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GPTW 2023 Best Workplaces Retail Large Tractor Supply Company

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F500-2021-291-Tractor Supply

The largest rural lifestyle retail chain in the United States offers products for agriculture, home improvement, lawn and garden maintenance, livestock, and pet care.

This year's Fortune 500 marks the 66th running of the list.

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The retail chain serving farmers and ranchers has more than 1,800 stores in 49 states.

This year's Fortune 500 marks the 65th running of the list.

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This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Tractor Supply Company is the largest rural lifestyle retailer in the United States, serving farmers, ranchers, homeowners, and outdoor enthusiasts. The company offers products including livestock and pet supplies, hardware, tools, clothing, and lawn and garden essentials. With thousands of locations nationwide, Tractor Supply also provides services including propane refills, trailer rentals, and pet wash stations.

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Q4 2024

Tractor Supply (TSCO): Company Profile, Stock Price, News, Rankings

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Tractor Supply

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Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's Conference Call to discuss 4th Quarter and Fiscal Year 20 24 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. The host for today's call is Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Now first up is a year end video. I would now like to pass the call to our host, Mary Winn Pilkington.

Thank you, Elisa. Good morning, everyone. We appreciate your time and participation in today's call. On the call today are Hal Walton, our CEO and Curt Barton, our CFO. Following our prepared remarks, we'll open the floor for questions.

Seth Estep, our Chief Merchandising Officer, will also be available during the Q and A session. Please note that a supplemental slide presentation has been made available on our website to accompany today's earnings release. Now let me reference the Safe Harbor provisions under the Securities Litigation Reform Act of 1995. This call may contain certain forward looking statements that are subject to significant risks 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.

As we move into the Q and 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 now it's my pleasure to turn the call over to Hal.

you to everyone for joining our call today. Before we begin, I would like to acknowledge the recent wildfires and winter storms. Our thoughts and prayers are with all those affected. I'd also like to express our deepest appreciation to the first responders who worked tirelessly to protect our communities during these challenging times. Our Tractor Supply team has and will continue to stand with our communities as they recover from these events.

The opening video I think did an excellent job highlighting the key accomplishments of the Tractor Supply team in 2024. And my sincere appreciation and gratitude go out to the team for all they do. Over the year, our team consistently executed with distinction and delivered solid results in a tepid retail environment. Additionally, the team made progress against our Life Out Here strategy, enabling continued market share gains and future growth. Now let's go through some of our highlights specific to the Q4 and the fiscal year, starting with financials.

In the Q4, our net sales grew 3.1 percent and comparable store sales increased 0.6% driven by strong comp transaction growth of 2.3%. And our 4th quarter diluted EPS was $0.44 For the fiscal year, we achieved record financial results on both the top and bottom line. Net sales were nearly $14,900,000,000 growing 2.2% versus 2023 with a comp store sales increase of 0.2%. Diluted earnings per share were also a record $2.04 on a split adjusted basis. And our digital business reached another year of record sales topping over $1,100,000,000 And I'll note, these results are on top of record performance over the last 4 years.

In 2024, we also generated a record $1,400,000,000 in operating cash flow. And we use this cash flow to fund the business and attractive growth opportunities. In 2024, we opened 80 new Tractor Supply stores and 11 Petsense stores. The team has done a fantastic job opening highly productive new stores as this remains a core strength and competency of Tractor Supply. Other business investments we made in 2024 include a new distribution center in Maumelle, Arkansas and more than 160 Fusion remodels.

After funding our business in these initiatives, for the 4th consecutive year, we returned more than $1,000,000,000 to our shareholders through the combination of dividends and share repurchases. And 2024 marked the 15th consecutive year of dividend growth for Tractor Supply. And finally, at the conclusion of the year, we successfully acquired Alovet and we look forward to integrating Alovet into our business and offering it to our millions of Neighbor's Club members who are pet owners. In addition to these financial results and even more importantly perhaps, our team member and customer engagement has never been stronger. Frontline team member attrition is at a record low.

Total active customer counts are at record highs. High value customer retention is at record levels. Customer service scores continue to hit all time highs. And our Neighbor's Club, one of the largest loyalty programs in retail, continues to attract record levels of new customers and we're exiting 2024 with all time highs in both retention rates and retained customer counts. Neighbor's Club is truly a key differentiator for Tractor Supply and we're committed to continued enhancements.

