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Executives

Jennifer Milan – FTI Consulting, IR

Greg Sandfort – President and Chief Merchandising Officer

Jim Wright – Chairman and CEO

Tony Crudele – Chief Financial Officer

Analysts

David McGee - SunTrust Robinson Humphrey

Vincent Sinisi – Bank of America

John [Lawrence] - Stephens

Dan Wewer - Raymond James

John - Piper Jaffray

Mark Miller – William Blair

Alan Rifkin – Barclays

Aram Rubinson – Nomura

Adam Sindler – Deutsche Bank

Joan Storms -Wedbush Securities

Thomas Mahoney - Cleveland Research Company

Tractor Supply Company (TSCO) Q1 2012 Earnings Call April 25, 2012 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to Tractor Supply Company’s conference call to discuss first quarter 2012 results. [Operator instructions.] I would now like to introduce your host for today’s conference, Ms. Jennifer Milan of FTI Consulting. Please go ahead, Jennifer.

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 introduced Greg Sandfort, president and chief merchandising officer. Greg, please go ahead.

Greg Sandfort

Thank you, Jennifer, and good afternoon, everyone. I’m here today with Jim Wright, our chairman and CEO, and Tony Crudele, our CFO. We’re very pleased with our first quarter results, and are very excited that we achieved another significant milestone for Tractor Supply Company, generating first quarter sales of over $1 billion for the first time in the company’s history.

Our results continue to reflect broad-based strength with solid performance in all areas of the store and in all regions. Our team again executed exceptionally well in what continues to be a very challenging retail environment.

The strides we are making in the areas of inventory management, merchandise allocation, and expanded regionalization of our assortments continued to contribute to our performance. We are delighted to have generated another quarter of double digit increases in both sales and profitability on top of record results a year ago.

Now let me provide a little more detail on our first quarter performance. We did anticipate stronger first quarter results than our business has historically exhibited due to the calendar shift created by the 53rd week last year. We also benefited from our improved ability to both plan for, and react to, seasonal weather patterns and changes in our customers’ wants and needs.

As stated on our prior call, we accelerated product flow of spring sets in our southern markets this year while planning concurrent marketing expenditures in those same regions to drive sales. These planned shifts, based on our analysis of historical sales patterns, allowed us to more fully capture peak demand in these markets, especially given the early break we experienced in spring weather this year.

At the same time, we are recognizing and reacting more quickly to the sales trends and customer demand that develop in our business daily. With the warmest winter on record, we acted quickly in January and February to clear through winter seasonal merchandise to minimize seasonal carryover. With our improved ability to react, we were able to take advantage of the early spring weather in March, increasing inventory flow of top seasonal SKUs and adjusting store replenishment patterns.

Our proactive planning approach and improved systems capability enabled us to allocate merchandise more productively than ever before. In terms of specific sales drivers, our CUE categories remained key to increasing both traffic and sales, contributing to our 16th consecutive quarter of comp transaction count increases.

We saw particularly strong performance from seasonal merchandise categories, especially big ticket items in the outdoor power equipment category. Along with sales of big ticket items, it was also gratifying to see our parts and repair business remain strong, where more typically we would experience customers either replacing or repairing these items, certainly not doing both.

As we think about our first quarter performance, we were particularly pleased to see such broad-based strength across nearly all categories within the store and all regions of the country. To mention a few, customers were very receptive to our expanded assortments in live goods, which we introduced early in the south this year.

Forage is still gaining momentum, and we have plans to expand the program to approximately 600 stores by the end of this year, a significant increase from 300 stores at the end of 2011. Additionally, our hardware and tools division continues to perform well, and our private brand groundwork for lawn and garden products added to our momentum across our seasonal categories.

We continue to test and refine our assortments while successfully pursuing our strategy to balance both product selection of national brands while increasing private brand mix across multiple categories.

I’d like to speak briefly if I could about our new store performance, which also contributed to our strong first quarter sales. This year we opened 33 stores in the first quarter, compared to 26 stores in the first quarter last year, and on average our openings were completed earlier in the quarter than a year ago. This is a record for TSC in terms of first quarter store openings, and we’re on pace to open 50 of the 90-95 new stores planned for 2012 in the first half of this year.

In aggregate, the new stores we opened in the first quarter are exceeding their expected performance, and as we continued to expand our footprint in key regions, we remain very comfortable with our targeted annual square footage growth rate of approximately 8%.

In closing, our first quarter results further confirm the momentum we believe we are gaining from the ongoing structural improvements we have made in our business. These improvements have enabled us to plan, prepare, execute, and react better than ever before. We always look to refine our assortments and provide compelling values to our customers every day, while improving our ability to meet their needs with the right products, in the right locations, at the right time.

