Tractor Supply Company ( TSCO)

Q3 2011 Earnings Call

October 19, 2011 5:00 p.m. EDT


Jim Wright – Chairman and CEO

Tony Crudele – EVP, CFO, Treasurer

Greg Sandfort – President and Chief Merchandising Officer


Alan Rifkin – Barclays Capital

Vincent Sinisi – Bank of America

Peter Benedict – Robert W. Baird

Dan Wewer – Raymond James

John Lawrence – Morgan Keegan

Peter Keith – Piper Jaffray

Mark Miller – William Blair

Adam Sindler – Deutsche Bank

[Kate Lent] – Wells Fargo Securities

David Magee – SunTrust Robinson Humphrey

Simeon Gutman – Credit Suisse

Matthew Fassler – Goldman Sachs

Chris Horvers – JPMorgan

[Bernard Shelton] – KeyBanc Capital Markets



Good afternoon, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss third quarter 2011 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. If anyone should require assistance during the call, please press star 0 on your touchtone phone.

Please be advised that reproduction of this call in whole or in part is not permitted without prior written authorization of Tractor Supply Company. And as a reminder, ladies and gentlemen, this conference is being recorded.

I would now like to introduce your host for today's conference, Ms. Jennifer Milan of FTI Consulting. Please go ahead, Jennifer.

Jennifer Milan

Thank you, operator. Good afternoon, everyone, and thank you for joining us. Before we begin, let me take a moment to reference the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

This conference call may contain forward-looking statements that are subject to significant risks and uncertainties including the future operating and financial performance of the company. Although the company believes that 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. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included 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 the statements will remain operative at a later time. Lastly, Tractor Supply Company undertakes no obligation to update any information discussed in this call.

Now I'm pleased to introduced Jim Wright, Chairman and Chief Executive Officer. Jim, please go ahead.

Jim Wright

Thank you, Jennifer. Good afternoon, everyone. I'm here today with Tony Crudele, our Chief Financial Officer, and Greg Sanfort, our President and Chief Merchandising Officer.

We are delighted with our third quarter and year-to-date performance, with each quarter we've built on the momentum and continued to demonstrate that the structural changes we made to our business are contributing to our ability to grow and improve Tractor Supply Company.

In the third quarter we experienced another period of broad-based strength and double-digit increases in both sales and profitability on top of record results recorded a year ago. We also improved gross margin and leveraged SG&A costs.

Now, to provide more detail on our performance during the quarter, we continued to drive top-line growth through unique merchandise mix, which enables us to serve our customers' everyday needs at a compelling value. As expected our consumable, usable and edible, or [Q] categories remained key sales and traffic drivers.

At the same time, we experienced increased demand for emergency response items such as generators and pumps related to Hurricane [Irene]. Although emergency response items are typically lower margin, they do drive footsteps to our stores, allowing us to strengthen relationships with existing customers and introduce new customers to our brand. As drought conditions persisted in the southwest markets, we were nimble in refining our merchandise mix to support the changing needs of the customers in that region.

While growing the top line, we remained focused on executing our four strategic margin initiatives. This enabled us to manage merchandise margins despite some external headwinds. While we experienced significant commodity inflation, we were able to provide compelling value on our [Q] items that are core to the rural lifestyle. Once again we demonstrated our capacity to maintain margin dollars per unit while gaining market share during inflationary cycles. We continue to invest in the business to support our stores, which has allowed us to better serve our customers.

Our inventory management execution is simply the best that it's ever been, with a high in-stock levels and strong seasonal execution continuing to create a compelling shopping experience for our customers. In addition, we've opened our new distribution center in Franklin, Kentucky as planned. This is a new distribution center to facilitate our store growth in the northeast and the mid-south. We are pleased with the smooth opening of the facility as well as our successful implementation of the warehouse management system. We've already begun taking receipts at this new facility and expect to begin shipping product in December.

Overall, the third quarter results further validate that we continue to gain traction from our strategic initiatives which collectively have strengthened the structural foundation of our business and our brand. Tractor Supply Company is operating as a better, stronger and more sophisticated retailer than ever before. We have the right plans, we have the right team in place, and we're executing well across the business. We are sustainably gaining share in the market, and look forward to a strong close to 2011.

I'd now like to turn the call over to Tony to review our financial results and discuss our outlook.

Tony Crudele

Thanks, Jim; and good afternoon, everyone. We had another very strong performance in our third quarter. Our sales strength remains broad-based, and we continue to increase our market share in many key merchandise categories. Although comp sales benefited in part from Hurricane Irene and from inflation, the overall underlying fundamental strength of our business is demonstrated by the significant increase in unit sales and transactions.

For the quarter ended September 24, 2011, on a year-over-year basis, net sales increased 17.9% to $977.8 million, and net income grew by 43.1% to $42.7 million or $0.58 per diluted share.

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