Hal Lawton
President and Chief Executive Officer at Tractor Supply
Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. 2024 is off to a solid start with first quarter results in line with our expectations. I would like to thank the Tractor Supply team for their ongoing commitment to each other and our customers. As evidenced by our continuation of record high customer satisfaction scores, the team is always there for our customers as the dependable supplier for life out here. Before I get into our review of the first quarter's results, I want to take a moment to share what we're seeing in the macroeconomic environment and its impact on our business. In our view, the U.S. economy remains strong. Unemployment continues at a low level, wages are growing at a steady clip. In spite of sticky inflation, consumer spending remains strong, and mobility has slowed as a consequence of a challenging housing market, with that said, we continue to see outsized population growth in rural markets. As it relates to consumer spending, the shift of spending from goods to services continues to be a headwind for our business. In the first two months of the calendar year, consumer services spending growth was nearly 7%, whereas consumer spending on goods growth was less than 1%. As a result, the mix of goods as a share of PCE are now only 100 basis points above their pre-COVID average. This progressive shift is in line with our expectations as we enter the year. Also, as expected, inflation has remained sticky by outsized increases in shelter, food, away from home, energy and insurance. As a consequence, consumers continue to be anxious about inflation, particularly the lower-income consumer.
In the first quarter, our upper income consumer over-indexed in big ticket categories and recreational purchases compared to our lower income consumer, who is prioritizing their spend on needs. In our needs-based, consumable, usable and edible categories, we see very little difference in our performance by income cohort. Once again, our business is proving to be durable, stable and very consistent. Broadly speaking, in our economy, goods continue to disinflate and are generally running low single digits with some categories having moderate deflation. With the first quarter behind Tractor Supply, we have now successfully lapped our two most challenging compares due to the inflationary benefits that we had over the last 18 months that have substantially benefited our top line. We do not see additional downward deflationary pressures in the current environment. The transition from an inflationary cycle to a disinflationary cycle is playing out as we anticipated. In spite of a very challenging housing market, we continue to see positive migration trends to our markets. While rural migration trends have moderated from the recent peaks, rural America again gained population in 2023. This marks the fourth consecutive year of growth in rural population. It is our view that the sense of community found in our markets, and perhaps more importantly, the ability to secure a piece of property at a reasonable price has ensured the rural migration trend is one that's here to stay for the time being. So with that, let's now turn to a review of the business for the first quarter.
We grew net sales by 2.9%, with comparable store sales up 1.1% and diluted earnings per share up 10.9% to $1.83. Our comparable store sales growth was driven by transaction growth of 1.3% offset by a small decline in average ticket of 0.2%. These results were very much in line with our expectations that we shared with you as we started the quarter and year. Overall, our customer base remains healthy and highly engaged. Total customer count grew mid-single digits with growth in active, new and reactivated customers as we invested in our Neighbor's Club program and customer service. Neighbor's Club continues to represent the majority of our sales. During the quarter, we significantly enhanced our Neighbor's Club offering. As our points-based program enters its fourth year, it was appropriate for us to refresh our offering based on insights and customer feedback. The changes we made were all implemented with the goal to have customers receive rewards faster and to lower the spending required for tier qualifications. Our Neighbor's Club members have responded positively to these changes. For example, the new rewards redemption at a $2 and $5 level down from $10 is working as we designed and is driving greater customer engagement and trips for this cohort. The initial response from our customers on the collective changes has been very positive, and we're seeing increased spending across the board. In addition, we continue to improve relevancy to our members through more personalized offers and tailored incentives and experiences based on their interest and shopping patterns.
