TRACTOR SUPPLY CO /DE/ Q1 FY2025 earnings call

• Customer indicators: Robust transaction growth, strong unit growth in consumable/usable/edible categories, positive new customer counts, record retention of existing customers.
• Tariff management: Proactive but measured approach, working with vendors to mitigate cost pressures, with over 60% of business from US-manufactured products, and reducing China imports.
• Chick Days: On pace for record-breaking results, driven by core and new customers responding to egg prices, with strong sell-through.
• Pet Rx: Launched earlier this week, integrating with Tractor Supply website, with 40 million Neighbor's Club members, offering affordable Rx solutions.
• Direct sales and localization: Sales teams launched in select markets, localizing stores and customer archetypes.

In the first quarter, total sales were a record $3.47 billion, up 2.1%. Comparable store sales declined 0.9% due to a delayed spring selling season. Gross margin rate was 36.2%, up 25 basis points. SG&A expense rate increased 81 basis points to 29%. Operating income decreased 5.3% to $249.1 million, and net income decreased 9.5% to $179.4 million. Merchandise inventories were $3.2 billion, a 1.5% increase in average inventory per store.

• Fiscal year outlook: Net sales growth 4% to comparable store sales range flat to up 4%, operating margin 9.5% to 9.9%, net income $1.07 to $1.17 billion, EPS $2 to $2.18.
• Second quarter guidance: Net sales growth ~3% to 4%, comparable store sales flat to up 1%, EPS 79¢ to 81¢, reflecting spring season delay and tariff pressures.

• Weather impact: Delayed spring season in Midwest and Northeast as a headwind of ~250 basis points.
• Tariff uncertainties: Macro environment uncertainty, with tariffs adding pressure to cost base, and monitoring global trade policy developments.
• Macroeconomic concerns: Potential economic slowdown and its impact on consumer spending, especially on big ticket categories.

Q: Clarify tariff environment assumption for Q2 and full year.

A: Assumed current 10% non-China and 45% China tariffs for Q2 receipts, with hope for trade policy moderation but prudent assumption of these costs in Q2 supply chain.

Q: Big ticket pressure in 2Q guide and full year top line range.

A: Baked in conservative approach with continued big ticket pressure, and full year top line range reflects natural accelerants in second half and tariff pass-through scenarios.

Q: Vendor price increase requests and pass-through.

A: Vendors incurring tariff costs, but no current price increases, with conversations expected in coming weeks.

Q: Cadence of business by month and trade down impact.

A: January strong, February impacted by winter storms, March cooler/wetter, April running as expected, with no discernible trade down yet.

Q: Tractor Supply Rx intent, willingness, and margin profile.

A: Strong team integration, early adoption of Rx, focus on store integration and customer value, early days but positive start.

Q: Tariff sales impact and embedded EPS impact.

A: Embedded tariffs for next 90 days, managing multiple scenarios, focusing on market share and margin management.

Q: Production movement to avoid tariffs in apparel.

A: Actively resourcing to move production, already moved apparel out of China, task force assessing alternatives for other categories.