Q2 2025 Tractor Supply Co Earnings Call

Good morning, ladies and gentlemen, and welcome to tractor supply companies conference call to discuss, second 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 will follow at that time. We ask that all participants limit themselves to 1 question and return to the queue for additional questions. Please note that the queue for our question and answer session did not open until the start of this call.

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. I would like to introduce your host, for today's call Mary when Pilkington senior vice president of investor and public relations for Tractor Supply Company Mary, when please go ahead,

Speaker Change: Thank you to Mia. Good morning, everyone. We appreciate your time and participation in today's call on the call today, participating in our prepared remarks, or how long, our CEO Kurt Barton, our CFO and Colin Yankee our chief supply chain officer. In addition to Colin we will also have Seth Estep, Rob Mills and John Oris, join the call for the question and answer portion. Following our prepared remarks. We will open the floor for questions. Please note that a supplemental slide. Presentation has been made available on our website to accompany today's earnings release.

Let me now 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 uncertainties including the future operating and financial performance of the company. In many cases, these risk and uncertainties are beyond our control.

Speaker Change: 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 an actual results 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. The information contained in this call is accurate only as of the date discussed investors should not assume that these statements will remain operative at a later time Tractor Supply undertakes. No obligation to update any information discussed in this call. As we move into the Q&A session, please limit yourself to 1. Question to ensure everyone has the opportunity to participate. If you have additional questions, please feel free to rejoin the queue, we appreciate your understanding and cooperation, we will also be available after the call for any further.

Hal: Discussions, thank you for your time and attention this morning and it's my pleasure to turn the call over to Hal.

Hal: Good morning, everyone, and thank you for joining us today to kick off today's call. I'll begin with a high-level overview of our second quarter performance. Then I'll turn it over to Kurt for more detailed review of the quarter and our Outlook going forward after that call and Yankee our EVP and chief supply chain officer will join to share an update on our final mile initiative, 1 of the most exciting, and impactful Transformations underway at Tractor Supply.

I'll then return to close out the call with some final thoughts before Q&A.

Before we dive into the results, I want to take a moment to thank our 52,000, plus Tractor Supply, team members, their dedication resilience, and passion for serving life out here, continue to set us apart.

Hal: Truly it's through their dedication and their legendary customer service and deep product knowledge. That we continue to earn our customers trust and loyalty. Their efforts are the foundation of our leadership in rural retail, and Central to how we deliver value every day.

Hal: Overall we are pleased with the record results. We delivered in the quarter.

Hal: despite ongoing macroeconomic uncertainty and a tepid start to Spring our sales performance, exceeded our modest expectations,

Hal: Gains across key seasonal, businesses for getting into the details of Q2. I'd like to highlight 4 Trends first, we delivered comp transaction growth in the quarter which is a Hallmark of Tractor Supply.

Hal: Second customer engagement was exceptional. We hit numerous all-time highs across key, customer metrics, including neighbors, club membership customer satisfaction total, customer shopped new customer growth and record sales of live birds and I could go on and on and on customer loyalty is a Hallmark of Tractor Supply.

Third, average unit, retail term positive right in line with the inflection point that we call it at the beginning of the year and last quarter.

Hal: This shift supported comp ticket growth in the quarter and positions, as well. For the back half of the year.

Hal: And forth and perhaps most importantly we saw sequential comp sales Improvement across the quarter. Each period performed better than the 1 before it and that momentum has continued into early Q3

Hal: These Trends underscore the resilience of our business model and the relevance of our offering, especially in today's environment, our team's disciplined execution in deep connection to our customers, continue to drive performance across the business.

Hal: Now, jumping into some of the details.

Hal: These strengths translated into solid Financial results. For the second quarter. We grew net sales by 4.5% with the comparable, store sales, increase of 1.5%. This was our largest sales quarter ever reaching 4.44 billion, dollars diluted EPS was 81 cents. Our comparable store sales performance was driven by a 1% increase in transactions and a half percent increase in average tickets. In many ways, the quarter played out as expected. Once spring arrived across our markets. While April was impacted by wet weather and a slow seasonal, start May and June delivered comp sales above the quarterly average with June marking our strongest comp month of the quarter.

Hal: We are pleased with the momentum exiting Q2 as customers re-engage with seasonal categories, and our core needs-based assortments.

Hal: Attorney to category performance, our consumable usable and edible or Q products. Led the way with solid unit growth, that consistently ran above our chain average, these demand driven Essentials remain at Cornerstone of our business.

Hal: A stand out within Q was chick days. This year's event was our most successful today.

Hal: More customers than ever are turning to Backyard poultry. And we saw strong growth across both new and existing customers from live Birds to coops feed and supplies. We saw strong broad-based demand across the category.

Hal: Chick days is retail theater at its best uniquely Tractor Supply and reinforces the position we have and Rural retail.

Hal: In pet food, we believe the market has passed the trough of the downturn and is entering a recovery cycle albeit slow and modest.

Hal: We introduced new brands in both dog and cat across the spectrum of value to Super premium with a focus on what differentiates Tractor Supply.

We're actively refining our space allocation resets to adjust product, assortment and relevant. Brands to ensure we're meeting the evolving needs of pet parents.

Hal: At the same time, we're seeing momentum and continue to invest in our complimentary pet initiatives. Allied, that is expanding our reach and pet Pharmacy, while Pet, Wash, stations, and mobile vet clinics continue to deliver strong, customer growth and loyalty.

Hal: Seasonal merchandise performed well including live goods and we saw positive contributions from apparel gift and decor.

Hal: Our garden centers and seasonal live. Good tents supported strong growth in the lawn and garden category.

Hal: We have more than 650 garden centers in operation, an activated over 250 seasonal tents. This spring these efforts reflect a meaningful gain in merchandising capability and helped us to meet our customers passions for gardening and tending to their property.

