Q1 2025 Tractor Supply Co Earnings Call
Speaker Change: Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss first quarter 2025 results. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions
Speaker Change: We'll follow it at that time. We ask that all participants limit themselves to one question and return to the queue for additional questions.
Speaker Change: Please note that the cue for our question and answer session did not open until the start of this call. [inaudible]
Speaker Change: Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder this call is being recorded. This call is not permitted without written authorization of Tractor Supply Company.
Speaker Change: I would now like to introduce your host for today's call. Mary Wynn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Wynn, please go ahead. Mary Wynn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company
Speaker Change: Thank you, Alyssa. Good morning, everyone. We appreciate your time and participation in today's call. On the call today or how Lawton, our CEO and Kurt Barton, our CFO , following our prepared remarks will open the floor for questions. [inaudible]
Speaker Change: Please note the supplemental slide presentation has been made available on our website to accompany today's earnings release.
Speaker Change: Now let me reference the safe harbor provisions under the Private Security's litigation reform act of 1995. This call may contain certain forward-looking statements that are subject to significant risk and uncertainties. [inaudible]
including the future operating and financial performance of the company.
Speaker Change: In many cases, these risk and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct and actual results made different materially from expectations.
Speaker Change: 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.
Speaker Change: The information contained in this call is accurate only as of the date discussed.
Speaker Change: Investors should not assume statements will remain offered about a later time.
Speaker Change: Tractor Supply undertakes no obligation to update any information discussed in this call.
Speaker Change: As we move into the Q&A session, please limit yourself to one question to ensure everyone has the opportunity to participate. If you have additional questions, please feel free to rejoin the Q. We appreciate your understanding and cooperation. We will also be available after the call for further discussions. The Q&A session. The Q&A session.
Hal Lawton: Thank you for your time and attention this morning. It's my pleasure to turn the call over to Hal
Hal Lawton: Thank you, Mary Wynn, and good morning everyone, and thank you for joining us today. As always, I'd like to begin by thanking the Tractor Supply team for all they do and for their dedication to our purpose of serving life out here.
Hal Lawton: Despite a softer than expected start to the year, given the delayed spring-selling season, we're proud to report another quarter of strong execution by the Tractor Supply team. We're proud to report another quarter of strong execution by the Tractor Supply team.
Hal Lawton: In the face of volatile weather and the shifting operating landscape, our team remained focused on what we could control, investing with purpose, managing costs with discipline, and most importantly, serving our customers. [inaudible]
Hal Lawton: on The Customer Front, the underlying health of our business remains strong and healthy.
and all the highlight four key indicators.
One, we had robust transaction growth. [inaudible]
Hal Lawton: II, we also had strong unit growth in our consumable, usable, and edible categories. [inaudible]
Three, we had positive new customer counts. [inaudible]
and four, we had record retention of existing customers. [inaudible]
Hal Lawton: These customer indicators reinforce our belief that our customer base remains both healthy and engaged and that we continue to gain market share.
Hal Lawton: Now I want to take a moment to address the updated guidance we issued today.
Hal Lawton: Since we shared our initial outlook for 2025, the macro environment has clearly become more uncertain.
Hal Lawton: Drawing on some of the scenario planning we used during the early days of COVID, today in addition to an updated fiscal year outlook, we're providing second quarter guidance.
Hal Lawton: The updated fiscal year outlook is reflective of three primary considerations.
Hal Lawton: One, it flows through the seasonal spring softness we've experienced to date. [inaudible]
Hal Lawton: Two, it assumes that pressure on big ticket categories will persist for the remainder of the first half. [inaudible]
Hal Lawton: and three, it reflects a range of scenarios related to tariff cost that are vendor base and we are incurring in the second quarter.
Hal Lawton: In other words, we've considered the implications of tariffs through the 90-day pause that begin on April 9th.
Hal Lawton: While not our standard practice, given current conditions, as I mentioned, we are also providing second quarter guidance, as we believe offering near term visibility is important for our investors at this time.
Hal Lawton: As always, our goal is to be transparent and we remain committed to updating our outlook as we gain greater visibility.
Hal Lawton: I'll now turn the call over to Kurt to walk you through the financials. Thank you, Hal, and good morning everyone. In the first quarter, our toll sales were a record $3.47 billion, an increase of 2.1%. The toll sales were a record $3.47 billion. The toll sales were a record $3.47 billion. The toll sales were a record $3.47 billion.
Kurt Barton: Comparable store sales declined 0.9 percent. This performance was driven by strong transaction growth of 2.1 percent offset by decline in average ticket of 2.9 percent. [inaudible]
Kurt Barton: As we analyze our performance across the weeks of the quarter, geographical regions, or product categories, the results point to the delay in spring season shift as the key factor weighing on our results.
Kurt Barton: We also recognize the evolving macroeconomic environment and are closely monitoring ongoing discussions around a potential economic slowdown and its impact on consumer spending.
Kurt Barton: We do believe that some of the softness and big ticket categories reflects a degree of caution in consumer sentiment amid the current environment. That said,
Kurt Barton: Based on our analysis of first quarter performance, we believe our underperformance was primarily driven by adverse weather conditions rather than broader macroeconomic trends.
Kurt Barton: Where our business had a normal transition to spring, we were pleased with the results.
Kurt Barton: Unfortunately, that was not in the vast majority of the country, and we estimate the arrival of Spring was delayed by about three weeks across most of our markets, especially in the Midwest and Northeast, where there was snow just last week. [inaudible]
Kurt Barton: Looking at the cadence of comparable store sales over the quarter, we began with a strong January successfully copying over last year's performance.
Kurt Barton: When evaluating January and February together, we were particularly pleased with the results in our cold weather categories which performed well. However, the momentum slowed as we moved into mid-February and March. [inaudible]
Kurt Barton: Typically, we begin to see early signs of spring in the South by mid February , but this year that transition with delayed due to prolonged cold temperatures and winter storms which extended into mid March. .
Kurt Barton: As a result demand for spring seasonal categories was significantly softer than anticipated.
