, let's open up the call for questions. We will now begin the question and answer session. In the interest of time, we ask that everyone limit themselves to one question and then rejoin the queue for follow-up. If you'd like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you would like to remove that question, please press star followed by two.

Unknown Executive: And with that, let's open up the call for questions. We'll now begin the question and answer session.

Speaker Change: And with that, let's open up the call for questions.

Unknown Executive: And the interest of time to answer everyone, limit themselves to one question and then reach one to cue for follow-up. If you'd like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you'd like to remember that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speaker phone, please remember to pick up your hands that we're asking a question.

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

Speaker Change: In the interest of time, we ask that everyone limit themselves to one question and then rejoin the queue for follow-up.

Speaker Change: If you'd like to ask a question, please press star followed by one on your telephone keypad.

Unknown Executive: Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Scot Ciccarelli with Truett. Your line is now open. Good morning, guys.

Hal: If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question.

Scott Ciccarelli: Our first question comes along. I've got this rally with Trulet. Yeah, let us know open.

Hal: Our first question comes from the line of Scot Ciccarelli with Truist.

Scott Ciccarelli: Good morning, guys. Gotcha, Carly. Historically, when we've had a pretty wet spring, which I think is pretty fair to assume across most of the country, you guys have had a very extended selling season. So do you expect that to be the case for the balance of the year? And then, secondly, you mentioned that you're expecting roughly flat. Let's call it a constant third quarter. Are you currently tracking a line with that? Or is that just kind of the bolly for the end of the quarter?

Scot Ciccarelli: Historically, when we've had a pretty wet spring, which I think is pretty fair to assume across most of the country, you guys have had a very extended selling season. So do you expect that to be the case for the balance of the year? And then secondly, you mentioned that you're expecting roughly a flat, let's call it constant, third quarter. Are you currently tracking in line with that? Or is that just kind of the bogeyman for the end of the quarter?

Speaker Change: Your line is now open.

Speaker Change: Good morning, guys. Scot Ciccarelli.

Scot Ciccarelli: Historically, when we've had a pretty wet spring, which I think is pretty fair to assume across most of the country, you guys have had a very extended selling season. So do you expect that to be the case for the balance of the year?

Speaker Change: And then secondly, you mentioned that you're expecting roughly flat, let's call it, constant in the third quarter. Are you currently tracking in line with that, or is that just kind of the bogey for the end of the quarter? Thanks.

Unknown Executive: Thanks. Hey, Scott, good morning. To your first question on the wet spring, it was an inordinately wet spring, particularly in the south and southwest. Texas, in particular, was wet almost the entire quarter.

Unknown Executive: Hey, Scott, good morning. To your first question on the wet spring, it was an inordinate wet spring, particularly in the South West. Texas, in particular, was wet almost the entire quarter. We had hope that that might lead to an elongated spring, particularly in the month of June and in July. It actually be favorable for us, given comparison last year. That's not how it played out. As we all know, the month of June was one of the hottest, if not the hottest month on record ever. And so we went from pretty much a wet, wet spring to an immediately hot summer.

Speaker Change: Hey, Scott. Good morning. To your first question on the wet spring, it was an inordinately wet spring, particularly in the southwest. Texas, in particular, was wet almost the entire quarter.

Unknown Executive: We had hoped that that might lead to an elongated spring, particularly in the month of June and into July, and actually be favorable for us given the comparison with last year. But that's not how it played out. As we all know, the month of June was one of the hottest, if not the hottest month on record ever. And so we went from pretty much a wet spring to an immediately hot summer. And we did not see, as we called out, ag fencing as an example.

Speaker Change: We had hoped that that might lead to an elongated spring, particularly in the month of June and into July .

Speaker Change: and actually be favorable for us, given comparison last year, that's not how it played out. As we all know, the month of June was one of the hottest, if not the hottest month on record ever. And so we went from pretty much a wet spring to an immediately hot summer.

Unknown Executive: That's a big category for us in general, and particularly in Texas. And as an example, we did not see that category recover in June like we had some aspirations for. That said, it's a wet week this week, and we are hopeful that that can pay some dividends as we turn the corner into August and into the fall. And as it relates to Q3, it's basically kind of right down the middle of the fairway for us in terms of our guidance range and kind of consistent with the comments Kurt gave at this point.

Unknown Executive: And we did not see, as we called out, accessing. I think, example, that's a big category for us in general. And in particular, in Texas, in example, we did not see that category recover in June, like we, you know, had some aspirations for. That said, you know, it's a wet week this week. And we, you know, are hopeful that that can pay some dividends as we, you know, turn the corner into August and into the end of the fall. And it's related to Q3 yet, but basically kind of write down the middle of Fairway for us in terms of our guidance range and kind of consistent with the comments Kurt, Kurt gave at this point.

Speaker Change: And we did not see, as we called out ag fencing as an example, that's a big category for us in general, and particularly in Texas. And as an example, we did not see that category recover in June like we had some aspirations for.

Speaker Change: That said, you know, it's a wet week this week.

Kurt: And we, you know, are hopeful that that can pay some dividends as we, you know, turn the corner into August and into the end of the fall. And as it relates to Q3, yeah, it's basically kind of right down the middle of fairway for us in terms of our guidance range and kind of consistent with the comments Kurt gave at this point.

Unknown Executive: And, you know, the one thing I would call out is July is our toughest compare of the three months. It's, you know, we get sequentially easier in comparison to the tune of like a point or two points each of the next two months. So anyway, thanks, Scott, for the question. Great, thanks.

Unknown Executive: And, you know, the one thing I would call out is July is our toughest compares of the three months. It's, you know, we get sequentially, sequentially easier in comparison to the two to like a point or two points each of the next two months. Anyway, thanks, Scott, for the question.

Speaker Change: And, you know, the one thing I would call out is July is our toughest compares of the three months. It's, you know, we get sequentially easier in compares to the tune of like a point or two points each of the next two months. So, anyway, thanks, Scott, for the question.

Unknown Executive: Great, thanks.

Unknown Executive: Thank you for your question. Our next question comes from the line of Michael Lasser with UBS. You're live and open.

Scott: Great, thanks.

Speaker Change: Thank you for your question.

Speaker Change: Our next question comes from the line of Michael Lasser with UBS.

Michael Baker: Good morning, good morning, thank you so much for taking my question. Number one, hey, can you walk us through the thought process on changes you've made recently? Did you see any customer impact from some of the social media chatter, and how did it impact your things will feel? Thank you so much. Yeah, hey Michael, thanks for the question. Let's start out by saying obviously it was a difficult situation to played out in a public arena, but it's fortunate to be coming increasingly in common in, in business and in the, the devices sentiment that we have in our country. And, you know, we've got over 50,000 team members and 30 plus million customers and we certainly, you know, heard a range of feedback. We learned from, from others who had gone before us on this and moved fast to try to remove the perceived political and social genders from our policies. And all that said, we have no evidence that it had a measurable impact on our business and, you know, we continue to look to monitor the situation and, and look at, look at a variety of data sets, but we, we do have no evidence at this point that it's had a measurable impact on, on our business and our results.

Speaker Change: You're live and open.

Michael Lasser: Good morning. Good morning. Thank you so much for taking my question. Number one, how, um, how can you walk us through the thought process on the changes you've made recently? Do you see any customer impact from some of the social media chatter? And how does it impact your sales? Thank you so much. Yeah, hey, Michael, and thanks for the question. I'd start out by saying, obviously, it was a difficult situation to play it out in a public arena.

Michael Lasser: Good morning.

Michael Lasser: Good morning. Thank you so much for taking my question. Hey, Hal. Hal, can you walk us through the thought process on

Michael Lasser: just the changes you've made recently. Did you see any customer impact from some of the social media chatter and how did it impact your painful sales? Thank you so much.

Unknown Executive: But unfortunately, it is becoming increasingly common in business and in the divisive sentiment that we have in our country. And, you know, we've got over 50,000 team members and 30 million customers. And we certainly, you know, heard a range of feedback. We learned from others who had gone before us on this and moved fast to try to remove the perceived political and social agendas from our policies. And all that said, we have no evidence that it has had a measurable impact on our business.