Looking to the remainder of 2012, we continue to be confident regarding the opportunities that lie ahead, and we believe we have the right people, products, and programs in place to increase our consumer engagement and further build our Tractor Supply brand.

I’d like now to turn the call over to Tony to review our financial results for the quarter and discuss our outlook. Then Jim will then share his closing remarks.

Tony Crudele

Thanks Greg. Good afternoon everyone. We had another terrific performance in the first quarter, with broad-based strength from nearly all aspects of the business.

For the quarter ended March 31, 2012, on a year over year basis, net sales increased 22% to $1.02 billion, and net income grew by 120% to $40.3 million, or $0.55 per diluted share. As a reminder, our Q1 2012 results reflect the calendar shift associated with the 53rd week in 2011.

Comp store sales increased 11.5% compared to last year’s reported increase of 10.7%. Adjusting for the week shift, last year’s comp store sales increase would have been 7.6%. We are pleased with the strong comp store sales growth, which was driven by a combination of both ticket and transactions.

Non-comp sales were $59 million, or approximately 5.8% of sales. Comp transaction count increased for the 16th consecutive quarter, gaining 4%. We had one less comp day as a result of the calendar shift, which we estimate would have added approximately 110 basis points to the comp transaction count and overall comp sales. Our CUE products, serving our customers’ basic and functional needs, remained an important driver of footsteps.

The trend in average comp ticket exceeded the comp transaction increase for the second consecutive quarter. Average comp ticket gained 7.1% versus last year’s reported 2.3% increase. The increase resulted from a combination of inflation; an increase in big ticket purchases, which benefited from an early riding lawnmower season; and an increase in items per transaction.

We continued to experience broad-based sales strength with respect to both merchandise categories and geographic regions. All nine of the geographic regions had strong positive upper single digit or low double digit comp store sales. Generally, sales were the strongest in the northern regions as a result of record warm weather and favorable moisture levels. The broad-based nature of sales growth supported positive comps during each month of the quarter, with March being the strongest month as a result of the early spring.

As we stated in our business update, we believe that due to the early spring weather this year, a significant amount of sales in Q1 were likely pulled forward from Q2 that we do not expect to recur in the second quarter. Although difficult to estimate, we looked at the normal selling cycle of the more significant spring categories and overlaid that with the selling trends of the early spring for those categories. We estimate that approximately $34-38 million in sales may have shifted into Q1 from Q2, representing approximately $0.09 to $0.11 in earnings per share.

Inflation was at the high end of our expectations for the quarter as we estimate that it contributed approximately 400 basis points to our top line sales. Inflation was most evident in bird feed, livestock feed, pet food, and lubricants.

Turning now to gross margin, which, as a percentage of sales, decreased by 9 basis points to 32.6%. Direct product margin percent continued to be negatively impacted by mix shift to CUE products and by inflation. While the overall gross margin rate declined slightly, we increased the number of units sold and maintained the gross margin dollars earned on each unit. The merchandise team continued to do an excellent job managing gross margin dollars during the quarter.

We are aggressively managing our markdown cadence as we took advantage of solid traffic patterns to quickly clear cold weather merchandise and reduce the seasonal inventory risk posed by this year’s condensed winter. We estimate that this has had a negative impact of approximately 20 basis points on gross margin.

The freight headwind we have been experiencing is beginning to moderate as we begin to cycle the higher freight costs of last year. Freight cost increased by 14 basis points over last year, compared to 37 basis points in the fourth quarter. This increase was driven by higher fuel costs and costs associated with increased import activity of seasonal goods. The increase in big ticket sales also had a negative impact on margin of close to 20 basis points.

As a part of our strategic sourcing initiative, import purchases in the quarter accounted for 8% of total purchases, which is a greater than 36% increase year over year. Shrink was favorable 16 basis points to our gross margin rate as we continued to see improvement from our loss prevention programs and continued employment of technology. Overall, we are pleased with our ability to successfully manage gross margin while continuing to provide great values to our customer.

For the quarter, SG&A, including depreciation and amortization, was 26.3% of sales, reflecting nearly 300 basis points of improvement from the prior year’s quarter. The improvement in SG&A rate resulted principally from leverage provided by our strong same-store sales growth.

Over two-thirds of the SG&A leverage came from store payroll and occupancy. We maintained very strong payroll management as a result of profit improvements and better allocation of hours to high-traffic periods. This, coupled with the same-store sales growth, created significant SG&A leverage.

Although the warm January and February hampered winter sales, we did receive a benefit on the occupancy line as several expenses, such as utilities, snow removal, and floor care were very favorable relative to last year.

