Tractor Supply Company

Good morning, ladies and gentlemen, and welcome to the Tractor Supply Company's conference call to discuss first quarter 2021 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, Ms. Mary Wynne Pilkington, Senior Vice President of Investment 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 Walton, 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 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 statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. 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, and now it's my pleasure to turn the call over to Hal.

Thank you, MaryWen, and good morning, everyone, and thank you for joining us today. 2021 is off to a great start for Tractor Supply. I'm extremely proud and appreciative of the hard work by the more than 42,000 Tractor Supply and PetSense team members. Once again, they took care of each other and tirelessly served our customers who depend on us to live the out-here lifestyle. I also want to thank all of our supply chain and vendor partners. We've been operating in the COVID-19 environment for over a year now, and the tractor supply system has more than risen to the occasion as they strive to serve our mission and values every single day. While we anticipated that we would have our strongest growth of the year in the first quarter, our results were significantly ahead of our expectations. When you couple this performance with the continuing momentum we are seeing in the second quarter, the positive macro environment and our strong customer trends, we are adjusting our comp outlook to mid to high single-digit growth in 2021. Kurt will share more details on the improved financial outlook for the year across our key financial metrics. Throughout the pandemic, our utmost priority has been the health and safety of our team members and customers. We continue to incur significant incremental expense for items like paid time off, masks, and testing. We remain committed to following the advice of the CDC and other medical professionals to protect our team and customers. As we enter the vaccination phase, we are committed to helping our team members who choose to get vaccinated to do so. We are providing a one-time payment of $50 and allowing time off as needed for all team members who elect to receive a COVID-19 vaccine. To further alleviate the barriers to receiving a vaccine, we have partnered with a third-party provider to facilitate on-site vaccination at our eight distribution centers and store support center. During the quarter, we also announced our entry into an agreement to acquire Orcheland Farm and Home, a retailer with 167 stores across 11 states. This is an exciting step for tractor supply as we look to expand our footprint in the Midwest with the high-quality assets of Orcheland Farm and Home. We have always had great respect for Barry Orschel and the team for the strong connection they have with customers in the communities they serve, along with their industry knowledge and capabilities. With our shared values and passion for the out-here lifestyle, we look forward to bringing together our highly complementary cultures and teams to realize the long-term value and benefits that we expect this acquisition to deliver over time. As we previously disclosed, we received a second request from the FTC as part of their review of the transaction and are cooperating with that confidential review. Accordingly, we are limited in the comments we can make about the transaction at this time. I hope you all saw our release this week with our updated ESG tear sheet for 2020, which provides new and updated performance metrics and context related to our environmental sustainability efforts, our commitment to our team members and communities, and corporate governance. This report helps us provide detailed information and progress on our ESG journey. In addition, we laid out our commitment to provide new targets in the fall this year, as it relates to our greenhouse gas emission plans and our aspirational goals for diversity, equity, inclusion. These initiatives make great business sense for tractor supply. As a purpose-driven company, setting targets for ourselves creates long-term value and our potential to have a positive impact on the world. We remain committed to constant improvement on this journey. Now let's turn to the business review for the first quarter of 2021. We had exceptional net sales gains of 42.5%, with comparable store sales up 38.6%. We materially benefited in the quarter from transitory factors such as stimulus spending, favorable weather, and inflation. Importantly, however, the underlying foundation of our business is robots, and we're gaining share across all categories, online and in stores, and also with existing customers and new customers. Our Neighbors Club membership reached 20 million members strong. This is an important milestone for our loyalty program, as we know that they are customers that shop us more frequently, and they spend more money with us. We saw 2.5 million new customers shop with us in the quarter, and that's an increase of over 30% over last year. Re-engaged customers also exhibited strong growth, up over 12% from the first quarter of 2020. And customer retention for both our new and re-engaged customers continues to run above last year. We saw strong growth across all product categories and geographic regions of the country. Comps for each month of the quarter were above 30%. And our growth was well-balanced between transactions and ticket growth. The business, like the last few quarters, continues to be very consistent and stable. For the fourth quarter, our e-commerce saw strong triple-digit growth and increased significantly as a percentage of our overall sales. The work we did last year to improve our omni-channel capabilities continues to resonate with our customers. Ongoing improvements to the customer experience for better search capabilities and enhanced personalization are being recognized by our customers. As we've experienced in the last several quarters, we continue to see strong performance in market share gains in our consumable, usable, and edible categories, with growth in the mid-20% range. More specifically, we continue to be very encouraged by the trends we're seeing within our pet and poultry categories, where we're driving shopping frequency and market share gains. Over the last 15 months, our unaided brand awareness scores are up 17 percentage points, I believe these type of metrics serve as leading indicators of our brand health and future spending patterns of our customers. We continue to execute our shift away from print advertising to brand building and digital marketing. We're currently airing our national TV spring advertising campaign that highlights the strength of Tractor Supply's offering to serve the seasonal needs of our customers to take care of their land, pests, and animals. Overall, the strong first quarter highlighted the unique advantages that we have at Tractor Supply. our team members delivered exceptional results in a generation defining moment. Now I'll turn the call over to Kurt to discuss some of the details of the first quarter and our outlook for the rest of the year.