Hal Lawton
President and CEO at Tractor Supply
Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. My sincere thanks and appreciation go out to my fellow 50,000 Tractor Supply team members. I know we all have been watching the devastation over the last few weeks that's been reached by Hurricane Helene and Milton with great concern and heartbreak. Hurricane Helene struck particularly close to the heart for me, given my roots in East Tennessee. Tractor Supply has taken a multitude of actions, big and small to take care of our team members, customers and communities during this difficult time. I'd like to give a special thank you to all our team members who rallied to help the communities impacted by this storm season. We will continue to be there for our team members, customers from our communities in the days and months ahead for the recovery process. I would also like to thank our many vendor partners who are stepping up in the recovery effort.
As it relates to a sales benefit from our response, we had no material benefit in Q3, but have seen an impact in Q4 and additionally have been somewhat encouraged by the recent change of seasons. This morning, we shared some exciting news that we've entered into a definitive agreement to acquire Allivet, a leading online pet pharmacy. This is a company we know very well as they've been excellent partners to us in fulfilling our pet subscription business for the last couple of years. This is a great opportunity for us to bring another benefit to our 37 million Neighbor's Club members. Allivet offers a convenient and cost-effective way to get medications and specialty items for their pets and livestock. The addition of Allivet allows us to expand our total addressable market by about $15 billion. Allivet is a best-in-class platform with an excellent management team and a strong financial profile. This is a great example of a strategic tuck-in acquisition. We anticipate that Allivet will be accretive to earnings in 2025, and we look forward to welcoming the Allivet team to Tractor Supply. We are planning to host an Investment Community Day in New York City on the afternoon of Thursday, December 5. At that time, we look forward to providing more details on our Life Out Here strategy for the second half of the decade, including our plans to leverage Allivet online and in stores.
So now let's shift to the quarter. For the third quarter, the macro retail environment was in line with our expectations and our customer remained resilient. While the overall economy remained strong as evidenced by a 3% Q2 GDP, overall retail sales continued to moderately underperform. The primary driver of this underperformance is the continued shift of consumer spend to services. As a consequence, we estimate that retail sales growth was nearly flat in our third quarter. It is our estimate that the Farm & Ranch channel was modestly negative in the quarter and that we continue to be a share gainer. I would describe the sentiment of our customer as relatively stable as supported by the recent jobs report and the current unemployment rate of 4.1%. Consistent with prior quarters, our consumer continues to be judicious with their spending focused on innovation, newness and needs-based products. Year-to-date through the third quarter, the macro retail environment is running in-line with the subdued expectations that we had as we entered the year. Also, as expected, our team has managed our business exceptionally well. Correspondingly, our sales and profitability to continue to run in the range of our beginning guidance and have allowed us to consistently raise the lower end of our outlook.
Let's turn to some highlights of our performance for the quarter. We grew net sales by 1.6% with comparable store sales down a slight 0.2%. Diluted EPS was $2.24. Our comparable store sales performance was driven by transaction growth of 0.3%, offset by average ticket decline of 0.5%. Emergency response, as mentioned earlier, had no material impact on Q3 comp sales. As we shared on our last call, we anticipated that the quarter would be in line with our full-year guidance. As we move through the quarter, many of the same trends from the first half of the year continued to play out. Notably, our customer engagement remains strong. The investments we've made in our Neighbor's Club, our world-class loyalty program are a competitive advantage for us as we continue to see solid growth in customer counts and retention. Our Neighbor's Club comp sales continue to outpace our overall sales growth. At the same time, we reached an all-time high on our sales penetration and a record membership of more than 37 million members. Our Neighbor's Club retention rate remains remarkably consistent as our best customers continue to shop us more frequently and remain extremely loyal.
Our Hometown Heroes program has gained traction with our customers as our store team members have rallied around this unique benefit as an opportunity to engage with veterans and first responders in their local communities. Additionally, our new customer data platform has gone live for all stores and digital platforms, which will allow for greater data integrity, a 360-degree view of our customer and deeper personalization. Overall, our Neighbor's Club offerings continue to drive meaningful wins with our members.
At Tractor Supply, we continue to invest in customer service as we believe is it a differentiator for us. Our customers come to us for trusted advice. Our commitment to excellence and service and investments in training, tools and technology are being recognized by our customers. Our scores continue to run at all-time highs with improvements year-over-year every month for 40 consecutive months.
