Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's Conference Call to discuss Second Quarter 2024 Results. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded. I would now like to introduce your host for today's call, Ms. Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.

Thank you, Victoria. Good morning, everyone. Thanks for taking the time to join us today. On the call today are Hal Lawton, our CEO; and Kurt Barton, our CFO. After our prepared remarks, we'll open the call for your questions. Seth Estep, our EVP and Chief Merchandising Officer, will join us for the question-and-answer session. Please note that we have made a supplemental slide presentation available on our website to accompany today's earnings release. Now let me reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes 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 and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and 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 statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. Given the number of people in the Q&A, we would like to ask that you please limit yourself to one question and please get back in the queue if you have any additional questions. I appreciate your cooperation. We will be available after the call for follow-ups. Now it's my pleasure to turn the call over to Hal.

Thank you, Mary Winn, and good morning, everyone, and thanks for joining us. As always, I'd like to begin by expressing my thanks and appreciation to my fellow 50,000 plus Tractor Supply team members for their commitment to each other and our customers, and for their dedication to serving Life Out Here. And this quarter, I'd like to give a special shout out to our technology team, who did a tremendous job recovering our business from the CrowdStrike outage without a material impact. So let's start with the operating environment for our business before I discuss our second quarter results. Overall, the macroeconomic indicators that we all follow continue to be rather mixed for the consumer in the second quarter. While in line with our expectations at the beginning of the year, I would characterize the health of the consumer as modestly more cautious than last quarter, but certainly still within the range of our forecast at the beginning of the year. Consumer spending on goods appears to be fatigued across income cohorts. While we've seen improvements in the consumer inflation rate, unemployment has ticked upwards to the highest rate since late 2021. Additionally, consumer sentiment and confidence are both subdued and the consumer spending landscape continues to be rather choppy. Additionally, in the recent personal consumption expenditures report, we saw another soft month for goods. While in line with our expectations, the ongoing shift in spending from goods to services continues to be a headwind for our business. The mix of goods as a share of PCE is still about 90 basis points above the pre-COVID average. As it relates to retail sales for the second quarter, U.S. retail was flat to modestly positive with growth in non-durable categories, which was in line with our performance as a company. And in the farm and ranch channel, we estimate that channel experienced mid-single-digit declines, which is indicative of our continued share gains in the channel. With that said, our business for the first half of 2024 has performed right down the middle of our guidance. For instance, half of the months of the year have had positive comp sales and our year-to-date comp sales are up about 0.2%. Overall, our profitability is also right in line with our expectations, and the team has continued to manage our business exceptionally well. As we look at our business in half and reflect back on the spring season, as we always talk about, weather can certainly shift sales between quarters. Given this year, the early Easter and then a couple of weeks of warm weather that we had there in late March, we estimate a potential pull-forward of $15 million to $20 million in sales from the second quarter into the first quarter. If you think about this, it balances out our performance across the two quarters. We thought we'd have some potential for an elongated spring, particularly in late June, but that did not materialize. On the customer front, we did see our higher-income customers moderate just modestly, as spending for vacation travel has surged for this group. Conversely, our lower-income customer cohort moderated up sequentially from the first quarter. Net-net, our overall customer base continues to grow and remains very strong. Now let's shift to some performance highlights for the quarter. We grew net sales by 1.5% with a comparable-store sales decline of 0.5%. Diluted EPS was $3.93. Our comparable-store sales performance was driven by a modest transaction decline of 0.6% with our average ticket coming in at 0.1% positive. As we shared on our last call, we anticipated that the quarter would be in line with our full year guidance. The trends from the first quarter continued to play out, and importantly, we continue to see healthy customer engagement. The investments we've made in Neighbor's Club, our world-class loyalty program, are a competitive advantage for us as we continue to see solid growth in both customer counts and retention. If you recall, in the first quarter, we significantly enhanced our Neighbor's Club offerings. The changes were implemented to have members receive rewards faster and lower the spending required for tier qualifications. This quarter, we launched Hometown Heroes, which recognizes military service members, veterans, and first responders. We are pleased with the enrollment, about 20% of our Hometown Heroes to date are new to Neighbor's Club and about 15% are new to Tractor Supply. Once again, our Neighbor's Club comp sales outpaced our overall sales growth. We reached an all-time high on our sales penetration and record membership of more than 36 million members. Our Neighbor's Club retention rate remains remarkably consistent as our best customers shop us more frequently and remain extremely loyal. We're seeing a slight disengagement of our non-core customers, which is down just modestly. This is attributable to the overall macro headwinds that I mentioned earlier. Given that this customer is not as highly engaged in the Life Out Here lifestyle, our belief is that this customer cohort is somewhat sluggish or fatigued given the duration of inflation and higher cost of living since 2022. As we look forward, our Neighbor's Club is laser-focused on this opportunity as we enhance our personalization capabilities, particularly with our customer data platform that we'll be implementing later in the year. Our customer service scores continue to run at all-time highs, with improvements every week for more than 2.5 years. Customer service is a consistent differentiator for Tractor Supply, and our commitment to excellence in customer service and investments we've made in training, tools, and technology are really paying off with our customers. These efforts have received national recognition by various third parties, including USA Today and Forbes. It's worth noting the team received a CIO 100 Award recently for our groundbreaking work to utilize AI to enhance the customer experience in our stores. Moving to category performance, a highlight was the strong positive comps in big-ticket items in the second quarter, particularly in categories like riding lawnmowers, recreational vehicles, and sporting goods, which our customers responded to. Our live goods performance also comped well above the chain average despite the hot weather that impacted many of our other seasonal categories. As we shared last quarter, we anticipated our consumable, usable and edible products would run modestly below the chain average in Q2 due to deflation weighing on our average unit retail. We once again grew units in these categories, believing we're continuing to gain market share. The needs-based demand-driven nature of our product categories continues to drive unit velocity in this segment of our business. In pet food, industry data suggests that the overall category was flat to negative in Q2. As it relates to our business, we continue to take share, but we have seen growth moderate as the category disinflates and pet ownership trends remain soft. Our customer shopping trip in this category is highly differentiated. We offer a broad assortment from value to super premium across national and exclusive brands in a pet-friendly environment, which includes more than 900 pet wash locations. Year-to-date, we've had strong double-digit growth in our pet wash service. We've also seen mid double-digit growth rates in visits to our mobile pet vet clinics offered across more than 1,600 stores. The value of our services and product benefits creates great opportunities to reinforce our value proposition. In aqua livestock and poultry feed, we continue to gain market share. While our average unit retails were down mid-to-high single-digits in Q2, we achieved strong mid-single-digit unit growth across all species. Large animal counts continue to pressure us as we are a share winner in the large animal categories. In poultry, our annual Spring Chick Days was a positive highlight in the quarter, building on our reputation as the destination for backyard enthusiasts. We now have more than 500 garden centers across the chain. The merchants did great work with a differentiated assortment and strong in-stocks during the planting season. Our digital sales continued to trend positively from last quarter, and our tenth and largest distribution center in Maumelle, Arkansas opened during Q2. Our supply chain investments over the last four years have provided us with structural gross margin benefits from the reduction in spend miles. We opened 21 new Tractor Supply stores and three Petsense by Tractor Supply locations in the quarter. Our new store productivity continues to perform very well. This development allows us to have rent reductions of 15% or more compared to our traditional build-to-suit. To wrap up, I believe the team is pleased but not satisfied with our first half performance. We set high expectations for ourselves. Customer trends are relatively in line with our expectations. Our dedication to serving Life Out Here remains unwavering. Now I'll turn the call over to Kurt.