With more than 34 million members, Neighbor's Club should continue to build our customers' loyalty and affinity for Tractor Supply as we go forward. Our customer service scores continue to run at all-time highs. This is an area where we have strategically invested in training, compensation, benefits, tools and technology to help elevate our customer service. This has garnered the attention of our customers, and I believe, helps strengthen our scores. The strength of our portfolio products and shopping missions was evident very much so in the first quarter. We had robust growth in our seasonal categories. Our consumable, usable and edible products performed in line with our chain average. Our performance this quarter was on top of the robust growth we've experienced over the last four years as our CUE customer trends remain strong as we continue to gain market share. Our customers were certainly in the mindset to prepare for spring as we had strong big ticket growth in the mid-single digits and strength in other early spring preparedness categories. Categories that performed below our comp sales growth were more in our discretionary businesses such as clothing and gifts and truck tool and hardware. In our pet food and livestock categories, we continue to grow our market share. In pet food, we've seen growth moderate as the category disinflates and pet ownership moderates. Our customers' shopping trip in this category is highly differentiated, so we offer a broad assortment from value to super premium across private and exclusive brands in a pet-friendly environment, which now includes about 900 Pet Wash locations.
Additionally, pet owners benefit from the one-stop shop convenience of our lifestyle retail format, in particular, from the cross purchasing synergy with animal and livestock feed. In animal and livestock feed, we offer exclusive brands like DuMORs and Producer's Pride, along with the national brands from Purina, Cargill, Triple Crown and more. We continue to innovate across our key categories of equine, cattle and poultry in trends like organic and snack. And we bring a unique retail experience in these categories with events like our annual spring Chick Days. This year, the event is on track to have strong results. We continue to see growth from existing customers who are building out and adding to their flock. Organic feed and our assortment of premium breeds continue to lead the category and growth. Tractor Supply is the destination for backyard poultry. Today, nearly 2/3 of our backyard chicken owners consider them to be pets, and our customers over-index the poultry ownership with nearly one in five customers having chickens. Stepping back, we have a market share of about 20% in bagged livestock feed, and we continue to take share, and we are consistently outperforming the market across our two categories. After nearly two years of pressure on our big ticket comps, we were pleased to see big ticket categories turn positive in the quarter. We experienced broad-based strength across seasonal categories, including zero-turn tractors, recreational vehicles and outdoor power equipment.
Our digital sales returned to double-digit growth in the quarter with increases in visits and an improved conversion rate. Nearly 80% of our orders were whether picked up in store or fulfilled by a store. Almost 20% of our sales came through our mobile app. The team made excellent feature update such as New Express Checkout feature and the addition of estimated delivery times, and these have helped increase our conversion rate. This year, we're opening our tenth and largest distribution center in Maumelle, Arkansas. The start-up of the distribution center is right on schedule as shipping will begin during June. Once again, we'll be able to capitalize on the opportunity to realign the store servicing areas across the DC network to balance transportation costs and DC capacity while improving service levels to our stores. It is great for our DC network to have this new capacity to better position our inventory and better service our stores all the while allowing us to reduce our freight cost. Our supply chain investments over the last four years have provided us with material structural gross margin benefit from the reduction in stem miles. We opened 17 new Tractor Supply stores and four Petsense by Tractor Supply stores in the quarter. As I shared last quarter, 2024 will be the year of the Garden Center. We're leveraging the change of seasons across the store front as the year shifts to spring. The team has come out of the gate strong to ensure we have a differentiated assortment and availability in time for the planting season.
We now have nearly 500 Garden Centers across the chain. Based on our early read of spring, our expectation is that with more variety than ever and a grower network to support our Garden Centers, we should see the customer respond positively this multiyear growth driver. At Tractor Supply, we're grounded in our purpose as a company to serve life out here and our deep-rooted commitment to our mission and values. We believe in finding meaningful ways to support our core mission. Earlier this week, we issued our fifth annual stewards of Life Out Here Tear Sheet that highlights our Stewardship priorities and progress. For all of us at Tractor Supply, we are highly committed to preserving life out here for future generations. We are proud to share our progress towards our ambitious goals. In summary, we're relatively pleased with our start to the year. Customer trends are in line with our expectations. The team is executing very well. We're controlling our controllables and making progress on our Life Out Here strategy. With the majority of the year remaining, we are reiterating our guidance for fiscal 2024.
And with that, I'll turn the call over to Kurt.