For example, in 2024, our members benefited from more personalized offers, new tiers and more meaningful rewards. Additionally, the expansion of Neighbor's Club to Petsense by Tractor Supply continues to drive strong customer engagement. This expansion is allowing us to deepen relationships with existing customers and help attract new pet customers to both banners. Neighbor's Club membership currently represents over 85% of sales at Petsense with continued momentum. The Petsense shopper is also cross shopping Tractor Supply at an impressive rate of 50%, an increase of nearly 3 points year over year.

Overall, Neighbor's Club membership now exceeds 38,000,000 and as a percent of our sales reached a record 80%. With our Life Out Here strategy, we have built on Tractor Supply's long standing commitment to invest in our powerful flywheel. We substantially transformed our business and are operating from a higher level performance. We've not given back any of the gains that we've made over the last 5 years and we've delivered against our strategy and we're very excited about the future. As we plan for 2025, we're forecasting strong net sales growth of 5% to 7% and comp sales performance of 1% to 3%.

We anticipate that the headwinds we've been facing will moderate as we move through the year and that we continue our share gains. We expect product deflation should be relatively neutral by mid-twenty 25. And additionally, we see signs of stabilization in both personal consumption expenditure and the balance of goods versus services as well as in the pet food category. As it relates to the new presidential administration, while there are many unknowns that we acknowledge, for example, tariffs, we are confident in our ability to navigate these circumstances as they evolve. Additionally, as I'll note that many of these unknowns are not Tractor Supply specific and on most fronts, our business profile is attractive on a relative basis to other retailers and companies.

As we shared in our recent investment community day in December, we remain confident in our long term targets and expect to return to them when market conditions return to neutral. Tractor Supply is a unique and highly differentiated retailer. We have a history of executing with discipline on our strategy, delivering strong financial results and continue to expand our competitive moat. We continue to gain market share across our major product categories and our customer metrics remain incredibly healthy. We're excited about the continued evolution of our Life Out Here strategy that builds on our strengths, continues the momentum of our existing strategy and launches new initiatives that increase our total addressable market to $225,000,000,000 We're entering the new year with momentum and opportunity.

And with that, I'll now turn the call over to Kurt.

Thanks, Hal, and hello to everyone on the call. Let's start with some key insights for the Q4 and full year. I'll spend the bulk of my time on our outlook for 2025. We had solid performance given the overall conditions for the Q4. Comparable store sales increased 0.6%, driven by strong comparable average transaction increase of 2.3%, partially offset by a comparable average ticket decrease of 1.7%.

Of note, unit volumes were solid and the ticket pressure was principally from average unit retail. For the Q4, we always believe that weather trumps the holiday. Typically, the winter weather has a much greater impact to the Q4, and once again, that is how this year played out. In addition, we continue to face the ongoing headwind of deflation in key product categories. We estimate that deflation had approximately 100 basis point drag on our comp sales performance in the quarter.

Most of the deflation pressure came from commodity based products, consistent with the recent trends. As we progress through the quarter, we saw a positive impact from the early October hurricanes. While the warmer than usual temperatures in late October November presented some challenges, December had a modest improvement in the weather and solid holiday performance, demonstrating our resilience and ability to adapt to varying conditions. Turning to the category performance for the quarter. We had strong comps in our seasonal department as well as truck tool and hardware, with both performing better than chain average.

Our consumable, usable and edible products performed in line with chain average. Notably, we had mid single digit unit growth as we continue to believe we are gaining share in these categories overall. The strength of our unit growth in Q was offset by ongoing deflation. No doubt, the warm weather in November and, to a lesser extent, December weighed on our winter seasonal business. Overall, our spring and summer seasonal categories drove positive comp sales with 0 turn and front engine mowers both up double digits.

This is indicative of the unseasonably warm weather we had in the quarter. Cold weather related categories such as insulated outerwear and heating modestly underperformed chain average due to the warm weather conditions. Big ticket performance continued to outperform in the low single digits. We experienced strength in hurricane response categories like generators. Additionally, grilling, mowers, trailers and truck toolboxes all performed well.