Thank you, Hal, and good morning to everyone on the call. In many ways, our second-quarter topline results were consistent with our results in the first quarter, with solid seasonal growth and exceptional big-ticket sales, while our year-round discretionary categories remain pressured. As we expected, CUE performance was slightly below the chain average given the retail price deflation and moderating pet category trends the industry is experiencing. Retail price deflation, which was just over 1%, was in line with our expectations. Most of this deflation came from our CUE categories. We are pleased with our unit movement in CUE as we effectively managed through the impact of deflation this quarter. Our comp sales growth was relatively consistent across all regions of the chain, within a range of down 2% to up 2%. The strongest regional performance was in the Northeast and Commonwealth due to easier compares and better weather compared to last year. This strength was offset by pressure in the Far West and Texas, Oklahoma for the exact opposite reasons. As to the cadence of the quarter, all months were in a tight band of plus or minus 1%. We believe April was negatively impacted by the pull forward of Easter into the first quarter as well as a slow start to the spring season. Moving down our income statement, our gross margin increased 43 basis points to last year. We are very pleased with these results, driven primarily by lower transportation costs, disciplined product cost management, and the execution of an everyday low-price strategy. These improvements were partially offset by strong growth in big-ticket categories that have below chain average margins. As a percentage of net sales, SG&A expenses increased 58 basis points to 23.4%. This increase was primarily attributable to our planned growth investments, onboarding of a new distribution center, higher depreciation amortization, and modest deleverage of our fixed costs. We had strong cost control as evidenced by our operating profit margin being essentially flat with prior year. For the quarter, diluted EPS was $3.93 compared to $3.83 last year. Moving to our balance sheet, merchandise inventories were $3.0 billion at the end of Q2, representing an increase of 10.2% in average inventory per store as we improved our in-stock position in CUE and invested in big-ticket items. We are pleased with the quality of our inventory as we enter the second half of the year. With strong annualized cash flows, we continue to maintain a healthy balance sheet with a leverage ratio of around two times. Year-to-date, we've returned nearly $500 million of capital to our shareholders through share repurchases and dividends. Now let me turn to our updated fiscal 2024 financial outlook. We now anticipate net sales in the range of $14.8 billion to $15 billion with comp store sales in the range of down 0.5 points to up 1%. Our operating margin rate is expected to be in the range of 9.8% to 10.1% with net income of $1.08 billion to $1.12 billion. Diluted EPS is forecast to be $10 to $10.40. We are approaching the back half of the year with balanced optimism. We are forecasting comp sales in Q3 to be within a tight band of scenarios and generally similar to the first half of the year. The only meaningful swing factor in Q3 tends to be weather. We see the fourth quarter having a wider range of potential outcomes. For our base case, we do anticipate stronger growth in the fourth quarter, while acknowledging potential for more volatility in consumer spending. On the low end of the range, concerns include potential consumer uncertainty due to the federal election and a shorter holiday selling season. Our guidance reflects ongoing gross margin expansion in the second half of the year. We anticipate transportation costs will remain favorable. I view our gross margin performance as strong in this current environment. Moving on to SG&A, for the second half of the year, I would highlight a few expectations, especially for Q3. We are lapping last year's depreciation benefit in Q3. Given our comp sales outlook for Q3, we anticipate modest fixed cost deleverage. Thus, our SG&A performance will be the softest in Q3 with more modest deleverage in the fourth quarter. In total, we remain on track for the benefits of our sale leasebacks to be consistent with last year's forecasts. We continue to forecast the return of capital to shareholders in the range of $1 billion. At Tractor Supply, we believe in playing offense. This is a team that will stay on offense and continue to invest for the long term. We are excited about our Life Out Here strategy progress and our ability to build on our long-term value creation for our shareholders. Now I'll turn the call over to Hal to wrap up.

