Tractor Supply Stock price
Compare with Peer Group
📊 Peer Group
📈 What is it?
The peer group consists of the companies with the most similar business model. They serve as a benchmark for putting a stock into context.
🧮 How is it selected?
Based on similarity of business model, meaning companies from the same industry with comparable products and a similar customer base. That's the only way to compare apples to apples.
🏛️ Why does it matter?
Whether a stock is cheap or expensive is best judged by comparison. A P/E of 18 or an EV/FCF of 20 can look cheap or expensive depending on the yardstick. The peer group gives you the most accurate one: companies with a similar business model that operate under the same conditions.
🎯 What does it mean for investors?
When a metric sits below the peer average, the stock is valued more cheaply relative to its competitors, and above the average more expensively. A discount to the peer group can be an opportunity, but it can also have a reason (for example lower growth). The comparison is a starting point, not a verdict.
AI Insights on Tractor Supply
Insights
Invest better with AI
StocksGuide Unlimited – full access to AI analyses
👉 More detailed insights
👉 Exclusive perspectives on opportunities & risks
👉 Clear answers to your questions
Invest better with AI
StocksGuide Unlimited – full access to AI analyses
👉 More detailed insights
👉 Exclusive perspectives on opportunities & risks
👉 Clear answers to your questions
Invest better with AI
StocksGuide Unlimited – full access to AI analyses
👉 More detailed insights
👉 Exclusive perspectives on opportunities & risks
👉 Clear answers to your questions
Invest better with AI
StocksGuide Unlimited – full access to AI analyses
👉 More detailed insights
👉 Exclusive perspectives on opportunities & risks
👉 Clear answers to your questions
Is Tractor Supply a Top Scorer Stock based on the Dividend, High-Growth-Investing or Leverman Strategy?
As a Free StocksGuide user, you can view scores for all 9,127 stocks worldwide.
StocksGuide Premium
StocksGuide Unlimited
Key metrics
📘 Market Capitalization
📈 What is it?
Market capitalization shows how much a company is currently worth on the stock market.
🧮 How is it calculated?
🏛️ Why is it important?
It helps classify companies by size (Large, Mid, Small Cap) and indicates their market presence and relative stability.
🧮 Calculation
🎯 What does this mean for investors?
- Large-cap companies tend to be more stable, often pay dividends, but may grow more slowly.
- Smaller firms may offer higher growth potential but come with more volatility.
- Market capitalization is a useful indicator of company size — but not a measure of whether a stock is undervalued or overvalued.
📘 Enterprise Value (EV)
📈 What is it?
Enterprise Value represents the total cost to acquire a company — including its debt and excluding its cash reserves.
🧮 How is it calculated?
(= Market Cap + Net Debt)
🏛️ Why is it important?
EV gives a more complete picture of a company's value than market cap alone and is used in key valuation ratios like EV/FCF or EV/Sales.
🧮 Calculation
🎯 What does this mean for investors?
- Enterprise Value shows the true cost of buying a company, including all financial obligations.
- It is more accurate than just looking at market cap, especially when comparing companies with different levels of debt or cash.
- Professional investors prefer EV-based multiples because they better reflect the company’s full financial footprint.
📘 Net Debt
📈 What is it?
Net Debt shows how much debt remains after subtracting a company’s available cash reserves.
🧮 How is it calculated?
🏛️ Why is it important?
It indicates how dependent a company is on borrowed money and how easily it can service its debt in the short term.
🧮 Calculation
🎯 What does this mean for investors?
- Low or negative net debt signals financial strength and flexibility.
- Companies with strong cash positions are better positioned in crises.
- High net debt increases financial risk — especially in environments with rising interest rates or economic downturns.
📘 Cash
📈 What is it?
Cash represents all liquid assets a company can access immediately — including cash, bank deposits, and short-term investments.
🧮 How is it calculated?
🏛️ Why is it important?
It reflects a company’s financial flexibility and resilience — enabling investments, buybacks, or buffer in downturns.
🧮 Calculation
🎯 What does this mean for investors?
- A strong cash position means greater room for maneuver and crisis resistance.
- Cash-rich companies can invest, pay down debt, or repurchase shares.
- But excess idle cash might indicate a lack of growth opportunities.
📘 Shares Outstanding
📈 What is it?
Shares outstanding represent the total number of a company’s shares currently held by investors — excluding treasury stock.
🧮 How is it calculated?
🏛️ Why is it important?
It’s the basis for key metrics like Earnings Per Share (EPS), Market Capitalization, or the Price/Earnings ratio (P/E).
🧮 Calculation
🎯 What does this mean for investors?
- Fewer shares in circulation typically increase earnings per share — making each share more valuable.
- Share buybacks reduce the number of shares and boost per-share metrics.
- Issuing new shares does the opposite — diluting shareholder value and lowering per-share figures.
📘 Price-to-Earnings Ratio (P/E)
📈 What is it?
The P/E ratio shows how many times a company's earnings per share are reflected in its current share price — in other words, how "expensive" the stock appears relative to its profits.
🧮 How is it calculated?
🏛️ Why is it important?
The P/E ratio is one of the most widely used valuation metrics. It helps investors assess whether a stock appears cheap or expensive compared to its earnings power.
🧮 Calculation
📊 P/E (TTM) = Based on earnings from the last 12 months (Trailing Twelve Months):🎯 What does this mean for investors?
- A low P/E may indicate undervaluation — or signal underlying issues.
- A high P/E may reflect strong growth expectations — or an overvalued stock.
📘 Price-to-Sales Ratio (P/S)
📈 What is it?
The P/S ratio shows how much investors are paying for $1 of the company’s revenue – regardless of profitability.
🧮 How is it calculated?
🏛️ Why is it important?
P/S is especially useful for evaluating growth companies or businesses not yet profitable. It reflects how the market values the company’s sales.
🧮 Calculation
Market Cap = $17.11b | Revenue (TTM) = $15.75b
Market Cap = $17.11b | Estimated Revenue = $16.28b
🎯 What does this mean for investors?
- A low P/S may indicate undervaluation — or low profitability.
- A high P/S can reflect strong growth expectations — or excessive optimism.
- Especially helpful when evaluating companies where profits are low, volatile, or negative.
📘 Enterprise Value to Sales (EV/Sales)
📈 What is it?
EV/Sales shows how much investors are paying for $1 of revenue — considering not just equity, but also debt and cash. It’s the capital structure–adjusted version of the P/S ratio.
🧮 How is it calculated?
🏛️ Why is it important?
It’s ideal for comparing companies with different levels of debt. It reflects a company's true cost relative to its revenue.
🧮 Calculation
Enterprise Value = $19.09b | Revenue (TTM) = $15.75b
Enterprise Value = $19.09b | Forward Revenue = $16.28b
🎯 What does this mean for investors?
- EV/Sales allows for capital structure–neutral company comparisons.
- A lower ratio may indicate undervaluation; a higher one may signal strong growth expectations or overvaluation.
- Especially helpful when evaluating high-growth companies with low or negative earnings.
📘 Enterprise Value to Free Cash Flow (EV/FCF)
📈 What is it?
EV/FCF shows how many years it would take for a company to "pay back" its enterprise value using its free cash flow.
🧮 How is it calculated?
🏛️ Why is it important?
It focuses on real cash generation, ignoring accounting noise — ideal for assessing profitability and value based on liquidity, not earnings.
🧮 Calculation
🎯 What does this mean for investors?
- A low EV/FCF may signal undervaluation and strong cash generation.
- A high EV/FCF might reflect weak recent cash flow or aggressive growth expectations.
- Best suited for stable, mature businesses with predictable free cash flows.
📘 Price-to-Book Ratio (P/B)
📈 What is it?
The P/B ratio compares a company’s market value to its book value — showing how much investors are paying for each dollar of net assets.
🧮 How is it calculated?
🏛️ Why is it important?
P/B is commonly used for asset-heavy industries like banks or industrials. It helps assess whether a stock is trading above or below its net asset value.
🧮 Calculation
🎯 What does this mean for investors?
- A P/B below 1 may signal undervaluation — or weak profitability.
- A P/B above 1 implies the market expects future value creation (e.g., brand, IP, growth).
- Best used for companies with tangible assets and strong balance sheets.
📘 Dividend per Share (DPS)
📈 What is it?
Dividend per Share shows how much cash a company pays out to shareholders for each share they own – usually on an annual or quarterly basis.
🧮 How is it calculated?
🏛️ Why is it important?
DPS is the absolute value of the payout per share – crucial for income-focused investors and dividend strategies.
🧮 Calculation
🎯 What does this mean for investors?
- A stable or growing DPS often signals a strong, shareholder-friendly business.
- DPS alone doesn’t tell you how attractive the payout is – the stock price also matters (→ see Dividend Yield).
- Long-term dividend growth is often a hallmark of high-quality companies – like the dividend aristocrats.
📘 Dividend Yield
📈 What is it?
Dividend yield shows how large a company’s dividend is in relation to its current share price.
🧮 How is it calculated?
🏛️ Why is it important?
It allows investors to compare dividend payouts across stocks, regardless of price or payout size.
🧮 Calculation
🎯 What does this mean for investors?
- A stable yield can reflect reliable distributions.
- Comparing 1Y and 5Y yield shows whether dividend growth keeps pace with stock price appreciation.
- A low yield isn’t always negative – it can signal strong past performance or growth focus.
📘 Dividend Growth
📈 What is it?
Dividend growth shows how much a company has increased its dividend per share over time.
🧮 How is it calculated?
5Y: Compound Annual Growth Rate (CAGR)
🏛️ Why is it important?
Consistently rising dividends are often a sign of financial strength and shareholder orientation – especially relevant for long-term investors.
🧮 Calculation
🎯 What does this mean for investors?
- Stable dividend growth is a sign of sustainable earning power.
- High dividend growth can significantly boost your total return:
- If a company pays $1 in dividends and increases it by 15% annually over 5 years, you’ll receive $2 per share in year 5 – twice as much as at the start!
📘 Payout Ratio
📈 What is it?
The payout ratio shows what percentage of a company’s earnings (per share) is distributed to shareholders as dividends.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess whether the dividend is sustainable – especially in relation to the company’s profitability.
🧮 Calculation
🎯 What does this mean for investors?
- A low payout ratio means the company retains more earnings for reinvestment – typical for growth companies.
- A moderate payout (e.g. 25–50%) indicates a healthy balance between returns and reinvestment.
- High payout ratios may seem attractive but can carry risk if earnings decline.
📘 Consecutive Dividend Increases
📈 What is it?
This metric shows how many consecutive years a company has raised its dividend per share – without any cuts or pauses.
🧮 How is it calculated?
(Special dividends are not considered.)
🏛️ Why is it important?
A long track record of increases reflects financial strength, consistency, and shareholder commitment.
🎯 What does this mean for investors?
- A long dividend increase streak builds confidence – especially in volatile markets.
- Such companies are seen as reliable and income-friendly investments.
- The longer the streak, the stronger the company’s dividend discipline.
📘 Revenue
📈 What is it?
Revenue shows how much a company earns in total from selling its products and services – the gross income before any costs are deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Revenue is one of the key figures to assess a company’s size, market position, and growth potential.
🧮 Calculation
🎯 What does this mean for investors?
- Growing revenue indicates rising demand and can be an early signal of future earnings growth.
- Comparing actual and expected revenue reveals trends in the market environment and analyst sentiment.
- Note: Strong revenue alone isn’t enough – margins and profitability matter just as much.
📘 EBITDA
📈 What is it?
EBITDA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization.” It reflects a company’s operating profit before the effects of financing, taxes, and accounting depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
EBITDA is widely used to evaluate a company’s operating performance – especially across capital-intensive sectors or international comparisons.
🧮 Calculation
🎯 What does this mean for investors?
- A high or growing EBITDA indicates strong operational profitability – independent of taxes, interest, or accounting methods.
- It’s especially useful for comparing companies across sectors or geographies.
- Important: EBITDA is not a net income figure – it excludes key costs like depreciation and interest.
📘 EBIT
📈 What is it?
EBIT stands for “Earnings Before Interest and Taxes.” It reflects a company’s operating profit after depreciation, but before interest and tax expenses.
🧮 How is it calculated?
🏛️ Why is it important?
EBIT is a core profitability metric that shows how well the company performs in its main business operations – independent of capital structure and tax environment.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT indicates strong profitability from the company’s core business – before financial and tax effects.
- It allows better comparison between companies with different debt levels or tax structures.
- Compared to EBITDA, EBIT already accounts for depreciation and reflects capital intensity more clearly.
📘 Net Income
📈 What is it?
Net income is the company’s total profit – the amount left after all expenses, taxes, interest, and depreciation have been deducted.
🧮 How is it calculated?
🏛️ Why is it important?
Net income is the most comprehensive measure of a company’s profitability – showing how much actual profit remains after all business and financing costs.
🧮 Calculation
🎯 What does this mean for investors?
- Growing net income indicates that the company is managing all of its costs efficiently.
- It directly influences valuation metrics like P/E ratio and the company’s dividend capacity.
- Over time, net income trends reveal how resilient and profitable the business model really is.
📘 Free Cash Flow (FCF)
📈 What is it?
Free Cash Flow shows how much actual cash remains after a company covers its operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
FCF reflects a company’s real financial strength – regardless of accounting profits. It shows how much flexibility a company has for dividends, share buybacks, or debt reduction.
🧮 Calculation
🎯 What does this mean for investors?
- High free cash flow means the company generates real, usable cash – independent of reported net income.
- It’s often the most reliable base for sustainable dividends and buybacks.
- Declining FCF can be an early warning sign – even when profits appear stable.
📘 Revenue Growth
📈 What is it?
Revenue growth shows how much a company’s sales have changed compared to the previous year – both on a trailing basis (TTM) and based on forward projections.
🧮 How is it calculated?
Forward = (Expected revenue ÷ Revenue in prior year − 1) × 100
Forward growth is based on analyst estimates for the current fiscal year.
🏛️ Why is it important?
Rising revenue signals growing demand, business expansion, and market share gains – especially important for growth-oriented companies.
🧮 Calculation
🎯 What does this mean for investors?
- Growth is the engine of long-term value creation – especially in tech and growth sectors.
- What matters is not just current growth, but its sustainability.
- Forward projections reflect whether analysts expect continued momentum – or a slowdown.
📘 EBITDA Growth
📈 What is it?
EBITDA growth shows how much a company’s operating profit (before interest, taxes, depreciation, and amortization) has increased or decreased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBITDA ÷ EBITDA from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
Growing EBITDA indicates improving operational profitability – regardless of financing or accounting effects.
🧮 Calculation
🎯 What does this mean for investors?
- Strong EBITDA growth signals operational efficiency and scalability – especially during growth phases.
- EBITDA growth can be an early indicator of margin and earnings expansion – but should be assessed alongside revenue and EBIT.
📘 EBIT Growth
📈 What is it?
EBIT growth shows how much a company’s operating profit (after depreciation, but before interest and taxes) has increased compared to the previous year.
🧮 How is it calculated?
Forward = (Expected EBIT ÷ EBIT from prior year − 1) × 100
The forward estimate is based on analyst projections for the current fiscal year.
🏛️ Why is it important?
EBIT growth is a direct indicator of a company’s business performance – taking into account capital intensity through depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- Rising EBIT signals improving operating profitability – even after accounting for depreciation.
- It’s especially important for evaluating companies with significant capital expenditures.
- Combined with revenue and EBITDA growth, EBIT growth provides a well-rounded view of operational progress.
📘 Net Income Growth
📈 What is it?
Net income growth shows how much a company’s bottom-line profit has increased or decreased compared to the previous year – both on a trailing basis (TTM) and based on analyst projections.
🧮 How is it calculated?
Forward = (Expected net income ÷ Net income from prior year − 1) × 100
The forward estimate reflects analysts’ expectations for the current fiscal year.
🏛️ Why is it important?
Net income is the ultimate measure of profitability. Growing net income signals stronger efficiency, cost control, and sustainable earnings power.
🧮 Calculation
🎯 What does this mean for investors?
- Stronger net income boosts valuation, dividend potential, and investor confidence.
- If profits stall while revenue grows, it may signal margin pressure.
📘 Free Cash Flow Growth
📈 What is it?
Free cash flow (FCF) growth shows how a company’s available cash – after covering operating expenses and capital expenditures – has changed compared to the previous year.
🧮 How is it calculated?
🏛️ Why is it important?
Free cash flow reflects real financial strength. Growing FCF indicates more flexibility for dividends, share buybacks, and reinvestment.
🧮 Calculation
🎯 What does this mean for investors?
- Declining FCF may point to rising investments, increasing costs, or weaker operating performance.
- Especially for dividend investors, FCF growth is critical – since dividends are paid from actual available cash.
- A negative trend isn't always bad, but it deserves closer attention.
📘 Gross Margin
📈 What is it?
Gross margin shows how much of a company’s revenue remains after deducting the direct costs of goods sold (like materials and production). It represents the company’s “raw profit” before fixed costs, taxes, and interest.
🧮 How is it calculated?
Or simply: Gross Margin = Gross Profit ÷ Revenue × 100
🏛️ Why is it important?
Gross margin indicates how efficiently a company can produce or procure what it sells. It is a key measure of product-level profitability and pricing power.
🧮 Calculation
🎯 What does this mean for investors?
- A high gross margin suggests strong pricing power and efficient production.
- Falling margins may signal rising input costs or competitive pressure.
- Compared to peers, gross margin offers insights into the quality of a business model.
📘 EBITDA Margin
📈 What is it?
The EBITDA margin shows how much of a company’s revenue remains as operating profit before interest, taxes, depreciation, and amortization.It reflects operating efficiency without being distorted by financing or accounting factors.
🧮 How is it calculated?
🏛️ Why is it important?
The EBITDA margin reveals how much operating income a company generates per dollar of revenue – independent of capital structure and tax effects.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBITDA margin reflects strong core profitability – before accounting distortions.
- It allows for effective comparisons across companies and sectors.
- A stable or growing margin signals efficient cost control and business scalability.
📘 EBIT Margin
📈 What is it?
The EBIT margin shows what percentage of revenue remains as operating profit after depreciation but before interest and taxes.
🧮 How is it calculated?
🏛️ Why is it important?
The EBIT margin reflects a company’s core profitability while accounting for capital intensity (e.g. machinery, infrastructure). It’s especially useful for comparing businesses with different levels of depreciation.
🧮 Calculation
🎯 What does this mean for investors?
- A high EBIT margin shows that the company remains efficient even after factoring in depreciation.
- It’s especially relevant for capital-intensive industries.
- Stable or rising EBIT margins over time are a strong indicator of pricing power and business quality.
📘 Net margin
📈 What is it?
Net margin shows how much of a company’s revenue remains as bottom-line profit after deducting all costs, interest, taxes, and depreciation.
🧮 How is it calculated?
🏛️ Why is it important?
Net margin reflects a company’s overall efficiency – across operations, financing, and taxation. It shows how much actual profit is generated from each dollar of revenue.
🧮 Calculation
🎯 What does this mean for investors?
- A high net margin means the company is not only strong operationally but also manages financing and taxes efficiently.
- Peer comparisons reveal business quality and competitiveness.
- Declining margins despite revenue growth can be a red flag for rising costs or inefficiencies.
📘 Free cash flow margin
📈 What is it?
The free cash flow (FCF) margin shows how much of a company’s revenue remains as actual free cash after covering all operating expenses and capital expenditures.
🧮 How is it calculated?
🏛️ Why is it important?
This margin reflects the true liquidity generated by the business – independent of accounting rules or depreciation. It’s especially relevant for dividends, buybacks, and reinvestment decisions.
🧮 Calculation
🎯 What does this mean for investors?
- A high FCF margin means a company consistently generates strong cash flow.
- It’s a positive signal for financial stability and shareholder returns.
- The long-term trend is key – a declining margin may indicate rising investments or weakening operating efficiency.
📘 Equity Ratio
📈 What is it?
The equity ratio indicates what portion of a company’s total assets is financed by shareholders’ equity – in other words, how much it relies on its own capital.
🧮 How is it calculated?
🏛️ Why is it important?
A high equity ratio reflects financial strength and stability, especially during downturns. It’s a key indicator of a company’s solvency and long-term risk profile.
🧮 Calculation
🎯 What does this mean for investors?
- Companies with high equity ratios are generally more resilient and less dependent on external debt.
- Low equity ratios can signal higher risk or aggressive financial strategies.
- Important: Always assess the equity ratio in combination with the return on equity (ROE). This shows not just how stable the company is – but also how efficiently it uses shareholder capital.
📘 Return on Equity (ROE)
📈 What is it?
Return on equity (ROE) shows how efficiently a company uses its shareholders’ equity to generate profit. In other words: how much net income is earned per dollar of equity.
🧮 How is it calculated?
🏛️ Why is it important?
ROE is a core profitability metric. It helps investors understand whether a company delivers attractive returns on the capital provided by its shareholders.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROE indicates that the company is using its capital efficiently and profitably.
- It’s especially meaningful for capital-intensive businesses or firms with high equity bases.
- Important: A very high ROE can also result from high debt levels – always interpret it alongside the equity ratio to assess financial health.
📘 Return on Capital Employed (ROCE)
📈 What is it?
ROCE measures how efficiently a company generates profits from its total capital – including both equity and interest-bearing debt.
🧮 How is it calculated?
It evaluates the return on all capital employed, regardless of how it’s financed.
🏛️ Why is it important?
ROCE is ideal for comparing companies with different financing structures. It shows how well management uses capital to create value for both shareholders and creditors.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROCE means the company uses its capital efficiently – regardless of whether it's funded by debt or equity.
- The higher the ROCE compared to peers, the more value the company creates with its invested capital.
- Especially relevant for capital-intensive sectors like industrials, energy, or infrastructure.
📘 Return on Invested Capital (ROIC)
📈 What is it?
ROIC measures how efficiently a company generates returns from the capital invested in its core operations – regardless of whether the capital comes from equity or debt.
🧮 How is it calculated?
- NOPAT = Net Operating Profit After Taxes
- Invested Capital = Operating assets minus non-interest-bearing liabilities
🏛️ Why is it important?
ROIC is one of the most accurate indicators of capital efficiency. Unlike return on equity, it is not distorted by leverage and shows how much value is created for all capital providers.
🧮 Calculation
🎯 What does this mean for investors?
- A high ROIC shows how effectively a company uses the capital that is truly invested in its core operations.
- Unlike ROCE, ROIC focuses only on the capital that is actively used to run the business – and that requires a return (i.e. interest-bearing).
- Especially useful when comparing companies with large amounts of excess cash or non-interest-bearing liabilities – giving a more realistic picture of capital efficiency.
📘 Leverage Ratio (Debt-to-Equity)
📈 What is it?
The leverage ratio indicates how much a company relies on interest-bearing debt (such as loans and bonds) relative to its shareholders’ equity.
🧮 How is it calculated?
🏛️ Why is it important?
This ratio helps assess a company’s financial structure and risk profile. High leverage can enhance returns – but also increases exposure to interest rate changes and financial stress.
🧮 Calculation
🎯 What does this mean for investors?
- A low leverage ratio signals financial strength and independence.
- A higher ratio can improve returns in good times but increases risk during downturns or rising interest rate periods.
- 👉 Always interpret in the context of industry, capital intensity, and interest rate environment.
📘 Earnings per share (EPS)
📈 What is it?
Earnings per Share (EPS) shows how much profit is attributable to a single share – and is one of the most important metrics for evaluating a company's performance.
🧮 How is it calculated?
The diluted share count reflects potential new shares that could be issued through options, convertible bonds, or other rights.
🏛️ Why is it important?
EPS is the basis for many key valuation metrics like P/E ratio, PEG ratio, or payout ratio. It enables comparisons of profitability across companies, regardless of their size.
🧮 Calculation
🎯 What does this mean for investors?
- EPS captures per-share profitability and is especially useful for comparisons over time or with analyst estimates.
- Rising EPS may signal consistent growth or share buybacks.
- Important: Always use diluted EPS for more realistic valuations – especially in companies with stock-based compensation.
📘 Free cash flow per share (FCF per share)
📈 What is it?
Free Cash Flow per Share shows how much free cash flow a company generates per outstanding share – after investments, but before dividends or debt repayments.
🧮 How is it calculated?
Free cash flow is calculated as operating cash flow minus capital expenditures (CapEx).
🏛️ Why is it important?
FCF per Share reveals how much real cash is available per share – useful for dividends, buybacks, or reducing debt. Unlike net income, free cash flow is harder to manipulate and often seen as a more reliable metric.
