TSCO

Tractor Supply Company (TSCO)

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Industry: Consumer Services
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Tractor Supply Company (TSCO)

Q3 2012 Earnings Call

October 24, 2012 05:00 pm ET

Executives

Jim Wright – Chairman & Chief Executive Officer

Greg Sandfort – President & Chief Operating Officer

Tony Crudele – Executive Vice President, Chief Financial Officer & Treasurer

Jennifer Milan – FTI Consulting

Analysts

Alan Rifkin – Barclays

Peter Benedict – Robert Baird

Scott Ciccarelli – RBC Capital Markets

Ed Ration – Nomura

Vincent Sinisi – Bank of America Merrill Lynch

Dan Wewer – Raymond James

John Lawrence – Stephens

Matt Fassler – Goldman Sachs

Adam Sindler – Deutsche Bank

Mark Miller – William Blair

Brad Thomas – KeyBanc Capital Markets

Simeon Gutman – Credit Suisse

Matt Nemer – Wells Fargo Securities

Joe Feldman – Telsey Advisory Group

Chris Horvers – JP Morgan

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Tractor Supply Company’s conference call to discuss Q3 2012 results. (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 Marin

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 assurances 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.

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 you to Jim Wright, Chairman and Chief Executive Officer. Jim, please go ahead.

Jim Wright

Thank you, Jen. Good afternoon, everyone, and thank you for joining us on today’s call. I’m here today with Greg Sandfort, our President and COO; and Tony Crudele, our CFO. We are pleased with Q3 and year-to-date performance. Each quarter we continue to build on our momentum, further demonstrating that the structural changes we have made in our business are contributing to our ability to profitably grow Tractor Supply.

Before I turn the call over to Greg I’d like to comment on our planned leadership transition. It was recently announced I’ll be assuming the role of Executive Chairman at the end of the year, at which point Greg will take on the role of Chief Executive Officer in addition to his current role as President. The Board and management have been preparing for Greg’s transition to CEO for some time. With the talented team we have in place the Board and I believe this is the ideal time to complete this transition. Having worked closely with Greg for the last five years, I know that we share a deep understanding and belief in the core cultural foundation of Tractor Supply and that we are aligned on Tractor Supply’s business strategies and priorities.

Over the past several years we’ve built a differentiated and stable business. We have a unique niche and a deeply experienced, energized and focused management team in place. Due largely to Greg’s leadership, we are improving our ability to react to and to capitalize on shifts that we see in our business from time to time. Over the last twelve years it’s been an honor to serve Tractor Supply’s 17,000 plus team members and loyal shareholders through these chapters of successful growth.

Tractor Supply is strongly positioned competitively, operationally and financially, and I believe it’ll be a seamless transition. I have the utmost confidence in the team’s ability to continue executing Tractor Supply’s key strategic initiatives and to continue the company’s record of success. I’ve been privileged to work for an exceptional team and look forward to continuing to work with that team in my new role as Executive Chairman throughout the upcoming year.

And with that I’ll turn the call over to Greg.

Greg Sandfort

Thank you, Jim, and good afternoon, everyone. We are very pleased with our Q3 results which again underscore the strength of our core business. Our team at Tractor Supply continues to perform exceptionally well, particularly given what remains a challenging retail environment. The progress we continue to make in the areas of new merchandise offerings, management of inventory, and our expanded regionalization of assortments have enhanced our overall operational performance.

Now, let me provide a little more detail on our Q3 results. As mentioned on our last call, with over 64% of the country in drought conditions as we entered Q3, weather was not ideal for a strong selling season. Additionally, the lack of cold weather in the north in September contributed to less-than-ideal weather conditions for sales of cold weather products in that quarter. That being said, we are delighted with the team’s ability to successfully manage through these variables and deliver positive comparable sales.

Our core businesses has solid increases again in Q3, and within our seasonal categories several big ticket products, such as heating and outdoor product equipment were negatively impacted. However, with our ability to recognize and react quickly to sales trends, we turned our focus to other categories that could provide a sales lift. And now, as cooler weather has come at the outset of Q4 we are experiencing stronger sales trends in fall in cold weather-related products. Most importantly, we completed Q3 ending well positioned with the desired inventory levels to support sales in the all-important holiday season.

We have often stated in the past that we believe it is most appropriate to look at Tractor Supply’s performance by the halves rather than the quarters. Our ability to deliver solid results in Q3 on top of a very strong comparison from last year positions us well for Q4. In terms of specific sales drivers, our CUE categories – Consumable, Usable, Edible – remains strong and were key components to driving both traffic and sales, contributing to our eighteenth consecutive quarter of comp transaction count increase. We’ve also experienced solid performance from our exclusive or private brands with mix at roughly 25% of sales, up 1 percentage point from last year’s Q3. This slight increase was expected given our focus on growing our penetration of exclusive brands within our stores.

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