Tractor Supply Company

Tractor Supply Company. And as a reminder, this call is being recorded. I would now like to introduce your call for your host for today's call. This is Mary Wynn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Wynn, please go ahead with your conference.

Thank you, operator. Good morning, everyone. Thanks for taking the time to join us today. And I do hope you all are 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 Q&A 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 certain risks and uncertainties, 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, Mary Wynn, and thank you to everyone for joining us this morning. My thanks go out to the more than 45,000 Tractor Supply team members for their ongoing commitment to each other, our customers, and the out-here lifestyle. The team has been through a lot together over the last 15 months as an essential needs-based retailer, including necessary but cumbersome health and safety measures, surging volumes, the rollout of our life out-here strategy, supply chain disruptions, numerous digital investments, and more. The team has risen to each challenge to be there as the dependable supplier to our customers and the communities we call home. Thank you to the team for another great quarter. I would also like to say thank you to our vendor and supply chain partners as we work together to overcome the challenges in the global supply chain network. Together, we are able to support our customers as the dependable supplier for their out-of-here lifestyle. Over the first 12 months of the pandemic through the first quarter of 2021, our sales grew approximately 35% or $3 billion. In the second quarter of 2021, as we are now comping the comp, we are pleased this momentum and all the underlying trends have remained and continue to sustain. Looking at the second quarter, the Tractor Supply Team delivered a very strong performance that exceeded our expectations as we achieved a 10.5% comparable store sales growth for the quarter and a 41% two-year stack. Our results prove yet again Tractor Supply's unique competitive advantages. Our relentless focus on being the dependable supplier for the out-here lifestyle is embedded in our purpose as a company. Our life out-here strategy is still in the early days. We are seeing positive trends from our initiatives. We're excited by the momentum. We remain committed to investing in our team members as we believe they are a key competitive differentiator with our customers. Just last month, we increased pay for nearly 27,000 of our tenured hourly store team members and also raised our minimum wage to $11.25 per hour. Our team members continue to make Tractor Supply the special place that it is. Investing in our team members is not only the right thing to do, but is also a way to recognize their role in driving our business forward. Now turning to our results for the second quarter of 2021. Our net sales grew approximately 13.4%. Comparable store sales grew 10.5%, driven by a comparable average ticket increase of 6% and transaction count increase of 4.5%. Diluted earnings per share increased 10% to $3.19. Importantly, the underlying foundation of our business is robust. For the quarter, every week had positive costs. Our growth was broad-based across regions and product categories. We continue to gain share across all categories, online and in stores. For instance, in Q2, we experienced comparable store growth in our consumable, usable, and edible categories that was well above our overall comparable store sales. E-commerce recorded its largest ever quarter of sales. The work we have done over the last year to improve our e-commerce capabilities has certainly resonated with our customers. In just under a year, our mobile app already has more than 1.6 million downloads and now represents over 10% of our e-commerce sales. Given our strong performance here today, coupled with our outlook for the balance of the year, we are raising our sales and earning guidance for the year. Kurt will share more details on our revised outlook later in the call. Regarding our pending acquisition of Orshawn Farm and Home that we announced in February, we are working cooperatively with the FTC on their second request. We look forward to the benefits this transaction will offer customers with improved products and competitive pricing. We have previously shared key observations of our customer behaviors based on our market data and research, and I would like to update you on that today. Overall, our customer metrics remain very healthy with both traffic and spending increasing at a balanced rate. So let's run through some of the insights that are most relevant. First, we are seeing broad continued strength across our customer base. More customers than ever are shopping tractor supply. And these customers are making more trips than ever and are spending more money per trip than ever. We are seeing strong retention of customers that have shopped us over the last 12 months. Our retention rates continue to run above historical trends. The conversion of our Neighbors Club loyalty program to a points-based rewards is resonating with our customers. Year over year, we've added nearly 5 million new members to the program. And our Neighbors Club members they're spending about three times the rate of non-members. And they're comping at a rate well above the chain average. Neighbors Club members accounted for about 65% of our sales. And that's a step up from where we've been running prior to the relaunch of the program. We've grown our high value customer base in the program by about 15% year to date, with customers migrating upward in spending significantly outpacing any downward spending. The retention rate of our most valuable customers is running north of 95%. New customers are joining the neighbors club program at a rate of nearly 30%, significantly above the rate from last year. And the new customers we are acquiring as compared to our core customers are continuing to skew younger. We're seeing significant growth in our millennial shoppers. Our trends this quarter for the customer age cohorts of 18 years to 45 years old were in line with the first quarter. We continue to believe that the growth in this customer segment has staying power. Much like last quarter, the types of trends we're seeing can simply be described as once in a generation. We believe key aspects to our customer service, such as a convenient place to shop, product assortment, legendary customer service, and in-stock levels are important to keeping these existing and new customers engaged with our brand. On the macro front, the economy remains strong, and key trends continue to work in our favor, such as rural revitalization, trip consolidation, omni-channel adoption, and a self-reliant lifestyle movement, including DIY trends and hobbies like gardening, backyard poultry, and pet adoptions. While the cost environment remains elevated across imports, domestic freight, commodities, and labor wages, the merchant team has been aggressively advocating for our customers. Where necessary, we are taking price increases to pass through some of the cost pressures that we cannot offset. We are closely monitoring the price elasticity to ensure that we are focused on product unit trends. The team is doing an excellent job navigating this environment. Over the past few months, we have navigated unprecedented conditions. As the country opens back up, the out-here lifestyle remains incredibly relevant. And with that, I'll now turn the call over to Kurt to review the quarter in more depth and our outlook before I come back to give insights on our life out-here strategy and other drivers of the second half of 2021.