Hal: Yeah, hey, Michael, and thanks for the question.

Speaker Change: I'd start out by saying obviously it was a difficult situation to play it out in a public arena.

Speaker Change: But unfortunately, becoming increasingly common in business and the divisive sentiment that we have in our country.

Speaker Change: We've got over 50,000 team members and 30-plus million customers, and we've certainly heard a range of feedback. We learned from others who had gone before us on this and moved fast to try to remove the perceived political and social agendas from our policies.

Speaker Change: All that said, we have no evidence that it had a measurable impact on our business, and we continue to look to monitor the situation and look at a variety of data sets, but we do have no evidence at this point that it's had a measurable impact on our business and our results.

Michael Baker: And if I just step back, we have a very special culture of track supply and firmly grounded in our well-established mission and values. And, while we did withdraw our carbon emissions goals and retired our DNA goals, you know, we did not retire our commitment to treating people fairly with respect to inclusion, to being a good corporate citizen, and certainly not to be stewards of, and certainly to not retire our, community being stewards of life out here. And, you know, track supply against credible culture, we never lose sight of our obligations to be great stewards of our business over the long term.

Michael Lasser: And if I just step back, we have a very special culture at Tractor Supply.

Michael Lasser: Firmly grounded in our well-established mission and values and

Speaker Change: What we did, we draw our carbon emissions goals and retired our D&I goals, you know, we did not retire our commitment to treating people fairly, with respect to inclusion, to being a good corporate citizen, and certainly not to be stewards of, and certainly did not retire our commitment to being stewards of life out here.

Unknown Executive: And, you know, we continue to look to monitor the situation and look at a variety of data sets, but we do have no evidence at this point that it's had a measurable impact on our business and our results. And, you know, Tractor Supply, again, a credible culture.

Speaker Change: You know, Tractor Supply, again, incredible culture. We never lose sight of our obligations to be great stewards of our business over the long term. Thanks. Thanks, Michael, for the question.

Unknown Executive: Thanks, thanks, Michael, for the question.

Unknown Executive: Thank you very much.

Michael Lasser: Thank you very much.

Unknown Executive: Thank you for your question.

Stephen Forbes: Our next question comes from one of Stephen's accomplices. Great, good morning. Thanks very much for taking my question. I wanted to go back to the same source sales trend, and I was curious if we could talk through the guidance adjustment a bit more. I guess specifically on the second half because you, you leave open the option that you could still have negative same source sales in the back half, even though the compares look a little bit easier. So has anything really changed from a ticket perspective, maybe deflation lost a little bit longer than you expected, and then from a transaction perspective, you know, do you have the view that the pet suit landscape is just softening a little bit more than you expected, so maybe that side of the business is also coming a little bit weaker.

Unknown Executive: We never lose sight of our obligations to be great stewards of our business over the long term. Thanks. Thanks, Michael, for the question. Thank you for your question. Our next question comes from the line of Steven Zaccone with Citigroup. Your line is now open. Great. Good morning.

Speaker Change: Thank you for your question.

Speaker Change: Our next question comes from the line of Steven Zaccone with Citigroup.

Steven Emanuel Zaccone: Thanks. Great. Good morning. Thanks very much for taking my question. I wanted to go back to the same source sales trend. And I was curious if we could talk through the guidance adjustment a bit more, I guess, specifically on the second half, because you leave open the option that you could still have negative same-source sales in the back half, even though the comparisons look a little bit easier. So has, has anything really changed from a ticket perspective, maybe deflation has lasted a little bit longer than you expected?

Steven Emanuel Zaccone: Your line is now open. Great. Good morning. Thanks, sir.

Steven Emanuel Zaccone: Great. Good morning. Thanks very much for taking my question.

Steven Emanuel Zaccone: I wanted to go back to the same sort of sales trend, and I was curious if we could talk through the guidance adjustment a bit more, I guess, specifically on the second half, because you leave open the option that you could still have negative

Steven Emanuel Zaccone: the same sort of sales in the back half, even though the compares look a little bit easier. So has anything really changed from a ticket perspective, maybe deflation lasting a little bit longer than you expected? And then from a transaction perspective.

Speaker Change: Do you have the view that the pet food landscape is just softening a little bit more than you expected? So maybe that side of the business is also coming a little bit weaker. Thanks very much.

Stephen Forbes: Thanks very much.

Stephen Forbes: Yeah, hey, Stephen. Let's try out by saying the first half played out very much in line, kind of right down the middle of our, you know, kind of base case center point of our guidance. I think most things in the first half were very much in line with our expectations.

Steven Emanuel Zaccone: And then from a transaction perspective? You know, do you have the view that the pet food landscape is just softening a little bit more than you expected? So maybe that side of the business is also coming a little bit weaker. Thanks very much. Yeah, hey, Steven.

Unknown Executive: I'd start out by saying the first half played out very much in line kind of right down the middle of our, you know, kind of base case center point of our guidance. Um, I would say most things in the first half were very much in line with our expectations. I mean, maybe Big Ticket was a little stronger, and maybe some of the things like ag fencing and dog containment and such were a little bit weaker.

Steven: Yeah, hey, Steven.

I'd start out by saying the first half

Speaker Change: Played out very much in line kind of right down the middle of our you know kind of base case center point of our guidance. I would say most things in the first half were very much in line with our expectations.

Stephen Forbes: Maybe big ticket was a little stronger, and maybe some of the things like accessing and dog containment and such were a little bit weaker, but everything else I would say animal feed, pet food, our two products in general, you know, seasonal, even the discretionary business week, expected them to be reasonably negative. You know, all those played out very much in line with what we expected. You know, kind of think about it as a down the middle of fairway, based on our expectations first half. As related to the second half, we have a similar thesis to the second half, right down the middle of fairway.

Steven Emanuel Zaccone: Maybe Big Ticket was a little stronger, and maybe some of the things like ag fencing and dog containment and such were a little bit weaker, but everything else, I would say, animal feed, pet food.

Unknown Executive: But everything else, I would say animal feed, pet food, our Q products in general, seasonal, even the discretionary business, we expected them to be reasonably negative. You know, all those played out very much in line with what we expected. I, you know, kind of think about it as down the middle of a fairway based on our expectations for the first half. As it relates to the second half, we have a similar thesis for the second half right down the middle of the fairway. I think Kurt tried to call that out in his prepared remarks.

Steven Emanuel Zaccone: are two products in general.

Steven Emanuel Zaccone: Seasonal, even the discretionary business, we expected them to be reasonably negative. All those played out very much in line with what we expected. I think about it as a down the middle of a fairway based on our expectations first half.

Steven Emanuel Zaccone: As it relates to the second half, we have a similar thesis to the second half right down the middle of Fairway. I think Kurt tried to call that out in the prepared remarks.

Steven Paul Forbes: I think Kurt tried to call that out in the prepared remarks. Two three, I think, would be much of the continuation of the first half of the year with two four being really where there's a higher range, you know, a broader range of outcomes.

Unknown Executive: Q3, I think it will be, will be much of the continuation of the first half of the year, with Q4 being really where there's a higher range, you know, a broader range of outcomes. And I think Kurt tried to really bring that to life in his prepared remarks to say, there's one version of Q4 that could be, you know, be strong and start that trend back towards our long-term algorithm. And there's some favorable comparisons there, which create a nice setup.

Speaker Change: Q3 I think will be much of a continuation of the first half of the year, with Q4 being really where there's a broader range of outcomes, and I think Kurt tried to really bring that to life in his prepared remarks to say there's one version of Q4 that could be strong and start that trend back towards our long-term algorithm, and there's some favorable compares there, which create a nice setup, and we've got a number of activities also going into the market during that time.

Stephen Forbes: And they could try to really bring that to life in the in its prepared remarks to say, there's one version of two four they could be, you know, be strong and start that trend back towards our long-term algorithm and there's a some favorable compares there, and which created nice set up and we've got a number of activities also going into that into the market during that time.

Unknown Executive: And we've got a number of activities also going into that, into the market during that time. On the flip side, there is a, you know, kind of a more unfavorable potential outcome in Q4, where if we didn't see some good winter weather and the federal election created a lot of distractions, and you've got a shorter holiday season, that could lead to, you know, a lesser performance in Q4.