🧮 Calculation
🎯 What does this mean for investors?
- High FCF per share signals strong financial flexibility.
- It shows how much capital the company can effectively reinvest or return to shareholders.
- Particularly relevant for dividend payers and capital-efficient businesses.
📘 Short interest
📈 What is it?
Short interest indicates how many shares of a company are currently sold short – that is, borrowed and sold by investors who expect the price to decline.
🧮 How is it calculated?
It reflects the percentage of a company’s shares that are being shorted relative to the total shares available.
🏛️ Why is it important?
Short interest serves as a sentiment indicator: A high value may signal skepticism or bearish expectations – but also increases the potential for a short squeeze if prices rise unexpectedly.
🧮 Calculation
🎯 What does this mean for investors?
- Low short interest usually indicates market confidence in the company.
- High short interest can be a warning sign – or an opportunity if sentiment shifts.
- Especially relevant in volatile markets or ahead of key earnings releases.
📘 Employees
📈 What is it?
The employee count shows how many people a company employs worldwide – offering insights into its size, structure, and business model.
🧮 How is it calculated?
🏛️ Why is it important?
It helps assess operational scale, labor intensity, and cost structure. Combined with revenue and profit, it enables key metrics like revenue per employee or productivity.
🧮 Calculation
🎯 What does this mean for investors?
- A high headcount can signal operational complexity – but also significant growth capacity.
- Revenue per employee is a key indicator of efficiency.
- Especially useful for comparing tech, industrial, or service-heavy companies.
📘 Turnover per employee
📈 What is it?
Revenue per employee indicates how much revenue a company generates on average per employee – a key measure of efficiency and productivity.
🧮 How is it calculated?
The employee count is typically taken from the most recent annual report.
🏛️ Why is it important?
This metric helps compare business models – especially between labor-intensive and technology-driven companies. A high value suggests automation, operational efficiency, or strong value creation per head.
🧮 Calculation
🎯 What does this mean for investors?
- A high revenue per employee indicates a scalable and margin-strong business model.
- A low figure may reflect labor-intensive operations or lower value-add.
- Especially helpful when comparing tech companies to industrial or service sectors.
Tractor Supply Stock Analysis
Analyst Opinions
37 Analysts have issued a Tractor Supply forecast:
Analyst Opinions
37 Analysts have issued a Tractor Supply forecast:
Tractor Supply Events
Past Events
|
SEP
9
Barclays 19th Annual Global Consumer Staples Conference
15 days ago
|
|
JUL
23
Q2 2026 Earnings Call
2 months ago
|
|
JUN
2
2026 Baird Global Consumer
4 months ago
|
|
APR
21
Q1 2026 Earnings Call
5 months ago
|
|
JAN
29
Q4 2025 Earnings Call
8 months ago
|
|
OCT
23
Q3 2025 Earnings Call
11 months ago
|
|
SEP
10
Piper Sandler 4th Annual Growth Frontiers Conference
about one year ago
|
|
SEP
3
Goldman Sachs 32nd Annual Global Retailing Conference 2025
about one year ago
|
StocksGuide Free
Tractor Supply — Barclays 19th Annual Global Consumer Staples Conference
1. Question Answer
All right. Good morning, everybody. Thanks for coming. My name is Seth Sigman. I am the U.S. hardline, broadline food retail analyst here at Barclays. My pleasure to have the management team of Tractor Supply with us today, Hal Lawton, President and CEO; Kurt Barton, EVP, CFO and Treasurer. We also have Mary Winn Pilkington, SVP, IR and Public Relations, in the audience somewhere. I don't know -- there she is. Perfect.
Interesting time for Tractor Supply, a lot we want to cover today. I guess, first for you, Hal, to kick it off, high level, Tractor Supply has discussed a number of external drivers influencing the business over the last few quarters. We'll also talk a lot about the company-specific opportunities. But if we could just level set here, maybe frame down the top-down view of the business right now. What are some of the key factors, key end market dynamics that you're seeing? And what are you most and least optimistic about as we sort of look out?
Yes. Good morning, everyone, and thanks for joining us today, and thanks, Seth, for the question, and thanks for having us here.
As Seth mentioned, kind of, if we start at the high level, Tractor Supply participates in a large market. We estimate our market to be $225 billion in size. We're the largest player in our market at around 7% to 8% market share. If you just kind of look at it over multi-decades, it's a very attractive market. So it's fragmented, significant opportunity for scale and aggregation, profitable from a tractor perspective there. And it's one where we think from a competitive perspective, we're uniquely positioned to continue to grow and expand and take share.
That said, over the last, call it, 6 months to a year, our market has been stressed. And that's kind of the implied in Seth's question, and we've been talking a bit -- a good bit about that. We do see kind of some light at the end of the rainbow here, and we're excited about as we start to lap some of these pressures kind of getting back on top of them. But I'll talk about those pressures and what we've been seeing for the last 6 to 12 months.
Our end market is $225 billion. So as I said, our total addressable market. And there's kind of 3 major end markets that I'd like to talk about today that are kind of stressed. About 40% of our TAM, our total addressable market, is kind of our core farm and ranch segment. So think about these as kind of your core hobby farmer, your core backyard enthusiast folks that are raising animals, raising pets, 3 to 5 acres of land in this kind of core farm and ranch segment with fuel prices being [indiscernible] with the ag economy being where it is, that part of our set market has been stressed for really the better part of 6 to 9 months started in Q4 of last year. If you look at Placer data, YipitData, look at that whole competitive set, it's really been a flat to negative market for the last 9 months. And that's about 40% of our market segment.
The second set of our market segment is pet. We're a large player in pet, around the fifth largest player in the pet industry. And that industry, kind of, well documented for the last couple of years has struggled on the dog population side. And you've seen pullback in consumables as a consequence of that. You've also not had a lot of new dogs entering the market. So you've had a pullback on hardlines and other early dog kind of categories. And so as a consequence of that category collectively inclusive of services has been flat to modestly positive.
And then if you look at our third end market, about 20%, that's kind of home maintenance, home improvement, property repair. That one is, as you all have been following really from the home improvement sector side, has been kind of a flat market now for 4 or 5 years. And we are seeing that kind of moderated as well. So when you take farm and ranch kind of flat to negative 1-ish, you take pet kind of flat to maybe positive 1-ish and you take home improvement kind of flattish as well. Those are kind of 80% of our $225 billion total addressable market, all kind of stressed.
Now as we look ahead, we see ourselves starting to lap on top of the farm and ranch pressure beginning in Q4. There's a lot of pundits around pet, but there does seem to be some stabilization occurring in that business. So we feel good about our end markets kind of evolving over the next 6 to 12 months. And of course, we're taking a number of actions to respond to the moment as well as to set ourselves up more strategically as we enter 2027 as well, which we can talk about, Seth.
Yes. Perfect. We'll unpack some of that. I guess the other big change this year, maybe for you, Kurt, tariff refunds, a pretty big deal across retail. You haven't actually disclosed the number necessarily, but I guess, how are you thinking about reinvesting those dollars? Some of that started to flow in Q2, I believe, also expected to hit in Q3. I guess, how do you think about deploying those dollars?
Yes. With the backdrop that -- a couple of things on the backdrop. One, I mean, there's -- it's understandable that tariff refunds is a broad transitory issue for all of retail. And you're hearing more about that through all the earnings calls, et cetera. Tractor Supply is much smaller in regards to our direct import exposure. So when tariffs began to be -- those costs began to become part of the cost structure in 2025, we've said we are about 10% or 12% of our sales is tariff related. So I think with those 2 backdrop items, the way we're managing and the way we view tariff refunds for 2026 is that this is broad. It's somewhat unique to 2026. I mean every year, it seems like of late, there's new uniqueness and tariff refunds are a bit unique.
As we said on our second quarter earnings call, we viewed in this environment at this time, the best strategic move is to reinvest our tariff refunds to drive and create value for our customer. And we did that and are doing that in 2 ways.
First and the most significant reinvestment of the tariff refunds are to offset historical record high fuel costs, diesel costs even today hitting some of the historical highs. But the combination of fuel costs being higher and then the overall transportation business, principally domestic, but both domestic and import are certainly showing with new regulations, et cetera, there's inflation in transportation costs. So the biggest inflation environment right now for our consumer is the overall supply chain cost driving inflation. We're utilizing that to offset that rather than trying in an environment that the consumers are a bit stressed to be able to try to push through cost increases or price increases, we're reinvesting it to be able to offset that.
And then to a lesser extent, secondly, we think it's a great opportunity, and we've invested on a few key core traffic-driving items where our tariff refunds may be coming in specific to certain merchandise categories. We're reinvesting that in the top most visible traffic-driving consumable items that bring the customer into Tractor Supply. It's a great opportunity for us to be -- and we use this as our unbeatable pricing on those to make sure the visibility is that Tractor Supply is driving value in an inflationary stressed environment. And so that's how we're reinvesting it.
I think the other thing that's important is we said the timing of tariff is going to be a little bit choppy. A majority of it we estimate occurred in the second quarter, but there's still some tariff refunds in the second half of the year. And so we saw an outsized benefit in Q2, but we're managing and reinvesting this for the full year. Ultimately, our guidance says with high commodity cost inflation, transportation cost increases, those typically put a lot of pressure on gross margin. Our guide for the year puts gross margin not too far off of our original plan, albeit we get there differently. And we'll be managing throughout the year, which we've said for the second half of the year, the gross margin performance will not be consistent with Q2, but kind of view it as on a full year basis.
Okay. That's helpful. A few things that I want to follow up on there. On the transportation cost side, you called out a 50 to 75 basis point impact in the second quarter which is a big number. Anything else you can tell us about what drove that increase and how you're planning for those costs through the rest of the year? And anything that you could help us with into next year?
Transportation is a bit higher portion of our cost of goods sold than most retailers. Certainly, as you understand, we move a lot of heavy bag commodity feed, big bulkier items, et cetera. So most of retail, general merchandise transportation costs may be mid-single-digit percent of sales. In softlines, it might be low single digit. Well, we're more of a high single digit. So when fuel costs increase as they have, like almost an entire dollar per gallon and as we move more of the needs-based item in an environment where consumers are focused more on the consumable needs and less on the discretionary, the combination of those 2 does actually put an impact of 50 to 75 basis points.
And last thing I'd say on transportation, it's not unique. We've seen these cycles. And it's almost every 2, 3 years, transportation may go through different cycles. We are using this unique environment to offset it, but it's not unique to us that how we manage that going forward, whether that be through cost or productivity, cost reductions from our vendors, productivity improvement, all of that, it's very much in our playbook to find different ways to offset the transportation cost increases if these types of pressures were to persist beyond 2026.
Okay. And then you mentioned pricing earlier, maybe for you, Hal. Can you talk about the recent price investments that you've made? How comfortable are you with the price gaps today versus your farm and ranch competitors? And just any other context on pricing historically like why the change now? Did you sort of pull back on that price aggression historically? Why do you need to ramp that up now?
Yes. Thanks, Seth. As Kurt mentioned, like a lot of retailers, we've been the benefactor of tariff refunds this year. We did not disclose it in our second quarter call, as you mentioned, Seth, mostly just from the sake that we were kind of first in line on earnings. And from a competitive perspective, didn't want to share too much information. But the math on our tariff refunds was north of $100 million, but south of, say, $150 million, somewhere in that range. And obviously, some of that will depend on the dollars that actually get refunded. So there's a range there. And to Kurt's point, we invested about 2/3 of that back into covering freight and incremental fuel costs, and Kurt just went through the details of that.
And then the second kind of -- the remaining 1/3 we invested into price. And I think you're seeing -- that was really -- first off, Tractor Supply always stands for low price on consumable goods, everyday low price. We price -- benchmark ourselves against our competition on our top 100 KVI SKUs, our top 1,000 KVI SKUs and then, of course, across the entirety of the store. And we typically are somewhere between 1 and 3 percentage points lower than our competition on those sorts of basket of goods.
As we all know, right now, there is a significant pressure on the consumer. And so the way you see retailers responding is leaning into their consumable and transaction driving businesses. Those of us that are fortunate enough to have consumable and transaction-driving businesses, not all of us do. We're fortunate that 40% to 45% of our business is consumables. And we are leaning into the price points on those to drive those transactions and drive that traffic. Right now, there's not a lot of kind of real growth occurring in retail. Most of the growth is just nominal growth based on average ticket. And so there's tremendous fight in retail for transactions right now. So that's why we lean into it, call it, $35 million, $40 million of our tariff dollars are going into this price investment.
As Kurt mentioned, it's a smallish subset of SKUs, call it, 50-ish SKUs but they are the most widely prevalent SKUs in our baskets and our customers' transactions. They're the ones that our customers note when they're pricing out their projects. And we've seen almost a 200-point price increase -- 200 basis point price increase in customer price perception since we launched our Unbeatable campaign. So our customers are noticing. We're seeing the transactions. We're seeing the response to the price investments, and we're very pleased.
To give you an example of the types of SKUs these are on, things like shavings. So if you're -- if you have a horse, chicken, anything -- any sort of animal outdoors and also sometimes indoors with cats. Shavings are a huge portion of your purchases in almost 15% of our baskets. So we've made price investments on those, but also some of the key consumables by category, whether it's chicken feed, dog food, equine feed, things like sweet feed, which is a universal product or even on the liquid side, things like lubricants, which are a huge transaction driver this time of year or even things like deer corn this time of year as well, but really leaning into those consumables, making those price investments, and we're very pleased with the response we're seeing from our customers.
Given that unique benefit of having the tariff refunds this year to fund some of that, how do you think about the sustainability of these price investments into next year?
Yes. Great question, Seth. First off, I'd say, if I step back really in retail for the last 6 or 7 years, we've been playing kind of these like annual challenges, right? So I think when we started this year, it was a very different setup than what we're experiencing now 8 months into the year. And I'm pleased with how we're responding to the moment. And I've also reflected ck over the last 6 or 7 years, and each of the years have had a challenge, and I'm pleased with how I'm pleased at how we responded to those as well. So certainly, we know there's a challenge ahead of us in 2027.
First thing, we're working really closely with our vendors right now on our support funds and our relationships with them to be able to offset that going into next year. We just had our vendor partnership meeting last week. We've got a new set of vendor support funds we're in the process of negotiating. We've made great progress on that. That in and of itself should help us offset the price investment we're making. And so then we're really just talking about the freight offset. And I feel more comfortable navigating the freight offset. It's something we've done historically very well. But also if freight stays elevated at this level for a year plus in time, I think the entire market will have to reconcile with that.
Yes. And so wrapping that all together, maybe for you, Kurt, what's the right way to think about the starting point for gross margin as you look into next year? Because obviously, there's a few cross currents here. You have tariff refunds rolling off. You have the price position that's going to remain elevated. You do have those vendor offsets, but you also have cost pressures that persist. So if we wrap that all together, what's the starting point?
Yes. A couple of key framework points to make. One, we continue to target and have been consistent with as we grow to maintain or even slightly improve our gross margin rate year-over-year. And that's been our target, and we've been relatively consistent with that. This particular year, as I mentioned, even with a lot of these cost pressures, we'll be generally in line with that, flat, maybe slightly down year-over-year for the year on gross margin.
And so from an annual perspective, I think that's a decent -- 2026 is a decent jumping point to look at that. There's a lot still to know. And certainly, we'll be giving more guidance on 2027 in 3 to 6 months. But when you think about it, I wouldn't look at Q4 or Q3 as the primary jumping point, but really look at 2026, to my point earlier, the choppiness of tariff refunds, how we're managing that. Hal mentioned that we had our vendor partnership conference just last week. And so with the expectation that this isn't going to be a light jumps on or off in regards to the end of 2026, either cost pressures dissipating or persisting, we really view that we've got to manage through this. So we're already making plans on how we manage with the different levers that we have on how we can maintain our gross margin.
So the way we look at it right now, 2026 for the full year is a relatively good basis from that point. And I think that's the position we'll work from as to how do we take that and be able to manage the balance of both comp sales, ticket and transactions, but also our margin rate for 2027. And I'd look at it more from the full year of 2026 than, say, third or fourth quarter.
Yes. Okay. That makes sense. And I guess a related follow-up on pricing is inflation. So we have seen a pickup in some of the commodities recently. Inflation, I think, in first half of the year was around 1%. How are you thinking about it from here?
I'll take that. We said on our last earnings call that while at the beginning of the year, we could see inflation having anywhere from a 1- to 2-point benefit to ticket that with a lot of the pricing adjustments we've made and how we're managing that, we saw that being more towards the lower end of that. So more like a 1% benefit. It's really been trending that it's likely to fall into that category. Now we do recognize that the points we've made on transportation inflation, commodity, corn in particular, has certainly had a jump in its pricing of late. It's still relatively early, but if the current price is above $5.00 were to persist, we'll work to manage as best we can to not have to raise prices. But eventually, you have to look at the market, you look at how we have to adjust for that. And so I'd say still see us at the low end of that range, but a persistent inflation level could push that modestly up for the year. And then we'll certainly see what position we're in for 2027.
Okay. Great. And then for Hal, I want to switch to the pet category specifically. Obviously, you faced some challenges. As you noted earlier, there's a lot of work happening in the store. Maybe just update us on the trends that you're seeing, the progress through some of the initiatives.
Yes. Thanks, Seth. One thing I did want to just mention, as we think about 2027, we -- in Q3 of last year in that earnings call, we talked about the fact that we were building our business model looking forward to anchor operating margin rate breakeven at around a 2% comp. We still very much feel -- we still feel very strongly about that 2% comp kind of operating margin breakeven. And that's even in the context of looking forward to 2027, Seth. So if you were asking kind of how we think about the step off into 2027, we still very much are anchoring and feel good about that 2% comp kind of breakeven. Obviously, we got to manage through margin rate and expense, and there's some nuances there, but feel very good about that.
And then as it relates to the pet category, to Seth's point, we've been making some significant -- taking some significant steps to reaccelerate our business in pet. If I step back, the pet category is one that historically has been a real compounder from a category perspective. You had AUR growth almost every single year for the last 30 years, you've had unit growth almost every single year for the last 30 years, plus it's been a very good category to participate in.
That said, the category has been stressed, as I mentioned earlier, the last couple of years, dominantly because folks haven't been introducing new dogs into the population. So you've had an aging dog, Seth, a declining total dog population count. that puts pressure on the consumable side. So you're seeing consumables negative. You're seeing hardlines very negative. But then you're seeing the services side plus 5%, plus 10%. So we're trying to react to that market. And so we've taken the following set of steps.
First off, we've made some significant adjustments to our square footage and space allocation in the stores. We do this routinely every 6 months to a year. We did a kind of a larger swing this summer than our normal. But we did things like add 8 feet of space to cat, really pushing in more treats, more accessories, more wet food. That is where you're seeing significant growth in the market. Cat is growing in the 5%, 10%, 15% range, whereas you've got dog negative. And so that space came out of dog hardlines, which you're seeing significant negative.
We also allocated more space to big bag sizes inside of our core dog food. We're very much a wholesale kind of model, a warehouse kind of model on dog food. And when you had inflation occurring over the last several years, we saw pack sizes decrease. That's not our model. We want larger pack sizes. So we changed a lot of 40 pounds to 50 pounds, and we're seeing the benefit of that as well. So -- and then also on dog treats and snacks, we also made some significant changes there as well. So really changing the square footage in our store to reflect kind of current sales trends.
The second thing we did was we added a whole bunch of new innovation into our business. So we added a lot of air-dried and freeze-dried snacks, more proteins, leaning much more into supplements and health and wellness. Even on the dog food side, we did a lot more localization of our assortments. So a lot more innovation into the business.
The third thing is really around digital. We know that we have to grow our subscription business online. We've made substantial changes to our experience over the last 6 months. We'll do over $200 million this year in subscription. The vast majority of that is in the pet category. It's growing triple digits for us. So we feel very good about the improvements we've made in subscription, and we'll continue to lean into that.
The last thing is fresh. That's not a category we've played in significantly in the past. And we are -- we've introduced that category. It's about 8%, 9% of total pet dog food market now. And we've got Freshpet now in -- well, at the end of Q2, we were over at 300 stores. We're on track for over 700 stores by the end of this year. Just had met with Freshpet last week. They commented this is their largest rollout in a single year. Also, their smoothest rollout they've had, and we're exceeding the expectations we all had on sales. So feel very good about that and looking to increase our store count this year possible beyond the 700 and more to come on that. So making a lot of progress across a lot of elements.
And the last thing I'll leave with, as I mentioned, on services, that's the really high-growth area. We've made some substantial progress adjusting our portfolio in that area as well. Two years ago, we acquired an Rx company called Allivet, a little over $100 million, $150 million dog prescription business and animal prescription business. And then earlier this year, we bought VIP Petcare, which is a vet clinic business, mobile. They go out to about 1,700 of our stores already. Between the 2 of those, we now have an over $300 million pet services business. And you'll hear more from us on how we're going to take those 2 businesses and combine them with the subscription plays we have and our in-store experience and really drive that pet ecosystem, and that's a huge opportunity for us as we look ahead.
So a lot of change. It sounds like a lot of progress rolling out these initiatives. Any early learnings, consumer response? Are you seeing a pickup in sales related to that?
Yes. Great question. So as we commented, we were a minus 4.2% comp on our pet business in Q1. If you were to add about 3.5 points of non-comp growth, you get closer to flat total growth for the business, which is in line with kind of the market, as I mentioned earlier. If you look at Q2, we commented that we were a minus 2.9% comp. Again, you'd add about 3.5 points of noncomp and so our total pet business was growing at like 0.5% to 1%. So you had sequential improvement based on some of these actions we're taking. And then we commented in the call that our exit rate coming out of Q2 in June was better than the minus 2.9% for the quarter. So we're kind of running more mid- to low single negative 2s now as we got into Q3. So feeling very good about the progress we're making, 2, 3 points of sequential improvement in 4 or 5 months' time and more to come.
Okay. Great. I want to shift to Final Mile and delivery, big focus. Maybe talk about the progress that you've seen there so far. How much of this is an enabler for sort of the core business? How does this help drive B2B?
Yes. So I want to back up a little bit and explain our journey on delivery. So in 2020, we rolled out delivery to all of our stores with a third-party gig provider named Roadie. And that's been a very successful partnership for us. For the last 5 or 6 years, all of our stores across the country have had delivery from the store, and it could be same day or 2-day or 3-day depending on the service that you selected. We knew that was a nice first step, but insufficient for the kind of our final -- kind of destination of where we need to be on delivery.
So what we've been rolling out over the last 1.5 years is our own kind of what we call Final Mile delivery. And in essence, what we're doing is we're taking every 3 to 4 stores. We're making -- we're creating a hub-and-spoke system. and serving 4 stores out of 1 store. Our customers, then when they select and order their product online, depending on the order size and quantity, it would go to either Roadie or go to our own team member. And in these hubs, we have a dedicated 2 drivers. We have one during the week, one carrying over the weekend and also as a backup driver. They have a truck and a trailer and they're able to deliver directly to a customer's home all the items that they order online. We're typically in those doing larger order quantities.
So think about Roadie doing, say, a $50 to $100 order and then think about our own team members doing somewhere between a $200 to $1,000 order. And in the last 4 weeks, we've done over 15,000 of our own team member deliveries each of those weeks. So we're scaling it very well with each of these hub stores doing somewhere around 7 to 8 deliveries a day. So we're very pleased as this is scaling up and the performance of these hubs.
And on the customer satisfaction, our gig worker delivery is right in line with our overall store satisfaction. But when we have a team member delivered, it's almost 10 to 15 points, so it's more than 10, almost 15 points higher customer satisfaction than a normal purchase. So we feel really good about the customer satisfaction, really good about the velocity we're seeing and then also the repeat orders and order volume size.
And we're seeing this really open our big barn customer, to your point, Seth, like the gig workers really work fine for that [indiscernible] like DIY consumer that's purchasing in our stores. But our team member delivery really we're seeing is the big unlock for that big Barn customer who has horses and stables, equine facilities, time is money. It's less of a hobby and more of a business. and they expect delivery and they want a Tractor Supply red apron delivering it. And we're seeing significant inroads with our big barn customers as we roll it out.
Okay. Great. Kurt, for you, I want to talk about store growth. So I think you lowered the store growth target for next year, 85 to 90 stores, previously 100. Maybe just walk us through the rationale of that and how do you think about the right growth rate of the business?