Kurt Barton: In the first quarter, Spring is much more important in the South than Winter in the North. [inaudible]
Kurt Barton: To give you some further perspective, our spring categories in the south were down about 30%. In total, we estimate that the delay in spring weather was a headwind of about 250 basis points. [inaudible]
Kurt Barton: Also, it's important to recall that we were lapping an early Easter in 2024, which we estimate was approximately a $20 million headwind to comp sales in the quarter, particularly considering that March represents about 40 to 45% of the quarter. [inaudible]
Turning to our geographic, regional performance.
Kurt Barton: It's helpful to view our markets through the lens of our northern and southern geographies.
Kurt Barton: However, given the concentration of our store base and the relative size of our spring business in the south, the strength in the north was not enough to offset the headwinds we experienced in the south during the quarter. [inaudible]
Kurt Barton: Simply put, when spring stalls in the south, it stalls the quarter, and that's exactly what we saw this time.
Kurt Barton: Categories that had the strongest performance where our winter seasonal products followed by year-round categories including notable strength and are consumable, usable and edible products.
Kurt Barton: Overall, our Q sales increased in the mid single digits with unit growth in the high single digits. [inaudible]
Kurt Barton: Given the extended cold weather in the quarter, a leading growth category was heating fuel which was up north of 20 percent. [inaudible]
Kurt Barton: Propane, wood pellets, bedding and pine shavings are great examples of the resiliency of our business model. Domestically sourced needs-based products. Domestically sourced needs-based products.
Kurt Barton: Additionally, products such as bird feeding and poultry feed had robust growth, as did Equine and livestock feed.
Kurt Barton: We're only halfway through our chick days program, but we have been very pleased to date. [inaudible]
Kurt Barton: Broadly, we believe that we continue to gain market share in pet food and our feed categories even as key indicators like pet ownership and cattle and horse counts continue to have modest declines.
Kurt Barton: Categories that were a negative drag to our comp sales included our spring seasonal and related big ticket items like riding lawn mowers and outdoor power equipment and our spring items in clothing and gifts and truck tool in hardware. [inaudible]
Kurt Barton: For Perspective, our Law and Garden Department declined low double digits and riding lawn mowers were down about 25%
Kurt Barton: While certain seasonal categories weighed on our comparable sales, it's important to underscore the resilience and strength of our core business. In fact, our 2.1% increase in conf transactions highlights the underlying health of our model and the needs based demand-driven products our customers depend on us for day in and day out.
Kurt Barton: Transaction Growth was offset by a lower average ticket driven primarily by a negative product mix from fewer spring seasonal goods and modest pressure from lower average unit retail prices. [inaudible]
Kurt Barton: Average unit retail was impacted by a low double-digit decline in big ticket items and strong growth in lower priced heating fuel.
Kurt Barton: Combined, about 75% of our AUR decline is explained by these two categories alone. [inaudible]
Kurt Barton: We also continue to experience modest product deflation of about 50 basis points in line with our expectations . . .
This decline was partially mitigated by increased units per transactions. [inaudible]
Kurt Barton: We are encouraged by the trends we are seeing in unique growth and the underlying share gains and categories where deflation has had an outsized impact to AUR.
Kurt Barton: Our gross margin rate of 36.2% increased 25 basis points to last year. This increase was primarily a critical to our discipline product cost management and the continued execution of our everyday low price strategy.
Kurt Barton: Our Gross Margin expansion was modestly below our expectations due to negative product mix given the softer spring sales which carry a higher gross margin than our winter seasonal products.
Kurt Barton: Our first quarter SGNA expense rate, including depreciation and amortization increased 81 basis points to 29% [inaudible]
Kurt Barton: This increase in SGNA as a percent of its sales was primarily a triple to planned growth investments, which included higher depreciation and last year's opening of our 10th Distribution Center. [inaudible]
Kurt Barton: We also had the leverage of our fixed costs given the level of comparable store sales decline.
Kurt Barton: These factors were partially offset by continued productivity and cost control as well as a modest benefit from our ongoing sale leaseback strategy.
Kurt Barton: Operating income decreased 5.3 percent to 249.1 million dollars and net income decreased 9.5 percent to 179.4 million dollars.
Kurt Barton: During the quarter, we repurchased approximately 1.7 million shares and paid quarterly cash dividends totaling $122.4 million, returning $216.4 million of capital to shareholders.
Kurt Barton: We also increased our dividend by 4.5% marking our 16th consecutive year of growing our dividend. At the same time, we raised our Sherry Purchase Authorization by an incremental $1 billion.
Kurt Barton: Turning now to our balance sheet, merchandise inventories were $3.2 billion at the end of the first quarter, representing a modest 1.5% increase in average inventory per store.
Kurt Barton: We are pleased with how we exited the winter season and the quality of our inventory at the end of the first quarter. The strength of our balance sheet remains a competitive advantage to position us well to navigate the dynamic macro environment.
Kurt Barton: Turning out to our outlook for the balance of the year. As Hal noted, the macroeconomic landscape has become more uncertain since the start of the year. In light of these evolving conditions, we're updating our full year outlook to be reflective of the comments how made in his opening remarks.
Kurt Barton: We now expect net sales growth between 4 and 8% and comparable store sales to range from flat to up 4% [inaudible]
Kurt Barton: We are forecasting an operating margin of 9.5% to 9.9% with net income between 1.07 and 1.17 billion dollars. We are forecasting an operating margin of 9.7 billion dollars. We are forecasting an operating margin of 9.7 billion dollars.
Kurt Barton: This translates to earnings per share in the range of $2 to $2.18. [inaudible]
Kurt Barton: While the tariff environment adds incremental pressure to our cost space, we are actively managing these impacts through close coordination with our vendor and supply chain partners.
Kurt Barton: with multiple scenarios in play. We're positioning the business towards the midpoint of these ranges. Thank you very much.
Kurt Barton: Looking to the second quarter, our guidance calls for net sales growth of approximately 3-4%. Comparable store sales between flat and up 1% and earnings per diluted share of 79 cents to 81 cents.