Hal: Big Ticket performed better than we anticipated customers continue to rely on The Trusted advice of our team members when navigating larger purchases a testament to the legendary service that defines the Tractor Supply in store experience.

Hal: We also believe we somewhat benefited from the bathtub effect is seasonal demand shifted from q1 into Q2 and has continued on into Q3.

Hal: In total, these were moderated by some softness, and select discretionary categories, including pet hard lines, gun safes and air compressors. Additionally certain later, Cycles spring businesses, such as chemicals sprayers and pressure washers, perform below expectations in the quarter. But if picked up as we've moved into Q3 these areas of pressure, we're not unexpected given the broader consumer sentiment and how the spring season unfolded.

Hal: Several customer metrics, we enter the quarter with a record 41 million members who accounted for over 80% of our total sales. We also saw record total customer count and an all-time high and high value customers. And that's defined as those who shop frequently and spend more across categories.

Hal: As part of our neighbors club, we just celebrated the second anniversary of our Hometown Heroes program with a 1 million dollar donation across 10 Charities focused on military service members, veterans and First Responders Hometown Heroes received top tier neighbors club, status and benefits notably about 15% of the Hometown. Heroes are new to Tractor Supply, highlighting the program's reach and appeal shifting to the digital front. Our digital sales grew at a mid single digit rate for the quarter orders fulfilled by our stores. Remain the most popular fulfillment option accounting for nearly 80% of digital orders, a reflection of the convenience and strategic placement of our more than 2,300 stores across Rural America.

Hal: Our store footprint continues to be a powerful enabler of digital growth. We saw robust performance and deliver from store and same day delivery, which reinforces the unique advantage of our local presence in the communities. We serve

Hal: Together. These capabilities enhance convenience for our customers and drive continued momentum in our digital ecosystem.

Hal: Turning to the physical footprint in the second quarter. We opened 24, new track supply stores and 2 pets in by tractor supply stores. And we closed 1, Petsense store, we have a robust pipeline of low-risk organic growth opportunities ahead of us, our recent acquisition of 18, Big, Lots locations gives us great confidence to start 2026 with our new store Pipeline, and a strong position as we anticipate stepping up to 100 new stores. Next year,

Hal: over the past 2 years, we have significantly enhanced our real estate development capabilities, improving new store, economics and fusion remodel returns. We continue to make progress on our fee development program, which gives us greater control over the timeline and cost of new stores and allows us to capture. Approximately, 15% rent savings over the lease term of a new store.

All In.

Hal: We're pleased with the progress. We've made across the business in the first half of the Year our performance in the second quarter reflects solid execution continued, resilience in our core categories and strong alignment with our long-term strategic priorities.

Hal: Looking ahead to the second half of 2025. We recognize the uncertainty that remains for macroeconomic pressures to evolving tariffs. That said, our business model is built for resilience, given our performance here today, and our outlook for the balance of the year. We are reconfirming our guidance for 2025 with the predominantly us. Sourced assortment trusted, vendor relationships in a scalable flexible supply chain. We believe we are, well, positioned to navigate near-term volatility and to continue driving long-term value. And with that, I'll turn it over to Kirk. Thank you, Hal and good morning. Everyone.

Kirk: Echoing house remarks, we're pleased with our second quarter Financial results which delivered record sales and net income as how noted the quarter began more slowly than anticipated largely due to a delayed. Start to the spring season.

Kirk: Based on my experience when spring arrives later, especially when accompanied by favorable moisture levels, we typically see a more compressed Peak selling window, but also a shift in demand to later in the season. That's exactly what we observed this year. With spring related sales activity, effectively pushed back roughly a month.

Kirk: From a regional standpoint 6 of our 7. Geographic regions delivered positive comparable sales all within a tight band. Notably every region posted positive comps in the month of June and we're encouraged to see this momentum continuing in the third quarter.

Kirk: As we indicated last quarter, we expected the second quarter to Mark the turning point from the deflationary headwinds we've been facing and that Outlook proved to be on target.

Kirk: After experiencing 6 consecutive quarters of pressure on our comparable sales from deflation the impact, this quarter was rather neutral

Kirk: Moving down our income statement, gross margin expanded by 31 basis points to 36.9% driven by discipline product, cost management and consistent. Execution of our ongoing everyday low price strategy.

Kirk: I want to thank our Merchants team who continues to play a critical role in delivering results through our product cost management initiatives. Even in a dynamic environment we're seeing meaningful benefits from their disciplined execution, combined, with the ongoing efficiencies where capturing across our supply chain,

Kirk: These efforts continue to drive, our gross margin performance and improve our overall cost structure.

Kirk: Increased by 51 basis points to 23.9%.

Kirk: this increase reflects planned investments in strategic growth initiatives, which included higher depreciation, and last year's opening of our 10th Distribution Center

Additionally, we experienced a modesty leverage of fixed costs. Given the level of comparable store sales,

Kirk: we remain laser focused on cost control and ongoing productivity initiatives.

Kirk: highlighted by continued high performance of our distribution center Network which has increased productivity for the last 3 years and delivered its highest second quarter efficiency results,

Kirk: Operating income grew 2.9% to 577.8 million. Net income, increased 1.1% to 430, million and diluted EPS, grew 2.8% to 81 cents.

Kirk: Our balance sheet remains strong and is a clear competitive Advantage as we navigate and evolving macro environments.

Merchandise inventories totaled 3.1 billion dollars at quarter end, representing a modest 1.5% increase in average inventory per store.

Kirk: This increased supports improved in stock levels and key cue categories to meet customer demand while also reflecting the impact of tariffs on second quarter direct import receipts.