Incentive compensation was lower than last year and had a favorable impact of 31 basis points on our SG&A rate for the quarter.

Turning to the balance sheet, at quarter end we had $126.7 million in cash compared to $140.4 million last year. During the first quarter, under our stock repurchase program we acquired approximately 54,700 shares for $4.1 million. We estimate there was minimal impact to EPS from share repurchases in the quarter.

Average inventory levels per store at quarter end were 1.3% lower than last year. Annualized inventory turns were 3.06 times, or a 26 basis point improvement versus last year. We are very pleased with the inventory productivity, particularly in light of the earlier flow of merchandise for the spring season, the embedded inflation, and having one more distribution center than at this time last year.

Capital expenditures for the quarter were $31.8 million, compared to $28.9 million last year. This increase in capital spending related principally to the opening of more stores during the first quarter 2012 than in the first quarter last year. We opened 33 stores this quarter versus 26 stores in the first quarter last year.

Turning to our outlook, as reported in our April 12 business update, as a result of our strong performance in the first quarter, we increased our financial expectations for full year 2012. We expect net sales for the full year to range between $4.61 billion and $4.68 billion. Correspondingly, same-store sales for the year are expected to increase in the range of 4% to 5.5%

Net income is now expected to be in the range of of $260 million to $265 million, or $3.52 to $3.60 per diluted share.

I would like to quickly discuss a few of the specific drivers underlying the assumptions for the remainder of the year embedded in our full year guidance. We expect the retail environment will be stable and our customers will continue to shop our stores for basic and everyday needs as they did in Q1 and in 2011, and that they will remain price conscious and value-oriented.

With the week shift in our calendar this year, on an adjusted basis, we will be cycling a very solid 7.1% same-store sales increase in the second quarter. Now let me remind you that we had soft sales in April last year due to very cold weather. So although the sales for April to date have been very favorable to last year, we believe that it is more appropriate to view April and May sales on a combined basis before forming an opinion on the second quarter, especially in light of the sales pull-forward into Q1 from Q2.

Although we expect to drive margin improvement during the remainder of the year through our gross margin initiatives, we expect limited to flat year over year gross margin improvement in Q2 as a result of freight headwinds and continued mix shift to more freight-intensive CUE products.

However, similar to the first quarter, we do expect freight headwinds to moderate in the second quarter as we begin to cycle the accelerated fuel costs we experienced in 2011. With respect to inflation, we expect that that impact will moderate in the second quarter as we begin to cycle the commodity price increases that we experienced last year.

Overall, we expect an inflationary impact of 3-4% in the second quarter and we have increased our inflation forecast range to 2-3% for the full year from 1-2% previously.

We expect leverage to SG&A as we continue to be more efficient with our store payroll and leverage occupancy at our forecasted comp sales range.

For the full year, we still forecast effective tax rate will be approximately 36.8%, an increase from 36.5% in 2011. This will result principally from a reduction in expected federal tax credits.

We have made no changes to our expected store growth rate or plans for capital spend. We plan to open 90-95 new stores in 2012, 50-55% of which will open in the first half of 2012. We project capital expenditures in 2012 will range between $160 million to $170 million, which includes approximately $40 million as a placeholder for our leased store acquisition program, $11 million for a potential land acquisition for a southeast distribution relocation, and an incremental $6 million as part of our ecommerce replatforming.

We will continue to make purchases under our share repurchase program as part of our long term objective of reducing our cost of capital and maintaining targeted cash balances of $100-150 million. With our limited share purchases in the first quarter, we currently estimate that diluted shares outstanding, inclusive of option grant and share repurchase activity, will approximate $73.8 million for the full year.

To conclude, we are very pleased with the performance in the first quarter. We are proud that our initiatives are driving both top and bottom line increases, and believe that the company is well-positioned for another record year in both sales and earnings.

Now I’d like to turn the call back over to Jim.

Jim Wright

Thanks Tony, and good afternoon everyone. Tractor Supply has made substantial progress on many initiatives over the past few years that are enabling us to plan, react, and execute better today than at any time in our company’s history.

The operational benefits from these improvements continue to take hold as clearly was demonstrated by our record first quarter performance. As an example, our proactive planning allowed us to benefit this year from an earlier spring selling season in southern markets. We also reacted quickly in northern markets to minimize the seasonal risk posed by the condensed winter season this year, and then shifted very quickly to capitalize on the early spring weather seen in March. Frankly, we would not have been able to execute at this level only a year ago.

Regarding the current retail environment, consumers continue to look for compelling value. Purchases continue to be driven by need, and take place closer to need. We remain firmly committed to our strategy of providing exceptional value to our customers in this environment.

