Tractor Supply Company

Good morning ladies and gentlemen and welcome to Tractor Supply Company's conference call to discuss second quarter 2026 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 Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company Mary Winn, please go ahead

Thank you, Operator. Good morning, everyone. We appreciate your time and participation in today's call. On the call today, participating in prepared remarks are Hal Lawton, our Chief Executive Officer, and Kurt Barton, our Chief Financial Officer. We will also have Seth Estep, EVP and Chief Merchant, Rob Mills, EVP of Digital IT and Pet Services, John Ordus, EVP and Chief Stores Officer, and Craig Ledbetter, our SVP and Chief Supply Chain Officer, join the call for the Q&A portion. Following our prepared remarks, we'll open the floor for questions. 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 also cause 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 takes 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. Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted operating margin, adjusted diluted earnings per share, and for reconciliation for these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now it's my pleasure to turn the call over to Hal.

Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. I'd like to begin by thanking our more than 54,000 team members for their continued dedication to serving our customers and communities. Their commitment to our mission and values remains one of Tractor Supply's greatest strengths and continues to differentiate our business every day. I would also like to welcome the veterinarians, clinic teams, and support professionals joining Tractor Supply through our acquisition of VIP Pet Care. We're excited to have them join the family as we continue to strengthen our pet ecosystem. The Tractor Supply business model demonstrated its strength and durability during the second quarter. Our core customer remain engaged with healthy retention. Our needs-based categories continue to perform well, and our competitive position remains solid. Thank you for joining us. Fuel prices peaked during the height of our spring selling season, putting meaningful pressure on our customers discretionary spending at the most important time of the quarter. Thank you for joining us. To put that in perspective, performance in our big ticket categories and hard lines spring goods during May alone reduced our second quarter comp sales by approximately two percentage points, highlighting how concentrated the softness was within the quarter. These conditions disproportionately affected discretionary and project-oriented categories while our needs-based businesses remained resilient. With that context, let me turn to our second quarter results. Net sales increased approximately 2% to $4.5 billion, driven by new store growth and partially offset by lower comparable store sales. Comp sales declined approximately 1.5%, reflecting lower transaction counts, which were most pronounced in May, along with modest inflation and softer discretionary demand, particularly in big ticket. Consumable, usable, and edible categories remained positive during the quarter. Big ticket declined in mid-single digits, again led by softness in spring and summer categories in May. Digital sales once again experienced double-digit growth, driven by strong deliver-from-store performance, higher traffic, and improved conversion. Net income and earnings per share were below our expectations for the quarter. Even with significant sales pressure during our largest month of the quarter, the team maintained disciplined expense management and continued to deliver productivity improvements that mitigated the impact of the sales pressure. Looking beyond the quarter, our conviction in the business has not changed. At the same time, we recognize that generating modest positive comp sales is not where Tractor Supply should perform over the long term. We're not satisfied with our business and we're taking decisive actions to improve it. Tractor Supply has successfully navigated changing economic environments for nearly 90 years and we remain confident in the durability of our business model. We operate in NN markets that are currently experiencing several discrete headwinds. Approximately 40% of our addressable market is tied to farm and ranch and rural economies, where customers continue to navigate a challenging operating environment shaped by elevated gas costs, persistent drought, and more cautious discretionary spending. Approximately 20% is tied to pet, where industry growth remains challenged. And another 20% is tied to home improvement and property maintenance, where demand continues to be constrained by a prolonged period of historically low housing turnover. While these pressures had notable impacts on our first half performance, they do not change our confidence in the long-term opportunity. What has not changed is customer engagement. What has changed is customer spending behavior. Thank you for watching. Against that backdrop, and despite May's performance, our second quarter fell short of expectations. We are not satisfied with the results, and we are addressing the challenges facing the business. At the same time, we believe that the fundamentals supporting the rural lifestyle, pet ownership, and property maintenance remain attractive. Thank you for joining us today. While pet performance remains below where we want it to be, trends improved sequentially from the first quarter and we continue to hold share. We believe the deliberate actions we're taking to strengthen our competitive position and capture additional share of wallet are beginning to gain traction. While still in the early stages, we're confident they will continue to build momentum through the back half of the year. The category resets we outlined last quarter are complete, introducing more localized assortments, expanding our presence in faster growing premium nutrition segments, and strengthening our exclusive brand portfolio to better meet the evolving needs of pet parents. We're encouraged by the early results. Our rollout of Fresh Pet continues to perform well. The program was in approximately 250 stores at the end of the second quarter, and we remain on track to expand to at least 700 stores in total by year end. We're also leveraging the broader pet ecosystem we've built through services, while strengthening our marketing, enhancing the digital pet shopping experience, expanding subscription capabilities, and improving in-store execution. Together, these initiatives create a more connected experience for pet parents while strengthening customer loyalty. Additionally, during the quarter, we completed the acquisition of VIP Pet Care, which adds relationships with approximately 1 million pets annually through a network of 2,500 veterinarians across 39 states. The acquisition fills an important gap in our pet ecosystem, allowing us to connect veterinary services, prescriptions and products across physical and digital channels. At the same time, we're reinforcing our price perception through the launch of our unbeatable price campaign, clear everyday value messaging, and targeted promotional activity. Consumable, usable, and edible products remain the foundation of Tractor Supply, and we're committed to reinforcing our value proposition where it matters most to our customers. And these investments are already generating encouraging customer response. We're also using this period to critically evaluate our priorities, sharpen our strategic focus, and ensure we're allocating capital to the highest opportunities generating the strongest customer response and strong long-term returns. As part of that work and in light of our updated 2026 outlook, we've decided to withdraw our long-term financial framework. Thank you for joining us today. Following a disciplined review of PetSense, we've decided to close approximately 75 underperforming stores. We believe these actions will improve returns, simplify the business, and allow us to direct resources toward higher growth, higher return opportunities. We've also concluded that while our new stores continue to generate attractive returns, driving stronger comp sales and improving the productivity of our existing assets are critical priorities in this environment. To support these priorities, we plan to open approximately 85 to 90 new stores in 2027, compared with our previous expectation of 100 new stores. And we will redeploy that capital toward initiatives such as Project Fusion remodels, store locations, and final mile delivery. Thank you for joining us today. We will also continue investing in our existing stores through technology enhancements, expanded tractor vision capabilities, and merchandising concepts such as outdoor recreation, where we're seeing encouraging customer response. Final Mile remains one of our most compelling growth opportunities, with customer adoption continuing to exceed our expectations and economics improving as we scale the business. Through the first half of the year, we've already completed as many Final Mile deliveries as we did during all of 2025, underscoring the strong customer demand and momentum behind this capability. And as a result, we expect to accelerate the rollout ahead of our original timeline. Together, these investments will improve the customer experience, enhance store execution and productivity, and drive stronger returns across our existing store base. This work is ongoing. Today's announcements represent important first steps, and we look forward to sharing additional actions and our updated long-term framework over the coming quarters. We remain confident in Tractor Supply's future. We have a differentiated business model, strong balance sheet, and a proven ability to create long-term shareholder value. The actions we're taking today are designed to further strengthen our competitive position, improve productivity, and position Tractor Supply for long-term success. And with that, I'll turn the call over to Kurt.