Kirk: We're very pleased with both the positioning and quality of our inventory. Our consistent thoughtful approach to inventory management continues to be a key differentiator for Tractor Supply.

Kirk: We returned 196 million to shareholders this quarter through dividends and share repurchases.

Kirk: For the full year. We now anticipate share repurchases will be in the range of 325 to 375 million below our original Outlook of 525 to 600 million reflecting a more measured pace of repurchases. As we manage Capital, allocation with discipline,

Kirk: As house shared, we are reaffirming our fiscal 2025 Outlook. We continue to recognize the evolving macroeconomic environment and are closely monitoring indicators of consumer spending.

Kirk: We continue to expect. Net sales, growth of 4 to 8% comparable store. Sales are projected to be flat to up 4%, reflecting a balanced view of the current environment and our ongoing initiatives to drive traffic and anticipated ticket gains

Kirk: Our operating margin is anticipated to be between 9.5 and 9.9% with net income between 1.07 and 1.17 billion dollars. This translates to EPS in the range of $2 and $2.18

Kirk: As we noted last quarter, the current tariff landscape is creating some added cost pressure. We're proactively addressing this by working closely with our supply chain and vendor Partners to mitigate the impact.

As to timing, we have seen the Tariff impact, begin to come through on our direct Imports. There. Have been modest cost concessions on the non-direct inventory. At this point, there has been limited impact to the average unit retail. All of this aligns with our expectations that the impacts related to tariffs will primarily occur in the second half of this year and Beyond.

Kirk: Given the ongoing developments, and the dynamic nature of tariff policies. We are reaffirming our guidance to Encompass what we see as a range of possibilities.

Kirk: That said as we shared on our last call, we're thoughtfully managing the business toward the midpoint of that range while remaining agile as the situation evolves, looking to the second half of the year. We expect to see an acceleration in comparable sales performance supported by transaction. Growth gains in average, comp ticket and soft Compares in the second half of the year.

Kirk: It's also worth noting that the prior year had minimal weather related sales benefits with only 1 notable, hurricane and limited winter weather.

Kirk: In addition, the lower mix of Big Ticket items in the second half of the Year creates less Reliance on big ticket sales.

These factors give us cautious optimism as we move into the back half of the year.

Kirk: We continue to anticipate gross margin expansion in the second half of the Year albeit at a lower rate of expansion compared to the first half.

Kirk: as we have previously shared, we begin to lap, the transportation cost benefits from the new DC and we anticipate shifting from favorable compares to modestly, higher year-over-year, Transportation costs,

additionally, tariffs are anticipated to create some slight pressure on gross margin as we Balance, cost increases with maintaining competitive everyday, low pricing,

Kirk: Sales performance. Lapping the opening of the new DC in the prior year.

As well as our ongoing focus on disciplined expense management.

Kirk: We remain confident in our ability to execute our strategic plan and deliver long-term value for our shareholders with that. I'll turn it over to Colin to provide more details on our final mile initiative.

Colin Yankee: In my 25 plus years with Tractor Supply, this stands out as the natural next evolution in our supply chain.

Colin Yankee: My view, it's a true differentiator that strengthens our position and enhances how we serve our customers.

Colin Yankee: And now Colin I'll turn it over to you.

Colin Yankee: thank you, Kurt before I get into the details of our final mile expansion, I want to take a moment to recognize a remarkable progress, our team has made

Colin Yankee: just a few short years, we've transformed our supply chain from a solid operation, to a Nimble purpose-built digitally enabled customer-facing Network 1 that not only supports growth, but fuels a competitive Advantage for Tractor Supply

Colin Yankee: Our supply chain is uniquely designed for life out here.

Colin Yankee: We built the network to support our specialized store format ensuring that our customers have access to the products, they need to take care of their land, their livestock, their livelihood, and their lifestyle.

Over the last 5 years, we've invested in our supply chain, those Investments have driven material returns that includes our directed customer capabilities using our own distribution Network.

Colin Yankee: Our next step is fully integrating. Our final mile solution with our end-to-end supply chain to support, our delivery needs. Whether those sales are generated in store online or through our direct sales business.

Colin Yankee: It's important to recognize that every element of our supply chain is tailored to the demands of our compact store footprint in rural communities and the specialized assortment are customers depend on.

Colin Yankee: We move a lot of tonnage and a wide variety of products through our small store footprint.

Colin Yankee: And that means, we have to be precise in how we flow product and anticipate demand patterns.

There isn't much room for error and we built a supply chain, that uses world-class technology, and data analytics to make all that happen.

Colin Yankee: To achieve that we've scaled machine learning across 90% of our replenishment forecasts, added new Logistics nodes, launched gig enabled and team member delivery capabilities and are now moving more volume with greater precision and flexibility than ever before.

Colin Yankee: Our teams move quickly using their knowledge of our, assortment the complexity of operating in these rural locations and applying our operational excellence principles to deploy new, final mile capabilities across more markets in the first half of 2025.

Helen and I have gone out and done deliveries with our drivers and that experience, quickly, demonstrates that this is about more than dropping a parcel on a front porch.

Speaker Change: We can and we will handle more of those small items with the capabilities. We're putting in place but we're also doing things that others can. We're delivering dozens of stall. Mats. That weigh 94 pounds. Each 16, foot fence, panels,

Speaker Change: Stock tanks and multiple pallets of animal feed on a recurring basis to the same customers.

Speaker Change: These are Highway, high volume Goods that don't fit in the back of a sedan or a van.

Speaker Change: Many of these deliveries involve driving down gravel roads, navigating through pasture, Gates directly onto properties, where our customers live and work.

Speaker Change: In many cases, our team members are trusted to enter our customers property and have their gate codes as well as specific details about where to place the product extending that legendary service we strive for in our stores out onto our customers land.