Although our business is not primarily driven by holiday sales in Q4, we were encouraged by our performance during the holiday season, including recording our highest sales day of all time on the day after Thanksgiving and strong performance for the holiday season. Moving on to gross margin. Gross margin decreased 9 basis points to 35.2% from the prior year's Q4. It is worth calling out that we were lapping our most difficult gross margin comparison of the quarter with 129 basis points of expansion in the prior year. Our performance was relatively in line with our expectations.

As a percent of net sales, SG and A expenses, including depreciation and amortization, increased 60 basis points year over year to 26.8%. This increase was primarily attributable to our planned growth investments, including higher depreciation and the onboarding of a new distribution center and modest deleverage of our fixed costs given the level of comparable store sales growth. These factors were partially offset by the team's disciplined focus on productivity and our ongoing emphasis on cost control. We did have a modest benefit from our ongoing sale leaseback strategy. This quarter, we had a similar number of existing store sales as the prior year with a slightly higher average gain per store.

Operating margin declined 69 basis points for the quarter to 8.4%. Now let's move to our outlook for 2025. As I have previously shared, navigating economic cycles is in our DNA. We have a long track record of successfully managing through diverse market conditions. The needs based nature of our business, combined with our deep understanding of these dynamics, allows us to proactively adapt to the market conditions.

The same can be said about tariffs. As Hal commented in his opening remarks, there are certainly a number of unknowns at this time on this important topic. This is a team that has been cycle tested with lessons learned from the prior administration. For instance, we have continued to diversify our country of origin for imports. We have been scenario planning and are prepared to address as any proposed actions take effect.

It is important to remember that this is a topic that affects all of retail. We are differentiated as we only have about 12% or so of our sales that are direct imports and have a large Q business that is domestically sourced. Given the fluid nature of the discussion on tariffs and the number of unknowns, our guidance does not assume any changes in tariffs at this time. We successfully managed through tariffs in prior cycles. We will remain flexible and nimble to adapt to the changing environment.

For fiscal 2025, we are forecasting net sales growth of 5% to 7% to $15,600,000,000 to $15,900,000,000 Approximately four points of this growth is driven by new stores and Ally Vet. With a purchase price of $135,000,000 we anticipate Ally Vet adding more than $100,000,000 to our net sales and accretive to earnings. Comparable store sales are anticipated to increase 1% to 3%. We expect modest gross margin expansion of about 20 to 40 basis points from continued supply chain efficiencies, benefits from effective cost and price management and our exclusive brands and retail media initiatives. We anticipate a relatively stable and consistent overall transportation market.

We forecast the gross margin expansion to be offset by SG and A deleverage due to a couple of primary factors. First, depreciation and amortization is anticipated to increase about 10% with a higher growth rate in the first half as compared to the second half of the year. While this is an improvement from recent underlying growth rates, as our investments in our strategic growth initiatives moderate, we will deleverage as DNA grows faster than sales. 2nd, we are investing our Life Out Here 2,030 strategic initiatives. In order to launch our direct sales and final mile initiatives, we are planning a net investment of about 15 to 20 basis points of operating margin into these exciting opportunities for growth.

In 2025, we will continue our planned strategic sale leaseback program to sell some of our existing owned stores. As we recently indicated at our Investment Community Day, we expect to sell an incremental 2 to 4 existing stores to fund the step up in new stores from 80 to 90 in 2025. We anticipate these sales will occur across the year with a similar EPS contribution as in 2024 in total. For the year, we forecast an operating margin of 9.6 percent to 10%, centering around our 2024 performance. We are forecasting interest expense of approximately $65,000,000 to $70,000,000 We plan to maintain a healthy leverage ratio of a little over 2 times.

We expect our effective tax rate to be in the range of 22.2 percent to 22.5 percent. Diluted EPS is forecast in a range of $2.10 to $2.22 Net capital expenditures are forecast to be $650,000,000 to $725,000,000 or about 4% to 4.5% of sales. This net amount reflects the anticipated proceeds from the sale of existing and newly developed Tractor Supply stores. Gross capital expenditures are forecast to be around $1,000,000,000 Our capital plans reflect a ramp in our new store openings to approximately 90 Tractor Supply stores. We anticipate opening about 10 Petsense stores this year.