Thanks, Kurt. Despite the temporary softness in our channel, structural elements remain attractive for Tractor Supply. We have numerous tailwinds, including our Life Out Here strategic initiative, high return new store growth opportunities, and ongoing share gains. Before we go into the Q&A session, I’d like to wrap up with three comments. First, I am excited about our robust innovation pipeline and compelling values in our market. We just set our annual Deer event and Halloween Decor program, both of which are off to a strong start. In Pet, we have a number of upcoming activities, including our expanded Pet Appreciation Month and new product lineups. The second comment is we continue to believe that as economic conditions become more neutral, we will return to our long-term algorithm. The first factor impacting us is the transition from goods to services and the second is deflation. These factors are transitory, and we don't need them to improve but to normalize for us to return to our long-term algorithm. The third comment is that the team is playing offense, working on plans for the back half of the decade and our next growth drivers. Tractor Supply does not lack opportunities, and we believe we have multiple new opportunities that can expand on our $180 billion total addressable market. I'm very excited to share more details of the next drivers of our strategy in the near future. Our stores and online are ready for the changes of season as we enter Q3. We've invested in our store base, inventory, supply chain, digital capabilities, and customer service to provide the best products and solutions for Life Out Here. I'm incredibly proud of our team. Throughout our 85-plus year history, our team members have always come together no matter what issues we face. Our unique culture is our key differentiator and gives me great confidence in the future of Tractor Supply. With that, let's open up the call for questions.

Our first question comes from Scot Ciccarelli with Truist. Your line is now open.

Good morning, guys. Historically, when we've had a pretty wet spring, which is fair to assume across most of the country, you guys have had a very extended selling season. Do you expect that to be the case for the balance of the year? And then secondly, you mentioned that you're expecting roughly flat comps in the third quarter. Are you currently tracking in line with that or is that just kind of the bogey for the end of the quarter? Thanks.