Speaker Change: With our eyes on direct sales. We know we need to scale this network and integrate it with our end-to-end supply chain.

Speaker Change: Today, we have nationwide DC coverage, where every DC replenishes stores and also serves as a fulfillment center for direct to customer orders.

Speaker Change: Our mixing Center Network provides just in time, replenishment for our fastest moving products.

Speaker Change: And with 90% of digital deliveries ending up within 40 miles of an existing tractor supply store. We have the foundation in place to scale, a fine amount of network capable of serving our customers whether that's for a single bag of product or several pallets.

Speaker Change: To support this. We're leveraging a fleet of Tractor Supply delivery drivers equipped with pickup trucks and trailers or stake bed, trucks, capable of handling these orders to these types of properties, but they're also capable of delivering smaller items while out on their delivery routes.

Speaker Change: Like the rest of our supply chain, this delivery network is built for the realities of rural living with that backdrop. Let me take a moment to update. You on our final mile roll out a powerful competitive, differentiator and a key strategic enabler, for our direct sales and digital growth initiatives.

Speaker Change: Each of which we see is 1 billion dollar incremental sales opportunities.

Speaker Change: To ensure a seamless customer experience.

Speaker Change: I often compare our approach to that the auto parts retailers leveraging, their existing store networks to enable last mile delivery without building costly new distribution infrastructure.

Speaker Change: We're implementing a hub and spoke model.

Speaker Change: We are currently in market across 145 Hub, stores with an additional 220 stores cover as spokes.

Speaker Change: This brings our total final mile coverage to about 15% of stores covered at the halfway point of the year.

Speaker Change: By year end, we anticipate having about 25% of the chain with final mile capabilities.

Speaker Change: All of this is in addition to the existing same day delivery capabilities. We have an all of our stores with third-party delivery partners.

Speaker Change: The early results from our final mile roll. Out are a seating expectations and they're proving out the value of this initiative as a meaningful growth driver.

Speaker Change: The markets where final mile is active. We're seeing average order size of nearly 400, which is a multiple of our average basket.

Speaker Change: Our largest order has been valued at more than dollars a higher customer satisfaction score than other delivery options. A 10 times lower return rate, and stronger. Repeat engagement from high-value, Big Barn customers.

Speaker Change: Our final mile is more than Logistics upgrade. We are playing offense, where we have the infrastructure, the density, and the trust to handle these types of deliveries in rural markets.

Speaker Change: Our drive for legendary service now extends beyond our stores and into our customers Barnes workshops and Fields reinforcing, why Tractor Supply is the most Dependable supplier for life out here.

Speaker Change: To wrap up. What sets our model apart, is the integration of our distribution centers. Mixing centers and local store. Hubs enabling cost-effective fulfillment of more inventory. Without the need for massive Standalone infrastructure buildout.

Speaker Change: This gives us a clear operational Edge in the hard-to-reach. Final mile. That's so critical in Rural America. Now, I'll turn it back over to how to close out our prepared remarks.

Speaker Change: Thank you. Colin I hope Colin's update on our final mile progress, convey, the excitement and confidence. We have in the Strategic investment and the role it will play in further, differentiating Tractor Supply from the competition, as we enter the back, half of the Year we're focused on delivering highly relevant seasonal, events product, Innovation and exclusive brand launches that reinforce our leadership in rural lifestyle, retail.

Speaker Change: From hard lines to Lifestyle, pet choultry and digital to in store. We're strengthened as the most Dependable supplier for our customers, living life out here over the next several weeks, we'll be celebrating Purina days in store and online, Purina's iconic, red checkerboard and trach supplies. Deep, rural Roots, share a Heritage built on, trust, quality and commitment to Animal Care together. We offer a partnership that no other retailer can replicate granted in decades of serving the needs of Life out here.

Nearly 9% of our customers, own a pet or animal and approximately half have both Purina days, allows us to deepen our connection with customers by showcasing expert, knowledge, trusted nutrition Solutions.

Speaker Change: And exclusive offers to support the health and well-being of all their animal species. This event reinforces our leadership in animal nutrition and Care from backyard chickens to show cattle. And from Barnabas to beloved family, dogs.

Speaker Change: Looking ahead 1 of the Marquee moments. This fall would be our dear event. A signature seasonal, activation that continues to gain tracks. And with our customers year after year, this event is designed to meet the needs of outdoor enthusiasts and land owners preparing for the fall hunting season and Wildlife season.

Speaker Change: Will be featuring a curated assortment that includes deer, feeds and attractants Wildlife and animal management products, trail cameras and seasonal apparel all designed to help our customers, prepare their land and gear up with confidence. For the season importantly, the deer event drives cross category engagement and reinforces our Authority and outdoor wildlife and hard lines. It also aligns seamlessly with our broader merchandising Cadence and marketing strategy as we transition into fall.

Speaker Change: We're also excited to build out our Field and Stream offering a long-term commitment to an iconic outdoor brand with a deep connection to the rural lifestyle.

Speaker Change: This move unites 2 names with a strong Heritage for customers, who love the outdoors, we're expanding the assortment include Wildlife safes and outdoor gear thoughtfully curated for the needs of our customers Field and Stream is a natural fit within our portfolio. And we believe it will become a Cornerstone of our long-term merchandising strategy.

Speaker Change: Reliability.

Speaker Change: Looking further ahead, our Halloween holiday and winter. Seasonal sets are coming together with the thoughtful mix of function and festivity.

From cold weather, gear to seasonal decor and gifting. Our assortments are designed to deliver both inspiration and utility as our customers prepare for the colder months.

Speaker Change: Beyond seasonal execution remain focused on our new growth opportunities, including our direct sales, and final mile Solutions our pet and animal RX platform through the alabat acquisition.