Stephen Forbes: On the flip side, there is a, you know, kind of a, a, kind of more unfavorable potential outcome in Q4, where if we didn't see some good winter weather and the federal election created a lot of distraction and you've got a shorter holiday season, you know, that could lead to, you know, a lesser performance in Q4. To really try to lay out the range of those two, and that's really what drives the Q4 variation, is really what drives the, really the range of our, of our comp guidance for the balance of the year with a pretty tight range of outcomes forecast in Q, in Q3.

Speaker Change: On the flip side, there is a, you know, kind of a

Speaker Change: , and they're all working on a more unfavorable potential outcome in Q4, where if we didn't see some good winter weather and the federal election created a lot of distraction, and you've got a shorter holiday season, you know, that could lead to, you know, a lesser performance in Q4. So we really tried to lay out the range of those two, and that's really what drives the Q4 variation, is really what drives the

Unknown Executive: So we really tried to lay out the range of those two, and that's really what drives the Q4 variation, is really what drives the, really the range of our comp guidance for the balance of the year, with a pretty tight range of outcome forecast in Q3. But I would say from the start of the year, the business is really right in the middle of what we expected it could be. To your kind of question at the end, there's really, sitting at this point in time, nothing that we see in the back half that's much different from what we saw at the beginning of the year. It's pretty straightforward at this point in terms of our outlook. Okay, thanks for the question. Thank you for your question. Our next question comes from the line of Peter Benedict with Baird. U.S.A. Yeah, good morning, guys.

Steven Emanuel Zaccone: Really, the range of our comp guidance for the balance of the year with a pretty tight range of outcome forecast in Q3.

Stephen Forbes: But I would say from the start of the year, the business is really right in the middle of what we expected it could be, and it's your kind of kind of question at the end. There's really sitting at this point time, nothing that we see in the back half that's much different than what we saw at the beginning of the year. It's pretty, pretty straightforward at this point in terms of our outlook.

Steven Emanuel Zaccone: but I would say from the start of the year the business is really right in the middle of what we expected it could be and to your kind of kind of question at the end there's really at sitting at this point time nothing that we see in the back half that's much different than what we we saw at the beginning of the year it's pretty pretty straightforward at this point in terms of our outlook

Unknown Executive: Okay, thanks from the detail. Thank you for your question.

Speaker Change: Okay, thanks for the detail.

Peter Sloan Benedict: Our next question, conforming of Peter Bennett with Bayard. It was open. Yeah, good morning, guys. Thanks for taking the question. Kurt, I know you've, you know, dressed inventory briefly during the prepare of remarks that you saw comfortable.

Speaker Change: Thank you for your question.

Steven Emanuel Zaccone: Our next question comes from the line of Peter Benedict with Baird.

Steven Emanuel Zaccone: [inaudible]

Peter Sloan Benedict: Thanks for taking the question. Kurt, I know you addressed inventory briefly during the prepared remarks that you felt comfortable, but can you maybe give us a little more color on the build that you saw in the second quarter and maybe where you would have us expecting inventories to kind of level out over the balance of the year? And why you don't think there's you don't have too much?

Peter Sloan Benedict: Good morning, guys. Thanks for taking the question. Kurt, I know you addressed inventory briefly during the prepared remarks that you felt comfortable. Can you maybe give us a little more color?

Seth Basham: Could you maybe give us a little more color on the build that you saw on the second quarter and maybe where you would have a expecting inventory is kind of level out over the balance of the year and why you don't think there's you don't have too much. Thank you.

Peter Sloan Benedict: on the build that you saw in the second quarter and and maybe where you would have us expecting inventories to kind of level out over the over the balance of the year and and why you don't think there's you don't have too much. Thank you.

Unknown Executive: Thanks. Yeah, I'll actually let Seth and Peter give you more of the details on that. And I'll make one reference.

Seth Basham: Yeah, I'll actually let Seth Peter give you more of the details on that, and I'll make one reference. We are cycling last year and two, two, we called out that we were down 1.7% in inventory last year. We knew we needed and wanted more inventory and queue, and even some of the big ticket wreck.

Peter Jacob Keith: Yeah, I'll actually let Seth, Peter, give you more of the details on that, and I'll make one reference. We are cycling last year, and Q2 we called out that we were down 1.7% in inventory last year. We knew we needed and wanted more inventory in Q, and even some of the big ticket...

Seth Basham: And so we're very pleased with where we're at, and I think Seth, why don't you explain further some of where the increases that and the position on inventory for today and even the back half.

Seth: Rec. And so we're very pleased with where we're at. And I think, Seth, why don't you explain further some of where the increase is at and the position on inventory for today and even the back half?

Unknown Executive: We are cycling last year in Q2, and we called out that we were down 1.7% in inventory last year. We knew we needed and wanted more inventory in Q and even some of the big ticket items. And so we're very pleased with where we're at. And I think Seth, why don't you explain further some of where the increase is at and the position on inventory for today and even the back half? Hey, Peter, Seth.

Seth Basham: Hey, Peter Seth, you have things, Kirk. Yeah, as part mentioned, we were down last year about 1.7%. When we think about this year's inventory position, we have purposely invested and where we're continuing to see growth. So when you look right now, we're continuing to invest in areas like grills, minibikes, wreck vehicles, even like riders where we're continuing to see some strong momentum and various parts across our store base. But we're also in the best in stock position we've been since pre-pandemic. We're investing in stocks for up around 400 basis points and in stocks when you compare to where we are this year versus last.

Seth: Hey, Peter, Seth. Yeah, thanks, Kurt. Yeah, as Kurt mentioned, we were down last year about 1.7%. When we think about this year's inventory position,

Seth: We have purposefully invested in where we're continuing to see growth, so when you look right now, we're continuing to invest in areas like grills, minibikes, wrecked vehicles, even like riders where we're continuing to see some strong momentum in various parts across our store base.

Speaker Change: But we're also in the best in-stock position we've been since pre-pandemic. We're investing in in-stocks. We're up around 400 basis points in in-stocks when you compare to where we are this year versus last.

Speaker Change: And when you look at our clearance inventory, while we don't give specific numbers,

Our Clearance and Aged Inventory is actually down versus last year, and I would say both those NSTOP positions and you look at our Clearance and Aged Inventory are both really

Peter Jacob Keith: Good indicators of the quality that we have.

And I would just say, as we look ahead to the back half, we're committed to making sure we're investing in the categories that are working. We're investing in being a dependable supplier and making sure that we have our key core Q products on shelf. And I feel really good about the innovation pipeline we're investing in and being in a position to drive sales. So quality of inventory remains strong. We're in a great inside position and feel good about the inventory. For sure.

Unknown Executive: Yeah, thanks, Kurt. Yeah, as Kurt mentioned, we were down about 1.7% last year. When we think about this year's inventory position, we have purposely invested in areas where we're continuing to see growth. So when you look right now, we're continuing to invest in areas like grills, minibikes, recreational vehicles, even riders, where we're continuing to see some strong momentum in various parts across our store base. And when you look at our clearance inventory, while we don't get specific numbers, our clearance and aged inventory is actually down versus last year.

Great, thanks so much.

Thank you for your questions.

Peter Jacob Keith: Our next question comes from the line of Chuck Grom with Gordon Haskett Research Advisors.

Speaker Change: You can leave them open.

Charles P. Grom: Hey, thanks.

Good morning. Thanks a lot. Hope you guys are well. Just to get back to the comp discussion, how, you know, the past few quarters, comps have been running close to flat.

You've got a long-term guide of about four to five percent. Clearly, the macro has not been your friend, but can you help us think about the building blocks to get back to that level and maybe a potential timeline you see to get there as well?

Unknown Executive: And I would say both those in-stock positions, and you look at our clearance and aged inventory, are both really good indicators of the quality that we have. And I would just say, as we look ahead to the back half, we're committed to making sure we're investing in the categories that are working. We're investing in being a dependable supplier and making sure that we have our key core Q products on the shelf.