Yes. It simply is a capital allocation decision that we made, very much in line with we are focused on reaccelerating the business and driving investment in areas that could grow existing store sales. So first, our new stores are performing as well as they ever have. They're coming out of the gates at higher revenue levels. They are maturing at faster paces and they give us the best profitability. So we couldn't be more thrilled and confident in the investment in new stores.
We have historically been opening around 80 to 90 stores. In our 2024 strategic Investor Day, we announced that we saw an opportunity in our path to 3,200-plus stores that we could do 100 new stores. And we feel very confident in that. However, with the opportunity we have to make investments in services, Final Mile, pet, a number of things that we're doing in existing stores, including relocations and remodels, we're pivoting back to making those investments. It's really just a capital allocation and a complete confidence in the new stores. And we think that for this environment, for all the reasons Hal was mentioning about the end markets, investing in the existing stores is the right pivot right now.
Okay. Great. And if we tie it all together here and think about the outlook, to your point, you did have this long-term algorithm that you provided in December of 2024. You withdrew that recently. As you think about 2027, on the top line, at least, how do you think about your ability to get back to steady comp growth? Is it fair to think that '27 should be better than '26, but not necessarily at that prior 3% to 5% comp outlook? And then we'll follow up on margins.
Yes. Obviously, today, we're not providing guidance on 2027. But I'd say, first off, we know what Tractor Supply's track record is and history of performance. When you look back over 30, 35-plus years of this business, you're going to see a comp that runs routinely between 3% and 4%. You're going to see that, that comp is historically almost 50% comp transaction growth, 50% average ticket growth. It's a business that's been a compounder for multi, multi, multiple decades now. That's our standard. And that's the expectation that we deliver on that standard as we look into the future.
Exactly where on that spectrum '27 is more to come, but we are very focused on getting transactions positive back in the business, very focused on driving growth in the business and accelerating sales. I feel good about the progress we made on that over the next 3 or 4 months. Look forward to sharing more in our Q3 earnings and then more detail as we get into the back half of the year.
Okay. Super helpful. And then from a margin perspective, I think you answered some of this earlier, but leverage point, think about 2% comp still as the right framework. Anything else to sort of unpack some of the key variables that we should be thinking about on the margin side?
Yes. Hal made a really key point of -- we still see the business being able to inflect at about a 2% comp sales range. The business -- the core business is efficient and performing as productive as ever. We've been very successful with driving task work back, like backroom task work out of stores. And so we're actually performing today with less hours in our stores. Our units per hour, our productivity in the distribution centers are as strong as ever, and we've come off our key investment cycle.
And so you're seeing this year even like depreciation just outpacing in growth to the sales. But right around 6%. We see that as something that continues to come down a bit. So those are all the reasons that we believe that even in 2027, we still see 2%.
And then particularly with anything nuanced, we opened up a new distribution center just here recently, and that will have a little bit of growth investment in SG&A for the back half of this year and early part of next year. It gives us benefit on the supply chain side. So at this point, that's probably the only big call out that I'd see. We're going to look at all of the major capital allocation and long-term target type points as we go into and bring guidance. But what we don't see is anything meaningfully changing in Tractor Supply's long-term outlook, our targets, but we look forward to being able to share more about where the allocation is and how -- where we're investing and how we're going to reaccelerate the business.
Okay. This has been great. We have about 1 minute left. Hal, I'll turn it to you. Any closing messages for the group here?
Yes. Hopefully, what you heard in our Q2 earnings call is a Tractor Supply that's still looking forward, excited about the future, but also taking actions in the moment that are required. And hopefully, also, what you heard was as we think about 2027, no sacred cows. We're challenging our strategic assumptions. We're responding to the moment. As an example, we wrote off 75 Petsense stores in the second quarter. We also talked about how we're going to be pivoting from 100 new stores down to 85 or 90 new stores next year and put more of our emphasis on our existing store capital.
And then next year, as Kurt mentioned, it's not going to be a -- we are very conscious of where we're running on comps, very conscious of our business model right now. We are not entering an investment cycle. Next year, our total capital -- net capital spend will be likely our lowest in 6 or 7 years. We'll start getting below a 4% of sales on our capital run rate. That will start -- that will allow us to have depreciation running at sales or less for the first time in quite some time. So just know that we are very focused on running a disciplined business, very focused on how we allocate our capital in the moment, responding to the crisis, but still making sure we're setting ourselves up well for the future. Thank you, Seth.
Thank you, both.
Appreciate that.
Tractor Supply — Barclays 19th Annual Global Consumer Staples Conference
Management detailed tactical moves: reinvest tariff refunds into freight and targeted price cuts, accelerate pet and delivery initiatives, and slow store openings.
🎯 Key Message
- Market position: $225B total addressable market (TAM); Tractor Supply ~7–8% share and the largest specialty player.
- Near-term view: Core end markets (farm/ranch, pet, home maintenance) have been stressed but management expects stabilization over 6–12 months.
- Financial posture: Prioritizing margin stability and customer value while reallocating capital from new stores into existing-store initiatives.
⚡ Strategic Highlights
- Tariff strategy: Tariff refunds estimated north of $100M but under $150M; ~2/3 used to offset freight/fuel inflation, ~1/3 reinvested in targeted price cuts.
- Pet transformation: Space reallocations, larger bag sizes, more premium/snack innovation, Freshpet rollout (300→700+ stores target) and pet subscription growth (>$200M run-rate, triple-digit growth).
- Final Mile: Hub-and-spoke delivery using store-based drivers complements third-party gig delivery; own-team deliveries scaled to ~15,000/week recently with ~10–15 point higher satisfaction.
🆕 New Information
- Tariff detail: Management disclosed the refund range and precise allocation plan (freight offset then price investments), timing uneven across Q2–Q3.
- Delivery scale: Reported weekly volume (~15k team deliveries) and hub metrics (~7–8 deliveries/day per hub) as proof of concept.
- Services scale: Combined services (Allivet prescription + VIP Petcare clinics) now >$300M, signalling a larger pet services ecosystem.
❓ Analyst Q&A
- Tariffs & pricing: Analysts pressed on sustainability; management plans vendor negotiations and productivity levers to preserve price moves beyond one-off refunds.
- Transportation costs: Q2 hit estimated 50–75 basis points from fuel/transport; company expects to offset via operating levers but notes risk if elevated long-term.
- Store cadence: Shift to 85–90 new stores (from 100) driven by capital reallocation to remodels, services and delivery rather than weaker new-store economics.
⚡ Bottom Line
- Takeaway: Tractor Supply is managing a cyclical slowdown with pragmatic, measurable moves: use one-time tariff benefits to protect margins and buy market share, accelerate pet and delivery growth engines, and temporarily slow new-store spend to preserve capital and margin flexibility.
Tractor Supply — Q2 2026 Earnings Call
1. Management Discussion
Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss second quarter 2026 results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded. I would now like to introduce your host for today's call, Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.
Thank you, operator. Good morning, everyone. We appreciate your time and participation in today's call. On the call today, participating in prepared remarks are Hal Lawton, our Chief Executive Officer; and Kurt Barton, our Chief Financial Officer. We will also have Seth Estep, EVP and Chief Merchant; Rob Mills, EVP of Digital, IT and Pet Services; John Ordus, EVP and Chief Stores Officer; and Craig Ledbetter, our SVP and Chief Supply Chain Officer, join the call for the Q&A portion.
Following our prepared remarks, we'll open the floor for questions. Now let me reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations.
Important risk factors that could also cause results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Tractor Supply takes no obligation to update any information discussed in this call.
As we move into the Q&A session, please limit yourself to one question to ensure everyone has an opportunity to participate. If you have additional questions, please feel free to rejoin the queue. We appreciate your understanding and cooperation. We will also be available after the call for any further discussions. Today's presentation will also include certain non-GAAP measures, including, but not limited to, adjusted operating margin, adjusted diluted earnings per share and for a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now it's my pleasure to turn the call over to Hal.
Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. I'd like to begin by thanking our more than 54,000 team members for their continued dedication to serving our customers and communities. Their commitment to our mission and values remains one of Tractor Supply's greatest strengths and continues to differentiate our business every day. I would also like to welcome the veterinarians, clinic teams and support professionals joining Tractor Supply through our acquisition of VIP Petcare. We're excited to have them join the family as we continue to strengthen our pet ecosystem.
The Tractor Supply business model demonstrated its strength and durability during the second quarter. Our core customer remain engaged with healthy retention. Our needs-based categories continue to perform well, and our competitive position remains solid. We had positive comparable store sales in both April and June. However, they were more than offset by unusually adverse conditions in May, which drove second quarter results below our expectations. Taken together, we believe the underlying business remains healthy.
Before turning to our second quarter results, it's worth spending a moment on May. Fuel prices peaked during the height of our spring selling season, putting meaningful pressure on our customers' discretionary spending at the most important time of the quarter. Our customers often drive longer distances to shop, frequently in pickup trucks, many of which are diesel-powered, making them especially sensitive to higher fuel cost. At the same time, persistent drought conditions across several key Southeastern markets limited normal seasonal activity and reduced demand for lawn care and other outdoor-related purchases.
To put that in perspective, performance in our big ticket categories and hardlines spring goods during May alone reduced our second quarter comp sales by approximately 2 percentage points, highlighting how concentrated the softness was within the quarter. These conditions disproportionately affected discretionary and project-oriented categories, while our needs-based businesses remain resilient.
With that context, let me turn to our second quarter results. Net sales increased approximately 2% to $4.5 billion, driven by new store growth and partially offset by lower comparable store sales. Comp sales declined approximately 1.5%, reflecting lower transaction counts, which were most pronounced in May, along with modest inflation and softer discretionary demand, particularly in big ticket. Consumable, usable and edible categories remained positive during the quarter. Big ticket declined in mid-single digits, again, led by softness in spring and summer categories in May.
Digital sales once again experienced double-digit growth, driven by strong delivery from store performance, higher traffic and improved conversion. Net income and earnings per share were below our expectations for the quarter. Even with significant sales pressure during our largest month of the quarter, the team maintained disciplined expense management and continued to deliver productivity improvements that mitigated the impact of the sales pressure. Looking beyond the quarter, our conviction in the business has not changed.
At the same time, we recognize that generating modest positive comp sales is not where Tractor Supply should perform over the long term. We're not satisfied with our business, and we're taking decisive actions to improve it. Tractor Supply has successfully navigated changing economic environments for nearly 90 years, and we remain confident in the durability of our business model. We operate in end markets that are currently experiencing several discrete headwinds.
Approximately 40% of our addressable market is tied to farm and ranch and rural economies, where customers continue to navigate a challenging operating environment shaped by elevated gas costs, persistent drought and more cautious discretionary spending. Approximately 20% is tied to pet, where industry growth remains challenged. And another 20% is tied to home improvement and property maintenance, where demand continues to be constrained by a prolonged period of historically low housing turnover. While these pressures had notable impacts on our first half performance, they do not change our confidence in the long-term opportunity.
What has not changed is customer engagement. What has changed is customer spending behavior. Customers continue to invest in the care of their pets, animals, farms and properties, but they're shopping more deliberately, consolidating trips and prioritizing needs-based items while taking a more measured approach to discretionary purchases. Against that backdrop and despite May's performance, our second quarter fell short of expectations. We are not satisfied with the results, and we are addressing the challenges facing the business.
At the same time, we believe that the fundamentals supporting the rural lifestyle, pet ownership and property maintenance maintain -- remain attractive. Like we've done throughout our history, we're not waiting for the environment to improve. We understand the moment we're in, and we're responding with urgency, and much of that work has already begun. As we shared on our last earnings call, we began taking action in 2 areas where we saw the greatest near-term opportunity, strengthening our Pet business and reinforcing our value proposition through pricing and everyday value.
While Pet performance remains below where we want it to be, trends improved sequentially from the first quarter, and we continue to hold share. We believe the deliberate actions we're taking to strengthen our competitive position and capture additional share of wallet are beginning to gain traction. While still in the early stages, we're confident they will continue to build momentum through the back half of the year. The category resets we outlined last quarter are complete, introducing more localized assortments, expanding our presence in faster-growing premium nutrition segments and strengthening our exclusive brand portfolio to better meet the evolving needs of pet parents.
We're encouraged by the early results. Our rollout of Freshpet continues to perform well. The program was in approximately 250 stores at the end of the second quarter, and we remain on track to expand to at least 700 stores in total by year-end. We're also leveraging the broader pet ecosystem we've built through services while strengthening our marketing, enhancing the digital pet shopping experience, expanding subscription capabilities and improving in-store execution.
Together, these initiatives create a more connected experience for pet parents while strengthening customer loyalty. Additionally, during the quarter, we completed the acquisition of VIP Petcare, which adds relationships with approximately 1 million pets annually through a network of 2,500 veterinarians across 39 states. The acquisition fills an important gap in our pet ecosystem, allowing us to connect veterinary services, prescriptions and products across physical and digital channels.
At the same time, we're reinforcing our price perception through the launch of our unbeatable price campaign, clearer everyday value messaging, and targeted promotional activity. Consumable, usable, and edible products remain the foundation of Tractor Supply, and we're committed to reinforcing our value proposition where it matters most to our customers. And these investments are already generating encouraging customer response.
We're also using this period to critically evaluate our priorities, sharpen our strategic focus and ensure we're allocating capital to the highest opportunities generating the strongest customer response and strong long-term returns. As part of that work and in light of our updated 2026 outlook, we have decided to withdraw our long-term financial framework. We recognize the importance of providing investors with a clear long-term road map, and we're committed to introducing an updated framework in conjunction with our fourth quarter 2026 earnings announcement.
That work has already led us to several important conclusions that we'll be sharing with you today. Following a disciplined review of Petsense, we've decided to close approximately 75 underperforming stores. We believe these actions will improve returns, simplify the business and allow us to direct resources towards higher growth, higher return opportunities. We've also concluded that while our new stores continue to generate attractive returns, driving stronger comp sales and improving the productivity of our existing assets are critical priorities in this environment.
To support these priorities, we plan to open approximately 85 to 90 new stores in 2027 compared with our previous expectation of 100 new stores. And we will redeploy that capital toward initiatives such as Project Fusion remodels, store locations and Final Mile delivery. Project Fusion remains one of our most important initiatives to improve the performance of our existing store base. We will continue to evolve the program by investing behind the elements delivering the strongest returns, including greater localization and expanded pet wash, both of which are contributing meaningful to the performance of Fusion stores.
We will also continue investing in our existing stores through technology enhancements, expanded tractor vision capabilities and merchandising concepts such as outdoor recreation, where we're seeing encouraging customer response. Final Mile remains one of our most compelling growth opportunities with customer adoption continuing to exceed our expectations and economics improving as we scale the business. Through the first half of the year, we've already completed as many Final Mile deliveries as we did during all of 2025, underscoring the strong customer demand and momentum behind this capability. And as a result, we expect to accelerate the rollout ahead of our original time line.
Together, these investments will improve the customer experience, enhance store execution and productivity and drive stronger returns across our existing store base. This work is ongoing. Today's announcements represent important first steps, and we look forward to sharing additional actions and our updated long-term framework over the coming quarters. We remain confident in Tractor Supply's future. We have a differentiated business model, a strong balance sheet and a proven ability to create long-term shareholder value. The actions we're taking today are designed to further strengthen our competitive position, improve productivity and position Tractor Supply for long-term success. And with that, I'll turn the call over to Kurt.
Thank you, Hal, and good morning, everyone. As Hal outlined, we're taking decisive steps to strengthen the business and improve our long-term earnings power. The quarter reflected continued pressure on discretionary demand, while our needs-based categories remained resilient. Those trends shaped our financial performance during the quarter. I'll build on Hal's comments by focusing on profitability, our updated outlook and the capital allocation decisions supporting our long-term strategy. Reported gross profit increased 2.6% to $1.68 billion and gross margin expanded 11 basis points to 37.1%. Results for the quarter included a $5.9 million inventory write-down related to the planned closure of approximately 75 Petsense stores.
On an adjusted basis, gross profit increased 3.0% to $1.69 billion and gross margin expanded 24 basis points to 37.2% of net sales. Disciplined product cost management and benefits from tariff refunds more than offset pressure from higher freight expense and investments to strengthen our price value position. We've been encouraged by the early customer response to our improved value offerings in core CUE items, which gives us confidence that these investments are resonating with our customers.
Turning to SG&A. Reported SG&A increased 14.4% from the prior year to $1.22 billion and included 2 significant items this quarter, a $65.8 million charge related to the Petsense business and $9.5 million of acquisition costs associated with our acquisition of VIP Petcare. Excluding those items, adjusted SG&A increased 7.3% and deleveraged approximately 118 basis points as a percent of sales. The level of spending was largely in line with our expectations entering the quarter with the deleverage driven principally by lower comparable sales. We remain committed to investing in labor to deliver a strong customer experience during our peak selling season.
Adjusted SG&A growth also reflected unplanned costs related to medical claims and certain legal settlements, which increased adjusted SG&A as a percentage of net sales by approximately 35 basis points. At the same time, we continue to execute our productivity agenda across the business. Strong execution in our distribution centers and ongoing labor productivity improvements at the store level through our field activity support teams helped partially offset investments in our strategic initiatives and other discrete expenses.
While we remain committed to investing in the capabilities that strengthen our competitive position, we are equally focused on ensuring those investments generate attractive returns and that our cost structure remains aligned with the current demand environment. On an adjusted basis, operating income was $548.3 million and diluted EPS were $0.81. Our inventory remains in good shape with the average inventory per store increase of approximately 6.5%, primarily reflecting inflation, inclusive of tariff costs with some carryover of spring seasonal goods. We view the incremental inventory as low risk and appropriately positioned to support ongoing spring and summer demand.
While still early in the quarter, we've seen a continuation of the June seasonal selling trends into July. From a financial perspective, we are operating the business with discipline in aligning our investments and resource allocation with the demand environment we are operating in today. Importantly, this does not represent an increase in spending, but rather a disciplined and relatively modest reallocation of existing capital and resources toward the opportunities we believe will drive the strongest near-term sales growth and financial returns.
In the near term, we are focused on improving the consistency of comparable sales performance and driving greater productivity across the business. We are managing gross margin with a balanced approach across pricing, product mix and promotional activity while continuing to navigate a dynamic cost environment. We continue to maintain a strong expense discipline while investing in the opportunities we believe will generate the strongest long-term returns. Our objective is straightforward: improve comp sales performance and strengthen flow-through across the P&L.
Turning to our outlook. Given our year-to-date performance and our expectations for the balance of the year, we are updating our fiscal 2026 outlook. We now expect net sales growth of approximately 2.5% to 3.5%, comparable store sales in the range of negative 1% to flat, adjusted operating margin between 8.5% and 8.8%, and adjusted diluted EPS between $1.90 and $2.
Looking ahead to the second half of the year, our base case assumes modest sequential improvement in comparable sales as our recent actions continue to drive improvement and comparisons ease as the second half progresses. That said, we continue to operate in an uncertain environment, and our guidance range reflects both the possibility that current pressures persist and the opportunity for improving customer demand as we move through the balance of the year.
To put our second half outlook in context, the comparisons are not uniform across the period. Last year's third quarter was the strongest in July. It moderated in August and was approximately flat in September, creating a different cadence as we move through the quarter. Against that backdrop, we are encouraged by the 2-year trend with seasonal demand holding up well and solid performance across several areas of the business. While it is still early, the third quarter trends are tracking in line with our expectations.
More broadly, while the comparison patterns differs between the third and fourth quarters, we expect both quarters to remain within the comparable sales range of the implied second half guidance. On the gross margin side, we expect freight costs, including fuel, to remain elevated, while tariff refunds are expected to be less of a benefit in the second half than they were in the second quarter. As a result, we are forecasting gross margin below the prior year for the second half with greater pressure in the third quarter than the fourth, primarily due to the prior year compares and the supply chain benefits from the new distribution center beginning in the fourth quarter.
To that point, we plan to open our 11th distribution center early in the fourth quarter. For modeling purposes, start-up costs will begin in the third quarter and continue into the fourth quarter, resulting in an SG&A headwind in both periods. We expect the impact to be approximately 20 basis points in both the third and fourth quarter. There is no expected gross margin benefit in the third quarter. Supply chain efficiencies should begin to benefit fourth quarter gross margin by approximately 20 basis points. This cadence is consistent with our historical experience and our original guidance for the year.
As a result, we continue to expect earnings to be more heavily weighted toward the fourth quarter. We expect third quarter profitability to be more pressured, reflecting the new distribution center costs, the gross margin dynamics we discussed and more challenging year-over-year comparisons. While investing in the business remains our top capital allocation priority, we continue to balance those investments with meaningful returns to shareholders. We view our shares as an attractive investment opportunity and expect repurchase activity to be toward the high end of our original guidance of $375 million to $450 million.
In addition, we remain committed to our long-standing approach of returning capital to shareholders through a growing dividend. Before moving on, I'd like to address the long-term financial algorithm we introduced at our Investor Day in December 2024. When we established those targets, they reflected both the operating environment at the time and our expectations for the contribution from our strategic initiatives. Today, several of those underlying assumptions have changed. The broader farm & ranch market has softened, and a number of our key end markets continue to experience pressure.
While we believe these conditions will moderate over time, they have weighed on the underlying performance of the business. At the same time, our strategic initiatives continue to perform well and strengthen our competitive position. However, their contribution is currently being more than offset by the pressure we're experiencing in the base business, resulting in a different earnings trajectory than we anticipated when we established our long-term framework. These market dynamics also informed our decision to optimize our portfolio and allocate capital toward the opportunities that we believe will generate the strongest long-term returns.
As a result, we no longer believe it is appropriate to anchor investors to the long-term financial algorithm we previously outlined, and we are withdrawing that framework. Importantly, this decision does not change our confidence in the long-term opportunity for Tractor Supply. We remain confident in our ability to grow market share, generate attractive returns on our strategic initiatives and create long-term shareholder value. We intend to provide an updated long-term framework in conjunction with our fourth quarter 2026 earnings announcement that better reflects our plans and the trajectory of the business.
Turning to capital allocation. As Hal shared, we continue to prioritize investments that generate attractive customer and shareholder returns while maintaining flexibility in how we deploy capital. As always, every capital allocation decision we're making today is being evaluated against expected returns and long-term shareholder value creation. Importantly, we continue to see strong returns across our core investment priorities. Our new stores continue to perform well and generate attractive returns. Our Fusion remodel program continues to drive productivity improvements across the existing store base. These are proven initiatives, and we remain confident they will continue to strengthen our business over the long term.
Additionally, the strategic repositioning of Petsense is expected to create a healthier, more profitable business that better complements our Tractor Supply stores and strengthens our ability to serve pet customers across our integrated pet ecosystem. Tractor Supply remains in a strong financial position. We continue to generate healthy cash flow, maintain a strong balance sheet and preserve significant financial flexibility. That flexibility allows us to invest through the cycle, pursue attractive growth opportunities and continue returning capital to shareholders. While we remain focused on navigating the near-term environment, we are equally focused on making disciplined decisions that strengthen the business and position Tractor Supply to deliver sustainable growth, attractive returns and long-term shareholder value. With that, we will now open the call for questions.
[Operator Instructions] The first question comes from Steven Forbes with Guggenheim.
2. Question Answer
Companion animal trends, specifically hoping if you can provide some deeper insight into what you're seeing both in terms of the market itself and member wallet share dynamics. And then as we think about some of the recent sort of moves you've made, including the announcement with Instacart and what appears to be more of a pricing value proposition reset, curious like if there's any way to frame up like when we should expect those trends to stabilize, if there's line of sight to that? And just how committed you are to sort of progressing the business back to a share gainer and sort of shoring up the share position of the business?
Thanks, Steve. We -- your first part of the question, we didn't hear exactly, but I think we've got most of it. So, we'll jump in with Seth.
Yes. Steve, thanks for the question. I think the first part of that question is more about a little bit more trends that we're seeing from pet, pet and animal more in general, just to address that one quickly. As kind of mentioned in prepared remarks, obviously, we did see some sequential improvement from Q1 and as well like just on broader share, really some stabilization continued to happen throughout the quarter. As we went through the quarter, all of our initiatives really are starting to really come under play. All of our reset activity across all dog and cat did get complete.
