Tractor Supply Company (TSCO)

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Tractor Supply Company (TSCO)

Q2 2011 Earnings Conference Call

July 20, 2011 5:00 p.m. EDT


Erica Pettit – Financial Dynamics

James F. Wright – Chairman and CEO

Anthony F. Crudele – CFO, EVP, Treasurer

Gregory A. Sandfort – President, Chief Merchandising Officer


Dan Wewer – Raymond James

Vincent Sinisi – Bank of America-Merrill Lynch

Helen Pan – Barclays Capital

Brent Rystrom – Feltl and Company

David Magee – SunTrust Robinson Humphrey

Matt Nemer – Wells Fargo Securities

Mark Miller – William Blair & Company

Matthew Fassler – Goldman Sachs

Simeon Gutman – Credit Suisse

Adam Sindler – Deutsche Bank

Mark Becks – J.P. Morgan



Good afternoon, ladies and gentlemen, and welcome to the Tractor Supply Company's conference call to discuss second 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 then 0 on your touchtone phone.

Please be advised, the reproduction of this call in full or in part, is not permitted without prior written authorization from 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, 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 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, and Greg Sandfort, our President and Chief Merchandising Officer.

Our second quarter and year-to-date results further underscore the structural changes that we have made to our business model over the last few years and our ability to navigate successfully through a challenging environment. We experienced another record quarter, a broad-based strength across the business. We grew sales by 11% with both traffic and ticket positive, and combined with margin improvement and SG&A leverage, earnings per share increased 18%.

Now let me go into a bit more detail for the second quarter with respect to our merchandising margin expansion and efficiency initiatives.

Our unique mix of merchandise drove our top line. We continue to focus on our core items and were quick to respond as the season evolved. Our consumable, usable and edible, or CUE categories, are core to the rural lifestyle. As a result, we've been able to pass through price increases while maintaining or gaining market share as we managed through this inflationary period. Consistent with prior quarters, these non-discretionary items drove traffic and sales across all eight regions. Our results reflect that we've become less reliant on seasonal big-ticket items.

Seasonal weather was a headwind early in the quarter and drought conditions in the south affected approximately one-third of our store base. Accordingly, there was limited demand for outdoor power equipment and reduced demand for repair and maintenance sales in certain areas. However, we are pleased in regions where we experienced normalized weather patterns that our repair and maintenance performance was strong. For the south in particular, I'm proud of how our field and merchandising teams anticipated and responded to adverse conditions by shifting the product assortments swiftly towards items that drought-affected consumers need, such as animal feed and supplements, water storage and water movement products.

We continue to make progress on our four key margin expansion initiatives. As planned, we transitioned and did the spring selling season smoothly. We continue to increase our strategic sourcing as we work with partners that provide us with great service quality and attractive pricing. We are delighted with the conversion of our customers to private brands. For example, our customers have continued to respond well to our 4 Health premium private brand dog food. We are beginning to see the positive effects from the initial rollout of our price optimization software.

During the quarter, we continued to enhance service to our stores and to our customers. Our in-stock position is as strong as ever, we maintained our disciplined approach towards our [30/300 Program] which is focused on prioritizing inventory food of seasonally top 30 merchandise categories and the top 300 SKUs.

Additionally, our distribution center team has done an outstanding job moving through the seasonal inventory despite less than ideal weather conditions and adjusting through the changes as we implement our new warehouse management system. During the quarter, we've decided to slow down the implementation of WMS and move the implementation for one distribution center from late this year to early 2012.

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