Yeah, hey Chuck, and thanks for the question.

As I mentioned in the prepared remarks.

We still feel very confident in our long-term guidance.

And there's really two main factors that we see as, you know, that are macro factors that are impacting us right now for performing at that long-term guidance rate.

namely the shift in consumer spend from goods to services and the second being deflation, inflation. And so now if you hit both of those, if you think about our average ticket for the first half of the year, which is roughly flat,

Historically, we would have, at a minimum, kind of a one and a half-ish percent maybe average ticket growth. It could be two, two and a quarter.

So even if we just had some favorability in average ticket, all of a sudden that walks you up to, you know, nearly a point and a half or two point comp right there. And then if you think about PCE, year-to-date,

Speaker Change: Services are up 6-7% whereas goods are up 1%.

If you were to see that normalize, even if goods underperform services, say goods are two and a half or three and maybe services are three, three and a half.

Charles P. Grom: You know, you get that extra point to two points on the goods kind of rising tide.

And all of a sudden, you're walking back to a four, four and a half percent comp right there. And so we really do see it as cleanly as that, is that in the future, certainly have confidence that deflation will moderate, and we'll get back to a consistent inflation rate in this country and in our business. And then similarly, expect that the good services shift will moderate, and I think that's probably the bigger question. We probably have the better lens as to when the deflation will moderate.

because we see that in our business, but on the goods, the service, I think that's kind of the open question. It is only 90 basis points away from its pre-COVID levels, so it doesn't have a significant leap further to go. But, you know, is that six months? Is that nine months? Is that three months? I think, you know, time will tell there.

Unknown Executive: Thanks, Jack, for the question.

Unknown Executive: Great. Thanks, Bob.

Charles P. Grom: Thanks Chuck for the question.

Great, thanks a lot.

Unknown Executive: Thank you for your question.

Katharine McShane: Our next question comes from line of Kate McChane with Goldman Sachs. You wanted them open. Hi. Hi, good morning. Thanks for taking our question. We wanted to talk about the big ticket strengths. We know this is something that you saw in the first quarter. Can you remind us how much of sales this represents? And how does big ticket needs change in the second half? What falls into that category for the cooler and winter months? First is what you saw in the first half of the year.

Thank you for your question.

Our next question comes from the line of Kate McShane with Goldman Sachs. Your line is now open.

Hi.

Hi, good morning. Thanks for taking our question. We wanted to talk about the big ticket strength. We know this is something that you saw in the first quarter. Can you remind us how much of sales this represents? And how does big ticket needs change in the second half? What falls into that category for the cooler and winter months versus what you saw in the first half of the year?

Kurt Barton: Yeah, hey, Kate. Good morning. This is Kurt. I've been big ticket. I'll share a few specifics on that. As we mentioned, we've been continually pleased this year to see the rebound on big ticket after a couple of years of softness and big ticket. First quarter ran positive, high single digit big ticket and the ever important Q2 ran a low double digit growth rate in big tickets. So you hear the commentary from us on our investment in that area of the business. How we're driving the sales through innovation. So very pleased with the results on big ticket.

Yeah, hey, Kate. Good morning. This is Kurt. On Big Ticket, I'll share a few specifics on that.

As we mentioned, we've been continually pleased this year to see the rebound on Big Ticket after a couple years of softness in Big Ticket. First quarter ran positive high single-digit Big Ticket, and the ever-important Q2 ran a low double-digit growth rate.

in big ticket. So you hear the the commentary from us on our, our investment in that area of the business, how we're driving the sales through innovation. So very pleased with the results on big ticket. Q2 tends to have you

Kurt Barton: Q2 tends to have the largest portion of our sales on big ticket in the low teens. It averages in the high single digit as a percentage of our sales for the year. So, in the second half of the year, it does become a lesser of an impact.

portion of our sales on big ticket in the low teens, it averages in the high single digit as a percentage of our sales for the year. So in the second half of the year, it does become a lesser of an impact. But on a year over year basis,

Kurt Barton: But on a year-over-a-year basis, we really do see that there's opportunity in the back half of the year in areas that we're winning and that Seth just mentioned, whether it be recreational vehicles or even fighters. And then in the back fourth quarter, really some of the winter related heating, log splitters, those type of ears, snowblowers, we can continue to win in innovation and our ability to drive great value in big tickets. So it's certainly one of the tailwinds for us. The teams that have an excellent job bringing new product to our customers and driving value even through areas like deferred financing as a great value for big tickets.

We really do see that there's opportunity in the back half of the year in areas that we're winning in that Seth just mentioned, whether it be recreational vehicles or even riders. And then in the back fourth quarter, really some of the winter-related heating, log splitters.

Those type of areas, snowblowers, we can continue to win in innovation and our ability to drive great value in big ticket. So, it's...

Certainly one of the tailwinds for us, the team's done an excellent job bringing new product to our customers and driving value even through areas like deferred financing as a great value for big tickets. So while not as much of a swing factor in the second half, we do believe that's one of the tailwinds on our comps for the second half of the year.

Kurt Barton: So, while not as much of a swing factor in the second half, we do believe that's one of the tailwinds on our comps for the second half of the year.

Unknown Executive: Thank you. Thank you for your question.

Thank you.

Brian Nagel: Our next question comes from the line of Brian Navel with Open Hymen. Good morning. Thanks for taking my question. So my question, I just want to follow up a bit on inventory. And I know you would discuss this already, but just to be clear, so you know, inventory gets us on face thought you were did seeing coming out the quarter higher than usual. So was it your expectation then that over the next, you know, whatever, a couple quarters, the inventory levels will moderate kind of naturally towards some type of more aggressive action. You have to take the inventory back and line with sales.

Thank you for your question.

Our next question comes from the line of Brian Nagel with Oppenheimer.

Your line is now open.

A good morning.

Hi, good morning. Thanks for taking my question.

So, my question, I just want to follow up a bit on inventory, and I know you've discussed this already, but just to be clear, so inventory, you know, gets us on face value, we're, you did see coming out of the quarter higher than usual.

So is it your expectation then that over the next, you know, whatever, couple quarters the inventory levels will moderate kind of naturally, or is there some type of more aggressive action you have to take to get inventories back in line with sales?

Seth Basham: Hey, Brian, I'll start besting. We are very comfortable with our inventory levels right now and the quality of our inventory, and we don't see any actions required on the quality of our inventory as we move forward. Just to be very clear on that. There's two main drivers of our inventory increases, really three main drivers of our inventory increases year by year. The first I would call out is Kurt did, which was the kind of the lapping of comparison. Last year we had we were down the negative 1.7% on inventory last year. The second is our investment in big ticket. Obviously, those are higher average unit retail items, so that's going to disproportionately drive our inventory dollars up.

Unknown Executive: And I feel really good about the innovation pipeline we're investing in being in a position to drive sales. So the quality of inventory remains strong. We're in a great in-stock position and feel good about the inventory. Great, thanks so much.

Unknown Executive: Thank you for your question. Our next question comes from the line of Chuck Grom with Gordon Haskett Research Advisors. Hey, thanks. Good morning. Thanks a lot.

Hey Brian , I'll start by saying we are

Very comfortable with our inventory levels right now and the quality of our inventory and we don't see any actions required on the quality of our inventory as we move forward, just to be very clear on that.

Charles P. Grom: Hope you guys are well. Just to get back to the comp discussion, as you know, the past few quarters comps have been running close to flat. You've got a long-term guide of about four to 5%. Clearly, the macro has not been your friend.

There's two main drivers over inventory increases, really three main drivers over inventory increases year over year.

Unknown Executive: But can you help us think about the building blocks to get back to that level and maybe a potential timeline you see to get there as well? Thank you. Yeah, hey Chuck, and thanks for the question.

Unknown Executive: As I mentioned in the prepared remarks, we still feel very confident in our long-term guidance. And there are really two main factors that we see as, you know, macro factors that are impacting us right now for performing at that long-term guidance rate. Namely, the shift in consumer spend from goods to services, and the second being deflation and inflation.

The first I would call out, as Kurt did, which was the lapping of comparison last year, we were down, I think, negative 1.7% on inventory last year.