Kurt Barton: As those of you that have followed us for some time know, we continue to believe the best way to look at our business is to view our performance on the half. It's the way we manage our business and continues to be the best way to judge our performance. [inaudible]
Kurt Barton: We're being prudent in our guidance to give the most realistic view based on what we know today. We're controlling our controllables and making progress and our life out here strategy. Thank you very much.
Kurt Barton: In this environment, what sets Tractor Supply apart is our ability to effectively manage the top line and bottom line while investing in our life out here strategic road drivers. We will be disciplined in our capital investments and in our cost structure.
Speaker Change: With more than two and a half decades of experience with Tractor Supply, I have seen the company navigate through multiple business cycles. We know the playbook and are committed to our results, standing tall and retail.
Kurt Barton: We are closely monitoring consumer demand indicators and forward-looking signals, including shifts in consumer sentiment.
Kurt Barton: Tractor Supply's longstanding track record of resilience and success positions us as a leader in the retail sector ready to seize the market share opportunities ahead and continue to deliver shareholder value.
Hal Lawton: With that, I will turn the call back to Hal. Thank you, Kurt. For the remainder of our prepared remarks, I would like to address the key questions and themes we have heard from many of you in the recent weeks.
Hal Lawton: In this time of uncertainty, we want to make sure we're giving you a real time to you and to how we're thinking about the business and the current dynamic environment. [inaudible]
Speaker Change: So let's start with the top question on everyone's mind. How is Tractor Supply managing through tariffs and corresponding price strategies? Let's start with the top question.
Speaker Change: First, it's important to recognize this management team has a strong track record of navigating complexity with discipline and clarity.
We've been through many other battles together. [inaudible]
Speaker Change: Whether it was during the prior rounds of tariffs, inflationary spikes or supply chain disruption, we know how to operate in these environments and we're applying those same playbooks now. Refine with even better data and sharper execution, building on our learnings from these past rounds. Thank you very much.
Speaker Change: We begin from a position of strength on tariffs. This is not an existential crisis for Tractor Supply. [inaudible]
Speaker Change: Over 60% of our businesses from products that are manufactured, bag, assembled or grown in the United States.
Speaker Change: and only 12% of our business is direct imports. And on our direct imports over the last several years, we've reduced the share from China from north of 90% to currently below 70% and we're on track to be closer to 50% by year in. [inaudible]
Speaker Change: When it comes to the recent tariff announcements, we're taking a proactive that measured approach.
Speaker Change: Like many, we stood up a task force and our merchant, sourcing, inventory and supply chain teams have been working 24-7 cents.
Speaker Change: Despite our relatively damaged retail business model, the increased costs are substantial for many of our manufacturing partners and us. [inaudible]
Speaker Change: One of the competitive and banish of track spite is our agile supply chain and deep vendor relationships.
Speaker Change: We've already had some good early wins and I expect we'll continue to find ways to offset a portion of the cost and ensure key programs are available to our customers this fall and winner. Thank you very much.
Speaker Change: On pricing, our top priority is always to be an advocate of value for our customers. [inaudible]
Speaker Change: They rely on us to maintain their daily lives regardless of economic conditions and we take that obligation very seriously.
Speaker Change: That said, we're already seeing requests for price increases from selected vendors in the areas of the market. And I fully expect that we'll see more in the coming weeks and months.
Speaker Change: Where we take price, we will be surgical, category by category, skew by skew, leveraging our portfolio strategy, always with the top priority being a focus on value perception, but also always with an understanding of margin sustainability.
Speaker Change: A bit on price elasticity. It's worth underscoring the needs-based nature of our core categories. Categories like pet food, animal feed, lubricants, wood pellets, shavings, and many others are basically consumer staples.
Speaker Change: and repair categories like mower parts, trailer accessories and fencing are destination categories for us and ones that our customers count on us to extend the useful lives of their assets.
Speaker Change: The needs-based nature of our business gives us a level of resilience and pricing flexibility that many discretionary businesses don't have.
Ultimately, our goal isn't just to offset cost. [inaudible]
Speaker Change: But it's to protect long-term trust with our customers. Our customer loyalty remained strong. We feel confident in our ability to navigate this moment while continuing to grow profitably.
Speaker Change: That leads to another question that's frequently asked, and that's around the health of our consumer and what trends we're seeing in consumer spending, including any indications of trade down activity or shifts in discretionary demand. Thank you very much.
Speaker Change: I'll start by saying the health of our customer remains very stable, as I said at the outset, and engagement remains high, but understandably cautious.
Speaker Change: And as I get into this question, I'll start with the facts from Q1.
Speaker Change: Foot traffic in the quarter and transactions in the quarter both ran above last year.
Speaker Change: and we're not seeing discernible trade-down in categories like feed and food. [inaudible]
Kurt Barton: and his Kurt mentioned, big ticket was pressured, but that said when the sun was out, seasonal big ticket was solid, and so getting a read on these categories in the quarter was difficult. [inaudible]
Kurt Barton: Now the follow-up question that's often asked is did you see any shifts late in the quarter and how is this shifted in Q2 given the recent drop in the stock market headlines about potential recessions noise on tariffs and also a continued delayed spring. Thank you very much.
Kurt Barton: and I'll start again in this quarter by saying that traffic and transactions continue to run positive and customer engagement remain strong.
Kurt Barton: And I've been in the stores throughout the country the past few weeks and our customers are pursuing life out here with the same passion as previous years. And I think much of the noise we see in the news has had little effect on them yet to date. Thank you very much.
Kurt Barton: R2 categories are performing well. They continue to positively comp, and in fact we've seen a modest step up in our pet run rate. [inaudible]
Kurt Barton: We've continued however to see pressure in our big ticket categories early in Q2.
Kurt Barton: with ether-easter shifting and spring running roughly three weeks behind as Kurt mentioned.
Kurt Barton: It's still difficult to parse whether consumer demand is delayed or fundamentally different this year. We'll continue to watch this closely, especially with three months of spring selling still ahead and a wide range of spending outcomes being forecasted by economists across our country.