I'd tell you that we are pleased with the initial results as those continue to roll out as we see continued progression in things like our 4health being strong, new items being strong, our fresh continuing to expand in the initial results from that as we're now over 250 stores. With that, I would tell you that Freshpet specifically, now that we're in the 250 stores, we're seeing those results be to our expectation. And I think one of the most encouraging things with that is that we're seeing over 40% of those buyers in fresh, specifically Freshpet be either new pet food buyers at Tractor Supply or reactivated buyers at Tractor Supply. So I think it's just kind of one example as we continue to iterate on the assortment, we're continuing to make sure that we're going where the consumer trends are going and making sure that we can not only stabilize share, but continue back to our share gain that we've done in the past. Also like we're continue to lean in on other things like in our digital enhancements, subscription is going well with that as well. We're continue to see adoption there with a lot of improvements, and just in general, just very pleased with the overall enterprise execution with our pet reacceleration strategy and with the goal to continue to see those sequential improvements as we go through the full back half of this year.
As far as the second part of your question, just kind of on pricing and stabilization there, we're really pleased with the initial results of kind of our value initiatives that we've gone after. As you've seen, we've gone after our unbeatable price program, which is really at the core of our business with really good consumer response, specifically around that. We've seen customers' engagement on that be strong across all of our customer cohorts. And with that as well, we've seen about 180 basis point improvement year-over-year from our customer survey results that we have just on their perception of our price value perception with Tractor Supply, and that's continuing to improve not only year-over-year, but we saw it improve sequentially in June and even stronger here in July, and you'll see us continue to lean in on that.
So overall, pleased with both those initiatives that we outlined on the last earnings call, and you'll see us continue to lean into those as we go through the balance of the year.
The next question comes from Steven Zaccone with Citigroup.
I wanted to ask about the second half same-store sales outlook because it sounds like you're expecting to be down 1% to flat. Comparison gets a little bit tougher in the third quarter. So could you just elaborate on that a little bit more? And it sounds like some of the seasonal strength you saw in June has continued into July. So should we interpret that as kind of positive trends that continued?
Steve, it's Kurt. On the second half cadence, you hit one key point, and that is just to reiterate, as I mentioned in my remarks, that we do expect both Q3 and Q4 to fall in its comp sales range in the implied range of the second half. So relatively tight range in regards to that. Some of the base assumptions on that is that, as already mentioned, we are seeing sequential improvement in key categories like Pet. We're seeing improvement throughout the business. It's important just to mention the performance of the second quarter, while May was a strong headwind on the quarter, the performance of the core business in the consumables, in particular, was solid in all 3 months of the quarter, and we like the progression that we're seeing in the business.
As far as Q3 and Q4, on the second half of the year, the strongest compares that we're going up against are the beginning of Q3. We had a really solid, strong extended spring selling season with big ticket in July. And so that's the strongest compare. And then with a year where there was really no named storms, there was no real winter weather in the back half of the year. As we look at the cadence of it, the toughest compares are really July. And as we -- as I mentioned in my remarks, we like when we see signs of an extended spring selling season, while the business has pressure from drought, a majority of the geographies are showing signs of extra precipitation and the potential for that extended spring selling season.
So the business continued to show solid spring selling momentum from June into July. It's only 1 month, but we like what we're seeing, pleased with the performance in July. So, we consider that. And then I would just reiterate, while we recognize there's uncertainty, and we factored into our guidance that there could be headwinds with the consumer. There's a lot of uncertainty. We do see optimism within our range and have baked that in that we see sequential improvement throughout the cadence of the second half of the year.
The next question comes from Jonathan Matuszewski with Jefferies.
I appreciate all the commentary on pricing. And just wanted to kind of drill down on that, if I could. So as we think about some of these price investments in 2Q and potentially further price investments in the second half, how do you think about kind of your price gaps relative to different channels of competition, whether it be kind of farm & ranch or the mass channel or digital? Can you kind of maybe just frame for us how your pricing versus peers may look maybe at the end of this year versus maybe the beginning of the year as a result of the pricing actions?
Jonathan, yes, this is Seth. Thank you for the question. Yes, as you noted, we've continued to really go after the price value proposition at the end of the quarter and continue to look at that in the back half of this year as consumers are definitely looking for value and how we can be their advocate to kind of help them live their lifestyle. From a historical perspective, we've always had really good robust tools in place where we index and track across farm & ranch, across mass, across digital-only players. And we've always indexed to make sure on those core items that we have that we are in a very solid price position to make sure that we can drive market share while also making sure that we can appropriately manage margins.
I would just state that right now, our price perception and our price index continues to be equal to or even slightly better than historical as we've gone after these kind of unbeatables in particular. And you'll see us to continue to invest in that in the back half this year and with the appropriate support from our supplier partners as well as leverage our landed cost initiatives as we continue to open up new distribution centers and go after those as well.
So in terms of price indexing and what we're going to see there, again, consumers are looking for value. We're going to lean into that. We're committed to driving market share, balancing that appropriately where we need to with our margin management. And again, we've been indexing that for years. And our index position where we are right now is equal to or stronger than it's even been in recent years.
The next question comes from Zach Fadem with Wells Fargo.
You mentioned a favorable early assessment on the changes you've been making inside the stores, pricing, promo assortment, et cetera. The first question is whether you think you're moving fast enough or why not go faster? And then second question, separate question. Could you talk about what the benefit was from tariff refunds in Q2?
I'll take those 2 questions and maybe bundle them together because I think there's a correlation there. So let me just frame up the gross margin and our approach to pricing and some of the even cost headwinds of freight in the industry right now. And then I think that really, in a sense, answers some of your question on pricing. Do we have the right timing? Are we going fast enough, et cetera? So -- if you just step back on cost pressures or cost -- gross margin drivers in the business, and this is more of a macro across retail, you've got freight hitting unexpected high. The fuel costs are higher than most anticipated and certainly even the rates on freight.
So there is a burden across retail on freight in general. There is a tariff benefit that all or most retailers like us are experiencing at this point. And as we manage all of the factors that go through gross margin, in this environment right now, there is a strong appetite and looking for from the consumers on value. So as we're stepping into a value proposition. As we're looking for ways to not drive higher cost from freight, we're using the benefits that we're receiving at this point with tariff refunds. Now tariff refunds are a bit choppy, and we said and expect to be uncertainty and some choppiness across that. And so the benefits may not exactly land at the same time frame as some of the pricing initiatives that we're placing throughout this year.
But we're benefiting and utilizing tariffs to be able to drive value to our customers, give us a strong position, especially in farm & ranch and to be able to be competitive in an environment that we view across retail as a renewed competitive environment as the consumer is pushing for value, very much like 2018 and 2019. So we believe we're stepping in at exactly the right level, as Seth mentioned, to manage both market share, and we're seeing that movement in regards to, as he mentioned, the level of engagement across existing or even accelerating new or reengaging customers across our core CUE consumable business. And we're utilizing throughout this year the tariff benefits to be able to invest in those areas and avoid price increases for freight and be able to drive value.
To that extent, I'll just mention that I said it's choppy. And you heard my prepared remarks on gross margin that we saw a benefit and increase in gross margin in the second quarter. While we see gross margin in the back half and even particularly stronger in Q3, and that's really a bit stronger in regards to decline year-over-year in Q3. It really has to do with some of that lumpiness of when tariff benefits are coming in and our commitment to utilizing that to ensure we're driving value.
And in particular, gross margin, as you -- as I indicated, year-over-year, it's down a bit in the second half, heavier pressure in Q3. I'd look at it from this standpoint. Q3 versus Q2 may have 50, 75 basis points difference in the level of year-over-year performance in gross margin. While there's a few factors that go into this, the largest portion of that is the level of timing of tariff benefit being stronger in Q2. So a little bit of cadence on information on timing, and hopefully, that helps you understand. We have confidence that we've hit the right measure on our pricing and will continue into the second half.
The following comes from Michael Lasser with UBS.
At this point, the market recognizes that the back half of the year is going to be what it is, but the focus is really starting and increasingly going to be on 2027. And so to that, 2 simple questions. One, given that you did remove the long-term framework, how should we think about what a realistic comp number over the intermediate term is for Tractor Supply's business, recognizing that you're not going to give a specific number, but is there anything different moving forward that we should not rest on maybe the average over the last 10 years that we should consider as we start to lay out our outlook for the next couple of years?
And two, it sounds like there's a lot of moving pieces between tariff refunds, lower tariff rates, some transitory expenses that are going to impact this year, and this is probably best for Kurt. But to the extent that we want to calibrate our models for 2027, what would you consider unique in this year from a profitability perspective that we should factor in as we estimate what Tractor Supply's profitability looks like in next year?
Michael, it's Hal Lawton, and good to speak to you today. Thanks for being on the call. I'll make a couple of comments on our long-term guidance. As I said on the prepared remarks, we very much recognize the fact that our investors expect and deserve to have a long-term guidance framework to operate around, and we are committed to delivering an updated long-term guidance framework with our -- in concert with our 2027 outlook. I'll say a couple of things on that. As it relates to sales, we continue to believe we are a growth company. And we continue -- we are very pleased, as Kurt has said, with all the actions we've been taking over the last 90, 120 days to accelerate the business. And you can expect us to continue to accelerate these initiatives.
And also, as we share with you today some more structural changes we're making, you can expect to hear more updates from us on that as well. But I would reiterate, we continue to believe that we have growth in our horizons, both on the comp side and on the new store side. As it relates to op margin, I would acknowledge that we're at a recently historically low op margin. We still believe that we continue to leverage at a 2%-plus comp as we move forward. And really, the historical operating margin that we have right now is a byproduct of our last 2-plus years of really modest positive comps, which has driven deleverage in the business. We continue to have a lot of optimism around the business. We continue to be pleased with the actions we've taken in the last 90 days and the results we're seeing in the business.
Kurt talked a lot about seasonal, pet and value. I'll hit on just a couple of other things. But we did a lot of sales driving initiative work, say, in our truck tool and hardware business. We released some press releases on that with our new electrical outlook of new electrical set and also our new power tool set. We're seeing results and performance there. In clothing and gift, we've made a lot of introductions in the last 60, 90, 120 days. We're seeing very good results there as well. Also outdoor rec, we're opening up over 700 stores this year with outdoor rec. That continues to go very well.
The last thing I'll talk about is our seasonal center court programs. Last year, those programs set late and they were affected by the tariff that came in kind of last minute as those programs are being finalized. This year, we don't have those complications. Many of those programs have already set. Many of them are on their way to set in the next week or 2 with the right price points and the right quantities, and we're seeing strong performance in our center court activity year-over-year as well. So those are all just examples of reasons that we have confidence in the business. And as I said, we look forward to sharing with you more on our long-term guidance as well as our 2027 outlook in our Q4 earnings call.
The next question comes from Spencer Hanus with Wolfe Research.
I just wanted to ask on what the initial takeaways have been from the pet resets that you've done so far? How have sales been trending pre and post those resets? And then as we look around the other parts of the store, what do you see as other low-hanging fruit, maybe or other things that you guys can look at to help improve some of the comp momentum from a merchandising standpoint?
Spencer, it's Seth, thanks for the question. Yes, from the recent pet resets kind of like pre-post, like we've mentioned already, kind of sequentially, we're seeing some nice improvements in our Pet business overall. As we went through this last pet reset, a couple of key things happened with those. One being obviously some new brand expansions and introductions and how we make sure that we have the brand expanded and introductions on a regional and more localized level. So team put a lot of work in making sure that we have the right brands in the right stores, and we're seeing that have favorable impact right out of the gate.
Second is we already talked about Fresh, we're introducing Fresh. We're seeing nice adoption with that. And where we're not necessarily at significant scale with that yet, we haven't really put any significant marketing behind that. As we continue to scale that, you'll see us get even more marketing behind that activity, which we think will continue to drive some market share opportunities for us. We've also seen some really strong results related to our cat reset recently. That was the one that just happened a few weeks ago. We expanded pretty significantly our cat wet offering that we have there. That has shown a really nice improvement from Q1 to Q2 and even in post reset.
As well as one last thing, too, we continue to iterate on our Project Fusion Pet layout. And as we continue to iterate on that to be able to make sure that we are having the right footages by categories, the latest Fusion format as well, what we call kind of like our Pet Plus format, it is outperforming the balance of the chain as well. So there's optimism on the activities that the teams are seeing to put behind this. And you put that along with all the activity going into our digital enhancements as well as our marketing activities behind it and then couple that with our pet ecosystem that we're continuing to invest in, we think that has the opportunity to be incredibly sticky for us going forward relative to Pet.
Other merchandising activities kind of excited about as we approach the back half. Hal just mentioned a couple of them. First, I'd just say our -- basically our center court activity, those are the things that really come to life in the back half and where we really can drive incrementality. Last year, those were the most impacted categories and events that we had from tariffs.
I was proud of the work the team did last year to minimize those impacts. But obviously, it wasn't necessarily optimal and optimized based off when they were getting planned when the tariffs actually rolled out. And this year, I think the team has done a remarkable job bringing incredible value, innovation, and new programs across our Tool Days event, our Deer event, our Holiday event and as we approach holiday later in the year, just some special buys, unique products that's going to be innovation and I think at values that consumers are going to really, really respond to.
And then lastly, Hal mentioned also our Rec aisle. Our Wildlife business has been very strong over the last few years. At this point, we have over a couple of hundred stores that we've gone in and back remodeled, a dedicated rec department, wildlife focused more on deer and hunting. Now that's opening up space in center court to even expand that category further. And that's really an effort of localization, particularly across the states that are very meaningful in those categories, and we're seeing really good customer response on that right now. And that season is in front of us. So a lot of activity from the merchant perspective ahead and optimistic about the programs that are coming to life.
The next question comes from Chuck Grom with Gordon Haskett Research Advisors.
Can we dissect the compression on traffic a bit more? Curious if there's any common themes by geographic market, income cohorts and also driving distance from the store? And then just separately, Kurt, inventory is up about 14% year-over-year more than the recent trend. How are you feeling about the currency of that inventory today?
Yes, Chuck, this is Kurt. I'll hit both of those. In regards to traffic, I'll start by saying it's important to note that when we entered 2026, we said we expected that we would benefit more from ticket than the business being transaction or traffic led, and that has certainly played out. But that said, both Q1 and Q2 have certainly had traffic and transaction counts below our expectations. The traffic activity was very much in line with the overall trends of the business. I'll hit some of those key points. We saw only a modest level of comp transaction decline in April and June, flat to slightly down.
The majority of this transaction decline that you're seeing in the numbers are very much in line with the results of May. And what we saw in May was certainly the biggest pressure was on big ticket, seasonal big tickets such as riding lawnmowers, those area, seasonal big ticket of rec vehicles and so forth. But then we saw a lot of the spring seasonal activity that's a bit more discretionary based, we saw transaction decline. Certainly, part of the transaction across all the quarter was consistent in being down related to companion animal. But as we mentioned, we saw sequential improvement.
So the pressures that were -- that occurred in May were somewhat in certain geographies where they're drought based off of that. I'd give a stronger impact from overall May, as Hal's remarks mentioned, to be very much consistent with the overall consumer sentiment at some of its low and the rural customer, as even you indicated, certainly having driving more distance, impacting their own lifestyle even if they're the hobby farmer in diesel with their equipment and a greater percentage of our customers driving diesel trucks. And we looked across the geographies, and there was a consistent theme during those 4 weeks. And by the way, those 4 weeks are historically 4 of like the 6 largest volume weeks, and we saw a noticeable across our geographies.
We saw a more meaningful decline in areas where there were some droughts such as the Southeast areas, et cetera. So we do like and are really more leaning on the more normalized traffic, which has been consistently only modestly down year-over-year. In regards to our inventory, as I mentioned, a larger portion of that 6% growth in average inventory per store is inflation or cost basis. And the other portion of that is more heavily related to the seasonal goods. We don't see risk in those areas. And we actually believe even more at this time that it's benefiting us as in certain markets, we're seeing a continued demand for the spring seasonal goods.
So we don't see any real significant concerns. We're certainly working to drive our average inventory per store down and expect and targeting those numbers on an average inventory per store growth rate to decline as we go throughout the cadence of this year as we want to just be able to be more efficient across all aspects of our business, but we don't see a concern with inventory at this time.
The following comes from Jeff Lick with Stephens.
I think if you were to hold all the analysts, either buy side or sell side, we would have thought that pet was a bigger impact than it was. And then now you're talking about May and big ticket I wonder maybe if you could unpack that a little more and then also just give specific reference to -- you've talked about how your initiatives are a net positive, but they're kind of being overwhelmed by -- it doesn't seem like it's pet, it's the other category. So maybe if you take that wherever you'd like, but just like a lot of the analysts, just trying to forecast and unpack the sales trajectory and where you're going.
It's Hal. I'll just try to use that to reiterate some of the previous comments we've given. First, we saw positive comps, as I said in -- as we've said many times in April and June. We have a very strong 2-year lap. We had a high-single-digit comp in the month of July last year, and we are very pleased with our 2-year lap on that. As we've said, we've seen sequential improvement in really all aspects of our business from Q1 to Q2, inclusive of pet and importantly, pet, given its concentration in our business. But as I mentioned in just a few Q&As ago, we've also seen improvement in other areas that we've made investments such as I mentioned, in electrical and power tools, Seth reinforced that, our center court activity, also in clothing and gift.
Those sorts of investments, outdoor rec is another area. Those sorts of investments have also provided sequential improvement in all of our businesses from Q1 to Q2. Certainly, seasonal was what put pressure on us in Q2. That seasonal business has continued to perform in Q3. As Kurt mentioned, we're very pleased that we carried that inventory over. We are seeing the sell-down on that as we expected through July. And we continue to see improvement sequentially in the core business, as I mentioned earlier. And it's those elements that give us confidence in our implied Q3 and Q4 outlooks.
We have a question from Peter Benedict with Baird.
So the second half EBIT margins, I guess, are implied like 7.7% or down 75 basis points at the midpoint. I'm wondering, Kurt, could you help us unpack the drivers there, not necessarily gross margin versus SG&A, which you've given some on, but more what's driving that with the DC costs, the natural deleverage on the negative comp, to what extent price investment might be playing a role, medical. I think there were some timing things for tariffs. Anyway, if you can just maybe break that 75 basis points down so we can kind of understand what's maybe temporal here or what maybe continues as we look into '27?
Yes. I'll just give you a few things to kind of pack in there as for your modeling purposes. The tariffs, as I mentioned, are a bit choppy and lumpy. And so where they've been offsetting some of the freight and fuel pressures, they're also allowing to provide an offset to some of the value that we're driving the business. We expect for the back half of the year, the freight pressures to be relatively consistent in both Q3 and Q4 that we had in the first half of the year. We are committed to our everyday low pricing and the value we're driving right now in the business. And so I think there's not that much difference between Q2 versus the second half and those factors.
The things that generally are different on the gross margin is principally the choppiness on the tariffs. And then additionally, in Q4, we're anticipating roughly a 20 basis point benefit on the supply -- from the supply chain with the new distribution center. On the SG&A side, our numbers implied in the second half of the year should provide an improved SG&A as a percentage of sales, while deleveraging shows some improvement, although somewhat offset by having the start-up costs from the distribution center.
So it's really a bit of the choppiness on the tariffs. And there's a stronger overall performance from sales in Q4, gross margin improvement from the new distribution center in Q4. And if you take all that together, and I think what might be helpful for the modeling, as we see this, and this has been kind of going back to somewhat of a historical norm, I would package like the potential -- the growth earnings potential of the second half of the year. Q3 is roughly 45% to 45%, 50% of the earnings and the Q4 is more the 55% of it. And that's going to really help you understand just the timing because there are a number of things that, as you mentioned, are playing into a timing across even the quarters.
Operator, we've got time for one more question.
Absolutely. The final question comes from Kate McShane with Goldman Sachs.
We wanted to go back to what you announced on Petsense today. What do the 75 store closures mean for the fleet? Were they unprofitable stores that you are closing? And just what is the longer-term strategy there? And then just second to that, I don't think we heard much about Neighbor's Club today in the prepared comments. I just wondered if anything was being leveraged there in a more meaningful way to help drive customer acquisition or improve transaction growth.
Kate, it's Hal, and thanks for the question today. Appreciate that. On Petsense, I would frame Petsense as part of the broader strategic work that we're doing, as I mentioned, leading up to a kind of sharing of a new long-term algorithm in concert with our Q4 earnings call. And as I mentioned in my prepared remarks, we're going through a significant amount of work. And as we make decisions through that work, we will -- we're committed to being transparent and sharing those publicly. And one of those decisions was around Petsense.
So the Petsense chain has north of a couple of hundred stores, and the performance across those stores has a wide range. And the 75 stores that we announced today that we're shutting down are negative 4-wall cash flow. And so we will be able to use that negative 4-wall cash flow once we shut those stores down and reinvest that back into the core of our business, and we think that's a kind of smart shareholder capital allocation approach.
Reiterate that we -- after that, we think we'll have a very strong profitable Petsense business. It will work well with the broader Pet ecosystem that we're building with Allivet as well as with VIP Petcare. And I will reiterate that while there's those 2 businesses, VIP Petcare and Allivet do integrate, and we fully expect them to be core parts of our integration with Tractor Supply, the Petsense business is not directly connected to the core Tractor Supply business.
So we feel like this doesn't do anything in terms of impacting our Pet reacceleration in the core Tractor Supply business. On Neighbor's Club, we continue to be very pleased with Neighbor's Club. It's 80% plus north of our overall sales volume. We continue to add members. And in particular, as we've been looking to drive improved value positioning in the marketplace, Neighbor's Club has really played a role in that because we'll be able to target the cohorts, get the message out. And Seth mentioned, our consumers' price perception in our business has increased significantly from Q1 to Q2 and year-over-year. And certainly, Neighbor's Club and the depth of understanding we have on those customers has allowed us to effectively reach them and get that message across.
All right. We've hit the top of the hour, so we'll wrap our call up there. Rena Clayton and I are around for any follow-ups, and thank you all for joining our call today. We look forward to talking to you on our Q3 call in October.
This concludes today's conference call. Thank you for your participation. You may now disconnect.
Tractor Supply — Q2 2026 Earnings Call
Tractor Supply — Q2 2026 Earnings Call
Core business durable but May fuel/drought-driven weakness left Q2 below expectations; management is accelerating pet, value and store optimization moves.
📊 Quarter at a Glance
- Revenue: Net sales ~$4.5B (+~2% YoY)
- Comp Sales: Comparable store sales -1.5% YoY (fewer transactions, weakest in May)
- Gross Margin: Reported 37.1% (+11 bps); adjusted 37.2% (+24 bps)
- Profitability: Adjusted operating income $548.3M; adjusted diluted EPS $0.81
🎯 What Management Says
- Pet ecosystem: Completed VIP Petcare acquisition, expanding vet/prescription reach; Freshpet rollout (~250 stores) and pet resets showing early traction.
- Price & value: Launched "unbeatable price" campaign and targeted CUE (consumable, usable, edible) investments to improve price perception and drive share.
- Capital reallocation: Closing ~75 underperforming Petsense stores, trimming 2027 new-store plan to 85–90, and redeploying capital to Project Fusion remodels and Final Mile delivery.
🔭 Outlook & Guidance
- FY2026 sales: Net sales growth ~2.5%–3.5%; comparable store sales -1% to flat.
- Profit targets: Adjusted operating margin 8.5%–8.8%; adjusted diluted EPS $1.90–$2.00.
- Timing & risks: 11th distribution center opens early Q4 (Q3 start‑up SG&A ~20 bps headwind; Q4 gross margin benefit ~20 bps); freight/fuel elevated; tariff refunds are lumpy.
- Capital returns: Share repurchases expected toward high end of $375M–$450M guidance; dividend growth remains a priority.
❓ Analyst Q&A
- Pet trends: Management sees sequential improvement; Freshpet is bringing new or reactivated buyers and pet resets/assortment localization are early positives.
- May weakness: Higher fuel costs and regional droughts depressed discretionary and big‑ticket sales (riding mowers, seasonal goods) causing most of the quarter's shortfall.
- Portfolio & framework: Petsense closures are of negative 4‑wall stores to redeploy capital; company withdrew prior long‑term financial algorithm and will provide an updated framework with Q4 results.
⚡ Bottom Line
- Summary: Tractor Supply reports a resilient core but a concentrated May hit led to softer Q2 results. Management is pivoting from growth cadence to productivity and targeted investments—accelerating pet initiatives, reinforcing value, optimizing store footprint and conserving capital—while keeping buybacks/dividends and promising an updated long‑term plan in Q4.
Tractor Supply — 2026 Baird Global Consumer
1. Question Answer
I'm Peter Benedict, Senior Retail/Consumer Products and Services Analyst at Baird. I want to be the first to welcome you all to the 2026 Consumer, Technology & Services Conference.