We’ll continue to refine our assortments and the in-store experience to maintain newness and to keep our customers highly engaged with the Tractor Supply brand. As we enhance our assortments, we’ll maintain our focus on being the most reliable supplier to our customers for their consumable, usable, and edible needs.

We remain focused on private label brands. This has been a very successful strategy for us, as most recently demonstrated by the strong performance seen across several seasonal categories, with groundwork in the first quarter of this year. We believe we have further opportunity to build on our private label initiative across multiple categories, particularly in areas where there is not currently a strong brand allegiance.

We continue to roll out price optimization and improve our capacity to grow both market share and margin rate. We also continue to mine data from our CRM and direct mail programs, refine our marketing strategies, and improve the productivity of the marketing spend.

We are confident that we can increase share of wallet with existing customers and to grow our customer base. We’ll also continue to expand our footprint in key regions as we grow toward a recently increased domestic potential of 2,100 stores.

As Greg mentioned, the new stores we opened this year are collectively exceeding our expectations. Our prudent approach to expense management, along with our commitment to a strong balance sheet, will allow us to continue investing in our business and increasing shareholder value.

And with that, operator, I’d now like to open the call up for questions.

Question-and-Answer Session

Operator

[Operator instructions.] We’ll go first to David McGee with SunTrust Robinson Humphrey.

David McGee - SunTrust Robinson Humphrey

Just a question regarding the live goods trial that you’ve been doing. Could you give us, if you care to, the impact on comps or what the relative margin looks like on that product?

Greg Sandfort

As far as a percentage of comp, we don’t usually talk to that. What I can say is this. It’s in different levels throughout the company. We mentioned earlier that we started with a heavier penetration in the south, and that was the first deliveries, and then we moved into the mid- and to the north, and it’s just starting to get dense in the north.

Very pleased with our sell-throughs. As a matter of fact, we found that we have more potential for more business because some of the sell-throughs were really far greater than we thought, chasing a little bit of that business.

We’re not like the big boxes. It’s different products. You know, it’s fruit trees, and it’s not shade trees. It’s not flowering shrubs, it’s more greenery and things of that nature. But what I can tell you about the business is that we’re still in the early stages of developing this. It’s unique to us.

From a margin standpoint, if it’s managed well it would be clearly in line with the overall company margins. And we’re not seeing anything at this point in time with our current performance that would lead us to believe any different.

David McGee - SunTrust Robinson Humphrey

Secondly, on the big ticket purchases, is there anything that would give you confidence that the uptick that you’ve seen in the first quarter will persist in the second quarter?

Greg Sandfort

I would give you a positive on that of no. I don’t think that what we’ve seen early on gives us any feeling that the customer is responding back and saying it’s time to now replace versus repair, because as I mentioned in my comments, our repair business continues to be very, very strong, continues to grow year after year. So I don’t think the replacement cycle is here just yet.

Operator

We’ll go next to Vincent Sinisi with Bank of America.

Vincent Sinisi – Bank of America

You said your inflation expectations for the year basically are a percent higher than what you had been originally thinking. Can you give us any clarity in terms of is anything truly catching you surprised from a cost perspective? And then maybe an update to your gross margins for the year? I believe last you had spoken about it, you said somewhere in the neighborhood of 10-15 basis points?

Tony Crudele

When it comes to inflation, again, I’d like to remind you that this is really just a snapshot, a point in time, where we will look at currently where we’re at and compare it to last year. So again, it’s not a true projection. When we do that, the difference that we saw versus a quarter ago when we gave our full year projection, is in two areas, one in the birdseed category as well as in the grass seed area. Those are two areas that sort of jumped out at us that the prices held up a little bit higher than we had anticipated when we looked at it three months ago. So those were two drivers. Other than that, I would say we’re generally close to our forecast.

Vincent Sinisi – Bank of America

And as a follow up, if you could just give us a current state of where you are with the smaller market stores? How many right now? And maybe for this year the percentage of the new stores you think that may be the smaller markets?

Tony Crudele

When it comes to small markets, we probably purposely haven’t provided information as to the numbers, because when we look at that program we really look at it as taking a store and sizing it properly for a market. So now, as we look out on the 2,100 potential store sites, we just really see it as a mix, and on a going forward basis we’ll continue to update as far as square footage growth and still targeting 8% square footage growth.

But when we look at the stores, still very productive and we’ll grow the base, and as you look at the remaining, say, thousand stores, just in round numbers, 300 of which we look at as being small market stores. We’re going to be opening those in sort of the same ratable proportion.

Operator

We’ll take our next question from John [Lawrence] with Stephens.