Kurt Barton: It's also important to keep them expected though, that big ticket only represents less than 15% of our business. [inaudible]
Kurt Barton: To sum it up, we're reflecting back on our customers, their resilient, and their passion about their lifestyle. And while our business certainly isn't inelastic, our needs-based, demand-driven profile is very attractive and a long-term strength. [inaudible]
Kurt Barton: In fact, we've only posted one negative comp year in the last three decades. [inaudible]
Kurt Barton: Our customers are always looking for value and we're confident we will be well positioned if they choose to be more selective and stretch their budgets. Let's get started.
Kurt Barton: Now shifting to a fun topic that's got a lot of headlines recently and it's a question often asked is how's your chick days performance been so far and what's it continued outlook for the category this year? [inaudible]
Kurt Barton: This year's event is on pace to deliver record-breaking results, and it's a great reflection of Tractorsupply's unique position as the go-to destination for backyard poultry.
Kurt Barton: We're seeing continued momentum from our core customers who are expanding their flock alongside strong engagement this year from new customers ending the category, many of whom are responding to the elevated egg prices and looking to take more control of their food supply.
Kurt Barton: Now as you know we're working with live animals and that comes with lead times. [inaudible]
Kurt Barton: and our demand forecast was set with hatcheries back in June of last year, which means our ability to flex up inventory and season is somewhat limited, but we still think this will be a record bird count this year. [inaudible]
Kurt Barton: That's sad, the strong sell-through that we're also seeing speaks to the relevance of our sortments and expertise in this space and certainly drives our average unit retail up in the category. This is the end of the video.
Kurt Barton: There's no question. This trend is generated terrific earned media for Tractor Supply, reinforcing our leadership in the backyard poultry space. In addition, our Chick Day event continues to be a standout example of retail theater at its best.
Kurt Barton: It brings our life, brand of life in a way that's highly engaged for customers, creates meaningful traffic in our stores, and further strengths in our position as a destination for all things rural lifestyle.
Kurt Barton: Also our assortment of premium breeds continues to lead the category growth and today our customers over index to poultry as we've mentioned before ownership of poultry is nearly one in five customers having chickens.
Kurt Barton: Chick Gaces like an annuity for Tractor Supply as birds typically live five to seven years, and the reoccurring feed and supplies drives trips back to Tractor Supply. And a fun fact is that one chicken can eat over 75 pounds of feed a year, which keeps our customers coming back again and again.
Kurt Barton: We're also seeing strong comps in coups, chick toys and treats, which is a clear sign that innovation and newness continue to resonate this year with our customers.
Kurt Barton: What's especially notable is the strength and big ticket coups with some models approaching a thousand dollars. It's a great example of customers investing in the out here lifestyle when they see innovation and value, as I mentioned.
Kurt Barton: This year, as I said, is shaping up to be the most successful Chick Days event ever.
Kurt Barton: Shifting another topic, as we've discussed several times on our earnings call, we've been dealing with since late 2023, the depletion environment in many of our Q categories. [inaudible]
Kurt Barton: We get asked consistently about inflationary signals and specifically at what point do we think we'll see deflation turn to inflation? [inaudible]
Kurt Barton: On this point, I'll reinforce the guidance that we gave last quarter.
Kurt Barton: Putting aside the recent tariffs, we expect average unit retails benefiting from inflation in our Q category by the middle of the year. We believe that pet category is passage trough and on is on the way to returning to historical trends. We believe that pet category is passage trough and on is on the way to return to historical trends.
Kurt Barton: Additionally, one of the most important input commodities to our livestock feed, Corn, has been well above the low water marks of last year.
Kurt Barton: And as discussed in our view, it is likely that the new tariffs will lead to some level of inflationary pressures with that amount being determined.
Kurt Barton: NetNet, we believe we're on the cusp of turning from deflation to inflation in our business. [inaudible]
Kurt Barton: And finally, we've heard the broader question about our willingness to continue to invest and our light out here 2030 Strategic Initiatives, if the economy were to be in a slowdown. Now, let's move on to the next question.
Kurt Barton: I'll start on this question by reinforcing the multitude of compelling nutritive growth opportunities Tractor Supply is targeting.
Kurt Barton: We shared these as part of our life at here 2030 strategy in our investor day in December . We're even more excited about them now. Thank you very much for your time.
Kurt Barton: Many of these multi-year investments are being implemented in an asset-like manner, especially the sales-driving issues like localization, direct sales and petr-x, and affordability to push investment into 2026 if appropriate to do so. Thank you very much.
Kurt Barton: We have not made a decision to do so at this point, but we'll continue to evaluate business conditions and make these decisions as appropriate.
Kurt Barton: Now, a quick update on a few of the initiatives, Tractor Supply Art Pet RX. We launched that earlier this week, and it's a great opportunity for us to scale on our acquisition of Alibet.
Kurt Barton: The team move with speed and agility to integrate Alabama with the Tractor Supply website.
Kurt Barton: with this quarter, we reached a milestone of 40 million neighbors club members. As I said, the majority of whom have a pet or animal, and we have an opportunity to offer an easy and affordable solution for their RX needs. Great first quarter progress on this acquisition. Thank you very much.
We've also made strong progress on our direct sales initiative.
Kurt Barton: The first batch of sales teams have now launched and select markets, and they're building on the foundation we're laying with the role of our final mile delivery hubs in concert. [inaudible]
Kurt Barton: At the same time we've also begun the first phase of localizing our stores and each customer archetype is now been executed out in the market. [inaudible]
Kurt Barton: Stepping back in a slowing growth environment, our prioritization is to always balance growth and margins. [inaudible]
Or keenly focused on managing risk. [inaudible]
Kurt Barton: This is a cycle testing management team that successfully managed through the prior round of tariffs, where we were very successful during the pandemic and all the supply chain disruptions that followed as well. We'll be prudent nimble with our investments to balance the short term with the significant long term opportunities we see ahead. Thank you very much.
Kurt Barton: To wrap it up, if you take just one thing from our call today, let it be this.
Tractor Supply is built for resilience.
Kurt Barton: tariffs, weather, deflation to inflation, none of it changes our focus or belief in the strength of our durable business model.
