The operator introduces the Tractor Supply Company's Conference Call to discuss Second Quarter 2024 Results. Mary Winn Pilkington, the Senior Vice President of Investor and Public Relations, introduces the CEO and CFO and mentions the availability of a supplemental slide presentation. She also mentions the Safe Harbor provisions and the risks and uncertainties involved in forward-looking statements. The important risk factors are included in the press release and the company's filings with the Securities and Exchange Commission.

The information provided in the call is accurate only as of the discussed date and may not remain operative in the future. Tractor Supply will not update any information discussed. Only one question per person is allowed during the Q&A, and the team will be available for follow-ups after the call. The CEO expresses appreciation for the company's team and gives a special shout out to the technology team for their efforts in recovering from an outage. The macroeconomic indicators for consumer spending are mixed, with moderate caution and fatigue in spending on goods. Unemployment has increased and consumer sentiment and confidence are low. The recent personal consumption expenditures report showed another soft month for goods.

The ongoing shift in spending from goods to services has been a challenge for the business, but overall performance has been in line with expectations. Retail sales were flat to slightly positive, with growth in non-durable categories. The farm and ranch channel experienced declines, but the company's share in the channel continues to increase. The first half of 2024 has performed according to guidance, with half of the months having positive comp sales and overall profitability meeting expectations. Weather and potential pull-forward of sales from the first quarter may have balanced out performance across the two quarters. Higher income customers have moderated slightly due to increased spending on vacation travel, while lower income customers have increased. Overall, the customer base continues to grow and remain strong.

The company had a 1.5% increase in net sales and a 0.5% decline in comparable-store sales for the quarter. Diluted EPS was $3.93. The comparable-store sales decline was due to a slight decrease in transactions, offset by a positive average ticket. The company's loyalty program, Neighbor's Club, continues to see growth in customer engagement and retention. They recently launched a program to recognize military service members, veterans, and first responders, which has resulted in new enrollments and an increase in membership. Overall, the company reached an all-time high in sales penetration and membership with 36 million members, adding 5 million over the past year.

The Neighbor's Club retention rate remains consistent and the company is seeing a slight decrease in engagement from non-core customers due to macro headwinds. The company is focused on improving personalization with a new customer data platform and has received recognition for their excellent customer service. Category performance was strong in big ticket items, with customers responding well to new and innovative products.

The company is pleased with their live goods performance, which has strong comps despite hot weather. They expected their consumable, usable, and edible products to perform below the chain average due to deflation, but they were still able to grow units and gain market share. The pet food category has been flat to negative, but the company continues to take share and has seen strong growth in their pet wash and mobile pet vet services. These services, along with the company's one-stop-shop convenience and cross-purchasing synergy with animal feeds, reinforce their value proposition for pet owners.

In the second quarter, the company has seen strong growth in their aqua livestock and poultry feed market, with a mid-single-digit increase in unit sales across all species. They have also seen success in their poultry business with their annual Spring Chick Days event, which showcases their range of feed options. However, their discretionary businesses and hardlines products have performed below expectations. Digital sales continue to grow, and the opening of a new distribution center in Arkansas will improve transportation costs and service levels. The company's investment in supply chain has also resulted in a structural gross margin benefit. The garden centers have also performed well with a differentiated assortment and strong in-stocks.

In the second quarter, Tractor Supply saw positive customer response to their expansion in live goods and outdoor living categories. They opened new stores and continue to see strong productivity. Their new real estate capabilities are expected to bring significant benefits to revenue growth and operating margin rate. The team is satisfied but not complacent with their first half performance and are focused on executing their Life Out Here strategy. They anticipate customer spending to remain conservative in the second half of the year and have narrowed their guidance for fiscal 2024. Tractor Supply continues to differentiate themselves from competitors through their team members and strategic initiatives, and their commitment to serving Life Out Here remains unchanged.

In the second quarter, the company experienced solid seasonal growth and strong big ticket sales, but faced pressure in discretionary categories. The CUE performance was slightly below average due to retail price deflation. However, the company successfully managed through this impact. Comp sales growth was consistent across all regions, with the Northeast and Commonwealth performing the strongest. Gross margin increased due to lower transportation costs and disciplined cost management, but was partially offset by the mix impact from big ticket sales.

