Tractor Supply Company

Good morning ladies and gentlemen and welcome to Tractor Supplies Company's conference call to discuss fourth quarter and fiscal year 2020 results. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. We ask that all participants limit themselves to one question and one related follow-up. 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 now like to introduce your host for today's call, Mrs. Mary Wynne Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Wynne, please go ahead.

Thank you, operator. Good morning, everyone. Thanks for taking the time to join us today. And I do hope you're all staying safe and well. On the call today are Hal Lawton, our CEO, and Kurt Barton, our CFO. After our prepared remarks, we'll open the call up for your questions. Seth Estep, our EVP and Chief Merchandising Officer, will join us for the question and answer session. Please note that we've made a supplemental slide presentation available on our website to accompany today's earnings release. Now let me reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, This call may contain certain forward-looking statements that are subject to significant risk and uncertainty, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ 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 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 statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP are included in today's press release and presentation, which are posted on our investor relations website. Given the time constraints and the number of people who want to participate, we ask that you please limit your questions to one with a quick related follow-up. I appreciate your cooperation. We will be available after the call for follow-up. Thank you for your time and attention this morning. Before we get started, may I ask you to please turn your attention to our year in review video that can be seen on our webcast.

Good morning, and thank you everyone for joining us today. I hope you enjoyed the opening video. We will all always remember 2020. And while we'll never recall the year with anything close to fondness, at Tractor Supply, 2020 will be remembered with a small measure of pride as we reflect on our efforts to take care of our fellow team members, support our customers, and invest in the future. None of these results would have been possible without the hard work and dedication of our team. And I want to express my sincere appreciation and gratitude to the more than 42,000 tractor supply team members for how they have lived our mission and values and worked together to take care of each other and our customers. My thanks also go out to our supply chain and vendor partners who've done an excellent job supporting our business. The environment continues to be uncertain and challenging. Vaccines are on the rise, but our country is still very much in the midst of a pandemic. Given the pace of the vaccine rollout, it will be at least fall before we're back to some form of normality. Throughout the pandemic, our utmost priority has been to take care of the health and safety and well-being of our team members and customers. We spent tens of millions of dollars on cleaning and masks, plexiglass and sanitizer. We've provided almost 700,000 hours of COVID sick pay. We've conducted nearly 20,000 COVID tests, and we rolled out company-wide a contact tracing wearable devices for all team members to use. We will continue to spare no expense in this area in 2021. In addition to rolling out industry-leading safety protocols, we've also shown our commitment to our team members through appreciation bonuses, increased wages, and broader benefits offerings. At Tractor Supply, we are committed to being a part of the solution for our team members, our customers, and our communities. And we remain steadfast in that commitment going forward. As we talk now shifting and talking about 2021, we believe there is as much uncertainty this year as there was in 2020. How fast will vaccines roll out? How will the derivatives of COVID impact transmission rates and antibody effectiveness? Will there be another stimulus? How will consumer spending evolve through the year? Given these questions and all the other elements of uncertainty, we're planning for fiscal 2021 based on a range of potential outcomes. The initial guidance we're providing today is consistent with our long-term algorithm that we shared with you at our enhanced earnings event in October. Importantly, our 2021 outlook reflects the strategic initiatives that are foundational to our Life Out Here strategy. With the actions we're taking, we are committed to emerging from the pandemic stronger than before. Now let's shift to the business review section for the fourth quarter of 2020 in the fiscal year. We delivered another strong quarter that exceeded our expectations. In the fourth quarter, we had strong net sales gains of 31.3%, with comparable store sales up 27.3%. We continued to gain market share and benefited from customer shopping with us with larger baskets. All customer segments and all value segments experienced growth. For the fiscal year, we added over $2 billion in revenue. and we reached over $10 billion in sales for the year, a significant milestone for the company. Once again, our quarterly results were remarkably consistent across all periods of the quarter, across all product categories, across all geographic regions of the country. Also, both our transactions and ticket growth were seen and were very balanced. For the third quarter, e-commerce saw strong triple-digit growth and increased significantly as the percentage of our overall sales. The work we did this year to improve our omnichannel capabilities has certainly resonated with our customers, as we've seen several years of digital adoption accelerate into just a matter of months. For the year, about 75% of our omnichannel sales were picked up at a tractor supply store, further reinforcing the importance of our stores to our customers. As we've experienced in the last several quarters, we continue to have strong performance and market share gains in our consumable, usable, and edible categories, with growth exceeding 20% for the quarter. In 2020, we had more customers shop with us than ever before, with increased sales across our existing customer groups, new customers, and reacquired customers. Now shifting to talk about a few other operational highlights for 2020. We added more than 10,000 team members to support the growth of our business. These new team members were critical in our ability to service our customers at these elevated levels and also flow volumes through our supply chain. We've pivoted our marketing spending for more traditional print media, digital and national TV. We launched our first national advertising campaign in over a decade. Our research indicates that Tractor Supply has become more top of mind with consumers as our unaided brand awareness increased over 800 basis points. We expanded our in-store and digital capabilities to make it easier and safer to shop at Tractor Supply. We were nimble and agile in offering curbside pickup and same day, next day delivery. We also relaunched our website and we rolled out a new mobile app, which already has over a million downloads. We celebrated the opening of our 1900 store in Oakhurst, California, and announced plans for a new distribution center in Navarro, Ohio, that is expected to be operational by the fall of 2022. We reinforced our longstanding commitment to ESG through improved disclosure and transparency. We also surpassed our original target of a 25% reduction in carbon emissions five years ahead of plan. If we just step back, overall, 2020 really highlighted the resiliency of the tractor supply team and illuminated the potential for the business. We participate in a large, attractive market. We have momentum. We're investing in our business through our Life Out Here strategy. We have the opportunity to create and define our future and extend our leadership for years to come. Before I hand the call over to Kurt, I'd like to address the impairment charge we took for the PetSense business. We recently completed a strategic review of PetSense. Although PetSense had solid sales performance in 2020, we reached the conclusion to reduce the number of new store openings planned over the long term and identified some underperforming stores to close. We expect to close 10 to 15 stores in 2021. Combined, this resulted in a pre-tax charge of about $74.1 million, or 49 cents per diluted share after tax. PetSense offers a differentiated shopping experience to the suburban and rural pet owner. As mentioned, the business is currently doing well overall. We remain committed to growing and investing PetSense. Earlier this week, we named Matthew Rubin as FTP and General Manager for PetSense. Matthew brings a strong retail background, and I'm confident that he'll be an immediate asset to the business. I look forward to sharing more about our plans with you over time. Now, Kurt will walk you through greater details of the quarter and the year, along with our 2021 outlook, before I return to give you an update on our Life Out Here strategy.