Kurt Barton: Our flywheel has stood the test of time. We operate in a needs-based category, we know our customers well, and we continue investing capabilities that will continue to build on our competitive advantages. Thank you.
Kurt Barton: Our team is focused, our balance sheet is strong, and our long-term strategy is working. [inaudible]
Kurt Barton: We're confident in our ability to navigate through the current environment and emerge even stronger on the other side.
Kurt Barton: My deepest gratitude and heartfelt thanks again goes out to our Tractor Supply team for their unwavering dedication to abiding our mission and values each and every day. This commitment is the driving force behind our continued success. Thank you very much.
Speaker Change: Operator, we now like to open up the call for questions and I'll also add that today in addition to Seth, we also have Rob Mills, John Ordus, and Colin Yankee in the room. Thank you.
Thank you for watching!
Speaker Change: Thank you. We will now begin the question in the other session. If you would like to ask a question, you may do so by dialing star 1 on your telephone keypad.
to remove your question, you may press star two.
Speaker Change: and for those using your speaker phone, please remember to pick up your handset before asking your question.
Speaker Change: As a reminder, we ask that you ask one question then return to the queue. Once again, star one to ask a question. Thank you very much.
Speaker Change: Our first question comes from the line of Peter Benedict with Baird. Please go ahead.
Peter Benedict: Oh, hey, good morning, everybody. Thanks for all those, those, those comments out the end. Super helpful.
Can you maybe clarify? Bye.
Peter Benedict: The tariff environment that you're assuming in the second quarter, and then even more importantly for the second half of the year was a little unclear to me.
Peter Benedict: You mentioned something about the 90 day stuff. Are you guys thinking 145 for China and 10% rest of the world? Is that what you're baking in for this quarter for the full year? I guess maybe some more clarity around that. It wasn't it wasn't clear to me from your comments. Thank you. Thank you.
Good morning, thanks Peter for the question.
Peter Benedict: Absolutely. So the way we've approached this is basically to think about tariffs over the next in the context of the Q290-day receipts.
So, to your point...
Peter Benedict: We are making the assumption that the current 10% and kind of non-China and the 145% in China, in addition to the other tariffs.
Peter Benedict: that have been introduced such as the steel tariff, steel and aluminum tariff as well.
Peter Benedict: and so all the receipts that are being kind of occurring in our value system. Thank you very much.
During the Q2 time frame, we're assuming that cost...
Peter Benedict: is going to make its way into our value system in some way.
Peter Benedict: Whether that's our in our manufacturers profit, whether that us finding efficiencies, whether that makes its way over into the consumer. So we've kind of limited our guidance for today to the exposure that we see over the next 90 days. Thanks for joining us.
Peter Benedict: And so stepping back, we're optimist, we're hopeful that much of the global trade policy that's out there today will kind of moderate and there'll be some cooling off and cooler heads will prevail. But we think that kind of as we're all watching the news, we'll see how that evolved. But for the sake of being prudent and just kind of thoughtful and picking snapping the chalk line, what we snapped the chalk line around is the second quarter receipts that are occurring in our supply chain system. [inaudible]
Dr. Smith, Dr. Smith.
Speaker Change: Thank you. The next question is from the line of Chris Horvers with GP Morgan. Please go ahead.
Thanks, good morning, it's Burroth Rowan for Chris.
Bharath Rao: So, on the 2Q guide, Hal, I think you mentioned expectation for continued big ticket pressure, but curious as to what's being baked in the guide in terms of like any sort of sequential improvement in the category and from the Easter shift.
Bharath Rao: And then on the full year with the top line range being raised at the high end, just curious to us to what's baked into there as like what would help you come in at her edge of the original guide and hit that 4% comp. Thank you.
Yeah, good morning.
Bharath Rao: On Q2 we took a very prudent and conservative approach to the quarter. [inaudible]
As I mentioned, we baked float through in our full year. Thank you.
Bharath Rao: The guidance in our performance in the seasonal business through the current year to date. [inaudible]
Bharath Rao: We also assume that there would not be a returning pickup in big ticket through the balance of the quarter, but we did assume that our Q categories would continue to perform as they are. And as I mentioned, we're seeing strength there and modest pickup actually in several of those businesses.
Bharath Rao: In addition, we are also assuming that our core categories and the more the less big ticket seasonal businesses continue to perform as well. Those performed reasonably well in the month of March and have performed reasonably well in the month of April and we expect that to continue as well. Thank you very much.
Bharath Rao: Basically, we kind of flowed through our current run rates, as we're seeing it in the March and April timeframe, through the balance of the quarter, you know, that said, spring is really just beginning in the country. We are ready and very excited about it, we got great products, we've got great setup ready to go, and you know, we certainly are hopeful that our prudent outlook and we overperformed, but we basically took our current run rates and flowed it through. We thought that was...
Thank you.
Scott Ticcarelli: The next question is from the line of Scott Ticcarelli with Truist.
Please go ahead.
Speaker Change: Hey, good morning. This is Josh Young on for Scott. So you mentioned your seeing requests for price increases from vendors at this point. You just give us some more color on how widespread that is across your skews. And have you started to pass through much price at this point?
Good morning.
Speaker Change: As it relates to price increases, we are not taking price increases at this time.
Speaker Change: And we've been very clear on that in the system. There's too much uncertainty. And once there's greater certainty, then we look forward to having very productive conversations with our vendor partners and the rest of our supply chain network.
Speaker Change: to talk about how to best manage and navigate things going forward.
That said, Ed
Speaker Change: Our vendors are still have to ship out a China for many of their products where their single source there and they are occurring that tariff as we speak of 145%
Speaker Change: That tariff is making its way on the balance sheet of our vendors It will eventually make its way into their cost of goods And then they will be looking for ways to manage that through their P&L and also through the rest of the value chain [inaudible]
Speaker Change: We would expect those sorts of conversations to begin over the next few weeks and into the following months. And that's the kind of pressure that's kind of what I'd say we're seeing right now. But again, we're not taking costs increases at this moment. [inaudible]
Thank you for watching!
Okay, that's helpful, thank you.