In the second quarter, SG&A expenses as a percentage of net sales increased due to planned growth investments and a decline in comparable store sales. However, strong cost control and a sale leaseback strategy helped offset these factors. Operating profit margin remained flat and diluted EPS increased. Merchandise inventories increased, but in-stock levels improved. The company has a healthy balance sheet and has returned capital to shareholders. The company has narrowed its fiscal 2024 financial guidance range based on its performance in the first half of the year.

The company has adjusted its sales forecast for the year to be between $14.8 billion and $15 billion, with a comp store sales range of down 0.5% to up 1%. They expect an operating margin rate of 9.8% to 10.1% and net income of $1.08 billion to $1.12 billion. The fourth quarter is expected to have a wider range of outcomes, with potential factors such as easier compares, normalized winter weather, and potential emergency response activity. However, there are also potential risks such as moderation in big ticket trends, uncertainty due to the Federal election, and a shorter holiday selling season. The company also expects a headwind from deflation in the third quarter, but a moderation towards neutral in the fourth quarter as they start to lap the lower costs from the previous year.

The company expects continued gross margin expansion in the second half of the year, with the third quarter having the best performance due to favorable transportation costs. However, the fourth quarter will be more challenging due to difficult comparisons from the previous year. The company also anticipates modest fixed cost deleverage and continued pressure from the startup cost of a new distribution center in the third and fourth quarters, resulting in softer SG&A performance. Despite these challenges, the company remains confident in its long-term growth and plans to return capital to shareholders.

Tractor Supply is pleased with the progress of their Life Out Here strategy and their strong position in the industry. They have numerous positive factors working in their favor, such as their strategic initiatives, market trends, and new store growth opportunities. The company remains confident in their ability to create long-term value for shareholders. As they head into the second half of the year, they are excited about their upcoming innovations and brand launches. They believe that as economic conditions improve, they will return to their long-term growth plan. The team is focused on being proactive and taking advantage of opportunities.

Tractor Supply is not only executing their current initiatives, but also planning for future growth drivers. They have multiple opportunities to expand their $180 billion total addressable market. The company has invested in their stores, inventory, supply chain, digital capabilities, and customer service to meet customer needs. They have also enhanced their loyalty program and are excited about upcoming events and promotions. The company's team is proud and confident in their future, and they expect an extended selling season due to the wet spring.

Hal Lawton responds to a question about the impact of a wet spring on the company's performance. He explains that while the wet weather was initially expected to be beneficial, the sudden onset of hot summer weather caused a decline in sales, particularly in the ag fencing category. He also mentions that the company is hopeful for a recovery in August and into the fall. In regards to third quarter guidance, Lawton states that it is consistent with previous comments and that July will be the toughest month in terms of comparisons.

Hal Lawton, CEO of Tractor Supply, responds to a question about recent changes made by the company and the potential impact on customer perception and sales. He acknowledges the difficult situation that played out in the public arena and the range of feedback received. However, he states that there is no evidence of a measurable impact on the business and that the company remains committed to its values and being a good corporate citizen. He also mentions the company's special culture and its focus on long-term stewardship. The question was asked by Michael Lasser from UBS and the next question was from Steven Zaccone from Citigroup.

The speaker, Hal Lawton, discusses the company's same-store sales trend and the guidance adjustment for the second half. He mentions that the first half was in-line with their expectations, with some categories performing slightly better or worse. He expects the second half to be similar, with Q3 being consistent with the first half and Q4 having a broader range of outcomes. He also addresses potential factors such as ticket and transaction trends, pet food landscape, and discretionary business.

Kurt addressed the inventory levels during the Q2 earnings call, stating that he felt comfortable with the current build. He added that there may be a slight variation in Q4 due to potential factors such as winter weather and the federal election, but overall, the business is performing as expected. He also mentioned that there is nothing significant that would cause a change in the outlook for the rest of the year. During the call, Peter Benedict asked for more details on inventory levels and Kurt stated that they are expected to level out over the rest of the year and that there is not an excessive amount of inventory currently.

In paragraph 19, Kurt Barton and Seth Estep discuss the company's inventory position. They mention that last year they were down 1.7% in inventory, but this year they have purposely invested in areas where they are seeing growth, such as grills, mini bikes, and rec vehicles. They also mention that their in-stock position is the best it has been since before the pandemic, and their clearance and aged inventory is down compared to last year. They are committed to investing in categories that are working and ensuring they have their key products in stock. Overall, they feel good about the quality and position of their inventory.