Really pleased to be kicking things off here with Tractor Supply. Leading rural lifestyle retailer in the U.S. A little more than 2,300 stores currently. They also have 200 or so Petsense locations. Their sales are expected to exceed around $15 billion this year. And the stock carries a market cap of just under $17 billion.
With us today, we have CEO, Hal Lawton; CFO, Kurt Barton; and of course, Mary Winn Pilkington, who heads up the IR effort, she's here as well.
I think the guys are going to have some prepared remarks, then we'll do some Q&A. If you have a question, we can try to weave it in, just e-mail [email protected], I'll do my best. And there will be a breakout session afterwards if you have questions that haven't been addressed.
So with that, I'll turn it over to Hal.
Great. Thanks, Peter. Good to see everybody this morning. Thanks for joining us.
Just a couple of opening remarks. As Peter mentioned, Tractor Supply, now over 2,400 stores in the United States, farm and ranch, and then a couple of hundred Petsense stores. This is a business that's 88-plus years old now, has a track record of navigating different cycles and very resilient business model, one that has incredible strength and loyalty with our core customer, and then continues to expand our total addressable market.
Over the last several years, a handful of years, we've made some notable investments and some strategic initiatives. New stores have always been a hallmark of Tractor Supply. Over the last handful of years, we've remodeled nearly half of our stores and made incremental investments in areas like digital and in our final-mile delivery program. And those have been very successful and created significant shareholder value creation.
All that said, our performance in the last couple of quarters in particular has been less than what we would have aspired to deliver. That's primarily due to softer end markets that we participate in, our total addressable market. 40% of our total addressable market is farm and ranch, another 20% is pet, another 20% is home improvement. All 4 of those sectors are soft and under some kind of pressure relative to their historic norms, and that's created some weakness in our business.
That said, we're not sitting still and we're taking some significant action. We can provide some further updates on that today. We provided some of those updates on our most recent earnings call. Namely, those 2 major areas of kind of immediate actions we've been taking have been around reaccelerating our pet business and also further establishing our price/value competitive advantage in the market. And we've been navigating in those 2 areas and putting significant energy and action against over the last few months, and look forward to sharing some of those updates on that.
But again, just stepping back, Tractor Supply, 88-plus year-old business, a hallmark of navigating a variety of different cycles. Very resilient business model. And pleased to be here today to talk with you.
Peter, I'll just add on to some of Hal's comments. I thought I'd hit 3 things, and I think all 3 of them are very focused on not only for us but for the conference. I'll hit a little bit on the operating environment today; the consumer, and particularly the rural consumer; and then in our business, what's our focus in the near term.
I'll start by saying, very consistent with our typical approach with your conference, we're not coming in providing intra-quarter business update, but our comments are very purposeful to be more reflective of the broader consumer and customer, the broader retail market. And I'll start with the operating environment.
No doubt the operating environment today is very different and a bit more cautious than going into the year for most companies, and Tractor Supply is inclusive of that. When you think about the operating environment today with global conflict, higher fuel prices, higher interest rates -- longer, higher interest rates, and even choppy and much less ideal weather conditions in the environment. So our operating environment is a bit more difficult and cautious than we saw going into this market.
Take that on to the customer and the consumer, we're seeing very much the same thing that most retailers are saying. We're seeing a consumer that's very highly value-focused, being much more deliberate, discerning in their spend, particularly in the discretionary side of the business, seasonal or big ticket purchases. You see customers being much more discerning, planned and deliberate on that. Focused on value.
Much more uncertainty on the consumer on the inflation at this point. When we see not only their spending and where they choose to spend in their wallet, but even the surveys that we pulse in with our own customers, our customers are telling us even greater percentage of the decision-making on the purchasing is impacted by inflation. In the most recent survey that we've given, fuel has now become the highest level inflationary pressure that they're telling us impacting their decision.
And when you think about fuel, while it impacts most businesses, all retailers, there's a bit of uniqueness to the rural customer. The average rural consumer will drive, as an example, 400 miles on average a week. That's about 30% more than a suburban or urban customer. Even more, further specific with Tractor Supply, 2/3 of our customers tell us they own 1 truck -- or at least 1 truck, 25% of them is a diesel truck. And in this environment where fuel prices are higher as you watch diesel prices have accelerated higher year-over-year than even gasoline prices. And so for our customer, that's about $50 a week more of inflation, almost $1,500 a year on average that's pressuring them at this point.
So our consumer has definitely been, our customer has definitely been resilient over the years in inflationary environments, but certainly recognizing the pressure that's on the business. And we see that. We still see a strong, actively engaged customer on buying needs-based items, continue to see growth in the queue and the consumables, while the discretionaries underspend. So with our customer and for even our business, we're going to continue to monitor the fuel cost as that can impact not only their decision-making but even our input costs with higher freight costs as well.
With that said, the consumer, our customer, the exciting thing and what we watch often for the health of the business, our customer continues to be engaged in the lifestyle and continues to be engaged with Tractor Supply. The customer shopping patterns, the engagement and loyalty of the lifestyle on Tractor Supply continues to be strong. Retention continues to be solid. We certainly see some of the impact on either what they're spending or the frequency of the spend, but it's great to see those Neighbor's Club members and those customers continue to shop with Tractor Supply.
Maybe I'll just end by saying our focus right now, and certainly in these environments, our focus is controlling what we can control. With the macro pressures, our team is very focused on executing strong, driving value to the customers. In these environments, the team does an excellent job, and we're doing it right now to switch and pivot to value drivers for the consumer and driving the needs-based business. Inventory management and cost control are key.
Investing and then our capital allocation. I'll just end with saying we're going to continue to invest, and you'll see that not only in the near term but long term, investing for the things that give us a strong competitive position. Those items are areas that are really important to drive value and convenience. So investing in digital, investing in final mile, final mile unlocking a number of revenue stream opportunities. Localization infusion, and certainly, new store economics, which are really strong, we'll continue to invest in new stores. These are the things that are helping us offset some of these macro pressures, and so we're going to continue to lean on those.
As far as that capital allocation, we're going to continue to invest in one of the best economic parts of the business, which is new stores. Our balance sheet is strong. It gives us the opportunity to be nimble but yet disciplined on where we're going to invest, but nimble to be able to make the investments in different areas of the business. And that includes capital allocation on shareholder return. We could be nimble and lean heavier on or adjust in share repurchases. So we've got all those opportunities with a healthy balance sheet.
And for the long term, I'll just remind you that a differentiator for Tractor Supply is we have a very resilient, loyal customer base. We have a needs-based business that buoys us in environments like this where there's pressure on discretionary. And we have a still growing opportunity to gain market share in rural America. And we're excited about the long term. So those are some of the thoughts.
No, that's great. That's -- look, you're addressing a lot of the current issues that are out there, which is great. And I want to take a step back, we're going to dig into a lot of what you guys just kind of touched on, but I just want to take a little bit of a step back because you do operate in a very unique market relative to most retailers. You've got about a 7% to 8% market share position, I think, when you think across the entirety of the addressable market.
Maybe talk about some of the key secular themes that are driving kind of your end markets, where they sit right now, what's working, what's not working from a secular standpoint, and what do you think kind of an underlying growth rate should be for this kind of -- this TAM that you guys go after.
Yes, great. Thanks for the question, Peter. I referenced our total addressable market earlier. Our TAM is over a couple of hundred billion dollars in size. We shared that at our most recent investor conference in the winter of 2024, for those who want to go back and look at that. And in that investor presentation, we had a pie chart and it showed the breakdown of our TAM by sector. And I referenced it earlier.
About 40% of our TAM is farm and ranch. That's kind of our historic core market base. Another 20% is pets. Another 20% roughly is home improvement. And then you've got the remaining 20% across a variety of smaller categories related to our business and markets, things like clothing, et cetera.
If you think about those first 3 sectors that I mentioned, I'll first start with pet because that one is very well known and documented. That sector has been soft for the better part of 2 years and is projected to continue to be soft this year as well, with some -- due to reduction, in particular, in dog population across the country and kind of the impact that has on the business. That sector has been kind of flat to negative really for the last 1 to 2 years, particularly on the goods side of things.
The second would then be home improvement. Again, that will -- that kind of sector, very well documented, there were some earnings reports last week, I believe it was, or 2 weeks ago, that just came out talking about that sector. It's roughly flattish as well.
And then you think about farm and ranch, that may be one that folks are in this room lesser exposed to. But again, you can get credit card data on the farm and ranch sector, you can pull Placer data on the farm and ranch sector. We continue to outperform in that sector, but that sector is flat to negative as well right now.
So when you take those 3 sectors and you put them together, that's 80% of our end markets that are kind of soft and kind of weak relative to historic times. Now on historic, typically, our sector is an at-or-above GDP growth sector. And then we have been a share gainer in the context of that. We continue to be a share gainer right now in just more of a softer and weaker environment.
But structurally, it's a very sound market. It's consumables based, it's usable based, it's edible based. It's needs, it's essential products. And it's an end market that's shown that it's had strength for the last 40-plus years. And we we're confident it will continue to be that way and that we'll continue to take share in it.
Yes. I mean you're a dominant player when you think about the farm and ranch set. But you talk about pet, you talk about home improvement. Of course, there's all sorts of other companies out there that come to mind. Maybe talk about the competitive set that you guys think about, both the brick-and-mortar based folks, but also the digital folks. How has that evolved over the last several years? How do you see yourself fitting in from a competitive standpoint?
Yes. I think on the competitive front, the way I think about retail now is much like it was just pre-COVID. If you think about farm and ranch, that end market we continue to take significant share in. We've got a number of competitive advantages relative to that -- to our competition around scale with our manufacturers, supply chain, digital, our Neighbor's Club, et cetera. We're outgrowing the farm and ranch market kind of week-to-week, month-to-month by usually 2 to 3 points of overall growth. And so continue to take share there, and fully expect to do so as we move forward and have historically always taken share in that market.
And then if you think about home improvement, that market has been reasonably stable. There's not been significant share going back and forth in that market. And I think we continue to do well there. We anchor hard in -- on the garden side, in riding lawn mowers. We sell the largest number of riding lawn mowers in the United States each year. So that's an anchor for us and it will continue to be. Obviously, we have a strong tools and hardware business that's anchored in truck, as Kurt talked about earlier. If you're in our business, you'd say, "Oh, this feels like an Ace Hardware, but a little heavier, a little harder, a little more truck oriented." That sector, I think the competitive environment is very stable.
And then in pet, it's a sector that's very competitive and one that, as we all know, is increasingly shifting to online. We've got to continue to be very competitive there, one that's increasingly shifting to services. We just made an acquisition that I think positions our ecosystem better in that area of the business.
And it's -- more broadly, if I just sort of step back, I think retail is similar to 2018 and 2019, where it's consolidating. You see, particularly with gas prices where they are, people taking -- visiting less number of retailers, consolidating their trips across those. We are a consolidating retailer. We sell a lifestyle. We don't fill a specific category. So that fares well for us. But we've got to make sure we fight hard for that trip.
Yes. And sticking with the companion animal, kind of pet business, what's -- there's a macro issue there, I think we appreciate, but what's like the self-diagnosis that you guys have done as you look at maybe how you've been merchandising, you've been approaching that category? Are there changes that you're making to try to kind of maybe bend the curve before the sector turns?
Yes. If I were to step back and just talk about pet for a minute, kind of maybe break it into 2 buckets of things: one, dog/cat and then goods versus services. So on dog and cat, the dog population peaked in 2023, and then it had a step down into 2024, had a step down into 2025 and is expected to step down again here into -- in 2026. It's been primarily second dogs that haven't been replaced, or singular dogs, of course, when they pass away as well, but mostly second dogs and larger dogs.
And by contrast though, the cat population has been going up during that time. So you're seeing kind of a crossing of those 2 groups in terms of their overall growth rate. In our business at Tractor Supply, we are 80% dog, 20% cat. By contrast, the industry is 60% dog, 40% cat. So we have a mix headwind there, in addition to, just in general, a dog headwind in the market.
The second thing I'll call out is goods versus services. If you look at pet and kind of across most sector experts right now, it is a flat to maybe modestly up business, call it, like a flat to plus 1%. But the services side of it is what's leading it up, call it, plus 5% to plus 10%. And then the goods side is negative, call it, like negative 1%, negative 2%. So if you're in grooming or if you're in vet services, those sorts of things, those are the ones that are growing in the high single digit still. But the goods side of it because, one, you don't have new dogs coming onto the market as much as there were 3 or 4 years ago, so all the hardline side of it that goes along with a new dog is depressed. And then obviously, if you have lesser dogs in the market, there's lesser food being bought.
And then the third thing I'll bring up is, in the context of food, we've seen a big shift over the last 7, 8 years out of dry food, kibble, into fresh food, which is now nearly 10% of the business. So those are kind of the 3 main factors I would say that everyone in the pet industry is navigating.
And then as it relates to us, what are some of the actions we're taking? So first off, on the dog/cat piece, we are shifting our space and our stores more to cat so that we've got a square footage that's reflective of the market more so. So we're pivoting there, and you'll hear more about our cat expansions.
On the dog side, we've got several things that are going on over the next 6 weeks. We'll reset 70-ish percent of our dog area in the store. We'll be redoing the entire dog feed area. We'll be redoing the entire snack and treats area as well as the wellness area. On the snack and treats area, you'll see much more health and wellness, protein, those sorts of things building in. Similarly, animals are -- people are feeding their animals healthier foods and diets just like they are -- just like we are ourselves.
You also -- we also are rolling out Freshpet. So we now have Freshpet in over 250 stores. That's been complete. We talked about that on our earnings call, that that will be done by the end of this quarter. That is complete already. And then we'll be rolling it out to the better part of another 500 stores by year-end. So working to embrace those trends, whether it's on fresh, whether it's on cat, whether it's on the wellness side inside of dog.
And then lastly, we just acquired VIP Petcare. This is a business we've worked closely with for the last 15 to 20 years. They do mobile pet clinics. We see over 1 million customers a year with VIP Petcare. And we have 700, 800 stores remaining that we can expand it into. So there's upside on the growth there.
And the services sector is an area, as I mentioned earlier, that's high-single-digit growth in dogs. So it gives us an avenue to play in that more. And then also, there's a variety of synergies on the back end, I can talk about later, in terms of connecting to the Allivet business that we acquired 1.5 years ago or connecting into our Neighbor's Club business and having some loyalty over time there, improve engagement. So we're very excited about that acquisition as well.
But to your point, Peter, we're not standing still. We're very conscious of what the trends are, investing into those trends to reaccelerate our pet business.
And another initiative that you guys have been front-footed on is Direct Sales, which is kind of a maybe an incremental TAM that you kind of outlined a year or 2 ago. Talk about what that means, why Tractor Supply has the right to win with Direct Sales, and just a time frame to kind of start to see that really impact the P&L?
Yes. We talked about this also at our investor conference 1.5 years ago, so I'll reference it and folks can pull some of those slides if they want. But there's 5 core customer segments that Tractor Supply serves. On the kind of more fringe side, we have this customer segment called country dabbler. Then you've got our pet enthusiasts. And then in our core, you've got a backyard homesteader and a hobby farmer. And those are our core customers.
And then kind of our B2B, that's on the left-hand side of that, is big barn. And that is over a $10 billion TAM. It is an area that we've underserved historically because they're more business oriented. And when they're more business oriented, time is money and they require some different go-to-market approaches than what we've historically done.
Namely, those 2 kind of go-to-market approaches, the first is delivery. You've got to be able to get the product out to their barns, their ranches, their farms. And you've got to be able to not only get it to the driveway, but you've got to be able to get it into the barn or you've got to be able to get it into the stable. That's what we're building out in final mile. We are seeing a significant amount of success with that.
Our big barn customer growth has been significant over the last 12 to 18 months. And Direct Sales, which I'll get to in a minute, has been a big piece of that. But what's been a even bigger piece as we're getting into it is the unlocking of delivery and being able to get the products that our customers want and the quantities they want at the time and in the location they want, on the big barn customer. And think of this as a bit like our Pro strategy, for those who hear about it a lot in home improvement, this would be a bit more of our Pro strategy.
And then Direct Sales, for those customers that don't have the time to go into a store to pick their product or even don't have time to go online to select their items and go through the purchase process there, we have a Direct Sales team that we've been building out this year that will do over $50 million in sales, that are going out and calling on these big barns and these big customers and then taking their orders, building that relationship and grabbing that volume over time.
And it's been very successful. We're a little over 1 year, 1.5 years into the rollout of that program now. Every other month, we're hiring a new cohort, bringing them up, putting them out in the market and then building that customer base. And so the strategies we're executing at big barn have been very successful, both on the Direct Sales side as well as the delivery and the final mile side.
When you say Pro, I think a lot of times investors will hit back on their heels, "That's a lot of investment, that's a lot of CapEx, margin dilutive."" Like how does the return on capital -- well, what's the investment required to make it happen? But then when you think about return on capital of this business, how does it compare to kind of the core Tractor?
Yes, I'll take that. The differentiator with that versus how you -- to your point, you normally start to think, if you talk Pro, it means you've got all this capital and spend. This is very much a hub-and-spoke type environment. It's asset light. So for us, we're utilizing our stores as the source of the product and the base as to where it's being delivered from.
You've got a sales force that -- a sales rep that may cover 5, 6, 7 stores in an environment. And you've really got -- you've got a low level of capital, leased trucks, leased vehicles, et cetera, for the field source. It's really not a capital-intensive environment. We can leverage our cross-stock and mixing centers, our distribution centers and our stores as the source for it. We're implementing principally a field-based team. And so it's not as capital-intensive as often you think about like a large, big home improvement type approach.
Got it. Okay. Stores. Critical to the business. You mentioned 2,400, target of 3,200, I think, at last check. Talk about the performance of the new stores, what the economics are. You made some decisions on owned versus leased. And then given the operating environment we're in, what would it take for you to have to reassess that and say, "Hey, you know what, 90 to 100, maybe that's too much." Or are we not even at that point yet?
Yes. Let me -- I'll talk first about our new store economic model and then I'll talk about some of the quantitative results of that kind of and then talk about how we think about what we do every year in terms of evaluating shareholder capital.
First, on our new stores. Our new stores are one of the best investments Tractor Supply can make, particularly in this environment given where our business results are, very much understand the question around new stores and are you kind of driving over the cliff, building too many new stores. What I'd say is a few things on that.
First off, our new store maturity curve benefit still significantly exceeds the impact of cannibalization as well as competitive impact. So it's still very much accretive, that kind of math right there. The second thing is when you look at the return on invested capital of our new stores, they are in the 23%, 24%, 25% range. So right there in that low to mid-20s. Still very much in line with where they were 10, 15 years ago, and in fact, 1 point or 2 higher. So our ROICs continue to be very strong on our new stores.
And then if you look at the new store productivity, I think last quarter we were like in the high 60s in terms of our new stores opening at our average store sales volume. So we're opening up in like the high 60s. Our new stores are profitable in the first year, cash flow positive in kind of somewhere between year 2 and year 3. Outstanding investments. We've incrementally improved that investment over the last handful of years, as Peter mentioned, by embracing a sale-leaseback model.
So historically, with Tractor Supply, if you think about the ROIC, right, the return on invested capital, you've got, obviously, your operating income on the top that the store is spinning off, but then you got your invested capital on the denominator side. So historically, where that invested capital would work is we would go to a developer and we'd say, "We want this location. You go build it for us and finance that build. And then when it's done, we'll have an agreed-upon lease and you can go flip that store in the market." They would typically spend $6 million to $6.5 million to build the store, typically flip it for $7.5 million to $8 million, and pocket somewhere between $1.25 million to $1.75 million in net for that effort.
Now what we're doing with half of our stores is we're using our balance sheet to fund that 18-month development cycle and we're paying the developer a $500,000 flat fee. And so instead of them making, say, $1.2 million, as I mentioned earlier, we're now -- they're now making $500,000. That $700,000 is coming back to us. As I mentioned, it takes $6.5 million or so to build a store. So we're saving 10% right there in the cost of building our stores. And then we're able to then sell it immediately on the open market because we very much have a lease operating strategy and bolster our invested capital there.
So new stores continue to be an outstanding investment for our shareholders. They continue to return well, and we are not kind of driving off that proverbial cliff. All that said, every -- all the time, throughout the year, but certainly about this time of year as we start to think about annual planning for the next year, we're always looking at what the right way to allocate our capital is. We've increased store counts from 70 to 80 to 100 over time, and we've gone up and down depending on the operating environment that we're in, and certainly always reserve the right to do that as we move forward.
If we were to do something like that, it would not be drastic like a 50% or 60% store reduction. It would be some toggling up and down as we've had historically 10 or 20 stores up or down as we see the environment and our need to evolve to reflect the environment. But this is a business that's always evolved to reflect the environment, and we certainly would do that again if we think it's prudent.
Great. Hal, the doors are opening in the back of the room. I think that means our time is up.
How about that?
There will be a breakout session in the Astor room. Join me in thanking the folks from Tractor Supply.
Thanks, Peter.
Thank you.
Tractor Supply — 2026 Baird Global Consumer
Tractor Supply says soft rural end markets are weighing results but management is pushing pet resets, delivery/Direct Sales and disciplined store growth to regain momentum.
📣 Key Message
Management frames the business as resilient but currently pressured by weaker farm, pet and home-improvement markets; near-term focus is on reaccelerating the pet category, reinforcing price/value, expanding final‑mile delivery and Direct Sales to unlock a larger "big barn" opportunity, while continuing disciplined store investment.
🎯 Strategic Highlights
- Pet: Store resets (70% of dog area), Freshpet rollout (250+ stores live, ~500 more by year‑end) and acquisition of VIP Petcare to add mobile clinics and services.
- Delivery: Final‑mile success unlocking big‑barn customers; Direct Sales field team to capture orders (>$50M this year) with a hub‑and‑spoke, low‑capex model.
- Stores: New‑store economics strong—ROIC (Return on Invested Capital) ~23–25%, stores profitable in year one and cash‑flow positive by year 2–3; sale‑leaseback and in‑house funding cut build cost ~10%.
🔭 New Information
Most items were confirmatory to recent earnings, but management added specifics: Freshpet already in >250 stores with ~500 more planned this year, VIP Petcare expansion potential into ~700–800 remaining stores, Direct Sales tracking >$50M, and quantified new‑store ROIC and build‑cost savings from the sale‑leaseback approach.
❓ Analyst Q&A
- Fuel impact: Rural customers drive ~400 miles/week; higher diesel adds ~ $50/week (~$1,500/year) to household pressure and raises freight costs.
- Pet category: Dog population decline and shift to services explained; management detailed cat space increases, dog‑area resets and Freshpet rollout as tactical responses.
- Capital/ROI: Direct Sales framed as asset‑light (leased vehicles, field reps leveraging stores/DCs); store growth remains flexible—management will toggle cadence but sees stores as high‑return investments.
⚡ Bottom Line
Near‑term revenue pressure is likely to persist, but concrete, measurable actions—pet merchandising and services, final‑mile/delivery, Direct Sales and high‑return new stores—aim to protect share and create multiple levers for recovery and medium‑term growth.
Tractor Supply — Q1 2026 Earnings Call
1. Management Discussion
Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss first quarter 2026 results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded.
I would now like to introduce your host for today's call, Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.
Thank you, Victoria. Good morning, everyone. We appreciate your time and participation in today's call. On the call today, participating in our prepared remarks are Hal Lawton, our CEO; Kurt Barton, our CFO; and Seth Estep, our Chief Merchandising Officer. In addition to Seth, we will also have Rob Mills, John Ordus and Colin Yankee, join the call for the question-and-answer portion. Following our prepared remarks, we will open the floor for questions.
Now let me reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations.
Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call.
As we move into the Q&A session, please limit yourself to 1 question to ensure everyone has the opportunity to participate. If you have additional questions, please feel free to rejoin the queue. We appreciate your understanding and cooperation, we will also be available after the call for any further discussions. Now let me turn the call over to Hal.
Thank you, Mary Winn, and good morning, everyone. Before we begin, I want to thank our more than 52,000 Tractor Supply team members. Their commitment and passion for life out here continue to set us apart and their dedication to delivering legendary service remains the foundation of our leadership in rural retail. The retail environment remains cautious but stable, with spending focus on needs and small indulgences with some evidence of trip consolidation. Within farm and ranch, the broader market has slowed, though we continue to gain share. In fact, we estimate we had one of our best share performances in Q1.