Unknown Executive: And so now, if you hit both of those, if you think about our average ticket for the first half of the year, which is roughly flat, historically, we would have, at a minimum, kind of a one and a half-ish percent, maybe average ticket growth, could be two, two and a quarter. So even if we just had some favorability in the average ticket, all of a sudden, that walks you up to, you know, nearly a point and a half or two-point comp right there.

Unknown Executive: And then if you think about PCE, year-to-date, services are up six, 7%, whereas goods are up 1%. If you were to normalize that, even if goods underperform services, say goods are two and a half or three, and maybe services are three, three and a half, you know, you get that extra point to two points on the goods kind of rising tide, and all of a sudden, you're walking back to, you know, four, four and a half percent comp right there.

Unknown Executive: And so we really do see it as cleanly as that, certainly in the future, certainly have confidence that deflation will moderate, and we'll get back to a consistent inflation rate in this country and in our business. And then similarly expect that, you know, the goods services shift will moderate. And I think that's probably the bigger question.

Unknown Executive: We probably have a better lens as to when the deflation will moderate, because we see that in our business. But on goods and services, I think that's kind of an open question. It is only 90 basis points away from its pre-COVID levels. So it doesn't have a significant leap further to go, but, you know, is that six months? Is that nine months?

The second is our investment in Big Ticket. Obviously, those are higher average unit retail items, so that's going to disproportionately drive our inventory dollars up.

Seth Basham: But when we saw the strength and riders and UTBs and things like grills and other big ticket categories, we invested into that and we'll continue to do that in the Q3 as well. As an example, we typically have about 800 stores that are kind of go long stores and riders that have an extended season. This year, we've increased that to 1150 stores. We are seeing the strength and big ticket continue in the Q3 so that is a that investment is is paying off and we expected to continue to the third thing I would call out is just a reiteration what Kurt and Seth said which is our investment in in stock rates.

But when we saw the strength in riders, in UTVs, in things like grills, and other big-ticket categories, we invested into that, and we'll continue to do that in the Q3 as well. As an example, we typically have about 800 stores that are kind of go-long stores and riders that have an extended season. This year, we've increased that to 1,150 stores.

We are seeing the strength of Big Ticket continue into Q3, so that investment is paying off and we expect it to continue to.

The third thing I would call out is just a reiteration of what Kurt and Seth said, which is our investment in in-stock rates. We are four points higher year-over-year in-stock rates. It's our highest in-stock rate.

Seth Basham: We are 4 points higher year by year in stock rates. It's our highest in stock rate. Since the pandemic, and you know that is really on the shelves inside of our stores. And as you all know, I spent a lot of time in our stores. It's been in five different markets in the last five weeks. We have never looked healthier and better since my time at the company in areas like dog treats and areas like leashes in hardware, in hand tools, and areas like lubricants and batteries. As Seth called out, our clearance levels are lower than last year at this time and in incredibly good shape. As you all know, our clearance levels have been running at historic lows since the pandemic and continue to do so. The team is doing an excellent job navigating inventory.

Since the pandemic.

and you know that is really on the shelves inside of our stores and as you all know I spent a lot of time in our stores been in

Five different markets in the last five weeks.

We have never looked healthier and better since my time at the company in areas like dog treats, in areas like leashes, in hardware, in hand tools, in areas like lubricants and batteries.

As Seth called out, our clearance levels are lower than last year at this time and in incredibly good shape. As you all know, our clearance levels have been running at historic lows since the pandemic and continue to do so. The team is doing an excellent job navigating inventory.

Seth Basham: So, in a way to step back, we feel incredibly good about the quality of our inventory, have no concerns about it the second half, and in fact feel great about the investments we've made, which are driving in stock rates and a kind of a bit of a go longer strategy big ticket.

Anyway, to step back, we feel incredibly good about the quality of our inventory, have no concerns about it in the second half, and in fact, feel great about the investments we've made, which are driving in-stock rates and kind of a bit of a go-longer strategy in big ticket. Thanks, Brian , for the question.

Unknown Executive: Thanks, Brian, for the question.

Unknown Executive: Thanks, so I appreciate all the color. Thank you for your question.

So thanks, I appreciate it, Oliver.

Oliver Wintermantel: All right, question comes to why it's even for us to get on partner.

Unknown Executive: Is that three months? I think, you know, time will tell there. Thanks Chuck for the question. Great, thanks a lot.

Thank you for your question.

Our next question comes to you live from Steven Forbes with Guggenheim Partners.

Stephen Forbes: Good morning. Good morning. How it's probably imperfect, but it looks like it's been about a year now where sales per member trends are down significantly. So curious if there's anything notable in terms of learning from the trends within the customer cohorts as we think about explaining away the spread between comp trends or queue trends versus member trends. And maybe in that regard, as you think about potential, like how would you speak to the opportunity ahead given where the member base and the member share sits today.

Katharine Amanda McShane: Thank you for your question. Our next question comes from the line of Kate McShane with Goldman Sachs. Your line is now open. Hi. Hi, good morning.

You may now open.

Unknown Executive: Thanks for taking our question. We wanted to talk about big ticket strength. We know this is something that you saw in the first quarter.

Unknown Executive: Can you remind us how much of a sale this represents? And how do big ticket needs change in the second half? What falls into that category for the cooler and winter months versus what you saw in the first half of the year? Yeah, hey, Kate. Good morning. This is Kurt.

Good morning. Hal, it's probably imperfect, but it looks like it's been about a year now where sales per member trends are down significantly.

So curious if there's anything notable in terms of learning from the trends within the customer cohorts as we think about explaining away the spread between comp trends or queue trends versus member trends

And maybe in that, in that, in that regard, if you think about potential, like, how would you speak to the opportunity ahead, given where the member base and the member share sits today?

Stephen Forbes: Yeah, so maybe I'll talk a little bit about our neighbors' club in that context. First off, I would say we. Katie to be very pleased. And in fact, it's kind of performing better than what we would expect in the game here, so there's a number of members signing up for Naver's Club, as I called out now at 36 million. The second thing I'd call out is we continue to see a retention rate of our Naver's Club remain at kind of historic rate. So, as you're growing, you're member-based and you're growing retention. And that's, you know, kind of a strong kind of balance to there, right, and add in multiple, increasingly added together.

Maybe I'll talk a little bit about our neighbors club in that context.

Unknown Executive: On Big Ticket, I'll share a few specifics on that. As we mentioned, we've been continually pleased this year to see the rebound on Big Ticket after a couple years of softness and decline. The first quarter ran a positive, high single-digit growth rate in Big Ticket, and the ever important Q2 ran a low double-digit growth rate in Big Ticket. So you hear the commentary from us on our investment in that area of the business, how we're driving sales through innovation. I am so very pleased with the results on Big Ticket.

Unknown Executive: Q2 tends to have the largest portion of our sales on Big Ticket in the low teens; it averages in the high single digits as a percentage of our sales for the year. So in the second half of the year, it does have a lesser impact. But on a year over year basis, we really do see that there's opportunity in the back half of the year, in areas that we're winning in that Seth just mentioned, whether it be recreational vehicles or even riders.

continue to be

Unknown Executive: And then in the back fourth quarter, really, some of the winter-related heating, log splitters, those type areas, snowblowers, we can continue to win in innovation and our ability to drive great value in Big Ticket. So it's certainly one of the tailwinds for us.

Very pleased. And in fact, it's kind of performing better than what we would expect it to get here. There's a number of members signing up for Neighbors Club, as I called out now, at 36 million.

The second thing I'd call out is...

We continue to see

Retention rates of our Neighbors Club remain at kind of a historic rate. So as you're growing your member base and you're growing retention, I mean, you know, that's, you know, kind of a strong kind of balance there, right? And add in multiple, increasingly added it together.

Stephen Forbes: I'd say what we saw was our higher income cohorts that are our strength, strong and retention, modest moderation, mostly in kind of the, as we, and when we looked at it, a lot of it, we really do accorded that they, they're the ones that overindics on services and on travel and on vacations here in the second quarter. But again, modest moderation there, the group that we continue to focus on, and we called this out last quarter as well, is that entry cohort into our Naver's Club. And we lowered the tier threshold and we increased the type of reward you could redeem at the last, in our last quarter and saw nice improvement there.

