Kurt Barton
Executive Vice President, Chief Financial Officer And Treasurer at Tractor Supply
Thanks, Hal, and hello to everyone on the call. Let's start with some key insights for the 4th-quarter and full-year. I'll spend the bulk of my time on our outlook for 2025. We had a solid performance given the overall conditions for the 4th-quarter. Comparable-store sales increased 0.6%, driven by strong comparable average transaction increase of 2.3%, partially offset by a comparable average ticket decrease of 1.7%. Of note, unit volumes were solid and the ticket pressure was principally from average unit retail. For the 4th-quarter, we always believe that weather trumps the holiday. Typically, the winter weather has a much greater impact to the 4th-quarter and once again, that is how this year played out. In addition, we continue to face the ongoing headwind of deflation in key product categories. We estimate that deflation had approximately 100 basis-point drag on our comp sales performance in the quarter. Most of the deflation pressure came from commodity-based products consistent with the recent trends. As we progressed through the quarter, we saw a positive impact from the early October hurricanes. While the warmer than usual temperatures in late October and November presented some challenges, December had a modest improvement in the weather and solid holiday performance, demonstrating our resilience and ability to adapt to varying conditions. Turning to the category performance for the quarter. We had strong comps in our seasonal department as well as truck tool and hardware, with both performing better than chain average. Our consumable usable and edible products performed in-line with chain average. Notably, we had mid-single-digit unit growth as we continue to believe we are gaining share in these categories overall. The strength of our unit growth in Q was offset by ongoing deflation. No doubt, the warm weather in November and to a lesser extent December weighed on our winter seasonal business. Overall, our spring and summer seasonal categories drove positive comp sales with zero turn and front engine mowers, both up double-digits. This is indicative of the unseasonably warm weather we had in the quarter. Cold weather-related categories such as insulated outerwear and heating modestly underperformed chain average due to the warm weather conditions. Big-ticket performance continued to outperform in the low-single digits. We experienced strength in hurricane response categories like generators. Additionally, grilling, mowers, trailers and truck toolboxes all performed well. 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 for the holiday season. Moving on to gross margin. Gross margin decreased 9 basis-points to 35.2% from the prior year's 4th-quarter. It is worth calling out that we were lapping our most difficult gross margin comparison of the quarter with 129 basis-points of expansion in the prior year. Our performance was relatively in-line with our expectations. As a percent of net sales, SG&A expenses, including depreciation and amortization increased 60 basis-points year-over-year to 26.8%. This increase was primarily attributable to our planned growth investments, including higher depreciation and the onboarding of a new distribution center and modest deleverage of our fixed costs given the level of comparable-store sales growth. These factors were partially offset by the team's a disciplined focus on productivity and our ongoing emphasis on cost-control. We did have a modest benefit from our ongoing sale-leaseback strategy. This quarter, we had a similar number of existing store-sales as the prior year with a slightly higher average gain per store. Operating margin declined 69 basis-points for the quarter to 8.4%. Now let's move to our outlook for 2025. As I have previously shared, navigating economic cycles is in our DNA. We have a long track-record of successfully managing through diverse market conditions. The needs-based nature of our business, combined with our deep understanding of these dynamics allows us to proactively adapt to the market conditions. The same can be said about tariffs. As Hal commented in his opening remarks, there are certainly a number of unknowns at this time on this important topic. This is a team that has been cycle tested with lessons learned from the prior administration. For instance, we have continued to diversify our country of origin for imports. We have been scenario planning and are prepared to address as any proposed actions take effect. It is important to remember that this is a topic that affects all of retail. We are differentiated as we only have about 12% or so of our sales that are direct imports and have a large queue business that is domestically sourced. Given the fluid nature of the discussion on tariffs and the number of unknowns, our guidance does not assume any changes in tariffs at this time. We successfully managed through tariffs in prior cycles, we will remain flexible and nimble to adapt to the changing environment. For fiscal 2025, we are forecasting net sales growth of 5% to 7% to $15.6 billion to $15.9 billion. Approximately 4 points of this growth is driven by new stores and Ally Vet. With a purchase price