Our new store pipeline remains exceptionally strong, continuing to exceed historical averages in both sales and profitability. We expect our store opening cadence to be in line with 2024. As we announced this week, we anticipate starting construction of our 11th distribution center in Idaho later this year with operations commencing in late 2026 or early 2027. This is an exciting expansion of our DC network that will allow us to more effectively service our existing stores and new store growth opportunities in the Pacific Northwest. We remain committed to returning cash to shareholders through the combination of a growing dividend and share repurchases.

For 2025, we anticipate share repurchases in a range of $525,000,000 to $600,000,000 which is estimated to have a benefit of a net reduction in weighted average shares outstanding of approximately 1% to 2%. Now I'd like to walk through a few items to consider for the calendarization of our expectations. As always, we believe the best way to look at our results is in halves and not quarters due to the nature of our business. We expect comp sales for each of the quarters to be in a relatively tight range, consistent with our overall 2025 guidance. We anticipate that comp sales will be modestly stronger in the second half of the year as our compares ease and the headwind from deflation continues to moderate.

We are planning for positive comp transactions for the year along with flat to slightly positive average ticket. We anticipate that deflation will be a modest headwind in the first half of the year. We believe we are nearing the trough now, having successfully managed through the deflation of 2023 2024. As to earnings, we expect our EPS growth to be relatively consistent between the first half and second half of the year. As we see it today, our forecast calls for the first half of the year to have marginally better operating margin performance than the second half as we begin to cycle recent transportation efficiencies.

Specific to the Q1, we've had a solid start to the year given the recent cold weather trends. As a reminder, January last year was also very cold with strong comps. We are seeing good momentum as we start the Q1, recognizing we have a lot of the quarter ahead of us. Overall, we are anticipating positive comp sales for the Q1. Our Q1 diluted EPS is anticipated to be relatively consistent with the prior year as our positive sales growth is somewhat offset by our investments in the business.

We are planning for continued gross margin expansion to be offset by incremental investments to launch our strategic initiatives and the operational costs for our new Arkansas distribution center, which opened in mid-twenty 24. As a consequence, operating margin is anticipated to be flat to slightly below prior year. To wrap up, we have clearly defined strategic priorities and are investing to capture the long term opportunities in our market. We are committed to driving productivity and making appropriate trade offs to fuel our investments while we protect our operating profit margins and earnings. We intend to maintain this focused approach through 2025 as we self fund our Life Out Here 2,030 initiatives.

We are committed to continuously striving for stronger results. With that, I will turn the call back over to Hal. Thanks, Kurt.

As we shared in December at our Investment Community Day, we're embarking on the next leg of growth for Tractor Supply with our Life Out Here 2,030 strategy. This strategy is designed to continue to invest in what's working as well as begin investments in several new opportunities, creating horizons of growth that we expect to last through the end of the decade. Key initiatives in our Life Out Here strategy will continue to be our Project Fusion and Garden Center rollouts. Both of these projects are working well and delivering compelling returns through improved space productivity. In 2025, these initiatives will be complemented with enhanced localization capabilities.

Specifically, the team has developed data driven archetypes that tailor approximately 25% of store space to better reflect customer need and further optimize the incremental sales opportunity of each unique site. Going forward, all new stores and our Fusion remodels will have localized space allocation and assortment based on their respective archetypes. Turning to our Neighbor's Club, we have significant plans in place to continue to capitalize on this unique strategic asset. A significant focus for us this year will be to bring our members Pet RX through our recent Alivet acquisition. The acquisition of Alivet expands our total addressable market by $15,000,000,000 to 225,000,000,000 Alivet has a proven platform to make pet ownership easier by providing convenient access to brand name medications, expert pharmacy advice and convenient reordering with its auto ship program.

Our efforts in Q1 are focused on integrating Alavest catalog onto tractorsupply.com and updating a member's Neighbor's Club profile to include their prescription and veterinarian information. We look forward to providing our 38,000,000 Neighbors Club members with a value added pet and animal prescription service and introducing TrackSply to Alavette's customers. As Curt mentioned, we're investing in this year in several new key strategic initiatives, especially direct sales and final mile. It is critical to get them off to a strong start and the team is keenly focused on our multi year journey to capture the significant opportunity with these initiatives. In direct sales, our efforts in the first half are focused on building a scalable field sales model and launching version 1 of our business to business selling platform.