Turning to our category performance. Strong positive comps in big-ticket items continued for the third quarter, notably in zero turn and front engine riding lawnmowers as well as recreational vehicles. This year, our team did a tremendous job bringing newness and innovation with attractive pricing to these categories and our customers have responded positively to the new product lineup and our investment in inventory. As we experienced last quarter, we anticipated our consumable, usable and edible products would run modestly below the chain average in the third quarter as deflation weighed on our average unit retail. The needs-based demand-driven nature of our product categories continues to drive unit velocity in this segment of our business.
Specifically in pet food, industry data suggests the category was slightly positive in Q3, consistent with trends through the first part of the year as the category disinflates and pet ownership trends remain soft. Our business in this category, while moderating from historical trends, continues to be a share winner in both households and dollars, although this is a small number math at this point. A couple of data points on share. Tractor Supply was two times the category growth rate in Q3 and nearly six times that of the grocery channel. Again, pointing back that this is small number math relative to the previously higher-growth rates that this category has seen in the last few years. In the quarter, in the pet business, we invested in in-stock inventory rates, maintained our emphasis on EDLP, leveraged our customer service to drive basket building and focused our marketing on the newness and innovation we've added to our lineup. In our most recent all-store meeting, we invested in training for our nearly 45,000 store team members on selling techniques for pet food and driving treat attachments. We also had a very successful pet appreciation days where we marketed newly introduced brands like ACANA and Real Mesa and our exclusive brands such as Retriever, 4health and MuttNation by Miranda Lambert.
In Equine, livestock and poultry feed, we continue to gain market share. While average unit retails are down mid to high single-digits in these categories, we had unit or pound growth across all species. And as large animal counts continue to be pressured, we are certainly a share winner with our strong unit performance.
Much like the first half of the year, categories that performed below our comp sales growth were in our discretionary businesses such as clothing, footwear and outdoor living as well as in hardlines products such as ag fencing and pet kennels. Additionally, seasonal businesses such as heating, heating fuel and insulated outerwear were negative. Our customer continues to respond to newness and innovation. A great example is the strong start to our Halloween decor, which included a differentiated and expanded assortment such as the six-foot rooster skeleton that went viral. Another great example is in wildlife supplies, we're a destination for Deer Corn and have expanded this year into trail cameras and feeders.
Our digital sales continue to outperform with double-digit growth. The team has made substantial improvements in search and checkout. We continue to accelerate our digital sales with platforms that set the standard for our customers and rival best-in-class retail experiences.
We opened 16 new tractor supply stores in the quarter, bringing our year-to-date total to 54. Our new-store productivity continues to perform very well. Our pipeline for '25 and into '26 remains very robust with significant runway for low-risk, value-creating organic growth ahead of us.
As we exited the third quarter, we've achieved some significant milestones in our Life Out Here strategy. We now have 45% of our chain in our Project Fusion layout and more than 550 garden centers. These are capital investments that provide a multi-year runway for growth and extend the terminal value of our stores. They help us to be more relevant to both our core and new customers, allowing us to garner a greater share of their spending and be the dependable supplier for their lifestyle. I commend the team on these investments and results given the scope and scale of these initiatives. It is hard to identify another retailer that has made this substantial investment in their store base in such a short period of time.
We've also made major investments in our supply chain. Over the last four years, the team has added 2 million square feet to our DC capacity with the seamless opening of two new distribution centers. These new DCs have allowed us to service our existing store base, while providing flexibility for future volume and new store growth. The addition of 10 mixing centers, bringing our total to 16 has improved our service levels to our stores. A new import distribution center has also allowed for greater flexibility to flow our seasonal goods. As a result, we have had a 20% structural improvement in our STEM models and corresponding cost-savings. Our DC productivity has also reached strong levels.
In conclusion, the team is performing admirably short-term and long-term. True Tractor's life style, we are efficiently managing the elements within our control and advancing our Life Out Here strategy. As we enter the fourth quarter, we are raising the low end of our guidance for the fiscal '24 sales and earnings to reflect our performance year-to-date and our outlook for the fourth quarter of the year. The fourth quarter has started out well as we benefited from emergency response sales for Hurricane Helene and Milton, both of which were fourth quarter events for us. This sales benefit is reflected in our guidance for the year. As we plan for the fourth quarter, we continue to anticipate that our customers remain prudent with their spending as is typical in an election year. We are capitalizing on our strengths and enhancing our competitive edge in the market with the support of our team members, their strong connections with our customers and our successful strategic initiatives, we continue to outpace our competitors.
Now, I'll turn the call over to Kurt to provide more color on our performance and outlook.
