Kurt Barton
Executive Vice President, Chief Financial Officer and Treasurer at Tractor Supply
Thank you, Hal, and hello to everyone on the call. I want to start by reiterating Hal's comments on 2023, and our confidence in the long-term opportunities for Tractor Supply. Over my 2.5 decades in this business, I've never seen a year where we've had as many transitory headwinds as we did in 2023 that did not break positively at some point during the year.
Before I get into my review of the quarter, I wanted to address two items. First, for comparability purposes, please keep in mind 2022 had a 53rd fiscal week that provided a net sales benefit of $225 million to the prior year fourth quarter representing about 5.6 percentage points of our net sales decline this quarter. On a full-year basis, that negatively impacted net sales by 1.6 percentage points. In addition, diluted EPS in 2022 benefited by $0.16 for the quarter and the year from the 53rd week.
Second, overall, the unseasonably warm winter weighed on our results in the fourth quarter. We estimate the impact to be approximately 400 basis points of pressure on our comp sales performance. We knew this was going to be the most challenging quarter of the year given our strong comp performance of 8.6% in the prior year as we were cycling the late December 2022 winter storm that provided a 200 basis point comp benefit to the fourth quarter of last year.
The majority of the pressure was in transactions, given the needs-based nature of our business and it impacted our seasonal categories across C.U.E. and other winter goods. Our C.U.E. business in the fourth quarter has a higher mix of cold weather seasonal products such as wood pellets, bulk propane, bird seed and pine shavings for bedding.
From the cadence of the quarter to our product categories, seasonal impacts always play into our performance. Coming into the fourth quarter, we anticipated it would work against us and the quarter played out much like we expected. Factoring in the seasonal impact from the weather, our fourth quarter performance was very much in line with our run rate from last quarter.
Most of my remaining commentary of our comp sales performance is on a normalized basis, adjusting for the impact of weather. October and November were very similar in comp sales performance with December seeing the biggest comp sales decline as we were lapping the winter storm from last year. On a normalized basis, all months performed relatively consistent with a slight decline in comp sales.
Turning to our product categories. We continued to see solid performance in C.U.E. with above-chain average comps essentially flat for the quarter. On a normalized basis, C.U.E. had a positive comparable sales as we continue to gain share. Discretionary categories performed in line with our expectations with a mid-single-digit comp sales decline. Big-ticket performance showed a continued improvement over the trends of the previous five quarters. Comparable big-ticket sales ran slightly negative for the quarter and we're positive in the low-single digits on a normalized basis. Although our business is not primarily driven by holiday sales in Q4, we were encouraged by our performance during the holiday season, including recording our highest sales day of all time on the day after Thanksgiving and strong performance in the week leading up to Christmas.
As we have experienced all year, we saw a continued slowdown in retail price inflation throughout the year with Q4 experiencing a slight net deflation. We have successfully managed through deflation in various commodities throughout 2023 and believe we are nearing the trough now. In 2023, raw-material inputs rolled over as evidenced by the 35% decline in corn from its most recent high in 2022 and currently running about 15% above the historical average. As we exit 2023, these types of feedstock declines are already reflected in our retail prices. Structural inflationary factors such as higher wage rates, transportation costs, and other overhead items are all still supporting higher product costs.
Moving on to gross margin. For the fourth quarter, our trend of strong gross margin performance continued with a year-over-year improvement of 129 basis points to 35.3% of sales. Our gross margin expansion was led by improvements in the supply chain from lower transportation rates and efficiencies in our network, including opening a new DC.
We continue to benefit from our commitment to everyday low prices and disciplined product cost management. While our promotional activity was modestly greater than the prior year, we were able to strategically provide great value for our customers, while maintaining our gross margin. These favorable drivers were partially offset by an unfavorable product mix shift due to a higher mix of C.U.E. and a lower mix of high margin seasonal categories.
As a percent of net sales, SG&A expenses including depreciation and amortization increased 113 basis points year-over-year to 26.2%. This increase was primarily attributable to our planned growth investments, which included higher depreciation and amortization and the onboarding of our new DC, along with some lost fixed-cost leverage due to the decline in comparable store sales. Additionally, higher medical claims also contributed to the increase in SG&A although to a lesser extent than last quarter. The SG&A deleverage was partially offset by a decrease in incentive compensation and the benefits of the sale-leaseback program initiated last quarter. In Q4, we sold five Tractor Supply stores which contributed a 40 basis-point benefit to SG&A. Operating margin improved 16 basis points for the quarter to 9.1%. Excluding the cycling of the 53rd week, diluted EPS of $2.28 was essentially flat with the prior year.
Our new store pipeline continues to be strong. Our new store sales and profitability numbers continue to outperform historical averages. Given the addition of the Orscheln stores to our non-comp sales numbers, the new store productivity metric for the organic new Tractor Supply stores is cloudy in our external reporting. By our calculations, TSC new store productivity in 2023 was about 67% of our mature store average. Average sales in year one of the new store have increased more than 40% compared to 2019, in line with the performance of the chain.
Our stores continued to be profitable in year one, cash flow positive at about the same point and have a payback in two to three years. Our new-store economics unlocks sustainable growth and solidifies our lead in the channel. Strong new-store economics are a hallmark of Tractor Supply. As I reflect back on 2023, I continue to be encouraged by the resiliency of our business and the structural nature of it.