John [Lawrence] - Stephens

Just real quick, Tony, would you comment a little bit on the $34-38 million that you basically extracted from the second quarter and just talk a little bit about some of those product categories that you feel have pulled forward? Greg mentioned the OPE a little bit. So if that’s the case, how much of the cycle do you think is over for that product, or certainly declining as we get into the second quarter?

Tony Crudele

We clearly looked at some of the stronger lawn and garden categories. Obviously the one that comes to mind is the riding lawnmower, probably easiest to wrap your mind around. Obviously when you look at that, it’s very difficult for us to assess whether there’s going to be continued pent up demand or if there’s a replacement cycle.

So what we did was, we looked at the selling curve that we’ve normally seen in past. We looked at years that were very reflective of the current year that we’re in. And we looked at what their cycles were and then compared it to the norm and said we estimate that this amount of sales potentially came earlier. Now, again, that doesn’t necessarily mean that there may be some additional sales and that curve may be extended. And that’s what we don’t know as of yet.

But we looked at categories such as the riders, sprayer chemicals, lawn and garden, grass seed, things like that, where there might be just one planting and there might not be a secondary purchase later in the quarter. And again, best estimate, and we really only find out as we work through the April-May time cycle.

Operator

We’ll go next to Dan Wewer with Raymond James.

Dan Wewer - Raymond James

Expenses at a store level were essentially flat year over year. It looks like that’s the best showing since the second quarter of 2009 and typically there’d be maybe a 2-3% underlying rate of inflation in different categories. Is this going to be sustainable? And then also, curious, why would the incentive comp have declined given the success the company achieved during the quarter?

Tony Crudele

First question, of whether it’s sustainable, I would say no, it’s not to the order of magnitude that we saw in the first quarter. As I stated earlier, because of the warm winter, some of the expenses that we normally would incur we did not. And so we had some significant favorable variances when it came to utilities. Obviously gas and electric, and floor maintenance and snow removal. So those were three or four of the key elements that I would tell you that it would not be the normal year over year expense increase that you would see. So not sustainable from that standpoint.

When you look at the bonus accrual, obviously it’s based on what our expectations are for that particular quarter, and each year we are obviously challenged based on a forecast for that particular year. And as we looked at the variance and estimate the bonus in the first quarter obviously there’s a lot of subjectivity as to how we perceive the entire year to be coming out. Additionally, there’s some either over- or under-accruals when it comes to the prior year and being caught up or not. So there was some play there as well when it comes to the bonus accrual.

Dan Wewer - Raymond James

Could you extrapolate that, that the reduction in the accrual actually implies that first quarter was below your original expectations, your in-house expectations?

Tony Crudele

No, the first quarter was well above our expectations.

Dan Wewer - Raymond James

And just out of curiosity, you guys have been amazing in your ability to forecast weather and how to adjust your merchandise allocation. What does your crystal ball say about the second quarter?

Greg Sandfort

We don’t have a crystal ball unfortunately. We have a weather service we use. We use NOAA. We look at our business. I think the difference is simply this. We have a tremendous working relationship with the vendor community, probably stronger today than it’s ever been. We build a lot of our products on forecast, and then we flow against what’s developing in the business. So it’s easier to address things early in the season because you’ve got production there and you’ve got capacity. It’s more difficult in the latter part, but with the favorable March weather, we were able to basically just turn the dials and push the inventory through and chase that business.

And again, we anticipated a little bit of that because, as I said, we shifted the south deliveries earlier. We’d been hearing from our stores that we needed the product down there much earlier, and we also shifted a piece of our marketing effort into the first quarter, both of which proved to be very prudent and very beneficial for the first quarter business. So this is just about running the business a lot smarter and also having some capabilities that we have today that honestly we didn’t have in years prior.

Operator

We’ll take our next question from Peter Keith with Piper Jaffray.

John - Piper Jaffray

This is actually John on for Peter. I realize you guys don’t guide by quarter, but with the shifting weeks in Q2, is there any way you could give us some kind of range or rough quantification on how we should think about the Q2 comp?

Tony Crudele

Well, when it comes to the Q2 comp, as I mentioned in the prepared remarks, the reported comp last year was 4.6%, which was the lowest during the year last year. So there was an expectation that would be our easiest compare. But when we adjust it for the comparable weeks that we will have in the quarter this year, it’s a 7.1% quarter. So it’s a little bit more robust, a little bit more challenging quarter than what it would appear when it comes through the quarters.

John - Piper Jaffray

And then secondly, I know it’s really early for you guys and your new TV ad initiative that you’re running in three test markets, but can you give us any indication on how or where non-shoppers are responding to the message?

