TSCO

Tractor Supply Company (TSCO)

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Industry: Consumer Services
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Tractor Supply Company (TSCO)

Q3 2009 (Earnings Call

October 21, 2009 5:00 pm ET

Executives

Erica Pettit - Financial Dynamics

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

Anthony F. Crudele - Chief Financial Officer

Gregory A. Sandfort - President, Chief Merchandising Officer

Stanley L. Ruta - Chief Operating Officer

Analysts

Jack Murphy – William Blair & Company

Dan Wewer - Raymond James

Robert Higgenbotham – Goldman Sachs

Vincent [Senisey] - Bank of America

Matt Nemer - Wells Fargo Securities

Mitch Kaiser – Piper Jaffray

Kristin [Applegee] - Sun Trust Robinson

Jay McCanless – FTN Equity

David Strasser - Janney Montgomery Scott

Christian Buss - Thomas Weisel Partners

Christopher Horvers - J.P. Morgan

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss third 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 reproduction of this call in whole or in part is not permitted without prior written authorization by 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. Erica Pettit of FD. Please go ahead, Erica.

Erica Pettit

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 am pleased to introduce Jim Wright, Chairman and Chief Executive Officer. Jim, please go ahead.

James F. Wright

Thank you, Erica. Good afternoon, everyone. I'm here today with Tony Crudele, our Chief Financial Officer, Greg Sandfort, our President and Chief Merchandising Officer, Stan Ruta, our Chief Operating Officer.

Our team did an outstanding job as we, again, delivered higher-than-expected net income driven by significant improvement in gross margin and modest top line growth. As you recall we are cycling against a number of factors that benefited our performance from last year including landfall hurricanes in both Louisiana and Texas which created high demand for emergency preparation and response items, volatile fuel prices that created early sell through of heating products and high inflation levels which provided tail winds for our sales.

We recognize that this will be a challenging quarter and I'm even more pleased with our achievements in light of the headwinds that we faced. We took a proactive approach towards planning and we executed our strategies very well. Let me go into more detail about the strategies that allowed us to win in the third quarter and are continuing to position us for success for the remainder of this year and beyond.

First, our merchandise assortment supports our customers' everyday lifestyle needs. We have a thorough understanding of what is relevant to our customers, our core consumable, usable or edible or [Q] categories are very attractive to consumers looking for a one-stop destination for products that fit their rural lifestyle at a compelling value.

These items, including animal and pet related products, repair and maintenance parts for machinery and lubricants are continuing to drive footsteps into our stores. We are pleased that we delivered positive comp transaction growth for the sixth consecutive quarter. We continue to explore opportunities to build upon the strength of our [Q] categories.

In the last few weeks we've introduced a select equine and livestock feeds from Purina and Nutrena to our stores nationwide. Early response to these prominent brands has been positive. We believe that adding nationally recognized best selling feed brands for the first time will drive category expansion and attract the new customers.

Secondly, we intensified our focus on managing gross margin net of advertising, one of the key metrics that we are using to both plan and to gauge our team's performance. In doing so we planned our inventories and manage markdowns carefully to ensure that inventory was fresh and selling at optimal price points.

For the eighth consecutive quarter we reduced total per-store inventory levels at a year-over-year basis. Concurrently we improved our in stock position on key items, our strategy to focus on the top 20 merchandise categories and the top 250 SKUs continues to service well by ensuring that the products our customers need the most are in stock and in quantity.

The benefit of eliminating television advertising in favor or direct marketing was not as substantial as it was in Q2 since we've not historically used television during the third quarter.

Third, we are maintaining disciplined expense control. We successfully kept our cost down and improved the shopping experience for our customers. We continue to emphasize and invest in the train of our team to ensure that a store execution is a leading competitive advantage for us.

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