Tractor Supply Company (TSCO)

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Tractor Supply Company (TSCO)

Q4 2012 Earnings Call

January 30, 2013, 5:00 pm ET


Jennifer Milan – FTI Consulting

Greg Sandfort – President, CEO

Tony Crudele – EVP, CFO


Mark Miller – William Blair

John Lawrence – Stephens

Vincent Sinisi – Bank of America

Peter Benedict – Robert W Baird

Matthew Fassler – Goldman Sachs

David Magee – SunTrust

Matt Nemer – Wells Fargo Securities

Brian Nagel – Oppenheimer

Chris Horvers – JPMorgan

Adam Sindler – Deutsche Bank

Simeon Gutman – Credit Suisse

Eric Bosshard – Cleveland Research



Good afternoon, ladies and gentlemen, and welcome to the Tractor Supply Company’s conference call to discuss fourth quarter 2012 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 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, Jen.

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 introduce Greg Sandfort, President and Chief Executive Officer. Greg, please go ahead.

Greg Sandfort

Thank you, Jen, and good afternoon, everyone. I’m delighted to be speaking with you today in my new role as Chief Executive Officer after what has been a very smooth transition between Jim Wright and myself. With me today is Tony Crudele, our CFO.

We are very pleased with our fourth quarter and full-year performance, which underscores the continued strengths of our business. Our teams are performing exceptionally well in what remains a very challenging retail environment. And our attention to our customers’ changing needs has never been more focused.

Each quarter in 2012 we made progress in the areas of new merchandise offerings, refinement of our regional assortments, supply chain efficiencies and management of our inventory, all of which are contributing to our continued growth and profitability.

Now let me discuss in little more detail some particulars regarding our fourth quarter results. In terms of specific sales drivers, two categories – the consumable, usable, edible part of our business – remains very strong and was a key component in driving both traffic and sales.

We are increasing our market share in these categories and are becoming in the minds of our customers the most dependable supplier for their need-based products. We also remain very focused on keeping our customers highly engaged with the Tractor Supply brand by providing newness to product innovation.

We continue to see a high level of sales and profit performance from our exclusive brands with mix at roughly 24% of sales, up 150 basis points from last year’s fourth quarter.

Our immediate plans are to continue expansion of these exclusive brands through brand extension. And because these brands can only be purchased at Tractor Supply, this will ensure Tractor Supply will achieve the product differentiation from other farm store competition and internet retailers.

Pet food and animal feed continue to generate solid results in the fourth quarter and remain important drivers of repeat footsteps in our stores. As an example, EquiStages, our exclusive brand of equine feed introduced about 10 months ago, continues to perform well within our mix of feed due to number one brand positioning, secondly, quality of ingredient and, third, the value price proposition it offers versus the national brand comparative.

Our forage business continues to build momentum as we expanded the program to more stores this past year. We exceeded our goal of 600 stores by year-end, ending the year with 750 stores with forage product.

This effort required a tremendous amount of hard work and diligence on the part of our buying teams and is another excellent example of how TSC is meeting our customers’ core needs through extension of offerings within an established category, this namely being feed.

In the quarter, we experienced a small sales benefit from Hurricane Sandy, which directly drove sales of emergency related merchandise. But more importantly, we are extremely proud of our Northeastern store teams, our distribution team members at our (Hagerstown), Maryland facility and across our entire distribution center network who worked selflessly and tirelessly to support their communities in their time of need.

I also want to express my sincere appreciation to those in our vendor community who worked side by side with our teams in our store support center to obtain inventory quickly so that we could assist those most in need following the storm.

Such efforts as these to go above and beyond to meet our customers’ needs in a crisis exemplify the teamwork culture at Tractor Supply. I believe this is one of many reasons for our continued improvement in our customer loyalty scores and, in fact, on a year-over-year basis we improved our scores every month in 2012 and ended the year with a record customer loyalty score across all regions within the company.

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