Hi, Scot, good morning. To your first question on the wet spring, it was wet almost the entire quarter in the Southwest, Texas. We had hoped that might lead to an elongated spring, especially in June and into July. However, June was one of the hottest months on record. We did not see that category recover in June like we had some aspirations for. That said, it's a wet week this week. We are hopeful that can pay some dividends as we turn the corner into August and into the fall. Regarding Q3, it’s right down the middle of the fairway for us in terms of our guidance range. The one thing I would call out is July is our toughest compares of the three months as we get sequentially easier compares in the next two months. Thanks for the question.

Great. Thanks.

Thank you for your question. Our next question comes from the line of Michael Lasser with UBS. Your line is now open.

Good morning. Thank you for taking my question. Hi, Hal. Can you walk us through the thought process on just the changes you've made recently? Do you see any customer impact from some of the social media chatter and how did it impact your same store sales? Thank you so much.

Yes. Hi, Michael, and thanks for the question. It was a difficult situation played out publicly, increasingly common in business with divisive sentiment in our country. We have over 50,000 team members and 30 million customers and certainly heard a range of feedback. We learned from others who came before us, and we moved fast to remove perceived political and social agendas from our policies. Having said that, we have no evidence that it had a measurable impact on our business. We continue to monitor the situation, but we have no evidence it affected our results. We have a very special culture at Tractor Supply, grounded in our mission and values. We withdrew our carbon emissions goals and retired our D&I goals, but not our commitment to treating people with respect, inclusion, being good corporate citizens, and being stewards of Life Out Here. Thanks for the question, Michael.

Thank you very much.

Thank you for your question. Our next question comes from the line of Steven Zaccone with Citigroup. Your line is now open.

Great. Good morning. Thanks very much for taking my question. I wanted to go back to the same-store sales trend. I'm curious if we could talk through the guidance adjustment a bit more, specifically on the second half because you leave open the option that you could still have negative same-store sales in the back half, even though the compares look a little bit easier. So has anything changed from a ticket perspective, maybe deflation lasting a little longer than you expected? And from a transaction perspective, do you believe the pet food landscape is softening more than you expected? Thanks very much.

Yes, Hi, Steven. The first half played out very much in line with our expectations. Most things in the first half were in line. Big ticket was a little stronger, while categories like ag fencing and dog containment were a little weaker, but everything else was as expected. The second half is similar. Q3 will resemble the first half of the year, with Q4 having a broader range of outcomes. The variation in Q4 is contingent on our sales related to transactions, consumer sentiment, and weather events. So, while sitting here, we feel good about our outlook, nothing has significantly changed from the beginning of the year. Thanks for the question.

Okay, thanks for the detail.

Thank you for your question. Our next question comes from the line of Peter Benedict with Baird. Your line is now open.

Yes, good morning, guys. Thanks for taking the question. Kurt, I know you addressed inventory briefly during the prepared remarks that you felt comfortable. Can you provide more color on the build you saw in the second quarter and where you expect inventories to level out over the balance of the year, and why you don't think there's an excess? Thank you.

Yes, I'll let Seth elaborate further, but I want to point out that we are cycling last year, and in Q2, we called out that we were down 1.7% in inventory last year. We needed more inventory in CUE and some big ticket. We are very pleased with where we're at. Seth, why don’t you provide more details?

Hi, Peter, Seth here. As Kurt mentioned, we were down last year about 1.7%. In terms of this year’s inventory position, we are investing in areas where we are continuing to see growth. We are in the best in-stock position we've been since pre-pandemic. Our clearance inventory is down compared to last year. Both our in-stock rates and clearance numbers are indicators of our quality. We're committed to investing in categories that are working and ensuring we have key core CUE products on the shelf.

Great. Thanks so much.

Thank you for your question. Our next question comes from the line of Chuck Grom with Gordon Haskett Research Advisors. Your line is now open.

Hi, thanks. Regarding the comparison discussion, in the past few quarters, our comps have been nearly flat. Can you help us understand the factors needed to reach the long-term target of about 4% to 5%, and possibly provide a timeline for achieving that? Thank you.

Yes, Chuck, thanks for the question. We are confident in our long-term guidance. Two main factors are impacting us right now: the shift in consumer spend from goods to services and deflation. Currently, our average ticket is roughly flat; historically, we would have at least a 1.5% growth. If we see favorability in average ticket, it could mean nearly a 1.5% or 2% comp right there. With PCE showing services up while goods see low growth, there's room for growth in goods, bringing us back to a 4% to 4.5% comp.

Great. Thanks, Hal.