I'd say.

What we saw was

are higher income cohorts that are our strength.

Strong on retention, modest moderation, mostly in kind of the as we and when we looked at it, a lot of it, we really do quarter that they they're the ones that over indexed on services and on travel and on vacations here in the second quarter. But again, modest moderation there.

The group that we continue to focus on, and we called this out last quarter as well, is that entry cohort into our Neighbors Club, and we lowered the tier threshold.

And we increased the type of rewards you could redeem at the last, in our last quarter.

Stephen Forbes: We're continuing to focus on that through the second quarter.

And saw a nice improvement there. We're continuing to focus on that through the second quarter. As we look towards the back half, we're very excited about the implementation of our customer data platform, how that's gonna further accelerate our ability to personalize with customers and our communications and help continue to stimulate all groups, but in particular, that kind of entry-level group.

Stephen Forbes: As we look towards the back half, we're very excited about the implementation of our customer data platform. How that's going to further accelerate our ability to personalize with customers and our communications and help continue to stimulate all groups, but in particular, that kind of entry level group. In addition, we launched this quarter our hometown heroes program. It's also an excellent start in terms of members sign up. And as we called out, well, I don't expect these trends to continue. The early signups have been a significant piece of it is new to track to supply and new to our, our neighbor's Club program.

In addition, we launched this quarter our Hometown Heroes program. It's off to an excellent start in terms of member sign-up.

And as we called out, don't expect these trends to continue, the early signups have been, a significant piece of it is new to Tractor Supply and new to our Neighbors Club program.

Stephen Forbes: So, you know, we have, I think it's one of the best membership programs, low to programs, low to programs, excuse me, in the, in the market out there. The team continues to iterate and make it better and better. Our customers continue to give us very favorable marks on it. And we do see Neighbors Club is instrumental to our success as we move forward. Thank you.

You know, we have, I think it's one of the best membership programs, loyalty programs, loyalty programs, excuse me, in the market out there. The team continues to iterate and make it better and better. Our customers continue to give us very favorable marks on it. And we do see Neighbors Club as instrumental to our success as we move forward.

Stephen Forbes: Thanks, Stephen. Thank you for your question.

Thank you.

Unknown Executive: The team's done an excellent job bringing new products to our customers and driving value even through areas like deferred financing as a great value for Big Ticket. So while not as much of a swing factor in the second half, we do believe that's one of the tailwinds on our comps for the second half of the year. Thank you. Thank you for your question. Our next question comes from the line of Brian Nagel with Oppenheimer. Your line is now open. A good morning. Hi, good morning.

Thanks, Steven.

Oliver Wintermantel: Our next question comes from a line of all of her winter man's out with ever court. You guys now open. Yeah, thanks, guys. With the, with the variability of the outcomes and the range for the third quarter and the fourth quarter.

Thank you for your question.

Our next question comes from the line of Oliver Wintermantel with Evercore.

Your line is now open.

Thank you.

Yeah, thanks, guys. With the variability of the outcomes in the range for the third quarter and the fourth quarter, maybe it would be helpful if you could walk us through comp ticket and comp traffic expectations.

Oliver Wintermantel: Maybe it would be helpful if you could walk us through a camp ticket and come traffic expectations for those two quarters. And maybe on a ticket side, maybe you can't break it out in the, you are, or inflation. Thank you.

for those two quarters. And maybe on the ticket side, maybe you can break it out in AUR or inflation. Thank you.

Oliver Wintermantel: Hey, I'll ever, how are you today? Thanks for the question. I would, the, the main driver, the variation for the second half in the range of outcomes for our comp is really what the driver of our range for the first half was this transactions. You know, as we've been, I think, pretty transparent. We have great insight to average ticket, great insight into our average unit retail. You know, pending some mix. You know, we know exactly what our pricing for our seasonal products are already going to be for the year. We know what our queue trends are.

Brian William Nagel: Thanks for taking my question. So my question: I just want to follow up on inventory. And I know you've discussed this already, but just to be clear, inventories get us on face value were did seem coming out of the quarter higher than So is it your expectation then that over the next, you know, whatever, couple quarters, the inventory levels will moderate kind of naturally? Or is there some type of, more aggressive action you have to take to get inventories back in line with Hey, Brian, I'll start by saying we are very comfortable with our Just to be very clear on that.

Hey Oliver, how are you today? Thanks for the question.

Unknown Executive: There are two main drivers of inventory increases, really three main drivers of inventory increases year over year. The first I would call out, as Kurt did, which was easier, the kind of net, the lapping of comparison last year. We were down, I think, negative 1.7% on inventory last year. The second is our investment in big ticket items. Obviously, those are higher average unit retail items, so that's gonna disproportionately drive our inventory dollars up.

I would, the main driver of the variation for the second half in the range of outcomes for our comp is really what the driver of our range for the first half was, was transactions.

Unknown Executive: But when we saw the strength in riders, in UTVs, in things like grills and other big ticket categories, we invested in that. And we'll continue to do that in Q3 as well. As an example, we typically have about 800 stores that are kind of go-long stores and riders that have an extended season. This year, we've increased that to 1,150 stores.

Unknown Executive: We are seeing the strength in big ticket items continue in the Q3, so that investment is paying off, and we expect it to continue. The third thing I would call out is just a reiteration of what Kurt and Seth said, which is our investment in in stock rates. We are four points higher year over year in stock rates. It's our highest stock rate since the pandemic. And, you know, that is really what is on the shelves inside of our stores.

Unknown Executive: And as you all know, I spent a lot of time in our stores, in five different markets in the last five weeks. We have never looked healthier and better since my time at the company. In areas like dog treats, in areas like leashes, in hardware, in hand tools, in areas like lubricants and batteries.

Unknown Executive: As Seth called out, our clearance levels are lower than last year at this time and in incredibly good shape. As you all know, our clearance levels have been running at historic lows since the pandemic and continue to do so. The team is doing an excellent job managing inventory.

Oliver Wintermantel: We obviously have a perspective on how we're going to be pricing queue into the back half of the year. So we have a very good forward-looking view as to our average unit retail. And so I feel like there's probably less bearability and take it expect that to be reasonably flat throughout the year. Although there's some modestly easier compares on average unit retail as you get into the fourth quarter. So there's a little bit of upside there. But the, the main driver, our range of outcomes is going to be transactions. And particularly in the fourth quarter, and really we think it's all around consumer sentiment.

And so I feel like there's probably less variability in ticket, expect that to be reasonably flat throughout the year, although there's some modestly easier compares on average unit retail as you get into the fourth quarter. So a little bit of upside there.

But the main driver of our range of outcomes is going to be transactions.

Particularly in the fourth quarter, and really we think it's all around consumer sentiment and also drivers of need, and if there's some weather events, that'll drive need, and depending on the federal election and the shortened holiday season, I think that will drive sentiment, and those two things will come together to drive our transactions, and so anyway, back to your point, I think the variability for the back half of the year is really primarily transactions with maybe a very modest range of outcomes on AUR.

Oliver Wintermantel: And also drivers of need. And if there's some weather events, that'll drive need. And depending on the federal election and the short and holiday season, I think that will drive sentiment. And those two things will come together to drive our transactions. And so anyway, back to your point, I think the variability for the back half of the year is really primarily transactions, with maybe a very modest range of outcomes on AUR.

Unknown Executive: David, thanks very much, and good luck. Yeah, thanks, Oliver.

Thank you. Bye-bye.

Thanks very much and good luck.

Zachary Robert Fadem: Thank you for your question. Our next question comes from the line of Zach Fadem with Wolfardo. You might as well open.

Yeah, thanks, Oliver.

Unknown Executive: Thanks, I appreciate it. Thank you for your question. Our next question comes from the line of Steven Forbes with Guggenheim Partners. Your line is now open.

Thank you for your question.