In Pet, the category remains pressured. And while we are holding our share, our performance is below our expectations. A good example of the consumer spending is around their tax refund behavior. While refunds did come through and we captured our fair share, customers are using these dollars more cautiously. A significant portion is going towards essentials, savings and debt reduction rather than discretionary spending, consistent with the broader environment we're seeing. Our needs-based model continues to perform as expected in this environment, demonstrating its resiliency. We are seeing that in consistent demand across our core categories and continued engagement from our customers.
In the first quarter, that played out in distinct phases, driven by weather timing. We ended the year lapping 2 years of significant storms, which created a slower start, followed by a major storm event that drove a pickup in demand. Trends then normalize through the middle of the quarter before a mixed finish with a good start to spring in the South more than offset by continued weather pressure in the North. Overall, weather was neutral to our performance in the quarter.
Against that backdrop, I'm very pleased with our execution in the quarter. The team responded well to winter storms, activated strong events and around holidays and regionalized our marketing based on weather patterns. And we executed a clean transition into spring and chick days with encouraging early results. We remain focused on executing across the business. Advancing new store growth, expanding exclusive brands and maintaining disciplined SG&A control while continuing to make progress on our strategic initiatives. Gross margin remained in line with our expectations with ongoing pressure from tariffs, cost inflation and freight, which we continue to actively manage.
Turning to our customers. Growth was driven by new stores and our existing customer base with store traffic increasing in low single digits and conversion in their stores roughly flat. Active customer counts grew though visit frequency declined modestly. We saw continued strength in our high-value customers with solid retention and engagement, supported by continued growth in Neighbor's Club penetration and higher engagement from our most valuable members, while new customer acquisition remains softer and was most reliant on new stores.
Turning to our first quarter results. Net sales increased 3.6% to $3.59 billion, driven by new store openings. We opened a record 40 traction supply stores in the quarter and new store productivity remained in the 65% to 70% range. New stores remain a hallmark of our performance. Diluted earnings per share were $0.31. Comparable store sales increased 0.5% with average ticket up 1.6% and transactions down 1%. Four of our 5 product categories were positive and 6 of our 7 geographic regions delivered positive results, reflecting the broad-based strength of the business.
With the exception of companion animal, our consumable, usable and edible categories delivered consistent performance in line with our expectations, led by poultry feed, bedding, livestock feed and equine feed. Companion animal performance reflects a number of structural headwinds. Sales were below the chain average, reflecting these dynamics. Dog ownership, particularly in larger breeds, has come under pressure, and our mix remains heavily weighted towards dog where we over-index by roughly 20 points. Cat ownership is growing and gaining share, and that's where we under index.
Both species are also shifting towards fresh and premium nutrition where again, we are under-indexed. And our pace of share gains in both dog and cat has slowed. All this said, we are taking clear and decisive actions to strengthen our position, include expanding our Freshpet offering, increasing cat assortment, and enhancing our services and Rx capabilities, and Seth will walk through these and more in detail.
Seasonal categories developed more gradually early in the quarter with spring category strengthening as the season progressed. Overall, we saw solid performance across both our winter and spring assortments. Big ticket categories performed above the chain average with strength in tractors and riders, generators and welding, partially offset by softness in chicken coops, trailers and recreational vehicles. Our digital business also continues to perform at a very high level with strong double-digit growth in the quarter. And we saw meaningful increases in traffic, along with improved conversion, reflecting the strength of our omnichannel experience.
We've made targeted enhancements across our platform, including improvements to how customers shop and navigate our assortment as well as upgrades to our subscription offering as well as our order management and checkout experiences. These efforts are driving a more seamless and efficient experience and supporting continued momentum in the business.
As we look beyond the quarter, we continue to make progress on our Life Out Here 2030 priorities. On localization, results are encouraging as we tailor assortments to local needs with more than 200 stores now localized and delivering improved performance and stronger customer engagement. In direct sales, momentum continues to build as we expand our sales force and deepen relationships with our higher-value customers, and this is driving increased productivity, larger basket sizes and repeat engagement.
In Final Mile, we're scaling our delivery network, adding hubs and increasing delivery volume, supporting the continued strength in our digital business while improving efficiency and reducing our cost to serve. Within pet and animal Rx, we're seeing encouraging progress across both Allivet and tractorsupply.com as we expand our offering and enhance convenience for customers while driving engagement with new and reoccurring purchases.
As we look ahead, we're seeing our typical seasonal ramp take hold as we build towards Memorial Day with stronger seasonal penetration and improving trends in the North, we expect sequential improvement in comparable sales relative to the first quarter. We continue to see strength across our customer base and in the majority of our business. We're taking targeted actions in areas of opportunity while continuing to execute on our strategic priorities. We remain focused on what we can control, investing with discipline, managing costs and most importantly, as always, serving our customers. That approach continues to position us to drive market share gains and long-term value. Lastly, we are reaffirming our full year outlook. And with that, I'll turn the call over to Kurt.
Thank you, Hal, and good morning, everyone. Let me complement Hal's top line commentary by briefly covering the underlying drivers. Overall, our net sales performance was modestly below our expectations for the quarter. New store sales outperformed expectations in both timing and the number of new stores opened. This was offset by comp store sales performance below our expectations as we planned for Q1 comp sales to be at the low end of our 2026 guidance range. The primary driver of this performance was the softness in companion animal, which represented just over a 100 basis point drag on our comparable store sales.
To further break down comp sales performance, average ticket increased 1.6%, driven primarily by higher average unit retail, reflecting a combination of inflation and category mix. Retail price inflation was the primary driver to the average ticket increase at approximately 150 basis points contribution along with a category mix benefit, principally from big ticket sales growth. This was partially offset by a modest decline in units per transaction. The mid-single-digit growth in big ticket categories was generally in line with our expectations.
The growth in average ticket was partially offset by a 1% decline in transactions, reflecting customers' continued focus on value and prioritization of spending as Hal mentioned earlier, leading to reduced shopping frequency and trip consolidation. As expected, ticket outpaced transactions in the quarter.
Turning to gross margin and SG&A. Gross margin was 36.2%, flat to prior year. The gross margin rate was generally in line with our expectations and reflects supply chain efficiencies and continued execution of our everyday low price strategy, offset by a higher mix of digital and other delivery-related sales, along with the continued pressure of tariff costs. This stability reflects the team's continued focus and cost management in a dynamic environment.
And on tariffs, the impacts remained in line with our expectations with pressure largely contained and mitigated through our ongoing cost management efforts. SG&A increased 6.1% to $1.07 billion and as a percent of sales, was 29.7%, an increase of 70 basis points. There were 3 primary drivers of the deleverage. First, fixed cost deleverage given the level of comparable store sales below our 2% breakeven threshold. Second, continued investment in strategic initiatives across the business as we do not begin to cycle the step-up in investments for direct sales in Final Mile until Q2. And third, an accelerated new store opening cadence with 40 stores opened in the quarter. These were partially offset by ongoing productivity initiatives and cost management. As we shared last quarter, we expected Q1 to carry a heavier SG&A burden and that played out in line with our expectations.
Our inventory remains in good shape with the average inventory per store increase principally reflecting inflation, inclusive of tariff costs and the timing of spring seasonal purchases. We continue to manage inventory effectively, supporting in-stock levels in key categories while maintaining overall quality and balance across the network. We also remain committed to returning capital to shareholders. Our dividend increase in February marked our 17th consecutive year of dividend increases.
Turning to our outlook. We are reaffirming our full year 2026 guidance as outlined in this morning's earnings release. We continue to target comp sales growth in the range of 1% to 3% for each of the remaining quarters. Please keep in mind that we manage the business on the halves and not the quarter.
From a margin standpoint, we expect gross margin to strengthen in the second half as comparisons ease and benefits from our new distribution center begin to flow through. SG&A deleverage will be higher in the first half, driven by the timing of new store openings, more normalized incentive compensation and the lapping of prior strategic investments. Our 11th distribution center remains on schedule, with shipping expected to begin in early Q4, and we expect approximately $10 million of incremental expense this year, primarily in the second half.
Consistent with our outlook as we entered the year, we expect stronger EPS growth in Q2 and Q4 given the prior year's compares. On tariffs, the current environment remains fluid. We are managing the business based on what we know today and have not assumed any incremental benefit from refunds in our outlook.
In closing, the quarter reflects a resilient business with consistent performance across the majority of our categories. We remain confident in our ability to deliver on our full year expectations and drive long-term value for our shareholders. With that, I'll turn it over to Seth.
Thanks, Kurt, and good morning, everyone. Tractor Supply's merchandising strategy is focused on meeting customers where they are today while positioning the business for where demand is going. We are taking deliberate actions to drive relevance, expand our reach and strengthen our position as the dependable supplier for Life Out Here.
I'll start with our pet business, where we have a focused structured plan to accelerate performance and capture growth, then followed by key merchandising initiatives across the broader portfolio. As Hal mentioned, the category is evolving with macro trends in dog ownership, growth in cat and a continued shift toward premium fresh and more digitally enabled solutions. While our assortment has historically been well aligned to our core customer, particularly in dry kibble and larger dog formats, incremental growth is increasingly being driven by adjacent segments as we actively expand our presence.
To address this, our plan is centered on 4 key areas: first, assortment transformation; second, exclusive brand innovation; third, digital capabilities; and fourth, customer engagement, all supported by continued investment in talent and category leadership.
Starting with assortment. We are expanding into the fastest-growing segments of the category. We are aggressively scaling fresh and frozen pet, moving from approximately 80 stores today to more than 250 stores by the end of May with a path to 700 stores by year-end. While still early, we are encouraged that approximately 1/3 of customers purchasing Freshpet in our pilots are either new or reactivated to the category at TSC, demonstrating the traffic-driving potential of this segment.
In parallel, we are expanding our presence in cat. Increasing space across our fusion stores, expanding both dry and wet assortments and improving presentation to better capture the opportunity in this rapidly growing segment.
In dog, a comprehensive chain-wide upgrade of our food business in Q2 extends into key adjacencies, such as shreds, treats and meal enhancers, while introducing new brands like Stella and Chewy, and broadening the assortment of leading national and differentiated brands like Purina Pro Plan, Hill Science Diet, Victor and Sports Mix. We are also incorporating more localized assortment decisions to ensure relevance by market and customer.
A second key pillar is accelerating innovation across our exclusive brands. For Health remains a cornerstone of our strategy with strong scale and continued share gains. We're expanding the brand across multiple formats, including the launch of New for Health shreds formulas and extending into higher growth segments, such as Ambient Fresh and meal enhancers with differentiated offerings. In addition, the Retriever portfolio will be relaunched in Q3 with enhanced formulations, expanded SKUs and updated packaging, further strengthening our value proposition across good, better and best years.
Moving to our third pillar. We are accelerating our digital capabilities to better serve pet customers and capture reoccurring demand. Our online pet business grew mid-teens in Q1 led by subscription, which grew by triple digits driving new customer acquisition, strong retention and increasing repeat purchase behavior in core consumables. In addition, we've expanded our Pet Rx offerings across both Allivet and tractorsupply.com, while leveraging our last-mile delivery network to improve the fulfillment experience and lower cost, particularly for large format pet food.
Fourth, customer engagement is a key priority with enhanced engagement through Neighbor's Club and continued leverage of our pet services ecosystem to drive higher frequency and lifetime value. Through Neighbor's Club, we have the opportunity to deliver more personalized experiences, reactivate customers and acquire new customers through targeted outreach. We also see a meaningful opportunity to convert our large animal customers into pet customers, leveraging our highly engaged base.
Our services offerings continue to play an important role. In Pet wash, we have more than 1,200 locations with strong growth in usage, including double-digit increases in comparable units. This reflects the value customers are placing on this offering. And PetVet mobile clinics performance remains solid, with sales growth building on strong prior year trends with a 2-year stack of nearly 25%. We see continued opportunity to expand access and scale this offering with additional clinics planned in the near term. These services help us drive frequency, attract new customers and strengthen long-term relationships, reinforcing our competitive position in the pet category. We expect to continue expanding these capabilities over time.
In supporting all these efforts, we are investing in talent and leadership across the pet category, ensuring we have the right expertise, focus and execution capabilities to drive sustained improvement. All these actions in companion animal are designed to accelerate performance and position the pet business for improved growth and share gains.
Importantly, beyond pet, we are very excited about our broader portfolio, which continues to perform with strength and building momentum. We are leaning into our seasonal moments, particularly as we transition into spring and summer. Chick Days is off to an encouraging start, with strong engagement from both new and existing customers, and we are on track to sell a record number of birds this season. This event continues to serve as a powerful traffic driver and a key entry point into our broader animal care ecosystem, driving demand across feed, coops and accessories.
In our seasonal big-ticket categories, performance is exceeding expectations, led by live goods and our zero-turn mower lineup. This lineup featuring brands such as Bad Boy, Cub Cadet, Toro and Husqvarna is performing well. And our new flagship stores are driving improved presentation, attachment and overall productivity. Our stores are ready for the spring planting season as we have nearly 50% of our stores with either a garden center or a live goods tenant. We're well positioned for the season with the right assortment, the right presentation and the right momentum to capture the seasonal opportunity.
Moving to livestock feed. We recently completed a comprehensive private label network review to ensure consistent quality at the lowest cost to serve, strengthening both our retail and our direct sales capabilities, we've been one of our most important heritage categories.
We're also expanding our assortment with key regional brands such as Total Equine, Bluebonnet and Buckeye, allowing us to better localize our offering and meet customer needs across different geographies. We also continue to invest in our exclusive brand portfolio, a key differentiator for Tractor Supply. A great example of this is Field & Stream, where our new product introductions are performing well. The brand is on track to hit over $100 million in sales this year, joining the ranks of 13 other exclusive brands at this sales milestone.
We're excited about the continued launch of new programs across our wildlife and recreation department where the Field & Stream brand is helping anchor this strategy. Our in-store conversions of our dedicated wildlife and rec department are off and running, and we are pleased with the early results. As such, we are increasing our outlook from around 500 to approximately 700 store conversions by year-end.
Together, all these initiatives are designed to drive near-term performance and strengthen our long-term position ensuring that we continue to meet our customers where they are and support the way they live and work. And with that, I'll turn the call back over to Hal.
Thanks, Seth. Stepping back, what you're hearing is a clear and focused approach. The fundamentals of our business remain strong with consistent customer engagement and continued strength across our needs-based categories. At the same time, we're operating with discipline in a dynamic cost environment and taking decisive actions to improve performance in companion animal and accelerate growth across our strategic initiatives. We're moving with urgency in areas where we see opportunity.
As part of our Life Out Here 2030 strategy, we're making meaningful progress in building capabilities to support long-term growth. We're strengthening what we do best, while continuing to scale new initiatives that expand how we serve our customers and grow our share of wallet.
As we look ahead, we expect to build momentum through the year, supported by these actions and continued execution across the business. With that, we'll open the line for your questions.
[Operator Instructions] Our first question comes from the line of Peter Keith with Piper Sandler.
2. Question Answer
I think I just want to kick it off with companion animal since that was a focus here. Is that category getting worse? Like I guess if you could talk about the trend through the quarter. Then you've got a bunch of initiatives to help stabilize it. Do you think those are starting to kick in now? Or could things get worse before they get better?
Peter, it's Hal, and thanks for joining the call this morning and appreciate your question. On pet, first off, I'd say a few things. As I mentioned in my opening remarks and Seth did as well, we view our share performance in pet to be stable, and it's been in that kind of stable run rate really for the last 4 or 5 quarters, albeit it's below our expectations.
The overall structured dynamics in the industry continued to be under pressure as both Seth and I articulated. And then we also have some additional pressures given the mix and the structure in the industry given our weight on -- towards dog and also our weight outside of the Fresh and Frozen. But as Seth mentioned, we're taking actions on both of those dimensions, expanding our assortment in cat and then also aggressively getting into the fresh and frozen market.
More broadly on -- and so I'd say our comp trends have been stable for really the better part of 6, 7 months now in that category, and as we roll into Q2 are stable in that range and then also our share performance stable. As we look forward, while Pet is a kind of headwind in the moment for us, a couple of things I'll just comment. First off, I really, first I'll articulate that we have a kind of broad portfolio inside of the business that we play against, whether it's Q, seasonal, big ticket and certainly as our digital business, as we mentioned, exceeded expectations in Q1. So we do see multiple offsets throughout the balance of the year.
The other thing I just want to highlight is the pet over indexes in Q1 by nearly 5 points relative to the average through the balance of the year, and it under-indexes in Q2 before kind of moderating in the back half. So there is a kind of mix impact that we had in Q1 on that as well. But the guidance, and we reiterated guidance today, our plan and forecast assumes that we'll have continued pressure for some time in that category, and then we'll kind of see gradual improvement as those initiatives take hold. But again, a portfolio of categories that we play in [indiscernible] slate out a number of the actions were taken in pet, but also a number of the actions we've taken out -- taken more broadly. We're midway into Q2 now and feel good about the sequential improvement we've seen in the business as the season ramps. Thanks so much, Peter.
Our next question comes from the line of Michael Lasser with UBS.
It comes on the heels of your comments just now Hal, which is how long do you think it will take to effectuate an improvement within the pet category. And if we assume that Tractor Supply, the updated algorithm may be more like 2% to 3% comp growth rather than the expected range of 3% to 5%, what does that do to the earnings outlook for the business over the longer run?
Michael, and good to hear from you, and thanks for joining the call today. On the -- how long the improvement, as I mentioned earlier, our plan for the balance of this year assumes continued pressure in that category. As I mentioned, we see number of offsets and a variety of ways that we'll continue to operate in the context of our full year guidance. We are very much operating in that -- the middle of our full year guidance range here kind of almost 4 weeks into Q2. So I feel good about our trends so far into Q2. Remind that no less than 2 quarters ago, we delivered a 4% comp, and our seasonal ramp and execution are building momentum.
And so certainly, we have actions and plans around pet, but the performance, I think, will be both dictated by our actions, but also how the overall market continues to evolve. There was 96 million dogs in the market in 2023, that dropped down to about 94 million in 2024. And then I think most folks thought it would kind of stabilize around there. And then in 2025, you had a couple of million more dogs of decline going down to approximately 92. So that will dictate some of the performance. That will dictate equally the performance as well as our actions as we look forward to the balance of the year.
And then as it relates to our overall growth algorithm, we're certainly not addressing that today. But I'd just say our business is need based. We do not see this as a structurally lower growth business. Right now, our customers are -- they're playing the macro. They're stable. They're performing. We continue to have strong share gains in farm and ranch, and our customers are shopping to their need now. And we certainly don't see it as a structurally low-growth business. We just see our business and customer shopping as they need right now, and it's certainly a little bit more of a tepid consumer environment in the moment.
Our next question comes from the line of Peter Benedict with Baird.
This is [ Zach Back ] on for Peter. Maybe one on the macro kind of in 2 parts. Hal, I know you mentioned seeing consumers kind of use those tax refunds more cautiously. Just curious, any changes in behavior from your core customer, maybe observed since the start of the Iran conflict about 6 or 7 weeks ago. And then secondly, just on oil prices, can you give us a sense of what level of oil prices are embedded in guidance? Maybe what is the sensitivity around this? And how should we think about the impact on margins if oil would stay kind of in that higher range of around $100 a barrel?
Yes. Zach, and thanks for joining our call this morning. I'll hit both of those topics. First, on the macro, I'd start by a little bit building off of the answer that I just had with Michael. Our customer remains very stable. They're focused on needs-based spending in the moment. We have continued strength in Q more broadly across the business in our essential categories. I'd highlight our high-value customers as remaining very engaged and retained. I think you're hearing that broadly across retail. Our active customer accounts are growing, albeit there's a modest reduction in their frequency and also in their basket at this time. And I think that really just reflects a focus on value, not really demand deterioration when you look at the underlying fundamentals there.
So we feel good about our customer. As I said, they're shopping to need. They're engaged, and we're retaining them. And as their spending habits improve, we expect our comps to moderate as well.
On oil, our current forecast, their guidance, we've updated our internal numbers to reflect kind of the latest outlook on fuel pricing. And so kind of I would say we're very conservative on that front in terms of having the higher fuel cost kind of forecasted certainly for the foreseeable future in the business, Q2 and into Q3. And then we'll update more so as we get into the back half of the year. But we -- we certainly have been cautious and conservative, and that's incorporated overall guidance, which we reiterated today and feel very comfortable in our ability to manage gross margin in that context.
Our next question comes from the line of Kate McShane with Goldman Sachs.
We wanted to specifically ask about new customer acquisition remaining softer and that it's being mainly driven by new stores. Could you maybe double-click on that a little bit more? And then just kind of in the same vein, what kind of comp performance are you seeing in the localized stores which you highlighted is about 200 stores at this point? And can you remind us -- remind us for the rollout of this initiative?
Kate, and thanks for the question today. On new customers, as we mentioned in our prepared remarks, our new customer growth is really right now predominantly relying on new stores, not uncommon in retail, but certainly, we would like to be driving new customer growth in our existing stores as well. But in our existing stores right now, it's mostly active customers that we're retaining and driving the business with.
More broadly, if we step back, well, the second part of the question was on -- that's right, localization, -- sorry. If we step back more broadly on localization, I'd start really more with our store base. So we're about 60% of our stores now are in the fusion format. About 400 to 500 of those are new stores that have been built in the last 5 years. Those stores, as you can see in our new store performance curves are having outstanding comp results. Then you look at the balance of the remaining of our 60% of our stores that are in the Fusion format. Those stores are performing at or above the comp average. Certainly, the ones that we've done the localization treatment on in the last year to 1.5 years are now at 200 stores of localization are outperforming the rest of the Fusion store base. And then you take the remaining 40% of stores that are not infusion and not new stores. And those are the ones that are underperforming relative to our overall comp base.
So not uncommon in what you see in a store base where you're kind of older stores that have not been remodeled are kind of dragging the comp. Your Fusion remodel stores are slightly above the overall comp and helping pull it up with the localization, meaning they're outperforming, as we've talked about, by that low to mid-single-digit comp run rate and then you get the balance of that performance coming from our new stores. So feeling great about our fusion format, feeling very good about the benefits of localization. And obviously, our focus over the next few years is continuing to move about 175 to 200 stores a year into the Fusion format and continue to drive that improvement in our store base.
Our next question comes from the line of Chris Horvers with JPMorgan.
So I want to follow up on companion pet to make sure I got the math right. You talked about the category being a 100 basis point headwind to comps in the first quarter, that would suggest it was down 3%, and that's been a consistent trend over the past 6, 7 months. Guess more fundamentally, how do you think about the headwinds in the category between sort of like structural versus a mix sort of headwind related to what you're assorting and -- the dog, cat side and versus like online penetration. So think about Amazon pushing deeper into rural markets versus not a sorting fresh.
And then on the cat side, appreciate that you're expanding an effort to focus more on Cat. Do you think your core customer simply under indexes to the cat category and over-indexes to large dog and sort of so -- perhaps the effort around cat faces some just inherent headwinds relative to who your customer is?
Yes, Chris. And just to reiterate maybe some of the points we made earlier. So we're about 80% dog, 20% cat versus the market that's 60-40. We've always talked about our customer owns -- about 75% of our customers own a dog. Over 50% of our customers own a cat. And over 50% of our customers own more than 1 dog. So we have heavy pet population counts in our customer base.
As we expand into cat, and we've been doing that now for about 6, 8 months, we started talking with you all about that middle of last year. We are seeing performance improvement in the stores that we expand our cat in. And as we roll out more fresh and kind of air drive and heavy nutritional products on the dog side, we're seeing improved performance in that as well. We have no reason to believe that as we expand Cat moving forward that we won't continue to drive performance there.
To your point, it's a very competitive industry. You see grocery channels starting to pick back up. Certainly, you see pet specialty trying to recover share, although they continue to lose share at a pretty decent clip. And as you said, you see the balance of the share shifting into online. But the category overall right now is kind of flat to negative in total growth. And certainly, that's the case when you exclude the services piece of it, grooming and the bet element of the pet category.
Our next question comes from the line of Spencer Hanus with Wolfe Research.
Just on new store growth. I'm curious what you're seeing from a cannibalization effect. Have you seen any step-up in that? And is that driving any of the softness here? And how are you thinking about that longer term. And then just one more on companion animal. You gave us some interesting stats on the dog population. Do you invent that continuing to decline as we look out here? Or do you expect that to stabilize?
