Tractor Supply Company

Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss first quarter 2023 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, Ms. 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. On the call today are Hal Lawton, our CEO, Kurt Barton, our CFO, and Seth Estep, EVP and Chief Merchandising Officer. After our prepared remarks, we'll open the call up for your questions. 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 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. Now it is my pleasure to turn the call over to Hal.

Thank you, MaryWen, and good morning, everyone, and thank you for joining us today. For today's call, I will go through some highlights of our first quarter, Seth will then share some merchandising initiatives and updates, and Kurt will review the quarter and our outlook in greater detail. Before we get started, I'd like to thank the Tractor Supply team for their ongoing commitment to each other and our customers. No matter the operating environment or how the seasons of the year unfold, this is a team that is always there for our customers and our communities to be the dependable supplier for the out here lifestyle. For nearly 85 years, our business has proven to be resilient, stable, and very consistent as we provide needs-based demand-driven product categories as a lifestyle retailer. Now let's turn to a review of the business for the first quarter of 2023. We grew net sales by nearly double digits at 9.1%, with comparable stores up 2.1% and diluted earnings per share of $1.65. We had seven points of non-comp sales growth in the quarter. The two primary drivers were new stores and the Orsolan acquisition. We opened 17 new tractor supply stores and three PetSense by Tractor Supply stores in the quarter. And the Orsolan integration is running ahead of schedule. Our comp sales results were below our expectations. We attribute just over 200 basis points, the majority of our sales missed, to a delayed start to the spring, and to a lesser extent, a milder January. We continue to closely review customer data for trends and changes in their behavior. While select discretionary categories were below the chain average, this was offset by stronger demand in our consumable, usable, and edible products. We believe our customers remain resilient, but are being judicious with their spending as they seek us out as a destination for value and are buying closer to need. Excluding our seasonal categories, our sales were in line with our expectations, and our core business remains very strong. Our comparable store sales growth was driven by ticket growth of 2.8%, offset by decline in transactions of 0.7%. Importantly, our comp transaction trends improved each month of the quarter and were positive in February and March. with strong performance in our year-round categories. The strength in our year-round categories was driven by Q products, which exhibited ongoing, impressive demand this quarter. These products are needs-based and demand-driven and are what drive trips and transactions to our stores. Across companion animal and livestock, we had strong performance. The strength we've experienced over the last three years in our Q customer trends remains robust as we continue to gain material market share. In companion animal, we continue to see substantial share gains throughout the category. And we're seeing sequential increases in the number of customers shopping us for this category each week, each month, each quarter. In livestock, our Chick Days event is shaping up to be the largest ever for us, with the poultry category up strong double digits. Not only are we seeing growth from existing customers, We're also seeing robust growth in new customers to the category, driving both trips and ticket. One exciting aspect of the new customers to the poultry category is that they're gravitating to our unique offering of premium breeds and organic feed products for their chicks. Chick Days is a great gateway for our new customers to explore tractor supply and use this as a resource for all things related to homesteading beyond poultry to categories like gardening. Big-ticket declines were driven by seasonal trends and, to a lesser degree, ongoing pullback in discretionary categories. The slow start to spring impacted outdoor power equipment, which weighed on our big-ticket results and average ticket. The most significant pressure was in zero-turn tractors, generators, and trailers. Our customers have a long history of buying these items based on need. Current trends support that we are seeing purchasing consistently closer to the season or moment of need. Overall, our big-ticket trends were very similar to what has been reported in the recent March retail sales data. Our mobile app currently represents more than 20% of our digital sales. The app is now ranked in the top 100 shopping apps on the iOS store. This is a major recognition of the progress in our one-tractor strategy to offer our customers a more seamless shopping experience. our customer scores continue to run at all-time highs. Overall, our customer experience metrics continue to keep momentum into 2023 with strong improvements over the last quarter and year over year. Our store teams are doing a tremendous job servicing our customers. Our Neighbors Club just celebrated last week a significant milestone with over 30 million members. As our points-based program enters its third year, the strength of Neighbors Club continues to exceed our expectations. Our members are comping at a faster rate than our overall performance, and we continue to see strong growth and retention in our high-value customers. As mentioned previously, the Orsland Farm and Home integration is going very well. I had the opportunity recently to visit one of our first store conversions to the tractor supply brand. There was excitement across both our team members and, importantly, our customers, as they recognize that we're committed to providing the region with an elevated product assortment, a meaningful loyalty offering, an enhanced digital shopping experience, and so much more that Tractor Supply is able to offer. During the quarter, we opened our ninth and largest distribution center in Navarre, Ohio. The ramp of the distribution center is right on schedule. With the opening in the new D.C., the integration of 81 Orchard stores, and the addition of new TSE stores, We've capitalized on the opportunity to realign the store servicing areas across the DC network to balance transportation costs and DC capacity while improving service levels to our stores. It is great for our DC network to have this new capacity to better position our inventory and better service our stores and allow us to reduce our freight costs, which you'll hear more about from Kurt. At Tractor Supply, our purpose as a company is to serve life out here. As we celebrate our 85th anniversary this year, we remain steadfast in our commitment to preserve and protect our way of life. Two weeks ago, we issued our fourth annual stewardship care sheet, highlighting the actions and progress that we've made on our sustainability, DE&I, and community commitments. I am proud of our progress towards our ambitious stewardship goals, but know there is more to be done as we work towards achieving our net zero and other goals heading towards 2040. To wrap up, while our first quarter sales were below our expectations, we have a lot of the year still ahead of us. The American consumer broadly remains challenged, but we believe that our customer remains resilient. Spring continues to be cooler and wetter as we've turned into Q2. That said, we're encouraged by quarter-to-date trends with comps mid-single-digit and comp transactions positive. Based on our experience and the nature of our needs-based, demand-driven business, we continue to believe that the best way to look at this business is on the have as the timing of spring impacts the first half of the year. While we acknowledge that the software sales in January will not be recouped, we are pleased with our lineup for spring and summer. As a company, we have numerous levers to continue to gain market share and numerous levers to effectively control expenses. we continue to see significant opportunities for growth and earnings growth as well. With the majority of the year remaining, we are reiterating our guidance for fiscal 2023. Before I turn the call over to Seth, I'd like to share some background on Seth and the merchandising team at Tractor Supply. Seth is an 18-year veteran of Tractor Supply, having held roles across marketing, finance, e-commerce, and merchandising. He has a passion for this lifestyle and has served as our chief merchant since 2020. Given our record sales growth over the last three years, we recently completed a realignment of our merchandising product categories and promoted two senior vice presidents to better support the growing needs of our business. Seth will provide a review of our sales by category and our plans to continue to gain market share. Now we'll turn the call over to Seth to discuss some further insights.