Jim Wright

We ran the first flight last year from late September through Thanksgiving, and frankly we’re not happy with the lift we got. We got a lift, but the lift did not principally come from the aware non-shopper. So as a result, we did a tremendous amount of research and the ad flight that is running as we speak in the same three markets has a significantly different theme and we have not nuanced at all what products we carry and what products we don’t carry. It’s a very straightforward ad campaign. Actually we have our own store managers as a spokesperson.

But the flight just kicked off and it’s premature for us to read anything at this point in time. But we remain really very excited about the number of potential customers who have a misunderstanding of our stores and our products and who in our test groups, once we’ve explained it, indicate a very high tendency to want to shop our stores. So more to come as we get through the next 13 weeks or so of this test.

Operator

We’ll go next to Mark Miller with William Blair.

Mark Miller – William Blair

I was hoping you could expand a little bit on the improved shrink. It seems like that benefitted you as you picked up here. And should we expect that can be a sustained improvement in future periods? And then I’d like to get an update on maybe one of the other dimensions in the store operations, and it’s the store manager retention. I believe that had improved, manager turnover had gone from 40% to 14%, but I think that was an improving trend. Was that something also that’s helping you on the shrink? And where’s that right now?

Tony Crudele

I’ll talk just briefly about shrink. We definitely had a very strong performance in the quarter. However, it’s not something that we’d be looking toward on a sustainable level. When we look at what we’ve done in the area of loss prevention, over the last three to four years we’ve made investments in technology, specifically put more cameras into our stores. And we’ve rolled out that program to more than half the chain. And that’s been done over the last several years. Our shrink has shown very sustained improvement over the last three years, and that’s why you may have some choppy results quarter to quarter, and we obviously had a very successful quarter this year. But on an ongoing basis, we expect that to just be small relative incremental improvements over the next quarter in the next couple years.

Greg Sandfort

With regard to manager turnover, yeah, your memory serves you pretty well. In 2000, our store manager turnover was about 44%. Between there and probably 2004-2005 we were able to bring that down into the mid-teens, where it remains today. The other factor within that mid-teen manager turnover we have is the mix of voluntary versus involuntary and then also the mix of who’s leaving that we wish had not. And while we maintain that mid-teen level, we are really pleased with the continued talent development and retention rate of those who produced the greatest value for the company and the shareholder. So the bottom line is the team continues to strengthen at the store level and that also is a factor in shrink, amongst many, many other things.

Mark Miller – William Blair

And my other question was going to be as you get stores opened earlier in the year, does that free up any field resources for more planogram changes later in the year, or is there any benefit from getting those stores in place earlier other than just being set up for second half sales?

Jim Wright

Mark, let me see if I understand your question. Because, you say, we’re opening more stores early, does that give us the opportunity to do things in the stores later because we’ve kind of shifted the talent pool [unintelligible] earlier. Is that what you’re saying?

Mark Miller – William Blair

Yeah, just generally.

Greg Sandfort

What it can do for us is give us the ability to do some remodels of stores. We talked a little bit about reimaging at one point. You know, changing all the sign packages. So we have some capacity later in the year, yes, to have a few more things done in the stores. But we won’t go beyond the early October date because to be honest with you we’re then into the fourth quarter and we don’t want to put anything in jeopardy. But yeah, it would give us a little bit of opportunity.

Operator

We’ll take our next question from Alan Rifkin with Barclays.

Alan Rifkin – Barclays

I was wondering, gentlemen, if you could provide some commentary on how to advertising line did relative to your plan and if that was a point of leverage at all for you in the quarter?

Greg Sandfort

I can talk to that a little bit. We did leverage advertising over a year ago in the quarter, even though we moved some expense in. And that was all primarily driven by, of course, the sales. Very pleased with how we did leverage, and I guess somewhat anticipated, but it really was all driven by the sales. So it was definitely the right thing to do for the business.

Alan Rifkin – Barclays

Are you at liberty to say how much leverage it provided for you in the quarter? And what should we expect in Q2?

Greg Sandfort

First of all, I would say that, you know, we leveraged 5 basis points. It wasn’t a lot. But we planned a little heavier spend for the quarter, so we came in under the plan. And for the second quarter, I would say that we’re going to be similar to a year ago, even though we did shift one ad, because we’re looking at probably some distribution increases in some markets that we thought were underserved a year ago. So light second quarter, a little bit of leverage first quarter.

Alan Rifkin – Barclays

And one follow up if I may, Tony. How should we be thinking about the relatively modest share buyback in the quarter? Is that just a function of where the share price was? Can you elaborate on that a little bit?

Tony Crudele

Sure. Absolutely it is our philosophy to continue to buy the shares, both as the stock is moving up or as, hopefully, it is declining. In this case, in the first quarter, as we set our matrix up for purchase, and we went into the period in which we don’t adjust the matrix, the stock ran outside of that matrix and obviously resulted in very minimal purchases. But again, we’ll continue to support the program on an ongoing basis.