In Final Mile, our efforts in the first half are focused on hardening our existing delivery hubs, activating inventory across more locations and bringing bulk online orders in house for delivery. While our long term strategy sets the foundation for sustained growth, our 2025 operating plans are designed to deliver measurable results today, ensuring we continue to meet our evolving customers' needs and build momentum towards achieving our long term goals. As mentioned, the year has started solid and our teams have been busy supporting our customers for all their winter needs as a dependable supplier of the out here lifestyle, From heating fuel and heating pellets to insulated winter clothing to livestock feed, we are highly engaged ensuring our customers have what they need to deal with the recent winter storms and recovery. As the calendar will soon turn to spring, we've already transitioned over 600 of our stores to our spring sets and the remainder will do so over the next couple of months. Our merchant teams have done an excellent job bringing value and innovation to our line ups for spring.

Examples include expanding Weber Grilling to all stores and launching exclusive 0 turn mowers from Cub Cadet and the 2nd year of the Toro Havoc, as well as introducing new national live goods programs. And we have so much more and I look forward to sharing more details on spring in our Q1 earnings call. As always, we are laser focused on our Q categories. In our Companion Animal segment, we're pleased to launch new products both in store and online. We recently launched 4 Health Shreds, we expanded our Temptations assortment in cat and we introduced new freeze dried and shelf stable treats.

In the market now, we have our annual pet appreciation days with a month of targeted savings offers and in store events to drive excitement. Additionally, we will continue to leverage our over 1,000 pet wash locations. And last year, we conducted over 1,800,000 pet washes, including a record breaking 500,000 plus in Q4. Our pet aisle is more robust than ever, featuring familiar favorites as well as new unique offerings that deliver the quality our customers expect at incredible value. In our Animal segment, spring attracts fly means it's time for our annual spring chick days.

The arrival of chicks at our stores is a sure sign of spring and creates strong retail theater in our stores. Backyard Poultry continues to see significant engagement with our customers, highlighting a shift towards sustainable and self reliant living. Whether as pets or as the source of eggs, chicks are both a practical and enjoyable hobby for many and are often referred to as the 3rd pet. We have more shopping trends and insights than ever on our poultry customers and are able to build out more targeted campaigns based on where they are in their journey. As our customers build and maintain their flocks, we have everything they need for feed, treats, toys and an exciting lineup of new chicken coops.

Our retail philosophy is that Chick Daze is a great gateway for our customers to deepen their relationship with Tractor Supply and that enables Tractor Supply then to be viewed as a resource for all things related to homesteading beyond the poultry category. Earlier this week, we announced a multi year strategic licensing partnership with Field and Stream. Beginning in June, Track Supply customers could shop a variety of hunting and outdoor Field and Stream branded products. We're excited about the opportunity this partnership presents and look forward to providing more details in future earnings calls. As the season turns to spring, I hope you get a chance to visit our stores and see the actions and initiatives coming to life.

Our future remains exceptionally bright and exciting. Our upcoming initiatives, scale and capabilities demonstrate our ability to meet the evolving needs of our customers. We're excited about the future and look forward to continuing our journey of growth and innovation in the channel. I'd like to close where I started by extending my gratitude to our team members for their unwavering dedication to each other and to serving our customers. I'd also like to thank our customers for choosing us as their trusted supplier for life out here and also call out our 2,300 plus communities for embracing us as an integral part of our hometowns.

With that, operator, we'd now like to open the line for questions.

Thank you. We will now begin the question and answer portion of today's call. The first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Good morning, everyone. I wanted to focus my one question on comp transactions, which were positive and a good sign of health. Can you talk about transaction breadth in 2 ways, geographically? And then if you can look at it across immature and mature stores, how balanced is it?

Yes. Good morning, Simeon, and thanks for the question. We were pleased with our comp transaction growth in Q4. And the breadth was widespread across both categories and geographies. What I would say is where we had weather activity, we saw stronger comp transactions as one would imagine.