Spencer, this is Kurt. I'll take the first question on new stores and cannibalization. I'll flip it over to Seth on your follow-up question on dog population. Our new stores are performing really strong. You heard that in Hal's prepared remarks. We continue to see even when we opened up 40 stores this year, averaging over 100 in the last 4 quarters that the new store productivity is performing at the high end of that range of 65% to 70%.
Part of that -- I'll just follow up on the earlier question. Localization is also helping the store -- new stores come out the gates strong as we ensure we're offering the right best product assortment in those new markets and those new stores.
Now in regards to your question on cannibalization. Cannibalization continues to be modest. In many cases, we'll look at some of that to be healthy cannibalization as we put a second store in a market that's really strong. We look at and review and approve our new stores based on the IRR and incremental benefit net of cannibalization and our cannibalization level is pretty consistent with the last few years, and we measure our performance on our stores as to the net increment to comp sales, net of any level of cannibalization, and we continue to just have a modest and manageable level of cannibalization indicating our new store growth is still in a very healthy position. Seth, maybe turning it over to you on the follow-up question on dog.
Yes. Just one follow-up question on the dog. Just in general, I would just say that we're not currently assuming really any changes in the trend at this point. Obviously, it's macro based a little bit. But obviously, we're staying very close to where those trends are going. But more importantly, it's more about the actions we're taking to make sure that we can make sure that we're not only like remaining in keeping our share, but returning to share growth.
And that does go back to, again, our assortment transformation initiatives, our exclusive brand growth, our digital acceleration and all the things that we're doing to work through our customer engagement, whether that be through pet services, Rx, Neighbor's Club, et cetera. We've continued to evolve with this category over time, and we're very confident in what we've been piloting, and we believe that as these continue to roll out a little bit later here in Q2 and into Q3 and start to build all these initiatives to scale that at that point, we'll start to see some kind of incremental and sequential improvement as we close the year and kind of move into next year.
Our next question comes from the line of Simeon Gutman with Morgan Stanley.
Back to companion animal. Are you willing to share what level of comp growth you're targeting? Should it be within the middle of this year's comp range? Or is it in the long-term range? Or is it above the range? Curious what you're targeting, if you're willing to share how far off you are, I know someone offered a level of which you might be growing or shrinking at this point. And then any more on what's gotten better thus far in Q2? Is it that mix effect on the total business? Is it some outdoor categories? Can you share some of those details.
Simeon, it's Kurt. I can offer up some color on your question in regards to the expectation on companion animal and our guidance and then how we see that playing out. I'll go back to Q1, and we made commentary in our Q4 call on the guidance that on our 1 to 3 comp, some of the stronger categories and some of the weaker categories, we said companion animal being under pressure in general at that time, would lag the chain average. And so for the year, we expected flat to slightly positive comps in companion animal.
To the point that we made that 100 basis point pressure on the quarter definitely showed that we were running a negative comp in there. We anticipate that to be additionally pressured throughout this year. So companion animal going forward, we believe there's ability to see growth in that performance as the year progresses and our actions take hold. But we anticipate that companion animal will be under some modest pressure and likely to be at a flat or slight negative comp throughout this year. And that's embedded in our expectation for the rest of this year and part of our consideration when we say that we still believe we can run the future quarters within our guidance range of 1% to 3%.
Simeon, this is [indiscernible] second question on Q2 and whether some improvements. Just to recall to some of the commentary we had in Q1 as well. 4 of our 5 merchandise categories were positive. And as Hal mentioned as well, mix in Q1 is much heavier part of that mix than it is as we go into Q2. With that, we are very encouraged with the strength that we're seeing right now in our seasonal business. Mentioned earlier around Live goods is performing very strong. Our Big Ticket categories and seasonal like with our zero-turn lineup, assortment continues to perform. And also like digital continues to be incredibly strong as well. So we're leaning into the categories of strength. We talked about our wildlife and recreation area, some of our men's and women's apparel that we continue to evolve are doing well.
And obviously as well, things like our traditional businesses like in Ag, sprayers and chemicals are core areas are well are continuing to perform as we go into Q2. And we see those really being in that range and give us confidence in that 1% to 3% range for our comp guidance.
The next question comes from Chuck Grom with Gordon Haskett Research Advisors.
A question for Seth and maybe Rob too. Can we zoom in on Neighbor's Club, Garden Centers and Direct Mile and maybe double click on the opportunities on each of these fronts. And then my follow-up is for Kurt. Can you remind us any mix implications as you lean into the -- sorry, the category more? And should we be mindful of any investment in price that you may want to take across the Pet business to stimulate demand?
Chuck, do you want to kind of narrow down maybe that first part of the question? I just said that we get it because it was kind of mixed in there.
Yes, just maybe just zoom in on Neighbor's Club, Garden Centers and Direct Mile. Just a little bit of an update on each of those fronts. And then just on the margin side for Kurt, any mix implications from the expansion into cat that we should be mindful of?
Thanks, Chuck. I'll hit real quickly on Neighbor's Club, Garden Center pricing, and then I'm going to turn it over to Colin to talk about Final Mile. Neighbor's Club continues to perform very well. We have not been disclosing as a recent our Neighbor's Club membership. I think it continues to grow at about the same pace as it has the last handful of quarters. So really straightforward there. Retention remains strong. Spend per member remains strong. As we commented several times, our active customer base remains very core and engaged in our business.
On Garden Centers. Our Garden Centers are performing very well. Seth highlighted live goods as a -- off to an excellent start for us this year. We are over 1,000 stores now collectively with garden centers and/or live good tents, and both concepts performing very well.
And then on pricing, really, nothing of -- that I would call out from a mix difference between cat and dog, the margin structures are reasonably comparable in the food side of things, reasonably comparable on the snack side of things. So as we make assortment shifts there, it's very manageable within the department. I'm going to shift it over to Colin now to talk about Final Mile, which is [indiscernible] a great first quarter and really is kind of one of the core underlying levers that's driving that 20% plus digital growth this -- in the first quarter and continuing here into the second quarter.
Thanks, Hal. Chuck, good to hear from you. As Hal mentioned, our Final Mile program is exceeding our expectations. Programs really resonating with our customers as they're choosing to have more of their needs delivered, especially for those larger order quantities, and we're lowering the cost per delivery across the entire portfolio as we roll out this program. Reminder, 2 big unlocks for Final Mile. First is enabling demand, whether that's for direct sales or digital. And then the second is that more efficient and lower cost per delivery. We saw it in the volume in Q1, delivery volume was up double digits compared to last year. And I think what's really unique about what we're doing is how we're orchestrating our inventory upstream.
So we're making choices about how we deploy inventory, whether it flows through a DC to a store or resource that delivery through the store. And then the partners we're using to get that product from the store out to the customer's property. For those small and medium type items, we're using a series of trusted delivery partners where we really want to get our team members delivering is in those large, extra large and huge kind of deliveries, it's amazing. We'll go to put a Final Mile delivery hub in and all of a sudden, we'll see 250 bags of shavings get ordered, [indiscernible] 16-foot fence panels, just these big orders that nobody else can deliver at scale nationally like we can and something we've never been able to do, and our customers are really responding to it.
Last year, we stood up about 200 Final Mile hubs. This year, we're on plan to open up 176 more, and those hubs are trending ahead on our utilization of our expectations. So really pleased. We know we have a lot of work to do still as we build out this program. But all signs point to this being a massive enabler for us digitally and on direct sales.
Our next question comes from the line of Seth Sigman with Barclays.
I wanted to ask about pricing. So inflation was 150 basis points in Q1. I think that's actually down from where it was in the fourth quarter. Did you guys actually lower prices? Or is that just a mix dynamic this quarter versus last quarter? And then can you also speak to elasticity, the experience that you've had to date? And then just finally on pricing. A lot of the inflation has been tariff-related up until this point. What is your view on commodity-related inflation? How does that play out from here?
Seth, this is Seth. Thanks for the question. As always, when you think about pricing, we've got a very experienced team. We've got all the tools in place set for years that we've been able to really have a good draft on the costs that are coming at us and flowing through the system as well as being able to monitor kind of, call it, the competitive index in our categories out there to ensure that we are priced right in the market. Our strategy on that has not changed. EDLP is our true north. We're going to make sure that we are competitive and in a position to drive share.
Relative to the current environment, I'll tell you, though, like there's a lot of dynamics that obviously you're flowing through, whether that be to your point around some of the EDLP tariffs and how that, a little bit put some pressure on the inflationary environment. But obviously, now we're shifting and flowing into some other potential cost pressures relative to fuel, oil, some other inputs, et cetera. And we're just monitoring those closely. I mean there's a lot of uncertainty as we look ahead. But as of right now, we're in a position to continue to operate within kind of our guided range and the expectation of that inflation, call it in that kind of 1% to 2%. And a lot of that would come from price relative to some of the cost pressures that had been there and there's no change to that kind of expectation at that time.
Our next question comes from the line of Scot Ciccarelli with Truist.
I believe PET is about 25% of total sales and it's also your highest frequency segment. So assuming those statements are both correct. Contractors, comp transactions turn positive, if pet stays negative just given the frequency related to that category? And then secondly, just a clarification. Was overall Q above or below company average?
Scot, this is Kurt. A couple of clarifications on that. Pet is a traffic driver in some cases, it is an add-on in other cases, to just kind of set the expectation on or at least clarification on the biggest frequency and traffic driver, it's really the large animal. It's the feed category that is the, by far, the biggest traffic driver. So just clarification on that.
And then to your point on companion animal and the mix, as I was mentioned earlier, Q1 being a smaller sales quarter, that's really more the routine. It overindexes in feed and pet food in those and lesser in other quarters. And so while it being not the primary traffic driver, and while it's still a solid business for us with a lot of our strategic initiatives with in Q2, with it being a heavy seasonal type category. And as a reference point, you see this in our disclosures, companion animals roughly like 21% in Q2 versus 27%, 28% in Q1. We've got the right drivers. And as Hal mentioned, a majority of our categories are solid in performing. A majority of the markets are performing well. So I wouldn't over-index. We're not over-indexing. We're managing the halves. We believe the customer is still engaged. And to your question, we can comp positive and expect to be able to target that in future quarters even if there's some softness in headwind in the pet companion animal category.
Our next question comes from the line of Steven Forbes with Guggenheim.
Hal, maybe a 2-part question on companion animal trends just to hit this topic again. The first is I'd be curious just to hear you speak to how you think rural migration household formation, existing housing turnover trends have impacted the outlook for pet as a whole as you see it today? And then secondarily, as you think about your member base, you commented that 50% of members have a dog and cat. So I'm curious if you can just maybe help explain to the group here what you're seeing as it pertains to wallet share of movement across those key customer cohorts where you maybe don't serve them to the level you need to be serving them? How long does it take to onboard them post localization? Like what gives you really the conviction that you can pull them back?
Yes. Steven, I appreciate the question. On rural migration, I'd say 2 things there. One, certainly the post COVID, so since 2020, when you look at mobility stats, there's been a strong reversal of trends kind of versus pre-Covid. So kind of pre-COVID that you saw urban mobility increasing at the expense of ex-urban, rural and even to some degree, suburban. Post COVID, you've seen the exact opposite with urban exodus, I would say, through '21, '22 and '23, that was -- the Exodus was much stronger in ex-urban. I think now you're seeing it more balance between suburban and ex-urban. But you're still seeing mobility out of urban markets into suburban, ex-urban and rural.
I'd also just add that when we look at our store base versus those sorts of geographic cuts, the more rural the store, the stronger the comp is, to a little insight there on our overall customer trends.
On our member base, I'd say that not -- what we see with them on their pet purchases is very much a natural just ongoing evolution of the structure that's out there right now. You're seeing pet populations decline on dog, you're seeing pet populations modestly increase on cat. And you're seeing that play out in our business. So more broadly, like if you look at dog food, we were up somewhere in the mid- to high single basis points of comp share gain in Q1. If you look at cat similarly, we were up mid- to high single basis points in share gain in that category in the quarter. But because of mix because we have such a much lower share in cap versus dog, our overall share and overall food between dog and cat was flat. So share is stable. Actually, when you look at it by species, modestly growing.
Now what we -- we were growing at about 20 basis points of overall share gain collectively across those categories back in '23 and in '22. So that's the actions that we're taking now to kind of step back into that overall share gain. But to be very clear, we are gaining share in dog food by itself in cat by itself, but when it mixes, it makes us to a flat share on food in total.
Our next question comes from the line of Chuck Cerankosky with Northcoast Research.
You mentioned that weather was neutral for the quarter, but we had some very distinct national weather trends, for example, lack of snow and warm in the Rockies and cold and snowy in the Northeast. How is that set up for the second quarter as we move into spring and when might it do to your salesman?
Yes. Chuck, I appreciate the question. As I mentioned in my prepared remarks, Q1 really unfolded in phases. And as we exited in March, you had an anomaly where you had kind of a cooler is north going and you had kind of the south warming up. As we mentioned, we saw strong spring sales in the South as we were exiting Q1, but kind of not yet the demand kicking in, in the north as we knew would [indiscernible] turned into April and kind of gotten past Easter and the lapping of Easter last year, you now see the north with the weather having improved, really kicking in. The South is holding. And we're in the midst of that seasonal ramp right now.
As Seth commented, we've seen strength in almost all of our garden businesses and all the related garden businesses. So whether it's things like agriculture, ag fencing, even some of the hard lines that are out in the agriculture space. Certainly, things like sprayers and chemicals, lawn and garden tools, live goods, riding lawnmowers, which is a critically important business for us right now as having an excellent year-to-date. So we feel really good about our business as we've turned the corner here into Q2, kind of 3.5 weeks in, as we mentioned, the business is running very much solidly in the range of our overall comp guidance for the year, and that's our expectation for the quarter as well. Thanks so much, Chuck, for the question.
So Victoria, that will wrap our call today. We will plan to release our earnings tentatively on Thursday, July 23 for our second quarter earnings. So please join us then. If you need anything, please don't hesitate to reach out. Thank you very much.
Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your lines.
Tractor Supply — Q1 2026 Earnings Call
📊 Quarter at a Glance
- Net Sales: $3.59B (+3.6% YoY)
- EPS: $0.31
- Comp Sales: +0.5%
- Gross Margin: 36.2% (flat vs prior year)
- New Stores: 40 opened; productivity 65–70%
🎯 What Management Says
- Strategic Focus: Progress on Life Out Here 2030 with localization (200 stores), expanded Direct Sales and Final Mile; disciplined cost management to drive long-term share gains.
- Pet Strategy: Expanding Freshpet offering, increasing cat assortment, and Rx services to strengthen pet growth and competitive position.
- Digital & Growth: Digital growth in the double digits; record 40 new stores; localization improving performance across fusion formats.
🔭 Outlook & Guidance
- Outlook: Full-year 2026 guidance reaffirmed; comp growth 1%–3% per remaining quarter; gross margin to strengthen in H2 as distribution center benefits flow through; 11th DC on track; about $10M incremental expense this year; fuel/tariffs monitored; refunds not assumed.
❓ Analyst Q&A
- Pet Trends: Companion animal headwinds persist; management cites stabilization yet expects ongoing pressure with actions in cat, fresh/frozen, and services to improve dynamics.
- Cannibalization: Modest cannibalization from new stores; localization and IRR focus support healthy net incremental impact.
- Final Mile: Delivery hubs expanding; double-digit delivery volume, lower delivery costs, and stronger digital/direct sales flow.
⚡ Bottom Line
Tractor Supply posted a resilient Q1 with 3.6% sales growth, flat gross margin and strong new-store momentum. Pet trends remain a headwind, but clear actions and a reaffirmed full-year plan support mid-single-digit comp potential and ongoing share gains through Life Out Here 2030, localization, and Final Mile.
Tractor Supply — Q4 2025 Earnings Call
1. Management Discussion
Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss fourth quarter and fiscal year 2025 results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded. Your host for today's call is Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Now first up is a year-end video.
[Presentation]
I would now like to pass the call to our host, Mary Winn Pilkington. Mary Winn, please go ahead.
Thank you, Elissa. Good morning, everyone. We appreciate your time and participation in today's call. On the call today, participating in prepared remarks are Hal Lawton, our Chief Executive Officer; and Kurt Barton, our CFO. We will also have Seth Estep, Rob Miles, John Ordus and Colin Yankee, joined the call for the question-and-answer portion. .
Following our prepared remarks, we'll open the floor for questions. Please note that a supplemental slide presentation has been made available on our website to accompany today's earnings release. Now let me reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company.
In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission.
The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. As we move into the Q&A session, please limit yourself to 1 question to ensure everyone has the opportunity to participate. If you have additional questions, please feel free to rejoin the queue. We appreciate your understanding and cooperation. We will also be available after the call for further discussions. Thank you for your time and attention this morning.
Now it's my pleasure to turn the call over to Hal.
Thank you, Mary Winn, and good morning, everyone. Before we begin, I want to recognize our team members, first responders and local communities impacted by winter storm Fern. Our teams moved quickly to support our neighbors during challenging times and continue to do so, and it reinforces our role as a dependable supplier when our customers need us most.
Turning to the business. The opening video highlights the progress our team made in 2025 and does a nice job of setting the context for the discussion that will follow in this earnings call. As with any year, 2025 was not without its challenges, and I want to thank our more than 52,000 Tractor Supply team members for staying focused on our purpose, operating with discipline and making the adjustments necessary in a dynamic environment while continuing to evolve the business. That work positions us to build on our strategic advantages and remain a consistent share gainer in an attractive market.
Before getting into the details, I want to acknowledge that our fourth quarter results came in below our expectations. Results reflected a shift in consumer spending with essential categories remaining resilient while discretionary demand moderated and emergency response was absent versus last year.
There were 3 primary drivers of our performance that I'd like to drill down on. First, as we cycled the benefit from last year's Hurricane Helane and Milton storm recovery, it became clear that it contributed more meaningfully to our results in 2024 than we had originally estimated. In contrast, 2025 was a historically quiet storm season with no hurricanes making landfall in the Continental U.S. for the first time in a decade.
We now estimate this dynamic represented roughly 100 basis points headwind to comps, most pronounced in the South Atlantic. The second main driver was big ticket categories, excluding emergency response, and they experienced a step down versus our trend in Q3. Our inventory levels and pricing were competitive, and we do not believe we lost share in these categories. Instead, we believe customers were more selective and that some discretionary spending shifted towards categories outside of our addressable market in the fourth quarter.
And lastly, performance across select holiday periods and seasonal categories such as holiday decor, toys, things like dogs, toys and snacks, power tools, they were below our expectations. And this reflected a highly promotional holiday environment, combined with softer demand. Again, we believe these dynamics were category-specific, quarter-specific and broadly consistent with what we saw across retail.
At the same time, customer engagement remained healthy throughout the quarter and our consumable, usable and edible categories continue to perform very well, reinforcing the resilience of our needs-based model. We estimate we had 1 of our strongest quarters of share gain in Farm & Ranch, stayed disciplined on cost and continue to execute the fundamentals of the business while investing strategically in our growth priorities.
Now let's transition to the fourth quarter and full year 2025 results. For the fourth quarter, net sales increased 3.3% to $3.9 billion, with comparable store sales increasing 0.3% driven by modest growth in average ticket. Fourth quarter diluted EPS was $0.43, reflecting the combined impact of modest sales growth, elevated promotional activity and continued investment to support our strategic initiatives. Our digital business delivered high single-digit growth. We posted positive comps in 11 of our 15 regions. However, this strength was offset by the 2 regions in the South Atlantic, which declined mid-single digits as I mentioned previously, we're lapping storm activity.
Customer fundamentals remained solid during the quarter. Identified customer counts increased approximately 2%, while spend per customer moderated just slightly. From a category standpoint, consumable, usable and edible were strong, as I mentioned previously, and they delivered low mid-single-digit comparable growth, led by livestock, equine and poultry and wildlife supplies and our winter seasonal categories posted modest comp growth with cold weather conditions largely neutral for the quarter.
Again, as I mentioned previously, this strength was offset by continued pressure in big ticket emerging response categories, which together declined high single digits. Turning to the full year. 2025 was a year of steady progress as we navigated a challenging and uneven retail environment. Throughout the year, we stayed focused on executing the fundamentals of the business, serving our customers well and advancing our Life Out Here 2030 strategy.
Net sales increased 4.3% to $15.5 billion, driven by new store growth, the addition of Allivet and comparable store sales gains of 1.2%. Diluted earnings per share were $2.06, reflecting disciplined execution while continuing to fund strategic investments across the business. Total active customers and high-value customer retention continued to be strong and customer service scores once again reached all-time highs.
Neighbor's Club continued to grow, with membership representing more than 80% of sales. Team member engagement remained high and turnover stayed near historic lows, particularly at the store manager level. On the technology front, our digital business continued to scale in 2025, delivering high single-digit growth for the year, and this performance reflects continued improvement in personalization and conversion as well as our delivery capabilities.
More broadly on the technology front, we expanded our use of AI across the enterprise, including expanding our relationship with OpenAI. The capabilities are improving forecasting, inventory flow and team member productivity, helping us operate more efficiently and better serve our customers. A hallmark of Tractor Supply continues to be opening productive new stores. We opened 99 Tractor Supply stores and once again saw robust early new store productivity performance.
Our distribution centers delivered mid-single-digit productivity improvements for the year while maintaining excellent safety and engagement results. We also opened our first bulk distribution center in 2025, and we broke ground in Idaho on our 11th DC. As part of our Life Out Here 2030 strategy, 2025 was a year of meaningful progress in building capabilities to support long-term growth.
We focused on strengthening what we do best, while continuing to scale new initiatives that expand how we serve our customers and grow our share of wallet. On the stores front, we continue to embed localization into new stores and remodels with 160 stores localized as of year-end. With nearly 60% of our stores in the Project Fusion format, we continue to see attractive economics and improved customer relevance from our remodel program.
We also advanced our final mile delivery initiative, which lowers the cost to serve online orders and expands our ability to fulfill larger, more complex orders. During the year, we increased capacity and execution, expanding to more than 210 delivery centers covering nearly 25% of our store base. In direct sales, we ended the year with approximately 50 sales specialists covering 375 stores.
While both initiatives are still early, we're encouraged by the traction we're seeing in customer engagement, basket size and repeat behavior. In pet and animal prescriptions, 2025 was focused on building the foundation and integrating capabilities into the Tractor Supply ecosystem. While customer adoption progressed more gradually at the beginning that we have liked, Allivet accelerated throughout the year and delivered approximately $100 million in sales in the total year, reinforcing the customer demand in this category and the opportunity ahead.
Taken together, these initiatives strengthen our foundation, improved execution and positioned Tractor Supply for durable long-term growth. As we plan for 2026, we are preparing for a wide range of demand outcomes. We're planning for continued net sales growth supported by new store openings and improved comp sales and better leverage as our investments mature.
In our view, the broader environment remains uncertain with a wide range of potential consumer spending outcomes. We continue to see mixed signals, including an all-time high stock market and a strong projected tax refund season. However, that's alongside declining consumer sentiment and a robust national debate around affordability. These dynamics are not unique to Tractor Supply. We believe our needs-based model, strong customer relevance, scale and disciplined execution positions us favorably.
And with that, I'll now turn the call over to Kirk for further insights on our results and our outlook for 2026.
Thank you, Hal, and hello to everyone on the call. I'd like to start by walking us through the cadence of the quarter. Looking at comp sales, October started soft as we lapped the hurricane response, followed by a rebound in November as they got colder and the Hurricane lap dissipated. We entered the final 5 weeks of the year with relatively flat quarter-to-date comps.
December, inclusive of Black Friday produced modest gains. All accounts, broader retail sales growth, especially general merchandise stepped down in December. Average ticket increased 0.3%, driven by approximately 2 points of retail inflation, offset by softness in big ticket categories and a decline in units per transaction. The retail inflation was primarily the result of a higher commodity cost environment and selective price adjustments as higher product costs flowed through our supply chain.
The decline in [ UPT ] reflects the softness in certain discretionary seasonal and holiday categories. Turning to margins. Fourth quarter gross margin declined approximately 10 basis points year-over-year as ongoing cost management was offset by incremental tariffs, elevated promotional activity and higher delivery related transportation costs.
The largest variance versus our expectation was the promotional environment, particularly around Black Friday and Cyber Week as customers were more deliberate in how they allocated their spending. Our view is that these promotions were transitory and specific to the operating environment in Q4. Stepping back for the full year, gross margin expanded 16 basis points, underscoring the underlying strength of our margin structure despite the more challenging dynamics.
