Tractor Supply Company (TSCO)

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Tractor Supply Company (TSCO)

Q1 2009 Earnings Call

April 22, 2009 5:00 pm ET


Cara O’Brien – Financial Dynamics

James F. Wright - Chairman of the Board & Chief Executive Officer

Anthony F. Crudele - Chief Financial Officer, Executive Vice President & Treasurer

Gregory A. Sandfort – President & Chief Merchandising Officer

Stanley L. Ruta - Chief Operating Officer & Executive Vice President


Dan Wewer – Raymond James

Jack Murphy – William Blair & Company

Peter Benedict – Robert W. Baird

Mitch Kaiser – Piper Jaffray

John Lawrence – Morgan Keegan

Matt Nemer – Thomas Weisel Partners

David Magee – SunTrust Robinson Humphery

[Peter Benedict – Robert W. Baird & Co.]



Welcome to Tractor Supply Company’s conference call to discuss first quarter 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. (Operator Instructions)

Please be advised that reproductions 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, Miss Cara O’Brien of Financial Dynamics.

Cara O’Brien

Before we begin we would like to 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 am pleased to introduce Mr. Jim Wright, Chairman and CEO.

James F. Wright

I’m joined today by Tony Crudele, our Chief Financial Officer; Greg Sandfort, our President and Chief Merchandising Officer; and Stan Ruta, our Chief Operating Officer. As you know the first quarter represents a get ready quarter for us as we prepare for the important spring selling season. Though the first quarter is always the smallest quarter for us we are pleased with our performance and believe we’re off to a good start for the year.

During the quarter we made solid progress on our key priorities for 2009 which are to continue differentiating our business and executing our retail strategy to win in the current environment and beyond. Let me briefly discuss some of the highlights. First we grew the business as we increased total sales by nearly 13% to $650 million, improved gross margin by 40 basis points to 30.9%.

As a result we were able to improve our bottom line on a year-over-year basis by $0.06 per diluted share to a profit of $0.01 per diluted share. Second our team did a great job of ensuring their stores remain a destination and as a result our customers continued to respond positively and have increased their visits.

Although average ticket was done which Tony will discuss later we experienced a marked improvement in traffic during the quarter which we attribute primarily to the focus we���ve placed on having the right mix of everyday and advertised merchandise to keep our customers coming back. Let me go into more detail on both of these items.

Starting with our merchandise as you heard us mention we believe there’s been a fundamental shift in consumer shopping habits from wants to needs and from style to value. Due to our response to these trends we’ve not seen any real deterioration in our customers’ willingness or ability to shop for products that fit the everyday needs for their rural lifestyle.

We continue to emphasize and appropriate stock our CUE items which stands for consumables, usables and edibles. These products are also highly represented in what we call our 20 to 50 which represents our focus on being in stock on products in the top 20 categories ad the top 250 skews within those categories. We’ve also built a strong reputation with our communities for being a reliable source for emergency preparation and response items.

During the quarter we experienced demand for product such as generators and emergency pumps as a result of the impact of ice storms in the South and flooding in the upper Midwest. Turning to our marketing program we are benefiting from our efforts to improve our marketing while leveraging advertising dollars.

Our emphasis on value, less clutter and more education is working well and our advertising campaigns, marketing and merchandising remain important elements of our strategy to differentiate our business. Additionally we are closely monitoring gross margin dollars net of advertising on an internal basis to measure the effectiveness and efficiency of each event. I’ll talk more about these major components on our business later in the call.

Third as part of our effort to reduce costs in the business and to improve margin I am pleased with the progress we made with transportation and freight. We’ve increased the efficiency of our distribution centers by in-sourcing the management of freight movement from our DCs to our stores. We are also utilizing our trailers more productively by improving our CUE utilization and reducing empty miles by using common carriers more frequently.

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