Tractor Supply Company

Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss second quarter 2025 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 note that the queue for our question and answer session did not open until the start of this call. 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, Mary Wynn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Wynn, please go ahead.

Thank you, Tamiya. Good morning, everyone. We appreciate your time and participation in today's call. On the call today, participating in our prepared remarks are Hal Lawton, our CEO, Kurt Barton, our CFO, and Colin Yankee, our Chief Supply Chain Officer. In addition to Colin, we will also have Seth Estep, Rob Mills, and John Ortis join the call for the question and answer portion. Following our prepared remarks, we will open the floor for questions. Please note that a supplemental slide presentation has been made available on our website to accompany today's earnings release. Let me now 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 these statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. As we move into the Q&A session, please limit yourself to one question to ensure everyone has the opportunity to participate. If you have additional questions, please feel free to rejoin the queue. We appreciate your understanding and cooperation. We will also be available after the call for any further discussions. Thank you for your time and attention this morning, and it's my pleasure to turn the call over to Hal.

Good morning, everyone, and thank you for joining us today. To kick off today's call, I'll begin with a high-level overview of our second quarter performance. Then I'll turn it over to Kurt for a more detailed review of the quarter and our outlook going forward. After that, Colin Yankee, our EVP and Chief Supply Chain Officer, will join to share an update on our final mile initiative, one of the most exciting and impactful transformations underway at Tractor Supply. I'll then return to close out the call with some final thoughts before Q&A. Before we dive into the results, I want to take a moment to thank our 52,000 plus Tractor Supply team members. Their dedication, resilience, and passion for serving life out here continue to set us apart. Truly, it's through their dedication and their legendary customer service and deep product knowledge that we continue to earn our customers' trust and loyalty. Their efforts are the foundation of our leadership in rural retail and central to how we deliver value every day. Overall, we are pleased with the record results we delivered in the quarter. Despite ongoing macroeconomic uncertainty and a tepid start to spring, our sales performance exceeded our modest expectations. This performance reflects continued strength in our core needs-based categories and share gains across key seasonal businesses. Before getting into the details of Q2, I'd like to highlight four trends. First, we delivered comp transaction growth in the quarter, which is a hallmark of Tractor Supply. Second, customer engagement was exceptional. We hit numerous all-time highs across key customer metrics, including neighbors club membership, customer satisfaction, total customer shopped, new customer growth, and record sales of live birds. And I could go on and on and on. Customer loyalty is a hallmark of tractor supply. Third, average unit retail turned positive, right in line with the inflection point that we called out at the beginning of the year and last quarter. This shift supported comp ticket growth in the quarter and positions as well for the back half of the year. And fourth, and perhaps most importantly, we saw sequential comp sales improvement across the quarter. Each period performed better than the one before it, and that momentum has continued into early Q3. These trends underscore the resilience of our business model and the relevance of our offering, especially in today's environment. Our team's disciplined execution and deep connection to our customers continue to drive performance across the business. Now jumping into some of the details. These strengths translated into solid financial results for the second quarter. We grew net sales by 4.5% with a comparable store sales increase of 1.5%. This was our largest sales quarter ever, reaching $4.44 billion. Diluted EPS was 81 cents. Our comparable store sales performance was driven by a 1% increase in transactions and a half percent increase in average ticket. In many ways, the quarter played out as expected once spring arrived across our markets. While April was impacted by wet weather and a slow seasonal start, May and June delivered comp sales above the quarterly average, with June marking our strongest comp month of the quarter. We are pleased with the momentum exiting Q2 as customers reengage with seasonal categories and our core needs-based assortments. Turning to category performance, our consumable, usable, and edible, or Q products led the way with solid unit growth that consistently ran above our chain average. These demand-driven essentials remain a cornerstone of our business. A standout within Q was Chick Days. This year's event was our most successful to date. More customers than ever are turning to backyard poultry, and we saw strong growth across both new and existing customers. From live birds to coops, feed and supplies, we saw strong