Now let's move to our outlook for 2024. Hal shared how we are thinking about the macro backdrop for the coming year. We are anticipating a gradual slowdown with the lingering question of, do we have a soft landing or if the risk of a harder recession remain. With this in mind, we have taken a cautious approach to our 2024 financial outlook and a forecast that our comparable sales performance below our long-term algorithm.
Navigating economic cycles is in our DNA. We have successfully managed through diverse market conditions including periods of inflation to disinflation and even deflation. Our deep understanding of these dynamics allows us to proactively adapt to the market conditions. We expect average unit retails to be neutral to a modest headwind for the near term, as we anticipate stickiness to input costs such as labor wage rates and other items to mitigate any further reversion in commodity pricing.
For fiscal 2024, we are forecasting net sales of $14.7 billion to $15.1 billion. Comparable store sales are anticipated to be in the range of down a modest 1% to an increase of 1.5%. We are cautiously optimistic that big-ticket trends will revert to positive for the full year as we are cycling 18 months of declines. We expect gross margin expansion of about 40 to 60 basis points from continued supply chain efficiencies, benefits from effective cost management, and a moderation of the mix impact of C.U.E.
We anticipate the gross margin expansion to be offset by SG&A deleverage due to a couple of primary factors. First, depreciation and amortization is anticipated to increase in the mid-teens. While this is an improvement from recent underlying growth rates as our investments in our strategic growth initiatives moderate, we will deleverage SG&A growth faster than sales.
Second, we plan to open our 10th distribution center in the second quarter. As a reminder, the operating cost for the new DC are reflected in SG&A while the supply chain benefits are reflected in gross margin. Our DC network is expected to pressure SG&A by approximately 10 to 15 basis points. The benefiting gross margin will not completely offset this pressure since it takes time for the new facility to fully ramp to maturity and realize the supply chain benefits. As a result, we expect modest pressure on our operating margin from the opening of this new DC.
These two primary factors are partially offset by the lapping of some higher-than-normal medical benefits in 2023. We do not expect those to reoccur due to proactive changes to our benefit programs. In 2024, we will continue our planned strategic sale-leaseback program to sell some of our existing own stores. We anticipate these sales will occur in the second half of the year on a similar cadence to 2023 and with a similar EPS contribution. We continue to forecast these strategic sale-leasebacks to be ongoing for the next seven to 10 years.
For the year, we forecast an operating margin of 9.7% to 10.1%. We are forecasting interest expense of approximately $50 million to $55 million. We plan to maintain a healthy leverage ratio of approximately 2 times and we expect our effective tax rate to be in the range of 22.7% to 23.0%. Diluted EPS is forecast in a range of $9.85 to $10.50.
Net capital expenditures are forecast to be $625 million to $700 million, or about 4% to 4.5% of sales. This net amount reflects the anticipated proceeds for the sale of existing and newly developed Tractor Supply stores. Gross capital expenditures are forecast to be in the range of $850 million to $925 million. Our capital plans reflect a ramp in our new store openings to approximately 80 Tractor Supply stores. We anticipate opening 10 to 15 Petsense by Tractor Supply stores in 2024. Our new store pipeline continues to be solid and we expect store opening cadence to be in line with 2023.
We remain committed to returning cash to shareholders through the combination of a growing dividend and share repurchases. For 2024, we anticipate share repurchases in a range of $575 million to $625 million, which is estimated to have a benefit of a net reduction in weighted average shares outstanding of approximately 2%.
Now. I would like to walk through a few items to consider for the calendarization of our expectation. As always, we believe the best way to look at our business is in halves and not quarters due to the nature of our business. We expect comp sales for each of the quarters to be in a relatively tight range, consistent with our overall 2024 guidance. We are planning for positive comp transactions for the year.
As to earnings, we expect our EPS growth to be slightly more favorable in the first half as opposed to the second half. There are a few factors that will impact operating margins in certain quarters. We anticipate the tailwinds of lower transportation costs to benefit our results through the second quarter and begin to flatten year-over-year starting in Q3. As a result, gross margin expansion for the first half of the year is anticipated to be near the high end of our annual guidance range, while the second half may be near the low end of the range.
In regards to SG&A, the second and third quarters will be pressured from the start-up costs for the new distribution center, while the supply chain benefits will not begin to be realized in gross margin until late in the third quarter. Please keep in mind, we will be lapping an $0.08 per share benefit from the depreciation change in the third quarter of last year.
Considering each of these factors, the third quarter will be our toughest earnings comparison as we anticipate a decline in operating margin and EPS due to the combination of these factors. As a reminder, the Orscheln stores will be added to the comp store calculation beginning in the second quarter with a tiered approach as we cycle the timing of moving these stores to our point-of-sale systems and rebranding of stores to Tractor Supply.
Specific to the first quarter, we had a challenging first quarter last year as it was abnormally warm in January and February and relatively cold March. We were also benefiting from retail price inflation in the high-single-digits. Given the recent arctic cold temperatures across most of the regions, we are seeing good momentum as we start the first quarter. Overall, we are anticipating positive comp sales for the first quarter.
To wrap up, we have clearly defined strategic priorities and are investing to capture the long-term opportunities in our market. We are committed to driving productivity and making appropriate trade-offs to fuel our investments while we protect our operating profit margins and earnings. We intend to maintain this focused approach through 2024. We are committed to continuously striving for stronger results.
With that, I will turn the call back over to Hal.