Thank you for your question. Our next question comes from the line of Kate McShane with Goldman Sachs. Your line is now open.

Hi, good morning. Thanks for taking our question. We wanted to discuss the big-ticket strength. Can you remind us how much of sales this represents and what big-ticket needs can change in the second half?

Hi, Kate, good morning. On big-ticket, we've been pleased to see a rebound on big-ticket after a couple of years of softness. In Q2, it ran low double digits. Big ticket represents low teens of our sales, averaging in high single digits for the year. In the second half, it becomes a lesser impact, but we see opportunities in areas such as recreational vehicles and winter-related products.

Thank you.

Thank you for your question. Our next question comes from the line of Brian Nagel with Oppenheimer. Your line is now open.

Good morning. I wanted to follow-up a bit on inventory. So rates are higher than usual coming out of the quarter. Is your expectation that inventory levels will moderate naturally, or do you need to take more aggressive actions to get inventories back in line with sales?

Hi, Brian. We are comfortable with our inventory levels and quality of our inventory. We have no concerns about it in the second half. There are two main drivers for our inventory increases: the easier comparison last year and our investment in big-ticket items. We are positioned well as we focus on delivering high in-stock rates.

Thanks, I appreciate the color.

Thank you for your question. Our next question comes from the line of Steven Forbes with Guggenheim Partners. Your line is now open.

Good morning. It looks like there's been about a year where sales per member trends are down significantly. Can you share anything notable from the trends and how member share sits today?

Yes, regarding our Neighbor's Club, we're pleased with the growth rate and retention. However, we saw some moderation in our higher-income cohorts due to increased spending on services. We're focusing on the entry-level group in Neighbor's Club and implementing our customer data platform to enhance personalization, which we believe will stimulate growth.

Thank you.

Thank you for your question. Our next question comes from the line of Oliver Wintermantel with Evercore. Your line is now open.

Thanks, guys. With the variability of outcomes for Q3 and Q4, could you walk us through comp ticket and comp traffic expectations for those quarters?

Hi, Oliver. The main driver of the variation for the second half is transactions. We have good visibility into average ticket pricing, which we expect to remain reasonably flat. The main variability for our range of outcomes will be driven by transactions and consumer sentiment, particularly in Q4, influenced by factors such as weather events and the federal election.

Got it. Thanks very much.

Yes. Thanks, Oliver.

Thank you for your question. Our next question comes from the line of Zach Fadem with Wells Fargo. Your line is now open.

Hi, good morning. Kurt, you mentioned the election as a potential second half headwind. Are there performance callouts during prior elections? And is there any evidence to suggest your business may perform differently based on the outcome?

Hi, Zach. Historically, we haven't seen meaningful performance change based on federal elections. However, the current environment is intense, and we are conscious of consumer sentiment. Despite this uncertainty, our needs-based business tends to remain stable regardless of election outcomes, so we continue to monitor the situation.

Got it. Thanks for the time.

Thank you for your question. Our next question comes from the line of Christopher Horvers with JPMorgan. Your line is now open.

Thank you. Can you speak to the implications of the lower corn prices having come down significantly? How does this affect your sequential reflation expectations and the feed category?

Hi, Chris. Key commodities, including corn, have been at year-over-year lows. Corn, soybeans, cotton, and steel are all significantly down from their highs in 2022. We believe we are at the trough of this cycle. Commodities impact should move through our systems quickly and has already been embedded in our pricing structure.

Thanks very much.

Victoria, we will take one more question quickly, and then we'll wrap the call after that.

Of course. Our final question comes from the line of Peter Keith with Piper Sandler. Your line is now open.

Thank you very much everyone for squeezing me in. Hal, you mentioned in the script that the channel was down negative mid-single. This suggests that Tractor Supply share gains accelerated in Q2 versus prior quarters. Was there something specific, or do you think there are structural benefits based on your initiatives that could keep the share gains elevated in the quarters to come? Thanks.

Hi, Peter. I would point to two things. Structurally, we play more in big-ticket than other competitors, which helps raise our waterline on total sales. On the CUE side, particularly pet food and animal feed, we believe we're gaining share. Our scale, cost position with vendors, supply chain efficiencies, and strong customer service have all contributed to driving these gains. We've reached nearly half of our store base in our fusion remodel program, enhancing our customer experience.

Victoria, we'll wrap up our call today. To everyone on the call, we look forward to speaking to you at the time of our Q3 call in October.

That concludes today's call. Thank you for your participation and enjoy the rest of your day.