Speaker Change: Fusion localization remodels and our growing retail media Network. Each of these represents meaningful incremental. Value drivers, as we continue to evolve our life out here strategy.

Our stores and online platform are ready for the second half of the year. We've invested in inventory, service and capabilities to help our customers live life out here. As always, our team remains focused on what we can control investing with purpose managing costs of discipline and most importantly serving our customers. Thank you for your time today with that operator. We're now ready to open up for questions.

Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star, followed by 1 on your telephone keypad. If for any reason at all, you would like to remove that question. Please. Press star. Followed by 2 again to ask a question. Please press star 1

Speaker Change: Our first question comes from Simeon, Goodman with Morgan Stanley. You may proceed.

Simeon Goodman: Good morning everyone. And, uh, congratulations on the, The Turning comps. Um, Curt how how should we think about the second half?

We were prevailing. We had a little stronger traffic does the complexion of traffic and ticket change at all. In your mind versus where we were a quarter ago and then is there anything to to call out with the traffic in the second quarter.

Simeon Goodman: Were there certain categories that got better? Meaning, transaction, count got better versus getting a little bit worse. Thank you.

Simeon Goodman: Hey, Simon. Yeah, thank you for the question. Um, good morning everybody in regards to the second half comps, uh, as I indicated in my prepared remarks, and I'll share a little bit of extra color. Uh, first on transactions, we have had consistent solid transactions throughout the first half of the year with, you know, a 2% transaction growth in q1, uh, 1% in Q2 our transaction growth continues to be solid. We expect that to continue and to be a contributor to the second half of the year, it's the consumable side of the business and the growth in customers and neighbors club members that are driving that. So we do not um, anticipate seeing those Trends changing.

Simeon Goodman: Uh in regards to the ticket side of it uh we continue to see the evolution from and the shift from the deflationary impact, moving to inflationary and then some of the other pressures, including tariff driving, um some benefit to the ticket.

Simeon Goodman: In summary for the second half of the year. We see demand. Solid, our customers in a strong position.

Simeon Goodman: The expectation for the second half of the year would be balanced between both ticket and transactions, and it would continue to have a bit of a balance. As you saw in second quarter, we are expecting as I indicated inflection and stronger comp sales in the back half of the year than the first half.

Speaker Change: Okay, thank you. Good luck.

Simeon Goodman: Thank you.

next question, comes from Robert ohms, with Bank of America, you may proceed

Robert Ohms: Oh, good morning. Um, thanks for um, taking my question. Um, I wanted to just follow up on other drivers to the back half the, um, I know that. Um, there were some key seasonal items that were drivers in the second quarter. How are you guys thinking about a seasonal as a driver in the back half,

Robert Ohms: And also, the July strength. Was there any pull forward in that from your customers supporting big ticket or anything related to concerns about tariff pricing? Thank you.

Robert Ohms: Hi, Robbie and, uh, thanks for joining the call today, and for the question.

Coming together to lead to a step change in our comp run rate from the first half of the year to the second half of the year.

Robert Ohms: I I and it kind of split a little bit across Q3 and Q4 and then we had really no winter in our Q3. So we have a lot of favorability in kind of last year, lapping as well. And the final thing I'll add is Rural. America is doing very well right now. Uh, there is strong consumer confidence in Rural America. We continue to see domestic migration into Rural America. Rural America is disproportionately benefit from the job creation that's going on. If you look at the 2.2 million gross jobs that have been created this year, the there's disproportionate of those in Rural America. Next Urban, America, and life out here is doing very well. So, as we look towards the back, half of the year, we've got favorable kind of just math Dynamics. We've got favorable lapping. We've got a lot of events in place and we've got, you know, Rural America doing well. So we feel very good about our second half and the inflection that we're optimistic about and we're already seeing it. As I said, in our July numbers,

Speaker Change: Great. Thank you.

Thank you.

Speaker Change: The next question comes from Chris wers with JP Morgan who may proceed.

Speaker Change: Thanks. Good morning and thanks for taking my question. So, my question is, do you think that the weather was a net headwind in the in the second quarter? You know, perhaps that the the right trend is 2% as we're building into the back half.

Speaker Change: Uh, and as you think about the acceleration that you mentioned in June and July, it seems like, you know, maybe June was running mid single digit if you were flattening into June and in July would be better. So,

Speaker Change: you know, the other way to ask the question would be, do you look at

Speaker Change: March to July in its entirety.

Speaker Change: Uh in terms of the base of comp and and as we think about the um acceleration in the back half and in any comment on explicit inflation expectations in the back half, thanks so much.

Speaker Change: A couple just a couple follow-ups on that. Uh,

Speaker Change: Yeah, I mean I think spring first of all plays out different every year. Uh and so there's kind of a natural starting point this spring and a natural kind of endpoint to Spring every year and it you know kind of just those are different every year and you have different Peaks every year. Uh, this year spring started significantly late. I mean, you know, arguably even in the Deep South, it was mid to late March before you even saw saw the spring uptick and it was early May in the north arguably, even a little later that you saw it. So, I would say it, shifted back 4 to 6 weeks, uh, on the start. Uh, and then on the end, I don't think it

Speaker Change: It's finished yet. Uh uh, you know a lot of times it'll end July 4th sometimes, Father's Day this year. It's extended Beyond. We have a lot of moisture in the ground. Grasses are green bugs are out weeds are out. There's a lot of mowing, a lot of weed control. A lot of pest control still occurring. All that said, our Q business continues to be very strong poultry equine, uh bedding, you look across the board. Uh, lubricants right now, propane sales forage. Those businesses are doing very, very well, so it's not just seasonal, uh, final point to your comment on on the 2% comp, I guess. Uh, well, we're not giving quarter to quarter comp. So what I would say is that, what's in plot, as Curt said, we're guiding the business to the midpoint of our annual guidance, uh, and that certainly implies higher than a 2% comp for the back half of the Year. And that is what we are, uh, looking for

Speaker Change: Chris, this is Kurt. I will. I will just add on the on the inflation question that you asked. For that does imply with a ticket increase that we are seeing not just in the commodity, that's not where the expected inflation is. But there will be incremental inflation across the entire entirety of the, the, uh, product category. So, yes, we do anticipate having some inflationary uh, benefit in the back half of the Year versus the historical deflation that we've been um seeing in the last 2 years.