Steven Paul Forbes: Good morning, how, probably imperfect, but it looks like it's been about a year now where sales for member trends are down significantly. So curious if there's anything notable in terms of learning from the trends within the customer cohorts as we think about explaining a way, Spread Between Comp Trends or Q Trends vs Member Trends. And maybe in that in that regard, if you think about potential, like how would you speak to the opportunity ahead, given where the member base and the member share sits today? Yeah, so maybe I'll talk a little bit about our neighborhood club in that context.

Unknown Executive: First off, I would say we continue to be very pleased. And, in fact, it's kind of performing better than we would expect it to get here, with the number of members signing up for Neighbors Club, as I called out now, at 36 million. The second thing I'd call out is we continue to see retention rates of our Neighbors Club remain at kind of a historic rate. So as you're growing your member base and you're growing retention, I mean, you know, that's, you know, kind of a strong kind of balance there, right, and multiple, increasingly added it together.

Unknown Executive: I'd say what we saw was our higher income cohorts that are our strength, strong on retention, modest moderation, mostly in kind of the way we and when we looked at it, a lot of it we really do agreed that they they're the ones that overindexed on services and on travel and on vacations here in the second quarter. But again, modest moderation there that the group that we continue to focus on, and we called this out last quarter as well, is that entry cohort into our neighbors club, and we lower the tier threshold, and we increased the type of rewards you could redeem at the last in our last quarter, and saw a nice improvement there. The team continues to iterate and make it better and better.

Unknown Executive: Our customers continue to give us very favorable marks for it, and we do see that the neighbors club is instrumental to our success. As we move forward, thank you. Thanks, Steven.

Zachary Fadem: Hey, good morning. Kurt, you mentioned the election as a potential second-half headwind. So first, are there performance call-outs during prior elections? And then second, is there any evidence to suggest that your business may perform differently based on the outcome of the election? Yeah, hey, Zach, in regards to elections, in my history, as we've looked at that and we have been through cycles, there is no real meaningful performance change based on the year of a federal election or the outcome of a federal election. Now, we have seen and I think it's well understood that this is a very intense environment today with this election. What that does to the consumer sentiment is certainly one that we are being conscious of.

Unknown Executive: Thank you for your question. Our next question comes from a line from Oliver Wintermantel with Evercore. Your line is now open.

Hey, good morning. Kurt, you mentioned the election as a potential second half headwind. So first, are there performance callouts during prior elections? And then second, is there any evidence to suggest that your business may perform differently based on the outcome of the election? Thank you. Thank you.

Oliver Wintermantel: Yeah, thanks, guys. With the variability of the outcomes in the range for the third quarter and the fourth quarter, maybe it would be helpful if you could walk us through a comp ticket and comp traffic expectation for those two quarters. And maybe on the ticket side, maybe you can break it out in AUR or inflation. Thank you. Hey, Oliver, how are you today?

Yeah, hey, Zach.

In regards to elections in my history as we've as we've looked at that and we have been through cycles

There is no real meaningful performance change based on

You know, the year of a federal election or the outcome of a federal election.

Now, we have seen, and I think it's well understood, that this is a very intense...

environment today with this election, what that does to the consumer sentiment is certainly one that we are being conscious of. And I think the election will take a lot of attention and could impact the consumer spending habits, et cetera. But really over the years, how we've seen the performance of the consumer has really proven to have no strong indication that we should plan for or change our outlook in any particular way. It's just viewed as one that could be a variable in the ranges of outcome. And so we're conscious of that, but we've been able to pivot in either one of these environments. And the one.

Kurt Barton: And I think the election will take a lot of attention and could impact the consumer spending habits, et cetera. But really, over the years, how we've seen the performance of the consumer has really proven to have no strong indication that we should plan for or change our outlook in any particular way. It's just viewed as one that could be a variable in the ranges of outcome. And so we're conscious of that. But we've been able to pivot in either one of these environments. And the one last thing I would just point to is that for us, which I think is different, is that it doesn't tend to have much of a change because it's a needs-based business, where regardless of the outcome, the lifestyle and the need that we serve don't really change that much.

The last thing I would just point to is that for us, which I think is different, is that it doesn't tend to have much of a change because it's a needs-based business.

where regardless of the outcome, the lifestyle and the needs that we serve don't really change that much. So we watch and we're creating strategies under scenarios, but we don't see a specific outcome that we are planning for.

Zachary Fadem: So we watch and we're creating strategies under scenarios, but we don't see a specific outcome that we are planning for. Got it.

Unknown Executive: Thanks for the time.

Got it. Thanks for the time.

Unknown Executive: Thank you for your question.

Unknown Executive: Thanks for the question. I would say the main driver of the variation for the second half in the range of outcomes for our comp is really what the driver of our range for the first half was this transaction. I, you know, as we've been, I think, pretty transparent, we have great insight into average ticket, great insight into our average unit retail, pending some mix, you know, we know exactly what our pricing for our seasonal products is already going to be for the year.

Christopher Michael Horvers: Our next question comes from a line of Chris Hauvers with JP Morgan. You're on the panel, then. Thank you. I'm French now.

Unknown Executive: We know what our Q trends are, and we obviously have a perspective on how we're going to be pricing Q into the back half of the year. So we have a very good forward-looking view as to our average unit retail, and so I feel like there's probably less variability in ticket. I expect that to be reasonably flat throughout the year, although there's some modestly easier comparisons on average unit retail as you get into the fourth quarter, so a little bit of upside there.

Thank you for your question.

Our next question comes from the line of Chris Horvers with J.P. Morgan.

Unknown Executive: But the main driver, our range of outcomes, is going to be transactions, and particularly in the fourth quarter. And really, we think it's all around consumer sentiment and also drivers of need. And if there are some weather events, that'll drive need.

You're on a call, Ben.

Unknown Executive: So my question is on the commodity side. So corn has come down a lot since the start of the year, and even where it was at the end of the first quarter, historically, we've talked about corn being one of the biggest commodities to watch. So I guess to what extent have you thought about that in terms of affecting your sequential reflation expectations? And does that quickly turn into the sort of the feed category? And then on the pet food side, are you seeing price and investment from the big pet food brands? And what are the early reads on that being enough to turn the pet food category enough elasticity to get that growing more quickly?

Thank you. I'm French now. So my question is on the commodity side. So corn has come down a lot since the start of the year, and even where it was at the end of the first quarter. Historically, we've talked about corn being one of the biggest commodities to watch.

So I guess to what extent have you thought about that in terms of affecting your sequential reflation expectations?

And does that quickly turn into the sort of the feed category? And then on the on the pet food side.

Are you seeing price investment from the big pet food brands, and what are the early reads on that being enough to turn those, you know, the pet food category, you know, enough elasticity to get that growing more quickly?

Unknown Executive: And depending on the federal election and the shortened holiday season, I think, you know, that will drive sentiment. And those two things will come together to drive our transactions. And so anyway, back to your point, I think the variability for the back half of the year will be really primarily transactions with maybe a very modest range of outcomes on AUR. Thanks very much and good luck.

Sure.

Unknown Executive: Yeah, thanks, Oliver. Thank you for your question. Our next question comes from the line of Zach Fadem with Wells Fargo. You may now open it. Hey, good morning.

Hey, Chris, this is Kurt, and I'll take the first part of the question on the commodities, and then I'll let Seth address your question on pet food. On commodities, just some key points that I think is helpful to reference, corn, which is the largest commodity impact item. Thank you.

Zachary Robert Fadem: Kurt, you mentioned the election as a potential second half headwind. So first, are there performance warnings during prior elections? And then second, is there any evidence to suggest that your business may perform differently based on the outcome of the election? Yeah, hey, Zach.

Unknown Executive: In regards to elections in my history, as we've looked at that, and we have been through cycles, there is no real meaningful performance change based on, you know, the year of a federal election or the outcome of a federal election. Now we have seen, and I think it's well understood that this is a very intense environment today with this election; what that does to consumer sentiment is certainly one that we are being conscious of.

Unknown Executive: And I think the election will attract a lot of attention and could impact consumer spending habits, etc. But really, over the years, how we've seen the performance of the consumer has really proven to have no strong indication that we should plan for or change our outlook in any particular way. It's just viewed as one that could be a variable in the, you know, the ranges of outcomes. And so we're conscious of that.