of $135 million, we anticipate Ally Vet adding more than $100 million to our net sales and accretive to earnings. Comparable-store sales are anticipated to increase 1% to 3%. We expect modest gross margin expansion of about 20 to 40 basis-points from continued supply-chain efficiencies, benefits from effective cost and price management and our exclusive brands and retail media initiatives. We anticipate a relatively stable and consistent overall transportation market. We forecast 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 about 10% with a higher-growth rate in the first-half as compared to the second-half of the year. While this is an improvement from recent underlying growth rates. As our investments in our strategic growth initiatives moderate, we will deleverage as DNA grows faster than sales. Second, we are investing in our Life Out Here 2030 strategic initiatives. In order to launch our direct sales and Final mile initiatives, we are planning a net investment of about 15 to 20 basis-points of operating margin into these exciting opportunities for growth. In 2025, we will continue our planned strategic sale-leaseback program to sell some of our existing owned stores. As we recently indicated at our Investment Community Day, we expect to sell an incremental two to four existing stores to fund the step-up in new stores from 80 to 90 in 2025. We anticipate these sales will occur across the year with a similar EPS contribution as in 2024 in total. For the year, we forecast an operating margin of 9.6% to 10%, centering around our 2024 performance. We are forecasting interest expense of approximately $65 million to $70 million. We plan to maintain a healthy leverage ratio of a little over two times. We expect our effective tax-rate to be in the range of 22.2% to 22.5%. Diluted EPS is forecast in a range of $2.10 to $2.22. Net capital expenditures are forecast to be $650 million to $725 million or about 4% to 4.5% of sales. This net amount reflects the anticipated proceeds from the sale of existing and newly developed tractor supply stores. Gross capital expenditures are forecast to be around $1 billion. Our capital plans reflect a ramp-in our new-store openings to approximately 90 tractor supply stores, we anticipate opening about 10 stores this year. Our new-store pipeline remains exceptionally strong, continuing to exceed historical averages in both sales and profitability. We expect our store opening cadence to be in-line with 2024. As we announced this week, we anticipate starting construction of our 11th distribution center in Idaho later this year with operations commencing in late 2026 or early 2027. This is an exciting expansion of our DC network that will allow us to more effectively service our existing stores and new-store growth opportunities in the Pacific Northwest. We remain committed to returning cash to shareholders through the combination of a growing dividend and share repurchases. For 2025, we anticipate share repurchases in a range of $525 million to $600 million, which is estimated to have a benefit of a net reduction in weighted-average shares outstanding of approximately 1% to 2%. Now, I'd like to walk-through a few items to consider for the calendarization of our expectations. As always, we believe the best way to look at our results is in haves 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 2025 guidance. We anticipate that comp sales will be modestly stronger in the second-half of the year as our compares ease and the headwind from deflation continues to moderate. We are planning for positive comp transactions for the year, along with flat to slightly positive average ticket. We anticipate that deflation will be a modest headwind in the first-half of the year. We believe we are nearing the trough now having successfully managed through the deflation of 2023 and 2024. As to earnings, we expect our EPS growth to be relatively consistent between the first-half and second-half of the year. As we see it today, our forecast calls for the first-half of the year to have marginally better operating margin performance than the second-half as we begin to cycle recent transportation efficiencies. Specific to the first-quarter, we have had a solid start to the year given the recent cold-weather trends. As a reminder, January last year was also very cold with strong comps. We are seeing good momentum as we start the first-quarter, recognizing we have a lot of the quarter ahead of us. Overall, we are anticipating positive comp sales for the first-quarter. Our first-quarter diluted EPS is anticipated to be relatively consistent with the prior year as our positive sales growth is somewhat offset by our investments in the business. We are planning for continued gross margin expansion to be offset by incremental investments to launch our strategic initiatives and the operational costs for our new Arkansas distribution center, which opened in mid-2024. As a consequence, operating margin is anticipated to be flat to slightly below prior year. 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 2025 as we self-fund our Life Out Here 2030 initiatives. We are committed to continuously striving for stronger results. With that, I will turn the call-back over to Hal.