Speaker Change: Thank you. The next question is from the line of Michael Lasser with UBS. Please go ahead.
Speaker Change: Good morning. Thank you so much for taking my question. How can you clear up a little confusion that we're hearing from some of the folks on the call, which is you have only embedded the tariff.
Speaker Change: for the next 90 days. But to get to the midpoint of the full year guide, you have to assume around a 4% cop increased.
Speaker Change: because it's hard to see the degree of traffic increasing that range, give it all the uncertainty today. So A, can you reconcile those two factors? Will you be taking some price? [inaudible]
Speaker Change: And how much price have you embedded into the midpoint of the guide in the second half? How much inflation and what are you expecting in first the elastic response? Thank you so much.
Absolutely, if I would start just by talking about ... [inaudible]
Speaker Change: second half and thinking about how we thought about the second half in our outlook. Good luck.
Speaker Change: The first thing I'd say is we feel very good about our Q business. [inaudible]
Speaker Change: It continues to perform well and that it is higher penetration in the second half, so that will naturally take things up.
Speaker Change: The second is our transactions continue to be very strong and we would expect that to continue into the second half of the year . . . . .
Speaker Change: The third thing that we've been very consistent on and I reference to my prepared remarks is we do expect AUR to begin to turn positive in the middle of this year, and that will support average ticket as we get into the back half of the year.
Speaker Change: I'd also make a few other comments is that we did have a drought summer last year and we also had a very limited winter last year. So we do expect that our categories and some of our business will be stronger next year, I mean in the back half of the year. So net net, we feel very good about it as we talked about our kind of original guidance. .
Speaker Change: We talked about a step up into the second half, and that would be kind of our normal in an operating in a normal operating environment. And that's it for today.
on the high side at the 4% [inaudible]
Speaker Change: That is reflective of what could potentially make its way in the system based just on Q2 tariffs that are being curred in our value system. And it assumes a partial pass through of that. And there's a variety of scenarios around that. On the bottom side, it would assume that there's a little bit of consumer pullback in the second half.
Speaker Change: that would flow through. But we feel very good and we're managing and navigating towards that mid-base case with many of the kind of natural accelerants that we've talked about occurring in the second half. We'll see you in the next video.
Kurt Barton: Michael, this is Kurt, I'll have one thing that may help on that very much, you can look. Boy, Kurt.
Speaker Change: Yeah, one more thing just to add to House comments if it helps in understanding this.
Hal Lawton: The cost that Hall is talking about incurring is being incurred on the balance sheets for the indirect by our vendors during the second quarter. Our 12% of imports, of course, those are costs that will hit our balance sheet during the second quarter. The imports that hit in the second quarter typically flow through in the second half. [inaudible]
Hal Lawton: So, as you think about the cost that he's referring to on the 90 days, how we share that across the value stream on vendors or with contractor supply and if there's any that need to be passed through on retail prices. Thank you.
Hal Lawton: Those types of actions are more likely to occur in the second half, which is why you see our guide for the second quarter as it is with
Hal Lawton: The potential of multiple scenarios, one of those being some upside to the second half on the AUR.
Thank you very much. Good luck.
Speaker Change: Thank you. The next question is from the line of Chuck Grom with Gordon Haskett Research Advisors. Please go ahead.
Brutka,
Chuck Grom: Thanks very much, good morning. I'm on the cadence of the business on the first quarter. You gave a lot of color, but I was wondering if you could just maybe double-click on each month for us.
Speaker Change: and then within the month of April , are you guys tracking within the guide, I guess at this point in time, I imagine that 20 million recapture.
Chuck Grom: of Easter you've seen at this point, and then just dropping out when you think about trade down, I guess how historically, what parts of the business would you begin to see at first? And it sounds like you're not seeing it yet, but I guess what errors would you see it? Thank you.
Good morning.
Speaker Change: So just elaborate on the color commentator that Kurt provided.
Speaker Change: January was a very strong month for us. We were coming right off of that month in our earnings call and we shared some of that news about some of that strength.
Speaker Change: really predicated based on strong cold weather across the country but also very dominantly in the kind of north and midwest allowing us to comp the strong winter from the fall from the previous year. [inaudible]
Speaker Change: As we got into February , I'd call out two things, one obviously there was kind of a broader starting discussion across about the economy as we got into mid-Debuary. You started to hear other retailers and even yesterday some food service providers kind of commenting on the same thing. Thank you.
Kurt Barton: In addition for us, that's when the winter storm hit the South. And as Kurt talked about in mid-February, that's really when we start to see the lift.
Kurt Barton: in our southern businesses, 5-10 million a week in lift, a week over a week, and we just didn't see that. In fact, we saw a pullback in a few of those weeks because the customers really weren't making it out of their homes. [inaudible]
and then as we got into March.
Kurt Barton: The cooler, wetter weather continued to persist in the southern markets.
Kurt Barton: And in the winter markets, that was a good thing, but it wasn't anywhere enough to offset the winter impact in the South and the cooler, wetter impact in the South.
Kurt Barton: Some of that weather has persisted into April . What I will say April is running right along with what we expected in our forecasting and we comment and we've given guidance for Q2 and we feel very confident in that guidance. Thank you.
Kurt Barton: and you can, you know, look, we've got three months ahead for Spring. We're excited about Spring, we've got great products in Spring, when the Sun's out, our customers are shopping Spring, and we look forward to executing against their Spring Game Plan over the next three months. Thank you very much.
Speaker Change: Thank you. The next question is from the line of Steven Forbes with Guggenheim. Please go ahead.
Stephen Forbes: Good morning, how good morning everyone. How many just following up on Tractor Supply RX?
Speaker Change: Curious if we can maybe talk about the intent and willingness of your member base.
Speaker Change: You're giving all sort of the segmentation and survey work you guys do to transition their spend over to your platform. And then how should we think about the the margin profile of RX? RX?
Speaker Change: in the face of maybe some customer acquisition related spend as that program matures over time here.
Speaker Change: As I mentioned earlier, Rob Mills is in the room, and Rob is driving our integration, and also, you know, leads all of our digital efforts, and so I'll turn it over to him to answer the question. Thanks for the question.