During a call with investors, an operator introduces Chuck Grom from Gordon Haskett Research Advisors who asks about the company's recent flat comps and their long term guidance of 4-5%. Hal Lawton, the company's representative, explains that the shift in consumer spending from goods to services and deflation are the main factors impacting their current performance. However, he remains confident in their long term guidance and believes that a normalization of these factors could lead to a 4-4.5% comp in the future.

The speaker discusses the strength of big ticket sales in the first half of the year, with a low double-digit growth rate in the second quarter. They note that big ticket sales tend to be highest in the second quarter, but overall make up a smaller percentage of sales in the second half of the year. The speaker also mentions their investment in this area and the impact of innovation on driving sales.

The company is comfortable with their current inventory levels and does not see any need to take action to improve the quality of their inventory. The increase in inventory can be attributed to easier comparison from last year and strong sales in certain categories such as recreational vehicles and winter-related products. The team has done a good job bringing new products to customers and driving value through deferred financing. Overall, inventory levels are expected to moderate naturally in the coming quarters.

The speaker discusses the company's inventory performance, highlighting a 1.7% decrease from the previous year and an increase in investment in big ticket items. They also mention the strength in certain categories such as riders, UTVs, and grills. The company has increased the number of stores with extended seasons and has seen continued strength in big ticket sales. They also reiterate their investment in in-stock rates, which have improved by 4 points and are at their highest level since the pandemic. The speaker expresses confidence in the quality of their inventory and praises the team's efforts in managing it.

During a conference call, Steven Forbes from Guggenheim Partners asked about the decline in sales per member over the past year and if there were any notable trends in customer cohorts that could explain the difference between comp and CUE trends. Hal Lawton, the speaker, responded by saying that the Neighbor's Club, a rewards program, has been performing better than expected with 36 million members and strong retention rates. He also mentioned that the higher income cohorts showed a slight moderation in retention due to their over-indexing on services, travel, and vacations. The focus is now on the entry cohort, which saw improvement after lowering the tier threshold and increasing the types of rewards that could be redeemed.

The company is focusing on personalization and customer loyalty in the second quarter, and is excited about the implementation of their customer data platform. They have also launched a successful membership program and see it as instrumental to their success. The variability in outcomes for the third and fourth quarters is mainly driven by transactions, and the company has good insight into average ticket and average unit retail.

The company has a clear understanding of their pricing for seasonal products and expects a stable average unit retail throughout the year. The main driver of their range of outcomes will be transactions, which may be affected by consumer sentiment and events like the federal election and holiday season. In the past, there has been no significant difference in performance based on election outcomes.

The speaker discusses the current intense environment due to the election and its potential impact on consumer sentiment and spending habits. However, they mention that the performance of the consumer has not significantly affected their outlook in the past and they are able to pivot in different environments. They also note that their needs-based business is not likely to be greatly affected by the outcome of the election. The speaker also addresses the decrease in corn prices and its potential impact on commodity prices and the pet food category. They mention that they are monitoring the situation and are seeing price investment from pet food brands, but it is unclear if it will be enough to increase growth in the category.

Kurt and Seth are addressing a question about commodities and pet food. Kurt explains that commodities like corn, soybean, cotton, and steel have been deflationary and are currently at 2019 levels. He also mentions that Q4 and Q1 may see a shift towards slight inflation. Seth adds that there is no indication of AUR compression in pet food and AURs have been flat year-over-year.

Hal Lawton, CEO of Tractor Supply, says that in the current environment with high commodity prices, the company will likely see more value packs and bonus packs in both feed and pet food. Pet food pricing is expected to remain stable. The company's channel was down mid-single digits in Q2, but Tractor Supply's share gains accelerated due to its focus on big-ticket items and its success in gaining share in dog food and animal feed.

The speaker discusses the factors that contribute to the company's success, including their scale, cost position, strategic initiatives, and commitment to customer service. They also mention their targeted pricing approach and the impact of their fusion remodel program on store environments. The speaker concludes by thanking the questioner and announcing the next call in October.

This summary was generated with AI and may contain some inaccuracies.