Tractor Supply Company

Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss 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 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 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 everyone's having a great summer. On the call today are Hal Lawton, our CEO, Kurt Barton, our CFO, and after our prepared remarks, we'll open the call up for your questions. Seth Estep, our EDP and Chief Merchandising Officer, will join us for the Q&A session. Please note that we've made supplemental slide presentation available on our website to accompany today's earnings release. Now let me reference the safe harbor provisions of 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 appear 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 have shortened our 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 an additional question, please feel free to get back in the queue. We appreciate your cooperation, and we will be available after the call for follow-up. 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. The second quarter was another strong quarter for Tractor Supply as we delivered record results on both sales and earnings. I would like to begin by thanking the 48,000 plus Tractor Supply team members for once again delivering impressive performance through strong execution and for their dedication to serving life out here. Our business continues to be incredibly stable and resilient. This quarter, the team did an excellent job managing inflationary impacts, operating through continued supply chain disruption, and navigating the evolving consumer demand. We continue to win with our customers and took substantial share in the quarter. We enter the back half of the year with our inventory on plan and excellent visibility into our expense base. We remain very confident in our growth outlook and our life out here strategy. Structural tailwinds continue to benefit us, including rural revitalization, homesteading, self-reliance, and pet ownership. Our brand, loyalty program, digital capabilities, supply chain, and 2000 plus stores create significant enduring advantages for us. And our strategic initiatives are all on track and reaching scale. Now let's turn to review of the business for the second quarter of 2022. In many ways, the second quarter was a mirror image of Q1. The quarter started off slow as April was pressured from cycling stimulus and the delayed start of spring. May was our strongest month. June was solid and modestly above the quarter's comp in spite of record-breaking heat, which has continued into Q3 and will limit the sales upside in the current quarter. We grew net sales by 8.4%, with comparable store sales up 5.5%. Our comparable store sales growth was driven by strong ticket growth of 7.5%, offset by a decline in transactions of 2%. We experienced positive comp sales growth for each of the last nine weeks of the quarter. Comp transactions were positive for the months of May and June combined. Diluted EPS was $3.53, an increase of 10.7%. Year-round categories were up high single digits, indicative of our demand-driven, needs-based business model. The impressive results in our consumable, usable, and edible categories continued this quarter, as the business performed more than three times our overall sales growth rate. This is the fifth consecutive quarter of Q outperforming our overall results. Our seasonal performance was below the company average, but positive. Big Ticket was flat to last year and exceeded our expectations, given that we were cycling strong performance last year driven by stimulus and ideal weather for the spring and summer season. We had straight and zero-turn mowers, chicken coops, battery-operated outdoor power equipment, and grills. with the biggest declines coming from front-engine mowers, log splitters, and walk-behind mowers. Our Neighbors Club reached a record 26 million members in the quarter. Our Neighbors Club members are comping at a faster rate than our overall performance. We are seeing strong growth in industry-leading retention in our high-value customers. Our team members' commitment to providing legendary service continues to differentiate the shopping experience within our stores. As a proof point, Our customer's overall satisfaction scores were at the highest level ever for a second quarter. We are successfully scaling our store real estate and remodel projects. To date, we've had over 400 stores in the Project Fusion format. We have over 230 stores with garden centers, more than 100 stores with store-than-a-store Carhartts, and over 600 stores with a pet wash. These are all improvements that make Tractor Supply a more contemporary, relevant, farm and ranch oriented retailer. These improvements are allowing us to gain share with new and existing customers. Given our strong performance in the first half of the year, we're raising our financial outlook for fiscal 2022. Although the operating environment may be different than we anticipated as we enter the year, we're pleased with how we're navigating the various circumstances and remain very confident in the significant opportunities ahead of us. TrackSupply is a unique, highly differentiated retailer. Our needs-based business model has a track record of growing through varying economic conditions. Our customers and team members are passionate about the out-here lifestyle, and they prioritize it. Our customers over-index as homeowners, landowners, animal owners, and pet owners. We believe that the structural macro trends that I mentioned earlier are long-term and sustainable. As the market leader, we have substantial advantages. Additionally, our investments in our life out here strategy are reaching critical mass and furthering our competitive advantage. Tractor supply has never been stronger. Before I turn the call over to Kurt, I want to welcome Kimberly Gardner as our new Chief Marketing Officer. Kimberly succeeds Christy Korzekwa, who announced her retirement earlier this year. Kimberly brings an extensive background in marketing with a data-driven approach to brand development that I believe will continue the evolution of our marketing organization and continue to build on the strength of the Tractor Supply brand. Our appreciation and thanks go to Christy for her leadership and dedication over the last decade at Tractor Supply. Now I'll turn the call over to Kurt to discuss some of the details of the second quarter and our financial outlook for the rest of the year. Thank you, Hal.