Operator

We’ll go next to Aram Rubinson with Nomura Securities.

Aram Rubinson – Nomura

Obviously did a terrific job of repositioning inventory to take advantage of the weather and such. Was wondering, even as you chased a strong comp, did you miss sales would you say during the quarter? Is there some way to kind of measure how much sales you did miss, if that’s the case?

Greg Sandfort

It’s difficult to say what we may have missed. What I can tell you is we did have some very high sell-throughs in some categories so that would lead me to believe that there’s more opportunity as we cycle this for next year.

Aram Rubinson – Nomura

And then just looking to the second quarter, I remember on the last quarter you kind of commented that comps should be in the 3-5 range for each quarter. Does the pull-forward change that equation, or is that still safe?

Tony Crudele

As we move forward, I would look at it as each quarter is going to generally be within that range, the full year range, which was very similar to our expectations at beginning of the year.

Aram Rubinson – Nomura

And then just the last thing is the new stores that you said are opening stronger, I’m assuming you’re opening more out on the west coast. Are you seeing anything consistent from the west coast that’s driving better performance? Or just a comment on how you’re feeling about that.

Jim Wright

Actually, we’re thrilled. California performed very well. Florida is continuing to perform very well for us. We did not [disproportionately] open stores in the west coast. It takes time out there. We’re very methodical. We want to make sure that we cut the right long term deal. So there’s only, I think, two stores in California in the quarter. The rest of the stores were opened - we expanded a little more into New Mexico. We have some activity there. And we will be entering Colorado in Q2.

Operator

We’ll take our next question from Adam Sindler with Deutsche Bank.

Adam Sindler – Deutsche Bank

First, on the planning and allocation, obviously this is one of your older gross margin initiatives. If you were to sort of look back maybe to the first quarter of 2010, and you had a similar situation here where your winter changed pretty significantly and then the year-on-year spring changed pretty significantly, what do you think the impact - if there’s any way to think about that - would have been relative to where we are now? And then what is left as we go forward? And then on same-store sales, just two questions. First, I think maybe when we started to talk about price opp, you had mentioned that there would be some earlier benefit on comps from price opp, if we were seeing any of that. And then secondly, on the big ticket, where in the pricing spectrum? Is it still low end? Big ticket? Or are we moving up to maybe more of the premium products?

Greg Sandfort

Okay, Adam. That was a quick flurry of three, so let me try to slow down here and answer all three if I can. Planning allocation, the difference between each year is really the shift of the weather, and our preparedness. I mentioned earlier that this year for the first time we really delivered into the south markets earlier. We kind of set them early, and then we kind of moved the flow toward the north.

We weren’t doing that two years ago. Everyone was setting at a similar time. So that’s a fairly large point of differentiation. And that takes more planning and seasoning with the planning and allocation team than you can imagine, because when you’re bringing in imports, and you’re buying domestic, and moving timing, and you’re doing stores south and north, it’s more complex than I can speak to. But that’s the big difference there.

On the price opp, price opp is something that takes time, because here’s what happens. When you go in and you price optimize five or six categories, and let’s say 1,000 SKUs, it’s not over at that point. You’re optimizing, you’re watching it, you’re seeing what’s happening. And the dynamics of the business, retail, things can change. Things can shift. Inflation comes in as a factor. Seasonality comes in as a factor.

So what we’re learning here is that we are seeing, in some places - you know, we have two buckets that we really talk to the most. That’s market share gain and gross margin. The blended bucket is probably the bucket that’s most difficult to talk to. It’s the smallest. But we are seeing market share growth, and it’s all been positive of what we have touched at this date. I’ll leave it at that.

As far as big ticket, you asked about mix, higher end, lower end. It is truly a mix. Anything above $350 we consider big ticket. We did have a nice push in March in some of the outdoor power equipment categories. I would say above $1,000. But we do believe that some of that was a pull-in out of Q2. So we’re going to have to just kind of manage our way through April-May to see how it plays out for the season. But still cautiously optimistic.

Operator

We’ll go next to Joan Storms with Wedbush Securities.

Joan Storms -Wedbush Securities

Some of the things that you mentioned earlier - on the forage business, that’s one of the new merchandise issues, and you talked a little bit on the call. Can you quantify at all what that could be contributing to forward business as you roll that out across the chain?

Greg Sandfort

It’s tough to say that forage is X percent or it’s X dollars. What I can tell you is that it is bringing, in the overall category of feed products, it does give us an additional bounce in the business when a customer now can fulfill most of their needs for their large animal. That was a miss before. So we’re still in, really, the early stages here. What we see is some market basket data we’ve looked at, that people that were buying in other categories that are now buying in the hay or forage category seem to spend more. It’s a typical - seen in a lot of other categories. So that’s about as granular as I think I can really get at this point.