But our comp transaction growth was strong, particularly as it relates to average ticket growth across all regions of the country and across our categories as well. I'll note the numerous call outs I made on customers, customer counts and customer activity and customer retention as well. But we were very pleased with the comp transaction growth and expect comp transactions to continue to be strong for us in 2025. And really, as you know, comp transactions have been 1 a key component of our growth over the last 5 years. Over half around half of our total growth over the last 5 years has been driven by comp transactions.

And I think it's a hallmark and a differentiator for us as it relates to the rest of retail. On the new store front, new stores continue to perform right in line with our expectations. New store openings are right in that 4.2%, 4.3% range on a 1st year basis, very much in line with our expectations. The IRRs are performing in line. The operating profit margin rates are performing in line.

And that's if you look at our 'twenty one, 'twenty two, 'twenty three and 'twenty four classes across the board, the 'twenty one's far outperformed given the moment of time we were in. But 'twenty two, 'twenty three and 'twenty four have all been very consistent. And of course, that is the vast majority of the customers that shop our new stores are new customers and drive the number of incremental transactions. Of course, that would be in our comp transaction number, that would be a non comp. But very pleased with the transactions and new customer accounts coming along with our new stores and their opening profile.

Thank you. The next question is from the line of Stephen Forbes with Guggenheim. Your line is now open.

Good morning, Hal, Kurt, Seth. You mentioned localization initiatives in the Field and Stream partnership as well. So I was hoping maybe if you can walk us back to the Analyst Day where you explored the customer segmentation work that you guys executed upon. Any way to sort of reframe up the opportunity as you think about localization and sort of what drove the strategic partnership with Field and Stream? How do we sort of contextualize the product category opportunities, the potential lift in sales per square foot that you see on the back of localization?

Just any sort of color for us that helps us think about what it means for comp transactions and new store productivity as well as the maturation curve of the stores themselves?

Yes. Hey, Steven, this is Seth. Thanks for the question. Separate both of those kind of individually and I'll spend a little bit on both.

First and foremost, just kind of going back to the localization commentary, I would say it remains really consistent with what we said at ICD and what we said in prepared remarks. Relative just knowing the amount of opportunity we have to adjust particularly our macro space floor planning when we go out to our Fusion or our new stores to just maximize that space productivity. And like we shared at ICD, we anticipate that we'll continue to deliver likely an incremental low single digits lift as we go to implement those as we adjust call it, 25% of the floor plans as we start to roll those out. We're always looking at ways that we can localize our assortments. And if we were to go back to 2019 and to where we are today, one of the things that we continue to see is that the wildlife and hunting categories for us in recreation have been among the fastest growing and it's where a lot of our consumers are continuing to respond with us.

So we were looking for ways in which we could continue to drive some meaningful assortments, meaningful partnerships, specifically in that space because it's been very strong growth, but we know that we have a tremendous amount of growth opportunity in front of us. So we're very excited about the Field and Stream partnership that we announced yesterday and what Hal mentioned in his prepared remarks. It really will be a multiyear journey for us starting midyear this year, specifically tailored more towards that wildlife category. And then as we roll into late this year and then into next year, it will start to be expanded into like an exclusive line of apparel and other things that the brand really resonates with our shoppers. And then also there's some very unique marketing opportunities where our collective brands can come together across all the channels.

So I do think the partnership is reflective of how we're looking at both localization and our category assortments in general, but very excited about both those opportunities. Thanks for the question.

Thank you. The next question is from the line of Peter Keith with Piper Sandler. Your line is now open.

Thanks guys. You had mentioned the poultry category and I'm wondering one of my favorite topics was backyard chickens. If the rise in egg price this year is starting to drive some acceleration in that category? And as just we think about egg prices potentially continuing to go up this year, maybe reflect back on what you saw in 2023 when there also seems to be a meaningful chicken demand? And what did you see in your results in terms of like customer acquisition and traffic?

Yes. This is Seth, Peter. Thanks for the question. Backyard poultry, Backyard flock, like as you mentioned, it's one of your favorite tops, you said, it's also one of ours. It's core to our customers, as we mentioned.