Rob Mills: Well, good morning, Steve. Great to hear from you. So first thing I'll kind of start off saying is how Sheridan is opening comments. Let's get started.
Speaker Change: We're really pleased where we're at with the integration of Al Yvette. [inaudible]
Speaker Change: I'll kind of break it down into three buckets, first the team.
Speaker Change: I spent quite a bit of time with the team, not just through the due diligence but also through Q1 I'm extremely impressed with their culture . . . .
Speaker Change: The knowledge, the team integration, and just the two organizations coming together with a common goal around how do we deliver that value and ease around our products and to Tractor Supply. Thank you very much.
Speaker Change: The second one is really focusing initially right out of the gate with the integration. Thank you very much.
And as you heard and saw on,
Speaker Change: We did launch the integration of RX and Tractor Supply as well as our mobile app late last week going into this week.
Speaker Change: The adoption, the early read has been extremely strong and we've taken a lot of time to understand what is our customer expecting, both in the way of value and ease around speed, delivery and how do we make it just a simple process to move their current script over to TractorSupply.com .
for an early days but we feel great about it. [inaudible]
Speaker Change: The third area that we're going to be doubling down now is what's at store integration, anywhere from signage, how we're leveraging our pet IQ partnership as well as training and driving knowledge within the store with our team members and the expertise of those customers coming in. And then lastly, it is all about neighbor's club integration with our 40 million customers.
Speaker Change: and that majority of them owning a pat. So I'll just kind of sum it up by saying we're early in the game. We feel great about the opportunities. We've had no surprises. We're off to a straight, you know, a strong start from an integration perspective. You're going to see a lot more going into Q2. Thank you.
Thank you Rob.
Thank you.
Thank you.
Speaker Change: The next question is from the line of Seth Sigmund with Barclays. Please go ahead.
Seth Sigmund: Hey, great. Good morning, everyone. I think there's a lot of confusion on the guidance and I know there's a lot of moving pieces here, but I think it would be helpful to maybe just quantify the actual sales impact, the actual EPS impact that you've embedded here from tariffs.
Seth Sigmund: Or at least give us some sort of range because you're raising the high end of comps by 100 basis points for the full year, but you're lowering your earnings. And so I think we're just trying to understand what's embedded here. And then as you think about this 90 day pause, looking beyond that what what have you actually assumed for tariffs because. [inaudible]
Seth Sigmund: I seem like the messaging was suggesting that you're not assuming that's the go-forward rate, so maybe just help us understand that piece as well. Thank you so much. Thank you so much.
Yes, this is Kurt. Kurt, um...
Seth Sigmund: Let me start in maybe reverse order on how you brought some of those questions on it on the second half in regards to receipts. [inaudible]
Seth Sigmund: rather than try to parse out portions of these tariffs, we've just said we've embedded into our assumptions only tariffs over the next 90 days. So whether that be the 10 or the 145, we will evaluate over this.
Seth Sigmund: Second Quarter, and the extremely transparent on any changes based on a very fast moving and volatile environment at this point. We feel that's the right and prudent thing to do. Thank you.
Seth Sigmund: Also in this environment, as I mentioned, we are managing through as most retailers I'm sure are a multitude of scenarios there is vast .
type of options and scenarios as these costs
Seth Sigmund: Go through the value chain, what type of sharing, etc. Our focus will be on maintaining market share. We want to keep our prices low. We will be negotiating and parting with our vendors. So the range was widened to represent a multitude of scenarios just to give you a perspective.
Seth Sigmund: in one scenario, we may see a scenario where there is limited demand or there's cost that needs to be passed on that impacts the amount of units but has a benefit on AUR.
Seth Sigmund: That could put us, you know, closer to the mid or low end of the guidance range. You have other scenarios where there may be higher volumes, higher AUR, could impact your margins, more much like inflation does and so the best I can tell you is there's not a specific number that, you know, we factored in. We're just managing through a number of scenarios and as I mentioned. So, again.
really guiding the business to just...
Seth Sigmund: to manage the guardrails and manage it to the midpoint of that. We've given you our previous guidance. You can look at what we've added on, and I think we've given you enough to understand, you know, those the impact of that again. .
Seth Sigmund: Multiple Stereos, we've dealt with this before and I'm confident the team can manage us and we've given you our best guidance and how we do the business in this environment.
Thank you for that.
Thank you.
Speaker Change: The next question is from the line of Karen Short with Melius Research. Please go ahead.
Hi, thanks very much.
Speaker Change: You should have been in DC this week to explain all the variants of issues that you're dealing with.
Speaker Change: But my main question is, when you look at the foliar operating margin rate guide, can you just give a little color on the split, or how to think about the cadence that goes margin versus S-GNA, and then I think we beaten the tariffs comment to that, but tariff thoughts to that, but gross margin original guidance was up 20 to 40 basis points, I believe, so just how to think about that.
Speaker Change: that throughout the year, assuming we're status quo as is what we know today. [inaudible]
Yeah, Karen Skirt, the primary...
Drivers on both Gross Barge and SGNA for the most part.
Hold in the new updated guidance.
Speaker Change: Fairly consistent with the original guidance. That said, I'll just continue to mention, there are multiple scenarios. And we anticipate as we said in our original guidance that gross margin for the year could expand 20 to 40 basis points. Thank you.
Speaker Change: Higher in the first half than the second half, some that is mostly about compares to last year.
Speaker Change: SGNA, Deleveraging in the guide about 50 basis points for the year, actually the Deleveraging a little bit higher in the first half.
Speaker Change: As you think through the scenarios, as I mentioned, we could see where it a more inflationary environment, that inflation were related to any level of tariff costs.
Speaker Change: puts pressure on margin rate, but benefits your SGNA. So there could be some movement in the geographies on the PNL, but as we model it, I would encourage you to be fairly consistent with what we gave back in January with the original guide.
Okay, thank you.
Thank you. Thank you.
Thank you.
Speaker Change: The next question is from the line of Chuck Sarankoski with North Coast Research.
Please go ahead.
Good morning, everyone.