Unknown Executive: But we've been able to pivot in either one of these environments. And the one last thing I would just point out is that for us, which I think is different, is that it doesn't tend to have much of a change because it's a needs-based business, where regardless of the outcome, the lifestyle and the needs that we serve don't really change that much. So we watch and we're creating strategies under scenarios, but we don't see a specific outcome that we are planning for. Got it. Thanks for your time.

Unknown Executive: Thank you for your question. Our next question comes from the line of Chris Horvers with J.P. Morgan. Your line is now open. Thank you.

Additionally, when you think of corn, soybean, cotton, steel, they all are commodities that play into our pricing. They have all been at year-to-date or year-over-year in the low teens deflationary point compared to June of 2023.

All of them are generally back to...

2019 levels.

and they are 30 or nearly 40% off of their 2022 year highs. So we've been going through a two-year cycle of that and all indications are we are at the 2019 levels. We're at what we believe is the trough. Most of these costs have already been embedded into it.

The only other variability that, and I indicated that is...

Christopher Michael Horvers: So my question is on the commodity side. So corn has come down a lot since the start of the year. And even where it was at the, you know, end of the first quarter, historically, we've talked about corn being one of the biggest commodities to watch.

You would look at Q4 and see that to be a neutral or potentially even beginning to see an inflationary turn. And the way commodities will shift will, I think, will really derive whether or not Q4 or even to Q1 is a shift into some slight inflation or keeps us at a plateau. They, the corns and soybeans tend to move within about a...

60 to 90 day timeframe through our our systems and so they move pretty quickly and impact the cost of goods sold in a really timely basis. I'll turn it over to Seth on the follow-up question on pet food.

Unknown Executive: So I guess, to what extent have you thought about that in terms of affecting your sequential reflation expectations? and does that quickly turn into the sort of feed category, and then on the pet food side, are you seeing price investment from the big pet food brands, and what are the early reads on that being enough to turn those cats, you know, the pet food category, you know, enough elasticity to get that growing more quickly Sure.

Unknown Executive: Hey Chris, this is Kurt, and I'll take the first part of the question on commodities and then I'll let Seth address your question on pet food. On commodities, just some key points that I think are helpful to reference.

Kurt: Corn, which is the largest commodity impact item, but additionally, when you think of corn, soybeans, cotton, and steel, they all are commodities that play into our pricing. They have all been at year to date or year over year in the low teens deflationary point compared to June of 2023. All of them are generally back to 2019 levels.

Unknown Executive: And they are 30 or nearly 40% off of their 2022 2022 year highs. So we've been going through a two year cycle of that. And all indications are we are at the 2019 levels, we're at what we believe is the trough, most of these costs have already been embedded into it. The only other variability that, and I indicated that that is, you would look at Q4 and see that to be neutral or potentially even beginning to see an inflationary turn.

Unknown Executive: And the way commodities shift will, I think, will really derive whether or not Q4 or even Q1 is a shift into some slight inflation or keeps us at a plateau. They, the corns and soybeans, tend to move within about a 60 to 90 day timeframe through our systems.

Yeah, hey, Chris. Hey, just as a simplest answer, I would just say when you look at the back half,

We're not seeing any signaling that you're going to see, like, AUR compression when it comes to pet food when we look out. Right now, AURs continue to be somewhat flat year over year, and that's kind of what we see going forward.

Relative to both feed and pet food, I would say, like, as you think about the current environment we're in, if you continue to see commodities stay where they are, you'll start to see things like you've traditionally seen in the industry where more value packs, more bonus packs,

Things of that nature will continue to hit the market. So at this point, we see pet food pricing remaining basically stable.

Unknown Executive: And so they move pretty quickly and impact the cost of goods sold in a really timely basis. I'll turn it over to Seth on the follow-up question on pet food. Yeah, hey, Chris.

Seth: Hey, just as a simplest answer, I would just say, when you look at the back half, we're not seeing any signaling that you're going to see like UR compression when it comes to pet food. When we look out right now, URs continue to be somewhat flat year over year. And that's kind of what we see going forward, relative to both feed and pet food. I would say, like, as you think about the current environment we're in, if you continue to see commodities stay where they are, you'll start to see things like you've traditionally seen in the industry where more value packs, more bonus packs, things of that nature will continue to hit the market. So at this point, we see pet food pricing remaining basically stable. Thanks very much.

Unknown Executive: And Victoria, we'll take one more call, please, and then we'll wrap the call after that. Of course. Our final question comes from the line of Peter Keith with Piper Sandler. Your line is now open.

Thanks very much.

Victoria, we'll take one more question and then we'll wrap the call after that.

Of course.

Our final question comes from the line of Peter Keith with Piper Sandler.

Your line is now open.

Peter Jacob Keith: Thank you very much, everyone, for squeezing me in. So, Hal, you mentioned in the script that the channel was down negative mid-single. I guess I would agree with that based on our survey work. So, it does suggest that tractor supply share gains accelerated in Q2 versus prior quarters. And I'm wondering, was there something specific to the quarter?

[inaudible]

Thank you very much everyone for squeezing in.

So, Hal, you mentioned in the script that the channel was down negative mid-single. I guess I would agree with that based on our survey work. So, it does suggest that tractor supply share gains accelerated in Q2.

versus prior quarters. And I'm wondering, was there something specific to the quarter? Or do you think there's more kind of structural benefits based on your initiatives that that could keep the share gains elevated in the quarters to come?

Unknown Executive: Or do you think there's more kind of structural benefits based on your initiatives that could keep the share gains elevated in the quarters to come? Yeah, hey, Peter, thanks for the question. I'd really point to two things.

Unknown Executive: One, I think structurally, we play a little bit more in the big ticket than a lot of the other farm and ranch competitors on the margins. But you know, I think that that helped raise our water line a little bit on total sales. Also, I would say, on the Q business, in particular on the feed side, well, the Q business in general, particularly dog food and animal feed, we are gaining share in both.

Yeah, hey, Peter. Thanks for the question. I'd really point to two things. One, I think structurally we play a little bit more in big ticket than a lot of the other farm and ranch competitors on the margins. But, you know, I think that that helped raise our water line a little bit on total sales.

Also, I would say, on the Q business, in particular on the feed side, well, the Q business in general, particularly dog food and animal feed, we're gaining share in both.

Unknown Executive: And I think a lot of that comes down to our scale, our cost position, both with working with our vendors and our partners there, but also our supply chain and, whether it's our DCs, our mixing centers, our freight partners, and just having the best cost position in the market, being able to invest that appropriately in price. As you know, we have over 20 price zones; we're able to get a really good environment.

Our share gains in animal feed, in our view in Q2, were outsized, and I think a lot of that comes down to our scale, our cost position, both

with working with our vendors and our partners there, but also our supply chain and whether it's our DCs, our mixing centers, our freight partners, and just having the best cost position in the market, being able to invest that appropriately in price.

As you know, we have over 20 price zones. We're able to get really targeted in where we want to price and how we need to price to drive those units.

So, yeah, I think those would be the things I'd speak to, and then the final point would be, of course, our strategic initiatives.

I think, you know, it relates to say like the fusion remodel program, you know, we're approaching half of our store base now being the fusion remodel program.

I think our store environments relative to the farm and ranch channel are significantly a higher level of a store environment now. Our commitment to customer service, we call that out.

Unknown Executive: Now, our commitment to customer service, we call that out. So you get, I think, a better level of customer service in our stores. And so just all those sorts of things are starting to add up to continue to drive the outsize share game.

I think a better level of customer service in our stores, and so just all those sorts of things are starting to add up to continue to drive the outside share gains.

Unknown Executive: Thanks, Peter, for the question. Thank you.

Unknown Executive: Thanks, Peter, for the question. Thank you. That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

Thanks, Peter, for the question.

Unknown Executive: We'll wrap up our call today. Everyone in the call, we look forward to speaking to you at the time of our Q story call in October.

Victoria, we'll wrap up our call today. To everyone on the call, we look forward to speaking to you at the time of our Q3 call in October .

That concludes today's call. Thank you for your participation and enjoy the rest of your day.