About 1 in 5 of our current shoppers participate in the hobby. It's well above the national average. We are very excited about this year's Chick Days. It's a chance for not only for our current shoppers as we continue to dive in with personalization to grow their flocks with all the unique guidance and expanded items that Hal talked about here at the end of prepared remarks. But one thing that we also saw like back in 2023 was also a great entry point into the hobby when we saw egg prices continue to elevate at the same time.

So as we look at this year's event, we're very excited about our current customers continue to expand the flock, continue to engage with us, be their primary destination, but also are excited about the potential opportunity to continue to engage new shoppers in the category, which then we see over time it just continues to deepen that relationship with them. So more to come. Look forward to discussing the results of Chick days as it continues to roll out over the next few weeks and it will be in stores here shortly.

Thank you. The next question is from the line of Seth Sigman with Barclays. Your line is now open.

Hey guys, good morning. So you discussed macro headwinds potentially moderating through 2025 and it seems like that's what's reflected in the comp guidance for the year. Can you just elaborate on what that means specifically for Tractor Supply? Because in a lot of ways your business has been much more stable this year than a lot of other cyclical businesses. So what categories have really under punched?

Any signs that maybe that's starting to improve? And then if you could also speak to big ticket perhaps in that context, big ticket has been a nice outlier for you this year, low double digit growth, although it did moderate in the Q4. So if you could just speak to that and remind us on how you're thinking about some of those categories? Thanks so much.

Yes. Good morning, Seth, and thanks for the question. I referenced back to my prepared remarks and kind of highlight three factors that really have weighed on our business over the last 18 to 24 months. And then comment on our outlook for those in 2025. Those three factors that I'd highlight would be the in PCE, the reversion from goods to services spend.

The second would be underlying deflation in our commodity related items. And then the third would be stabilization of the pet category. All three of those, as you know, are headwinds that we've been facing. And we've been very kind of transparent on the impact those have had on our business on things like average ticket etcetera. As we look into 2025, we do see modernization, neutralization, stabilization, kind of pick your word as more so as it goes through the year.

So if you look at goods and services, it's basically reached its pre COVID levels now, it's mid-sixty eight percent versus mid-thirty one percent. That's very much back in line, maybe a half a point to go there. On Pet, the kind of stabilization or neutral nature of that industry over the last 12 months has been well documented. We do see that business recovering to low single digit growth this year and our business accordingly growing along side of that as we are a share gainer in that category. And then as it relates to deflation, we are we see light at the end of the tunnel on that.

If we just take our average unit cost and our average unit retails across our commodity related items, we hit the we start comping over top of all that between April May of this coming year. And then I'd also just point out on that's a steady state point in time. If you look at the commodity markets right now, if anything, they're kind of surging up. If you look at say like corn prices, which we've talked about is commodity that we're most correlated with, Corn is trading now in kind of that high 400s, 4.90 range, really at like a 15 month high now. We aren't seeing that make its way into pricing yet.

But if anything, I'd say that is a potential tailwind. So as we look out, we do see kind of light at the end of the tunnel on these macro factors that have been headwinds for us. And we think as we get into the year, those forces will become less and less of a headwind. That's reflected in our guidance for the year, which is a comp of 1% to 3%. And we said that we expect kind of sequential improvement from our comps from the first half to the second half as well.

And the final thing I'll call out is we have had a solid start to the year, which gives us more confidence in our guidance. Of course, we've got 11 months still to go, but it's been nice to have the cold winter weather in the 1st month of the year to in particular help us lap last year's cold weather and start out with a relatively solid start to the year. So thanks, Seth. Appreciate the question. Hal, I'll just mention Seth's last question on big ticket, which I think is a great topic as well.

So Seth, this is Kurt. As we've talked about through all of 2024, I mean, the merchants did an excellent job coming off of 2 years of declining big ticket sales with newness, innovation, competitive pricing, great financing. And so we recognize in our guidance that we're cycling strong big ticket comps in 2025. But a lot of 'twenty four was a comeback of some of the lack of newness and the customers responded. And we still we see that big ticket is more at its new stabilized platform.

And we look at 2025 as we're bringing together all the reasons, the newness, the competitive pricing, love our opportunities in 2025. Big ticket is expected to run positively, more in line with chain average in 2025. But what we're bringing in 0 turns, trailers, a number of areas that you'll start to see this year is we've got good reason to be optimistic on our ability to continue to comp the comp on big ticket in 2025.