Speaker Change: Can you perhaps discuss the concept of moving production around to avoid tariffs or adjust to tariffs?
Speaker Change: especially in peril lines, how practical is it, how easy is it, and you end up just picking out the additional costs from the new venue. Thank you.
Hey Chuck, thanks for the question. Thank you very much.
Speaker Change: As Hal mentioned in his prepared remarks, we, a couple quick things here. Number one, we have been actively working on resourcing around not only Southeast Asia, but in other areas of the globe. Over the course, really over the last three years, pretty aggressively, and have a lot of plans in place that will get us.
Speaker Change: Even closer to that kind of 50% or even less point by the end of this year out of China, and that works already actively underway. Thank you.
Speaker Change: Specifically to apparel, we on a direct import side for specifically like our private brands, we have fully moved out of China on apparel products already before these tariffs were announced. So we've been proactively planning this for some time.
Speaker Change: Relative to other categories I tell you, he mentioned we stood up a task force and first I'd just like to thank that team from all the work they've been doing 24-7 over the course the last three weeks.
Speaker Change: and that task force obviously has been assessing every program we have, where we have the opportunities to move.
Speaker Change: Alternative sources of supply, you know, and also like a domestic product that we're leaning into at the same time, being that we are needs-based business and we have a significant portion of our portfolio that is from the states and assembled and produced here in the states at the same time. Thank you very much.
Speaker Change: So, very good about the work that's been going on. Obviously it does take some time to move sources of supply, but this has been in process for us over the course of the last few years. And that momentum has really picked up and is very strong with a lot of movement already looking to occur in the back half this year.
Thank you, thank you.
Speaker Change: Good morning. I'm going to resist the urge to ask a terrif question. So two quick ones. First on sale, lease back. What was the benefit in Q2 or Q1 in any update on annual cadence and then on new store productivity? It's been pretty wonky and with Ali that this time around any color that you can provide on on what you're seeing and what we should expect. Thanks.
Zachary, this is Kurt Obman. On,
on the earth.
Speaker Change: Sale lease back, as we said, we would be pretty consistent on an annual basis with...
The difference being a couple new stores. Of course.
Speaker Change: Additional Stores, added to the amount to be able to offset some of the one-time investments to start up these strategic initiatives. You'll see on the cash flow statement a $17 million gain, and that flows through SG&A. Okay, there's...
Speaker Change: There's no benefit in the corresponding Q1 last year, but there'll be a little bit of noise between the quarters. We anticipate...
in incurring...
Speaker Change: Modest amounts more in 2025, like I said, about two additional stores, about six or seven million dollars year over year. So it'll play out relatively consistent. I would expect over the future quarters. There's really not much noise from a sales back year over year. Newstore productivity continues to be strong. This is the end of the year.
I understand and recognize with some of the...
Speaker Change: Square Footage Change and Timing, it may be difficult from the data that you get to run that. Our new store productivity, we always target to be around the mid 60s, it's historical average, new store productivity in a 12 month rolling basis 62% and as a reminder, new stores have some at times have the same headwinds that comp stores do during a quarter like first quarter. So all normalized right exactly where we expected an ally vet is contributing it.
Speaker Change: Exactly what we had forecasted and we liked the growth trajectory, even in Q1, and excited about as Rob said, our ability to grow through our neighbors club.
Allie Vett about a point. [inaudible]
Speaker Change: for the year to be it would be less than a point. [inaudible]
Just modestly below a point. [inaudible]
Gardiner, thanks so much for the time.
Thanks, Chris.
Speaker Change: Thank you. The next question is from the line of Peter Keith with Piper Sandler. Please go ahead.
Peter Keith: Oh, thank you very much. Thanks for all the great comments in the difficult environment. I was wondering how you feel about your current rate of market share capture. So for a year to date, and then what are just some of the competitive advantages that you're clicking about flexing as we get into kind of this maybe a price hike environment in the back of the year. Thank you very much.
Peter Keith: Hey Peter, thanks so much for the question. Good to talk with you today. On the rate of the market share capture we continue to gain market share in a substantial way and it's been very consistent over the last three years.
and in particular in our Q business. [inaudible]
and we call this out in our prepared remarks. [inaudible]
We are seeing
high single-digit unit growth.
in across our feed categories. Zachary Fadem,
Peter Keith: and then some even higher than that, we reference poultry feed numerous times, and so I would call that one out as one even higher than that. If you look at cattle count, you look at horse count, just think about just generically speaking across kind of the animal count, we are substantially gaining share there. On pet,
as I mentioned in my prepared remarks. Thank you, Marks.
Peter Keith: We do think we've passed the trough on pet, we're seeing your modest...
Peter Keith: Step up in the category, and as accordingly we continue to gain share on top of that modest step up and feel very good about how we're moving forward in pet. And so then as I think about second half and if there was some consumer pullback, first off our scale is going to provide meaningful advantage to us in our cost base, in our vendor negotiations and our ability to navigate. Thank you very much.
Peter Keith: The second thing is, we are very much the leader in the market and so in many ways we're able to lead the market as we as as it needs to be led. So I'd call that out as well. Third thing is our brand and our team members and all that we go to market to drive that business. You look at our positive transactions that we've consistently had in the business over the last five years over the last decade and beyond. We know that will be a strength force as we head into the second half of the year. So we feel excellent about the share gains. We're taking.
Peter Keith: and Cross, whether it's in a tepid environment like we're seeing now, whether it was in a high growth environment, like we saw in 2020 and 2021, and regardless of how that environment will play out in back half of this year. Thank you.
Peter Keith: Operator, we've hit the top of that much. Very good, thank you so much.
Peter Keith: Operator, we've hit the top of the hour, so I think we'll wrap up the call out of respect to others on the call and other companies reporting. So with that, thank you all very much for your time and attention this morning. I'm Arrayo and if there are any follow-ups and we look forward to speaking to you with our Q2 earnings in July . Thank you very much. Thank you.
Peter Keith: Thank you. This concludes today's conference call. Thank you all once again for your participation. You may now disconnect your lines. Thank you very much. Thank you very much.