Speaker Change: Thank you for following question. Comes from Seth Sigma at Berkeley's, you may proceed.

Speaker Change: Hey, good morning, everyone. Actually was going to follow up on that last Point around the inflation. Can you talk a little bit more about the Cadence of the price changes that you're planning here that drives that inflation in the back half of the year. And I think, at some point we may have talked about low to mid single digit type of tariff driven inflation, is that still your expectation for the second half of the year and then just finally elasticity what have you embedded here for the guidance? Any thoughts on that? Thank you so much.

Speaker Change: Implied comps are and what our applied average ticket, they would meet for the second half, um, and there's a little range in that we feel very confident in looking at what our average tickets going to be for Q3, uh, and Q4 on our Q products. Those, we have great visibility too on its current average unit retail, what our average moving average unit cost are and how that's going to play out in the second half. That's been the underlying inflation that we've been calling out for 2 or 3 quarters and that, we still, uh, have very good visibility to on the Tariff related uh, products. We have excellent visibility into what that pricing will be for Q3 and and have good visibility into, um, how that will affect our Aur. And we'll be watching for elasticity is very closely. Q4 we have good visibility into but are still, uh, being very, um, uh, flat. Maintaining a lot of flexibility, uh, with all of our eyes on the August 1st, tariff deadline. Uh, and we've, uh, put in place a number of tactics to give us a lot of flexibility in Q4 on.

On pricing. And, you know, we've got a lot of, uh, draft spreadsheets on pricing and that a lot of that will be determined, uh, post post August 1st. We've got a lot of flexibility on that, but, but net net. There's there's, you know, a relative level of implied inflation, uh, on all of our Terror products. It's just, you know, varying ranges, and we leverage, our Port portfolio strategy for that.

Speaker Change: Thank you. The following calls from Steven zakone, with Citi group. You may proceed.

Steven zakone: Great. Good morning. Thanks very much for taking my question. A lot of focus on same for sales. I wanted to shift to margins because, you know, you're calling for this step change in comps in the back half of the year. Can you just help us think to the flow through to margins and then EPS? Maybe what drives upside to the gross margin in the back half and then on sgna purchase help us think through the level of same Source, sales growth, you need to Leverage sgna

Speaker Change: Yeah. Hey Stephen, um, on the operating margin the first half for this versus the second half is very much, um, 2 different stories. And I'll try to give you a bit of additional color in regards to the reference points that I already had in my prepared remarks. But, uh, in the gross margin, we had easier Compares and we start to lapse some of those benefits in the second half of the year. So, as we said, in the beginning of the year, going into this year, we saw stronger, gross margin performance in the first half than the second half. So of our range on gross margin, the second half of the year will be at the low end of that range on Gross margins on the sgna side. As we've now, lapped, the opening of a distribution center and, um, have higher comps expected for the back half of the Year while we see the gross margin, uh, below the first half in in the

Speaker Change: Second half, we also see sgna really almost half of the level of de-lever in the second half that you saw in the first half. So uh operating margin in our, if you look at the base case there's some operating margin decline year-over-year. We said we're making investments in these strategic initiatives. Uh on the gross margin. Mix is a Little Bit Stronger pressure, this year tariffs puts a little bit of pressure. Uh but we believe we can still maintain. Even at these elevated comps, we can maintain the operating margin rate that we gave in our guide.

Michael Lasser: Thank you. The next question comes from Michael Lasser. With UBS. You may proceed.

Michael Lasser: Good morning. Thank you so much for taking my question, a 1 for 7 and 1 for calling. My question for for Seth is the nature of the inflation that tractor is going to benefit from in the back half of the year, it's going to be different than the market has been accustomed to where it's going to be more on the non queue items. So, what have you seen already from an elasticity perspective and how are you planning that? And then my questions are Colin, is on the, um, New capabilities. Obviously, Amazon is making a big push in the rural areas, does tractors new capabilities. Make it more of a competitor to this other big player and does that change the complexion of the business, thank you very much.

Michael Lasser: Yeah, thanks, uh, thanks Michael. This is, uh, thanks for the question to, uh, hit your first question, uh, first on, uh, elasticities and kind of the nature of inflation in the back half to piggy back some of the house comments. First and foremost, I would just say

Uh, where we can go, find alternative sources of Supply. We have had a tariff task force quickly, stood up to, where we can navigate some of the cost or cost pressures that might be coming through. And, at this time, they are moderate in nature with the ability to, uh, approach those with a partnership approach uh, in the past when we've seen similar inflationary factors that aren't just queer related. Uh, specifically in times like we're navigating right now whether it be tariffs and 2018209 as well as just the the inflationary period coming out of co uh when the entire Market tends to have to make strategic pricing moves, and move, typically elasticities tend to go down slightly as well. Uh we are we have a bunch of different scenarios modeled, uh, feel good about the tools and the team we have in place, uh and I'm confident in the belief that we'll be able to appropriately manage the margins as we look to the back half.