Thank you. The next question is from the line of Kate McShane with Goldman Sachs. Your line is now open.

Hi, good morning. Thanks for taking our question. We wondered if we could focus our question on the operating margin guide. I think it's the lower end of it maybe seems a little bit lower than what you were talking to in December, which we thought was around flat. First, is that right?

And if so, what's driving the change? And then can you talk to the range? Is that range concurrent with what you expect to do on the top line in 2025? Or are there other things that we should consider driving that range of outcomes?

Yes. Hey, Kate, this is Kurt. Thanks for the question. On operating margin, as I mentioned in my remarks, we estimate and forecast that our 2025 operating margin would be more in line and center pointed around the 2024 operating margin. To your second part of your question, the operating margin range that we gave is more concurrent and proportional with the comp sales range of 1% to 3%.

So allowing for the appropriate flow through under the low end and high end scenarios on the comp sales range, the 9.6% to 10% operating margin reflects that. We've got a significant opportunity for growth in this business as we've talked about the 2,030 initiatives. So we are purposely investing to be able to launch those programs. And we're self funding those with gross margin expansion and efficiencies that we have achieved and continue to target on the SG and A side. So we're excited about 2025.

We're going to continue to strive to hit the high ends of our targets. We believe we've got gross margin expansion that allows us in this year to be able to do both things, grow the business and be able to maintain the operating margin. And that's the key message on both the top and bottom line.

Thank you. The next question comes from the line of Michael Lasser with UBS. Your line is now open.

Good morning. Thank you so much for taking my question. My question is on the outlook for this year, which you noted that the business has already started off with a solid beginning given some of the weather and you're guiding to an acceleration over the course of the year. And then on top of that, you outlined some positive drivers for that could impact the business. So A, should we interpret the 1% to 3% comp outlook as conservative or what would stand in the way of potential upside from that?

And B, if there is comp upside, how should that flow to the bottom line? Meaning, would you choose to potentially proactively reinvest some of the upside back in further investments in your initiatives such that there may not be as much upside even if the comps outperform? Thank you.

Hey, Michael, and thanks for the question. I'll answer it in 2 parts of the way you ask it. On our comp first, obviously, when we set our guidance, we try not to be impacted too much by the 1st 3 or 4 weeks of the year in terms of sales and try to look over a full 52 week period. And with that as context, we certainly see the broader macro conditions, like we talked about with Simeon's question at the beginning, kind of more neutralizing and some of them perhaps even becoming positive in nature for us as we get through the year. And so I think that's what leads us to the kind of sequential improvement as the year goes on.

And that's without any sort of consideration for the aberrations of weather and how they might impact 1 month here and there through the year. But we feel very good about our 1% to 3%. We think that's we're highly confident in it. And we think it's the right place to start here at the beginning of the year. What I as it relates to if we had comp upside, I think obviously there's a variety of scenarios that we'll evaluate as we go through the year and that would be a great scenario for us to be considering.

What I would say is reference kind of back to the way we've thought about it in the past and we've had comp outperformance. We'll evaluate our current initiatives, how they're running, how their investments in those initiatives are going. If we were to lean more into those initiatives, what would be the result of that incremental investment and or what other needs do we have in the business. And then obviously we would evaluate the flow through as well. But as we've indicated long term, when we see our comp growth rates in our long term guidance range in that 3%, 4%, 5% range, we do expect to leverage on operating margin rate and have that improve.

And so I would also say that if you saw comp outperformance in the year, you would see operating margin flow towards the higher end of our guidance and we would update you accordingly through the year on that. But again, just stepping back, we're very excited about the beginning of the year. We feel good about our plans for the year and have some good momentum as we head into 2025 here. We've got a lot of new initiatives to embark on top of some really solid existing initiatives, recruiting real value for our shareholders and excited about the horizons for growth that we have over the next few years. Thanks, Michael, for the question.

Thank you. The next question comes from the line of Peter Benedict with Baird. Your line is now open.

Hi, guys. Good morning. Thanks for taking the question. Kurt, maybe just something around

Tractor Supply (TSCO) Q4 2024 Earnings Call Transcript

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