Tractor Supply Company

Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss the first quarter 2022 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 return to the queue for additional questions. Please be advised that the reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Mrs. Mary Wynn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Wynn, please go ahead.

Thank you, operator. Good morning, everyone. Thanks for taking the time to join us today, and I hope you're all doing well. On the call today are Hal Walton, our CEO, Kurt Barton, our CFO. And 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 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. We shorten the prepared remarks to allow more time for Q&A. Given the number of people who want to participate, we respectfully ask that you limit yourself to one question. If you have additional questions, please feel free to get back in the queue I appreciate your cooperation. We will be available after the call for follow-ups. Thank you for your time and attention this morning. Now it's my pleasure to turn the call over to Hal.

Thank you, Mary Wynn, and good morning, everyone, and thank you for joining us today. I'd like to begin by thanking the tractor supply team for, again, delivering strong results. You know, in some ways, this quarter may have been our best relative performance over the course of the last two years. The team demonstrated grit and determination as they overcame the lapping of last year's robust performance, the impacts of the Omicron variant, particularly in January, the significant inflationary pressures, and the ongoing supply chain constraints, the last two of which were both exacerbated by the tragic conflict in Ukraine. No matter what came at the team, they stepped up to the challenge to be there for our customers as a dependable supplier for the out-of-here lifestyle. Our team members, our vendors, and other supply chain partners have continued to rise to the occasion as we strive to live our mission and values every day. Speaking of our mission and values, in recognition of Earth Week this week, we issued our Stewards of Life Out Here Sustainability Report. This comprehensive report provides detailed information and progress on our ESG efforts. It significantly enhances our transparency and disclosure related to our environmental sustainability actions. Of note in the report is the establishment of a new water usage goal to reduce on an absolute level our water footprint by 25 million gallons by 2025. ESG makes great business sense for tractor supply, and setting targets for ourselves in these areas creates long-term value and allows us to have a positive impact on the world and the communities that we call home. As a purpose-driven company, we remain committed to constant improvement on this journey. Now let's turn to review of the business for the first quarter of 2022. The year started out on a strong note. We grew net sales by 8.3%, with comparable store sales up 5.2%. Diluted EPS was $1.65, an increase of 6.5% year over year. Our comparable store sales growth was driven by strong ticket growth of 6.7%. offset by a decline in transactions of 1.4%. Given the remarkable strength in our business last year, and as a reminder, we had a 38.6% comp in Q1 last year, we are very pleased with our sales growth. Last year, we shared with you that we materially benefited in the quarter from a combination of factors, in particular, stimulus spending, favorable weather, and inflation. This quarter, we successfully navigated the lapping of these factors despite the spring season getting off to a slow start. On inflation, it benefited sales in the quarter by about 10 percentage points. As we shared in our last earnings call, we thought there was more pressure to the upside on inflation as we entered the quarter, and that is certainly what we saw. We continue to see increasing costs in the commodity inputs in our product categories as well as the underlying variables like higher labor wage rates and transport costs that are impacting our vendor partners. Shifting to Q, we experienced impressive demand in our consumable, usable, and edible categories. As a reminder, these products are needs-based and demand-driven, and they're what drive trips into our stores. Our Q sales growth was almost three times our overall sales growth rate. Our two customer trends have never been stronger. Kind of rounding out the business, seasonal category performance was mixed, as we had solid performance in our winter season categories during a much colder January. But our spring season categories performed below average due to colder, wetter temperatures in the month of March. Shifting to e-commerce. E-commerce, again, saw double-digit growth, and this represented our 39th consecutive quarter of double-digit or better growth in e-commerce. We are making great strides in expanding our digital presence. Of note, our mobile app now represents more than 15% of our digital sales. This quarter, we crossed 3 million downloads of the Tractor Supply app, and this is a major milestone in our One Tractor strategy. and our ability to offer our customers a more seamless shopping experience. Our Neighbors Club program reached a record 24.8 million members in the quarter, an increase of 24% from last year's first quarter. It seems like much longer than a year ago, but we recently celebrated the one-year anniversary of the relaunch of Neighbors Club to a points-based loyalty program. The relaunch has been an overwhelming success as it has measurably encouraged customers to migrate their spending upwards. Our neighbors club members are comping at a faster overall rate than our overall company performance. And we're seeing strong growth and retention in our high value customers. We are confident in our business, short term and long term. Last quarter, we shared with you several structural trends from which we're benefiting. including rural revitalization, increased pet ownership, homesteading, and the rise in self-reliance. As the market leader, we are well positioned to continue to benefit from these structural trends. Additionally, we are seeing increasing momentum from our Life Out Here strategic initiatives, enabling us to continue to gain share. As we look forward, we believe we have many vectors for growth, and our business has never been stronger. That said, we acknowledge that there is significant uncertainty in the macro environment. We have a lot of the year still ahead of us, and in keeping with our longstanding practices prior to the pandemic, we continue to believe that the best way to look at this business is on the house. On the heels of last year's record performance and a strong start to the year, we are reiterating our guidance for fiscal year 2022. We continue to see significant opportunities for growth ahead of us. I'll briefly address the Orsalan acquisition. We continue to work collaboratively with the FTC towards a positive resolution and hope to have an update in the coming months. Accordingly, we are limited in the comments we can make about the transaction at this time. 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.