Michael Lasser: Yeah. Michael for for the second part of the question there, what I'd say is what we're doing is we're taking a contemporary approach to rural delivery with all the systems and sophistication that you expect from Tractor Supply. As we, uh, compete with regional competitors, co-ops your local fencing company. We have great confidence in this initiative, because we've got the locations where our customers live. We have the inventory, our customers need and we have the supply chain Built For This rural terrain just a little bit of color commentary on what we're doing.

Um, and Q2 our team did 75,000 deliveries, um, out there in the market 75,000 times, we've been able to go out and people's properties and engage with them and extend that legendary service out there. We're able to get a wider variety of products using our final mile delivery out there in Greater quantities but also we're seeing customers choose that for the more convenience, uh, types of deliveries that they need as they're managing their lifestyle and their jobs. Um, as a as they live their, their lives there, I cannot understand the power of the trust of the relationship between our drivers and the customer and the the relationship that's there. Uh that is different than um other kind of delivery providers.

Michael Lasser: Um well I'll say is we're only going to get better as we continue to build this out. We're going to keep you updated on it, but we're really looking on how we're extending our legendary service from our stores out onto our customers properties. Not a fundamental change in in the business model,

Thank you. No problem comes from Chuck Graham with Gordon haskett research. Advisors, you may proceed

Hey, thanks. Good morning. Can you um, discuss early results? Um, in Pat RX, uh, how many neighbors club members, um, were already using pedex? And, and then how many neighbors club members, I guess, can you add to it and just on the weather? As we move into the back half of the year? Can you remind us how much in Lost sales, you think you saw last year in November and December? The weather wasn't good. But the forecast for, uh, November and December is much better for you. Um, so just curious on

Michael Lasser: My problem. Thanks a lot.

Michael Lasser: All right, Chuck. Uh, this is uh, Rob Mills first, thank you for the question on Ally that, uh, you know, I first want to kind of begin just talking a little bit and sharing, you know, just a, a, a great appreciation across both aliat and the TSC teams on this Focus, you know, strategic initiative. This is a new category for us. We've seen strong Cross Pro. Uh, functional collaboration between the 2 organizations and you know, big picture. We're integrating very nicely. You know, in early may we launched the RX and OTC categories on to Tractor Supply platform as well as our our mobile property, the launch went really well. You know, we're seeing really strong momentum in the growth of orders and customer adoptions, you know, prior to this, the neighbor's Club penetration was low, uh, but we're putting extreme focus on leveraging, our neighbors Club data, the capabilities driving specific campaigns. And we're seeing good adoption rate. We haven't shared any kind of formal numbers or early.

Michael Lasser: Early into this journey. So we're getting a lot of learnings out of the way, uh, but with that being said, you we have strong momentum. You know, when we think about the, the customer growth I could tell you, in Q2, we strong, uh, we saw the strongest customer acquisition growth that we've seen in many years across the RX and OTC categories, especially, when you look at the aliat business,

Michael Lasser: Looking ahead briefly Q3 we're putting Investments on that customer experience. We gotten some great learnings and feedback from our neighbors Club, customers. You'll see us focus on even uh, more ease of how we transfer that script, uh, driving in store training adoption with our team, members to drive education with our customers and then just overall awareness.

Michael Lasser: Saying and then, you know, leveraging, the tools that we have with pet washes, mobile clinics, and just in-store signage so, you know, big picture, we're we're excited. We're early in this journey, we're seeing great adoption more to come. Um, we'll keep you updated but we have a positive trend and week over week, we're growing.

Speaker Change: Kurt and on regards to the second half weather last year. Um, the 2 biggest pressure points where we last year in the second half. Landed, really, or produced really about a flattish comp. We said whether and some of the pressure on discretionary spend last year. Um Q3 had the biggest West weather pressure and uh we saw no real favorable weather with the heat in the drought. So we are cycling. Uh, 2 quarters, where weather was a net negative, we didn't quantify the specifics then so I won't try to go ahead and and project that but we know as Hal said that's a it's a favorable compared uh uh, that will be laughing this second half.

Speaker Change: Thank you. The next question comes from Stephen Forbes with goodanime. You may proceed

Good morning everyone. Uh how or maybe Colin ages. A follow up on the final mile initiative a 2-part here. So so you mentioned aov is of 400. But curious if you can comment on who the early adopters are right? As we think back to sort of your customer segmentation work that you did during the analyst day. And then second part, right. How should we frame the ROI ramp of this offering? Uh, given the comments around Fleet and Driver Investments? 75,000 quarterly, deliveries in the second quarter. But like what's a, what's like the break? Even number of deliveries, and how do we think about? So the unlock of Roi, thank you.

Speaker Change: Yeah. Hey Stephen I appreciate the question and thanks for joining the call.

Speaker Change: 2 things on on the customer side. It's very much. The Big Barn customer that we laid out in our investor conference day. Uh, you know, these are land owners, uh um, animal owners multispecies, animal owners. And you know, their needs are, are, uh, on a weekly basis or more so, uh, and they buy in high high order volumes. Uh, and as column was laying out, uh, the competition that we're facing as we go out and start to call on these customers is a really fragmented set of competition. Uh, whether it's the local co-ops, we're seeing a lot of fencing sales, because a lot of local fencing contractors and those sorts of things that we're competing with, uh, but we're finding the market to be exactly what we anticipated it to be from a

Speaker Change: Customer uh, perspective, uh, as it relates to the ROI. Uh, first off, I'll remind you that the delivery is, is expensive. Uh, and so we can throttle our investment up and down. Uh, whether at a, at an Enterprise level, or at an individual Hub and Market level, based on the demand that we're seeing. I'll also remind you that there's 3 ways, uh, 3 level levers of demand. That the final mile is delivering. The first is direct sales and oftentimes. Those 2 are getting inextricably linked and should be. But there's also 2 other levers, our online bulk orders, uh, which is well over 100, 150 nearly 2000 million dollars of sales. Those will, are will now flow through our final mile as well. We will no longer be relying on third-party delivery for that. There's those have really low customer sat High return rates. Uh, so there's a lot of Roi that comes along with those. And then finally, it enables delivery of items in store when the store sells them and we're unable to

Speaker Change: The customers unable to get them home. So there's 3 means for that. There's Revenue generation shipping Revenue generation that comes along with each, as well as obviously product demand fulfillment. We haven't shared the rois across each 1 of those But as time goes on you can expect to hear more from us on on each of those those pieces but we remain as bullish on them. Now as we did 6 to 7 months ago and we had our icy day. If not, if not even more, thanks for the question.