broad-based demand across the category. Chick Day's is retail theater at its best, uniquely tractor supply, and reinforces the position we have in rural retail. In pet food, we believe the market has passed the trough of the downturn and is entering a recovery cycle, albeit slow and modest. We introduced new brands in both dog and cat across the spectrum of value to super premium with a focus on what differentiates tractor supply. We're actively refining our space allocation resets to adjust product assortment and relevant brands to ensure we're meeting the evolving needs of pet parents. At the same time, we're seeing momentum and continue to invest in our complimentary pet initiatives. Ally Vet is expanding our reach in pet pharmacy, while pet wash stations and mobile vet clinics continue to deliver strong customer growth and loyalty. Seasonal merchandise performed well, including live goods, and we saw positive contributions from apparel, gift, and decor. Our garden centers and seasonal live good tents supported strong growth in the lawn and garden category. We have more than 650 garden centers in operation and activated over 250 seasonal tents this spring. These efforts reflect a meaningful gain in merchandising capability and helped us to meet our customers' passions for gardening and tending to their property. Big Ticket performed better than we anticipated. Customers continue to rely on the trusted advice of our team members when navigating larger purchases, a testament to the legendary service that defines the tractor supply in-store experience. We also believe we somewhat benefited from the bathtub effect as seasonal demand shifted from Q1 into Q2 and has continued on into Q3. In total, these were moderated by some softness and select discretionary categories, including pet hard lines, gun safes, and air compressors. Additionally, certain later cycle spring businesses, such as chemicals, sprayers, and pressure washers, performed below expectations in the quarter, but it picked up as we've moved into Q3. These areas of pressure were not unexpected, given the broader consumer sentiment and how the spring season unfolded. now let's turn to customer engagement our neighbors club loyalty program remains a key driver of customer engagement and a meaningful competitive advantage in q2 we had all-time highs across several customer metrics we ended the quarter with a record 41 million members who accounted for over 80 percent of our total sales we also saw record total customer count and an all-time high in high value customers and that's defined as those who shop frequently and spend more across categories As part of our Neighbors Club, we just celebrated the second anniversary of our Hometown Heroes program with a $1 million donation across 10 charities focused on military service members, veterans, and first responders. Hometown Heroes received top tier Neighbors Club status and benefits. Notably, about 15% of the Hometown Heroes are new to Tractor Supply, highlighting the program's reach and appeal. Shifting to the digital front, our digital sales grew at a mid-single digit rate for the quarter. Orders fulfilled by our stores remain the most popular fulfillment option, accounting for nearly 80% of digital orders, a reflection of the convenience and strategic placement of our more than 2,300 stores across rural America. Our store footprint continues to be a powerful enabler of digital growth. We saw robust performance in deliver from store and same day delivery, which reinforces the unique advantage of our local presence in the communities we serve. Together, these capabilities enhance convenience for our customers and drive continued momentum in our digital ecosystem. Turning to the physical footprint, in the second quarter, we opened 24 new tractor supply stores and two PetSense by tractor supply stores, and we closed one PetSense store. We have a robust pipeline of low-risk organic growth opportunities ahead of us. Our recent acquisition of 18 Big Lots locations gives us great confidence to start 2026 with our new store pipeline in a strong position as we anticipate stepping up to 100 new stores next year. Over the past two years, we have significantly enhanced our real estate development capabilities, improving new store economics and fusion remodel returns. We continue to make progress on our fee development program, which gives us greater control over the timeline and cost of new stores and allows us to capture approximately 15% rent savings over the lease term of a new store. All in, we're pleased with the progress we've made across the business in the first half of the year. Our performance in the second quarter reflects solid execution, continued resilience in our core categories, and strong alignment with our long-term strategic priorities. Looking ahead to the second half of 2025, we recognize the uncertainty that remains from macroeconomic pressures to evolving tariffs. That said, our business model is built for resilience. Given our performance year-to-date and our outlook for the balance of the year, we are reconfirming our guidance for 2025. With a predominantly U.S.-sourced assortment, trusted vendor relationships, and a scalable, flexible supply chain, we believe we are well-positioned to navigate near-term volatility and to continue driving long-term value. And with that, I'll turn it over to Kurt.