Tractor Supply's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Tractor Supply Company (TSCO)

Q2 2012 Results Earnings Call

July 25, 2012 5:00 PM ET


Leigh Parrish – FTI Consulting, IR

Greg Sandfort – President and COO

Jim Wright – Chairman and CEO

Tony Crudele – Chief Financial Officer


David Magee – SunTrust Robinson Humphrey

Dan Wewer – Raymond James

Peter Benedict – Robert Baird

Vincent Sinisi – Bank of America

John Lawrence – Stephens Incorporated

Alan Rifkin – Barclays

Aram Rubinson – Nomura Securities

Brad Thomas – KeyBanc Capital Markets

Joe Feldman – Telsey Advisory Group

Simeon Gutman – Credit Suisse

Matthew Fassler – Goldman Sachs

Adam Sindler – Deutsche Bank

Matt Nemer – Wells Fargo

Brian Nagel – Oppenheimer



Please standby. Good afternoon, ladies and gentlemen. Welcome to the Tractor Supply Company’s Conference Call to discuss Second Quarter 2012 Results. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions)

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. Leigh Parrish of FTI Consulting. Please go ahead, Leigh.

Leigh Parrish

Thank you. 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 introduce Greg Sandfort, President and Chief Operating Officer. Greg, please go ahead.

Greg Sandfort

Thank you, Jennifer. Good afternoon, everyone. I’m here today with Jim Wright, our Chairman and CEO; and Tony Crudele, our CFO. We are very pleased with the second quarter results, which, again, underscored the underlying strength of our core business.

Given what continues to be a challenging retail environment, we are extremely pleased with our team’s execution. The progress we are making in the areas of inventory management, merchandise assortment and expanded regionalization continues to accelerate our operational performance.

Now let me provide a little more detail on our second quarter results. As mentioned in our previous call, we experienced a pull-forward of sales into the first quarter from the second quarter, due to the early spring weather exhibited in March.

Sales for the second quarter were not quite as strong as we had hoped, given the strong trends we experienced early in the quarter. However, with the cooler weather trends in late April and early May in the Northeast, and the extreme drought conditions that developed throughout much of the U.S. during the second quarter, we are very pleased with our ability to manage through these variables successfully.

Our core businesses ran solid increases in the second quarter, with performance very consistent throughout the first half of the year. Within our seasonal category, some big ticket products, such as outdoor power equipment and riding mowers, slowed during the quarter primarily due to the weather shifts, I just mentioned.

Our ability to recognize and react quickly to the trends that develop in our business allowed us to effectively manage through significant weather shifts this year and drive strong profitability in the second quarter and first half overall.

Additionally, we are pleased with our inventory position coming out of the second quarter. And as we have stated in the past, we believe it is most appropriate to look at Tractor Supply’s performance by the halves rather than the quarters.

In terms of specific sales drivers, our C.U.E. categories remained key to both traffic and sales, contributing to our 17th consecutive quarter of comp transaction count increases. To mention just a few of our successes that speak to our ability to adapt our merchandise and add new products to maintain newness, customers responded well to our expanded assortment in live goods and our recent reset in footwear.

Our forage business continues to gain momentum as we expand the program to an estimated 600 stores by the end of this year, compared to just 300 stores at the end of 2011.

EquiStages, our private-label equine feed was introduced about four months ago and it’s also doing very well. We continue to test and refine our assortments while pursuing our strategy to balance product selection of national brands, increase private brand mix and the addition of new products across the entire store.

Now I’d like to speak briefly about our new store performance, which also contributed to our solid second quarter results. This year we opened 18 stores in the second quarter compared to 16 stores in the second quarter a year ago. We opened our first store in Colorado in May and we are encouraged by the initial sales results.

We are on target with our goal of opening 90 to 95 new stores in 2012 and as we continue to expand our footprint into new regions, we remain very comfortable with our targeted annual square footage growth rate of approximately 8%, and our domestic potential of 2,100 stores.

So in closing, our second quarter results confirm the operational benefits from the progress we are making on many of our key strategic initiatives. Today we are planning, preparing, executing and reacting better than ever before.

We continually strive to refine our assortments to provide customers with compelling values every day and at the same time, we are improving our ability to meet customers’ needs with the right products, in the right regions, at the right time.

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