Thank you. The Following comes from David Bellinger with M. You may proceed.

Speaker Change: Hey, good morning everyone, thanks for the question. Uh, it's on the buyback being Notch lower. Can you walk us through? Why? The the magnitude of the change this year? Is so dramatic? Where's that Capital shifting? And does it say anything at all? On how you view your your stock and the devaluation? That's currently attached to it. Thank you. Kurt here. Um,

Speaker Change: 1 to 2% of debt. Shares out annually, our guidance originally put us at the high end of that as we see, the capital investment, particularly in inventory and how tariff cap the the capital be spent on tariffs. It'll go on the balance sheet uh in an environment with higher interest rates, we're being very prudent and wise in our Capital allocation and just deciding, we're going to make that investment. And as we're in a time of of tariff increases to spend the capital there, uh, we have the ability to still remove, um, 1% of the float out of the stock and be able to do that. And, and just shift some of that Capital spend, uh, from Sherry purchases into our working capital on inventory and put us in a great position. So it does not change our guidance. Um in regards to this year's um net earnings per share. Uh and so therefore we think it's the right prudent thing to do for this year and again I'll just reiterate. It does not take us outside of

what we've said would be our parameters of of how we engage and share repurchases.

Speaker Change: Thank you.

Peter Benedict: The next question comes from Peter benedict with bear.

Speaker Change: You may proceed.

Peter Benedict: All right. Hey guys. Good morning. Thanks for taking the question. Um, I, I guess as soon as a comment, I think maybe was out. Um, when, when you mentioned the term in, in, in the pet category, or pet food, I just maybe, maybe Seth, I don't know. It's for you. Could you expand on that? What what exactly are you seeing and, and how, uh, what your, what, your outlook, uh, uh, around around the pet category. Thank you.

Speaker Change: Hey Peter, yes, Seth, thanks for the question. Hey uh on pet performance in the categories. How mentioned in the prepared remarks your point. Uh we do believe that we're at the point of basically, some of the troughs uh where demand had slowed. And we're starting to see that we were going to have. I believe we have some Tailwind, as we kind of look ahead, I'll be at potentially, at maybe a little bit slower rate than historically, uh, we have run, but really, our leaning in to some of the key core capabilities, uh, and are continuing to take market share, uh, and I just, I touch on a couple other quick things quickly, uh, and where we're where we're investing in pet. First, is is Rob articulated at petrx. We're pleased with how that's getting started. Our our service offerings. We're seeing tremendous demand for in our in-store, um, like vet service clinics that we have, as well as our thousand pet washes over the course of this past month, all of our dog food, our cat food, uh, several accessories. And this week, our pet treat, uh, categories, all

Gone through a major reset activity where we are. Introducing, uh, new brands expanding brands that we're seeing Traction in, uh, as well as introducing new products across like 4 Health, whether it be with shreds or our new Untamed product that we have out there. Uh and then finally throughout the course of the first half of this year, when we went through our localization project, we created a newer format for what we were seeing we were putting infusion and we have even retro gone back and what we were calling our 5, we're calling it, The 5G plus format and at this point we have over 500 stores that we have gone and put this new format in. It has a couple hundred incremental skus. We should have over 800 by the end of the year and we're seeing a very positive results. Uh, coming out of that outpacing. The balance of the chain. So a lot of work going into pet to make sure it's such an important category for us as well as uh just our customer ownership with animal ownership. And I believe we're going to continue to take share

Thank you. The Following comes from Scott. Gelly with truist. You may proceed.

Uh good morning guys thanks for squeezing in the end. Um I I know you've been asked about this already with the the last mile delivery and I think Michael mentioned Amazon but can you just provide Tom maybe your your broader latest thoughts around the competitive environment because it's not just Amazon, right? We've had Walmart expanding their delivery capabilities. You've had closed expanding their rural assortment expansion and obviously these are

Speaker Change: Much electric companies and some of your historical competitors. Thanks.

Tom: Yeah, hey Scott, thanks for joining the call. I'm appreciate the question.

Is that we compete against thousands of locations and hundreds, and hundreds of companies, each and every single day.

Tom: We've got a, a track record of being pretty successful in our Market while doing that. I our focus is really always around just serving our customers and the best way we can and uh you know that's really around our legendary service, having all the products they need in a very convenient format, uh, and making sure we leverage our scale to price it as the best value in the market that you can get out there. And I, you know, I, I think we are just such an integral element of rural retail. We don't take that for granted, we know that's a responsibility, we have to embrace every single day, but I think it's a pretty good position to be in. And, you know, we're we're very confident uh, in our ability to leverage that as we grow and uh, put our initials on top of it moving forward. Thanks so much for the question.

Tom: Thank you. This concludes the Q&A session of the call, I'll now pass it back to Mary when for closing remarks.

Mary Pilkington: Thank you everyone, for joining our call. We'll look forward to talking to you at our Q3 call in October, we're around this afternoon, and for any follow-up as needed. So, thank you again, for your time and attention today.

Mary Pilkington: This concludes today's conference call. Thank you for your participation. You may now disconnect your line.