Joan Storms -Wedbush Securities

And then also, maybe back to Jim, because he commented on this, on the marketing. The awareness of the Tractor Supply brand and people knowing that it’s not just about tractors. You had done some TV, and I know people aren’t doing a lot of newspaper flyers anymore, but Orchard Supply came public recently, and they’re doing more newspaper flyers to let people know they’re there. Is that something that you can use in your local rural markets?

Jim Wright

A newspaper print is still in our mix. We have 15 print events a year, and they are distributed through mail or through newspaper distribution. That is down from 25 events a number of years ago. But it’s an important part of our mix. We discovered that for the most part, print, for us, has not proven to be a good prospecting media. We’re much better with electronic. And we’ve talked about - you probably know my point of view on TV over the years - but TV for us has not proven to be a media where we can advertise and sell tomorrow. It is, however, a very good media if you’re trying to communicate a message. So as a result, we are using TV and radio in this aware non-shopper test. But we will continue to use print, although frankly we see over time that we’ll begin to socialize our print spend into more of an emphasis on direct mail.

Joan Storms -Wedbush Securities

And Tony, could you just repeat the global sourcing percentages for me? Like from where you were and where you are. I missed that.

Tony Crudele

In this quarter we said that it was 8% imports and that actually represented a 36% increase in the imports year over year.

Operator

We’ll go next to Thomas Mahoney with Cleveland Research Company.

Thomas Mahoney - Cleveland Research Company

Question on the comp guidance. You raised comp guidance by 75 basis points at the midpoint, and the inflation contribution is a point higher. I think you said 2-3% versus 1-2%. Is there anything moving you incrementally into more cautious on the core underlying demand Q2 through Q4, other than the pull forward issue?

Tony Crudele

Not really. When we look at it at the back half, we did not make any significant adjustments to the back half relative to the strong performance of Q1. Generally we really like to look at Q1 and Q2 and look at the first half together so that before we make any adjustments to the back half of the year. So no significant takeaway relative to to overall comp guidance and the relevance impact of inflation.

Thomas Mahoney - Cleveland Research Company

And then is there any more color you guys can give on the strength that you’ve seen thus far in April? I guess if there’s any quantification versus Q1, that would be helpful. And then specifically, in the big OPE, if that strength has continued in April.

Greg Sandfort

I can talk to a little bit of the outdoor power equipment categories. You can imagine that as we saw the business in the northeast shift there this one week, where we had snow and very cold weather, garden product and outdoor power equipment product slowed in that particular market for a few days. But in general the trends are continuing as they had through March.

But it’s still early. It’s still early, because here’s what can happen, and we’ve seen this in the past. If the moisture in the ground stops, meaning we start to dry out, it only takes several weeks in Texas and you literally impact the business severely.

And so we’re just being cautious to say that right now we’re in a great position with inventory. We have ample production waiting if the business continues to perform as it has. But I would not say that trends are going to be any different at this point, because it’s still early in the game and they’re still predicting drought in the south and it’s still a wildcard.

Tony Crudele

And I’d just like to add, it’s really critical that we sort of be patient as far as coming to any conclusions on Q2, because last year, as I mentioned earlier, April was very soft and as we always said, if April is soft, the sales will eventually come, and that meant May was a very strong month for us. So as we come into this year and actually have sort of the opposite scenario occurring, where we’re cycling against a very soft April, our anticipation is that April will be very strong, and it has run to those numbers. But it is critical to wait to see how we perform against a very strong May next year.

When it comes to the cycle on the outdoor power equipment, as we look at that cycle, to the best of our estimation it looks as if the cycle did move forward a week. But again, it’s too early to tell until we actually see the results as we get into May.

Operator

And we have no further questions at this time. Please continue with any closing comments.

Greg Sandfort

Very good, thank you. First, I’d like to elaborate a little bit on our stock repurchase plan. It’s a long term plan, part of our strategy to return shareholder value. We use a 10b5-1 plan between the open windows, and frankly the plan we set in place, the share price just ran away from our matrix. But we intend to, as we always do, reestablish a matrix for the go forward quarter.

In closing, we’re energized by the opportunities we see ahead, our ability to capitalize on those opportunities. We executed extremely well in the first quarter. We’re very proud of the team. We reached another milestone of a billion dollar Q1, which is a terrific milestone for us to see. We look forward to the remainder of what has started out to be another exciting year for Tractor Supply Company, and we thank you all for being on the journey with us.

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