SG&A, including depreciation and amortization, increased approximately 70 basis points to 27.5% of sales, driven primarily by planned investments and fixed cost deleverage at the lower level of comp sales growth. These pressures were partially offset by continued productivity and cost control. Our expense management was a strong point for the quarter. SG&A inclusive of D&A expense increased 6% over the prior year, with nearly 2/3 of the growth rate attributed to new stores and the acquisition of Allivet, providing evidence of a more normalized cost structure.
Operating income declined 6.5% year-over-year, reflecting the combined impact of the modest sales growth, gross margin performance and the investments to support our key strategic initiatives. Our effective tax rate for the fourth quarter improved approximately 250 basis points to 19%, primarily reflecting the timing of certain tax planning initiatives, including a federal tax benefit discrete to the quarter representing half of the rate reduction. Average inventory per store was up approximately 5%. About 1/3 of the growth reflects the impact of tariffs, the remaining portion of the growth reflects our deliberate actions to support customer demand and in-stock levels going into 2026. We remain comfortable with our inventory position.
Taken together, while 2025 was not the year we had planned, some of the challenges we faced were largely transitory rather than structural. And we made meaningful progress strengthening the business as we head into 2026.
Let me now turn to our outlook. We view the upcoming year as a period of normalization for the business. For 2026, we expect total sales growth in the range of 4% to 6%, driven by continued new store openings and improving comparable store sales. We expect comp sales growth of 1% to 3% supported by continued improvement in average ticket as AUR growth trends are expected to continue, along with modest transaction growth.
From a gross margin perspective, we expect continued expansion driven by ongoing cost management initiatives, growth in our exclusive brands, retail media and continued supply chain efficiencies. These benefits are partially offset by delivery costs and tariffs. Overall, these positive gross margin drivers remain firmly in place. On the expense side, we expect measured SG&A deleverage. SG&A will experience some pressure from the opening of a new DC in the second half of the year and a more normalized incentive compensation burden in most quarters.
After several years of elevated investment, we expect [ G&A ] growth to moderate and move more in line with sales growth this year. Taken together, we expect operating margin in the range of 9.3% to 9.6%, which implies we can maintain operating margin at the midpoint of the range. For planning purposes, we are assuming an effective tax rate of approximately 22% and interest expense that is generally consistent with 2025, reflecting our ongoing approach to disciplined capital structure and leverage.
We are forecasting diluted EPS in the range of $2.13 to $2.23. As we manage the business, we are anchored to the midpoint of our guidance, while maintaining flexibility to respond to changes in the operating environment. Net capital spending is expected to be in the range of $675 million to $725 million, with the majority focused on growth initiatives. We plan to open 100 new stores that are low-risk, high-return organic growth opportunities.
Our new store pipeline is robust, and we expect to see greater consistency of openings across the year. In 2026, approximately 50% of our new stores will be fee development, which continues to provide cost efficiencies, improved site quality and more favorable long-term economics. We also expect share repurchases between $375 million and $450 million, representing approximately 1% to 1.5% of shares outstanding.
While we remain focused on supporting our strategic priorities, we also expect those investments to increasingly self-fund. Our capital allocation priorities remain unchanged. We will continue to invest in our flywheel, new stores, remodels, supply chain capacity, digital and newer growth initiatives like direct sales and final mile delivery while maintaining a competitive and growing dividend, consistent share repurchases and a strong balance sheet.
Overall, we believe this positions Tractor Supply to continue executing effectively and deliver long-term value for shareholders. As always, we view our results in halves rather than the quarters given the seasonality of the business.
Turning to the calendarization of key line items. We currently expect comp sales performance to be relatively balanced across the year, with each half contributing relatively equal to the comp sales growth. We expect every quarter to be within the range of 1% to 3% growth. We are planning for a more normalized spring season, which would result in a rebalancing of sales between Q2 and Q3.
While the first quarter began against tougher comparisons, recent winter weather has supported demand across our core categories. That said, importantly, a majority of the quarter remains ahead of us, with March representing more than 40% of first quarter sales, and each successive week becoming more impactful as spring conditions emerge across the country.
From a margin standpoint, we expect gross margin performance to be stronger in the second half of the year as comparisons ease and benefits from our new distribution center begin to flow through. SG&A deleverage is expected to be modestly higher in the first half, driven by an earlier cadence of new store openings, a more normalized incentive compensation and the lapping of strategic investments, which ramped up near midyear 2025.
We expect the cost of the new Idaho DC to add approximately $10 million of incremental expense on the year, most of this in the second half. We anticipate Q1 EPS to be comparable to the prior year as it bears a heavier burden of these 3 key SG&A factors I just mentioned. Given the prior year's compares, we expect stronger EPS growth in Q2 and Q4. So stepping back for a moment before I wrap up, I want to address the underlying earnings power of Tractor Supply.
While our recent earnings performance has been influenced by our comp sales trends, we have been transparent that the backdrop has not been conducive to achieving our long-term outlook. We continue to believe the company is capable of delivering 3% to 5% comparable store sales growth over time. As that growth materializes, operating leverage naturally follows. Our model shows an inflection point in the low 2% comp range.
As comps move above that inflection point, we would expect operating margin to improve by roughly 5 to 20 basis points per year. This will allow us to progress back towards our target operating margin over time, consistent with our long-term framework. To close, we remain focused on execution, productivity and advancing our Life Out Here 2030 Strategy, and we believe the actions we are taking position the business for durable long-term value.
Now I'll turn it back over to Hal.
Thank you, Kurt. As we begin 2026, we're staying focused on what is resonating most with customers across retail, value and essentials. Needs-based products are a core strength for Tractor Supply. We are effectively the grocery store for our customers' animals and pets with the scale, frequency and relevance that come with that role. That allows us to lead on value, invest with confidence and remain the dependable supplier our customers rely on every day.
While much of the country is still in winter mode, spring will be here before long, particularly for Southern markets. As that transition unfolds, we're committed to being a dependable supplier for our customers' spring needs while also bringing meaningful innovation and newness across the store to keep Tractor Supply relevant and differentiated.
This year, Chick Days will be bigger than ever with more stores participating and more selling weeks. Chick Days is retail theater like no other. It continues to be a powerful traffic driver with existing customers and a gateway for new customers, particularly [ backyard home centers ] and hobby farmers.
This year, we're leaning into chick health and wellness, expanding breed assortments and deepening education support for both new and experienced poultry customers. We're also extending Chick Days online to 365 days a year, and expanding our exclusive ImPECKables brand with more functional treats and toys. Taken together, these efforts reinforce Tractor Supply as the destination for poultry while driving differentiation, value and engagement across channels.
As we prepare for the spring selling season, we're leaning into targeted newness in the categories where customers are actively investing. That includes refreshed assortments in lawn and garden on our exclusive Groundwork brand, including expanded outdoor living and grilling accessories and also a stronger, more curated [ riders presentation ] in our flagship stores featuring Bad Boy, Cub Cadet and Toro.
We're also creating a dedicated in-store destination for outdoor power equipment and battery power tools, bringing together leading brands like Husqvarna and Dewalt, Toro and Dreamworks to make it easier for customers to shop and complete their projects. By midyear, we'll also be rolling out expanded outdoor and wildlife recreation aisles in approximately 500 stores. This includes a broader field and stream presence, extending beyond hardgoods into apparel and footwear, along with a more complete assortment of food and supplements to support wildlife feeding and recreation. These updates strengthen our relevance with customers who live and work outdoors and reinforce Tractor Supply as a destination for both everyday needs and seasonal pursuits.
Beyond Outdoor and Wildlife, we're also expanding our fresh pet food offering following a successful initial pilot with plans to add Fresh Pet to additional stores by midyear and continue building from there. At the same time, we're investing in our 4health private brand, including refreshed packaging, new fresh food products and updates to lines such as Shreds and Untamed. And Pet & Animal prescriptions with Allivet. We're focused on deeper integration, embedding prescription in our Vet clinics and pet wash experience and strengthening our subscription offering on tractorsupply.com.
As we move from spring into summer, we'll then layer in seasonal moments like our Ameraucana program, combining patriotic assortments and in-store experiences with continued focus on value and care for animals. Taken together, these efforts reflect our ongoing investment in private brands and curated assortments that strengthen value, support margins and reinforce our role as a dependable supplier.
Combined with continued investments in our core flywheel, we're advancing our Life Out Here 2030 Strategy and strategic initiatives. Two of our highest priority initiatives are direct sales in Final Mile, which are gaining traction and becoming increasingly important in how we serve customers with larger, more complex and needs-based purchases. In direct sales, we're continuing the rollout of this initiative, including building the capabilities, tools and operating discipline needed to scale along with plans to approximately double our sales force over the course of the year.
Turning to Final Mile. Our focus in 2026 is on lowering the cost and improving the efficiency of our digital order delivery while enabling large and bulky store purchases and supporting direct sales. To do that, we're planning to add more than 150 new hubs this year, take us to approximately 375 hubs, covering more than 50% of our stores by year-end.
One way to think about that level of coverage is that it gives us last-mile delivery capabilities across more than 1,200 stores and reaching over 15 million customers. We are also increasing utilization of our own delivery network while further integrating with gig providers, allowing us to optimize final mile execution and lower our cost per delivery across all channels.
While both direct sales and Final Mile are still early, we're encouraged by the progress we're seeing and the role these capabilities can play in expanding how we serve our customers. Importantly, they sit behind continued investment in our core growth engine, including opening approximately 100 new stores, advancing our store remodel program with roughly 160 to 175 Fusion projects with localization, expanding distribution capacity with our new Idaho DC and continued investment in digital capabilities.
Taken together, these investments support a disciplined, balanced approach to growth and represent meaningful long-term opportunities as we work to address a larger share of our approximately $225 billion total addressable market. To close, we remain confident in the long-term opportunity for Tractor Supply. We operate a differentiated needs-based model that has proven resilient across cycles, and we continue to gain share in a highly fragmented market.
The actions we're taking, investing with discipline, strengthening our core and scaling our capabilities thoughtfully support a year of greater normalization in 2026 and position the business to deliver more consistent performance and create long-term value for our shareholders.
With that, thank you for joining us this morning. We'll now open the call for questions.
Thank you, Hal. Before we move to Q&A, one note for planning purposes. Due to a scheduling conflict, we will release our first quarter 2026 earnings on Tuesday, April 21. For the balance of the year, we anticipate returning to our normal reporting cadence. We just wanted everybody to be able to get that on their calendars now.
With that, I'll turn it over to Elissa to begin our Q&A session.
Thank you, Mary Winn. [Operator Instructions] Our first question comes from the line of Steven Zaccone with Citigroup.
2. Question Answer
I wanted to start on gross margin. So it sounds like for '26, you're still expecting expansion, is going to be second half weighted. Should we anticipate gross margin decline in the first half? And then specifically on promotions, what gives you confidence that the promotions will be confined to the fourth quarter and that persist to the 26?
Steve, it's Kurt. Yes, thank you for the question. To your point on gross margin, gave guidance on, our expectation is that we can continue to expand gross margin. The fundamentals of our gross margin initiatives are still very solid. There is a stronger opportunity for expansion in the back half of the year, but we are not anticipating gross margin retraction in the first half of the year. The puts and takes that we described on fourth quarter, as I mentioned, very transitory. Our gross margin initiatives, our cost management is still producing a strong opportunity for gross margin expansion, albeit modest particularly in the first half of the year.
The next question comes from the line of Jonathan Matuszewski with Jefferies.
It sounds like 1Q started against tough comparisons, but you saw some outsized demand due to winter storm Fern recognizing that March is a large chunk of the quarter, with each quarter anticipated to be between 1% and 3%, is that to suggest the quarter-to-date trend is in that range? Or could you just clarify maybe how the first couple of weeks in the quarter in aggregate are trending?
I think you've encapsulated it pretty well. As you mentioned, the first few weeks, we were lapping winter weather from last year in storms and it was warm in the first 3 weeks of this year. And so we had offsetting comps there. And then, of course, with Winter Storm Fern, we had the flip where we were having strength due to storm preparations and storm recovery on top of some warmer weather last year. Case in point on the volatility that often happens in the beginning of the year, this week, as an example, last year was the warmest in 35 years, and then week this year is the coldest in 35 years.
So you get these extremes in the first part of the year. But net-net, to your point, we are tracking at above our plan for the quarter-to-date. But as you said, there's still a lot of sales left to go. The month of January is like 30-ish percent of our sales. The month of March is 40-ish [indiscernible]. We certainly need the weather to turn in the south in late February to deliver on our plan for March.
But in addition to spring coming on, which we know happens every year, just in a little bit different time, we're optimistic about the potential for tax refunds this year and I think that could be very similar to say 2018, and that would be the majority of that benefit would also be in the first quarter. So there are a number of things as we look out at the balance of the 7 weeks to go in the quarter that give us optimism but feeling good about the quarter so far, yes.
The next question is from the line of Bobby Griffin with Raymond James.
I just want to maybe talk about the discretionary weakness you referenced. I'm just curious, like, can you unpack that a little more? Do you think there's been a step function change where your customer, the more rule-based customers started to feel maybe some of the pressure other areas in this country felt across retailer? Or Is It really just weather-driven? Is anything there to help us understand that and what the maybe drivers will be for that to get better in '26 and beyond.
Bobby, when we reflect back on the discretionary for Q4 and a bit of the step down that we saw there, we do think that was specific to Q4 using the word transitory, I guess. And kind of hit on a few things there.
First, a lot of it was emergency response as we called out which is being specific to that quarter. The second one was really around kind of these like seasonal holiday categories that we really only participate in Q4 in. And so things like toys, holiday decor. Some of the -- even like in like dog snacks and dog treats, you see like a lift in those last 2 weeks kind of that are discretionary in their orientation. We just didn't see that. But as we head into 2026, we feel very good about our business.
Just based on Jonathan's question, just gave a little bit of a summary of how things are playing to date in the quarter. We feel very good about our big ticket plan for the spring. We've had 2 successful seasons in riders, even with kind of broader big ticket pressure in the market. So I feel very good about our setup as we head into the first half of this year and do think most of the step down we saw in Q4 was kind of onetime kind of transitory type things that happened in the month of December.
And I think you'll hear that a bit more across retail as it comes out. I mean, by all accounts, December stepped down versus the year-to-date and quarter-to-date if you look at almost any external data, as it relates to retail sales. And in particular, you see that in general merchant and big ticket as well. You see -- you saw kind of low price point gifting, things like beauty, and others have a good December. But I think most -- across most categories that were big ticket, you saw a pullback in December .
The next question is from the line of Kate McShane with Goldman Sachs.
Kurt, we wondered if you could walk us through the cadence of how you see tariff costs rolling in here maybe in the first half and how you're managing pricing as a result.
Yes, Kate, I'll share a little bit of what our assumptions are in 2026. And in summary, I'd say there's not that much variation to what we saw in the second half of 2025 as we've said before, we feel like we're basically halfway through the process of cycling through tariffs, tariffs have had at its base rate anywhere from 20 or 30 basis points of pressure. We've been able to offset that through great cost management initiatives.
In some cases, there are some -- there's price increases selectively like I mentioned in there. And we would anticipate that the impact in the second and the first half to be very similar. It's one of the key drivers of the average ticket increase. As we mentioned, there's some level of inflation in AUR. The biggest portion of that would be related to cycling the tariffs in the first half of the year. So not that much different. We step back, we look at -- at the tariff piece of the business, the team managed it really well, been able to maintain our margins related to that, and we anticipate similar in the first half.
The next question is from the line of Michael Lasser with UBS.
You have expressed a lot of optimism that the model can eventually return to the algorithm. So under what conditions, economic or otherwise are necessary in order to restore the comp growth back to 3% to 5%, what's a reasonable time frame for that? And is the challenge today versus 10 years ago, that tractor has just achieved so much productivity gains during the last decade through all the initiatives deployed such that it's just going to be more difficult to generate the type of growth that the market had been accustomed to in the past because of the base being so much bigger in the market share being so much larger today?
Michael, thanks for your question. Good to speak with you this morning. We remain very committed to our long-term algorithm on our comp sales. We feel like we're on track and a path to return to those comp sales. And we think we've got the full suite of activities necessary to deliver that, including big investments we made in our core flywheel everything ranging from our DC capacity to all the investments we made in our stores and our remodel programs. Our new stores continue to provide excellent maturity curves, and we've got a number of our strategic initiatives as well. So we feel like the toolkit that Tractor Supply has had for the last 20, 30 years is a tried and true tool kit. We continue to add to it like we always have and feel very confident in our long-term algorithm. We think we're on the path back to that.
The next question is from the line of Robert Ohmes with Bank of America.
I was hoping you guys could actually talk a little more about the direct sales model and the profitability now, and it looks like you're going to keep ramping it up. Is there a how do we think about how many stores, how many sales specialists, what the -- how big it needs to be to really become profitable?
Yes. Thanks for the question. First, I'll just tell you, I'm very pleased with our performance so far. We saw volume average sales per rep, transaction value, average transaction volume, all increased in the month and in the quarter. In December, we finished with sales of over $2 million. We're seeing a month-to-month-to-month ramp as similar to new store maturation curve. Our growth is structural. Our direct [ sales app ] is core growth engine for us. Our people and our process investments are delivering returns, and we're seeing strong momentum exiting Q4 into 2026.
75% of our specialists are external and they're bringing this book of business with them and they are strong at selling. They all live the lifestyle, and they all have an average of 11 years of experience in the farm and ranch industry. And in the month of December, we had our first $1 million specialist. So I was able to go travel with that person. I could tell you just like phone calls throughout the day, the relationship he had with his clients, [ everybody call them ] all the stuff they need. You can just see that relationship building and building and building there.
As we look into 2026, we'll continue to invest in technology and training. We'll double our specialist count, as Hal mentioned. We have found that smaller training classes have been better than the bigger classes, and we're able to do more one-on-one training. And we're targeting around $50 million in sales in 2026. I also mentioned that we ended the year with just under 50 sales specialists. We've hired 9 at the end of December going into January, and we'll continue to build as this year goes on throughout the year.
The next question is from the line of Peter Benedict with Baird.
I wanted to follow up on an earlier question. Just on the inflation with, I guess, 200 basis points, a lot of that [ you're seeing ] with tariffs. I'm just curious if you could talk about the commodity side of that and what you're seeing and what your outlook for 2026 includes from a commodity standpoint. And then my other question is just around the garden centers, you're about 32% penetrated. What's the outlook there? Any plans to go faster or slower? Just kind of an update on that initiative?
Peter, Seth will take the first question on inflation and then I'll take the question on garden centers.
Yes. Peter, it's Seth. Thanks, Hal. As we look ahead to this year -- as we're looking at comp sales, some of what we put in the guide is we do anticipate a little bit of inflation, that kind of potentially at 1% to 2% range from an AUR perspective to really help drive that from a comp perspective with some modest obviously, transaction gains with that. .
And that's kind of a blend, right, with commodities trading kind of within a range in which we manage kind of every day. It's corns within that low to mid-4s, which we feel very comfortable with, with that outlook right now. And as we look ahead, as we strategically manage our kind of pricing, we'll continue to monitor how much is being driven by traffic, how much is being driven by AUR, and we'll continue to flex up and down accordingly. But yes, some modest continued inflation as we look ahead and the guide to deliver on that [ comp sales ] goal this year. .
And then circling back on Garden Centers. I'll start off by just saying we remain very pleased and committed to our being in the business of live goods and kind of the outdoor garden business. As expected over the last 5 years, the way we go after that has -- continues to evolve. So we have -- and we talked about this a little bit before, but we have kind of our now really large live goods, garden centers. We've got kind of a medium in size, we have a smaller size. And then we also have another solution set where we do pop-up tents out in our stores. And so gotten really good in our real estate model over the last few years of deciding which one of those solution sets is best for each store and then we deploy it as such.
And as I mentioned, in my opening remarks, we'll have well over 1,000 stores this year that we -- between garden Center Stores and pop-up garden centers, and we feel really good about it. And Live Goods is one of our best-performing categories last year as a business.
Our next question is from the line of Oliver Wintermantel with Evercore ISI.
How should we think about the lap of sales leaseback benefits? And as we move through 2026, should we expect any incremental contributions next year? Or does the comparison become neutral?
Ali, and Kurt can jump in here if we need to get anything to the. Some of the core details of it. I would just say, in general, the sale leaseback is going to be flat year-over-year from an operating income benefit. What I'd love to do is just step and just talk about how successful our real estate model that we introduced 2 summers ago is going.
We are now doing own development on 50% of our new stores that is providing 2 sets of benefits. One, the dollars that we would normally pay a developer, we're now able to reinvest that back in the store. That's saving us somewhere in the high single digit, call it, 10-ish percent in total cost to build.
And then we're also essentially procuring a lot of the materials that go into building our stores, and we're getting high single digit, call it, 10-ish percent savings there as well. So we are getting significant savings from the cost of building a new store that continues to allow us to deliver high IRRs. And now when we're in the market starting to sell some of those owned stores, we're seeing really strong cap rates on those as well. So the strategy has paid off in spades and more. We're very pleased with the results and the returns it's getting and the capital impact, the operating income impact, et cetera. I just can't say enough about the work that team is doing and the impact it's having on the company.
The next question is from the line of Michael Baker with D.A. Davidson & Company.
Can you talk about the timing of when you start to leverage some of the investments that you've made over the last few years. For instance, you're saying that delivery will still be a drag this year. At some point, I think the final mile investments you're making start to leverage themselves. Similarly with the [ Big Barn ] initiative, just wondering when we see a, I guess, would be a lower comp breakeven point from leveraging the past investments?
Michael, and thanks for the question this morning. I'll just start off by saying at a low 2% comp, I think that's a really good inflection point for retail. So that's why we're emphasizing it and putting it out there so folks kind of have that in their model. So I feel really good about that. And I think that stands tall in retail in terms of the right comp percent to be inflecting on your operating margin. .
Specific to the initiatives, on Final Mile, there are -- there is no kind of incremental operating expense being attributed into that this year. That -- while we're expanding it to twice the number of stores this year and getting to 50% store coverage, it's basically last year's benefits are paying for the rollout for this year. Incremental to that, there is significant cost savings that, that initiative will capture this year related to freight.
Specific on freight that we use for Roadie and also -- which is our gig provider as well as freight that we use to ship goods from our DCs that will now ship through our stores and then out to the customer for the Final Mile. And those are $10-ish million a year in savings that help improve our gross margin, but then also fund that initiative. So that initiative in many ways is kind of self-funding itself as it goes. On the same front, direct sales is doing the same thing.
As we talked about last year, we invested around 10 basis points of margin rate between those 2 initiatives. They are not further dilutive this year. on final -- direct sales, it's the same way. As Jon mentioned, we're going to double the class from this year, last year 50 to next year 100. The class of last year of 50 is basically paying for the investment of the next 50 this coming year. And so there's not incremental dilution on either one of those from a rate perspective, and that's what allows us to achieve that breakeven just above the 2% comp run rate.
The next question is from the line of Chris Horvers with JPMorgan.
So I wanted to take the other half of that question. So as you've scaled out the [ self-help ] benefits from prescriptions and Final mile And direct sales, how do those build? Like when do you think that will become sort of a greater portion of the comp such that the overall trends become a lot less macro sensitive. Is there an inflection as this year progresses? And how does that look then in '27? And any quantification around that would be really helpful.
Yes. Thanks for the question, Chris. And what I'd say is if you take -- well, first off, I'd start by saying we expect those initiatives to provide material benefit this year in our comp. And they did have some nominal benefit in our comp last year. Last year at the beginning of the year, we kind of said, "Hey, look, don't -- we're going to get these things ramped up. We're making some investments in them. You'll be able to -- we'll be able to see some of the sales, but we're not going to be sharing those a lot, just because we wanted to get ramped up and get in a good spot. This year, we feel like those are off and running. As Jon said, we have 50 sales reps last year. We had the first 1 to hit $1 million. We did $2 million in the month of December.
We eclipsed that rate in the month of January. So we're seeing the right pace and cadence there. You guys can do the math on that. If you think about the number of reps and the pace we're running at, you can see the dollars that we would roughly be targeting this year, and that starts to have a material 40-ish basis point impact on comp. And the same thing starts to happen in Pet and Rx as we start to scale that up as well, and we start to see the strong growth rates we see in there, and then that starts to add to it as well.
And so feeling really good about these initiatives. And Final Mile, as we talked about, is really it has 3 purposes. It's driving cost down on our delivery. It's enabling the direct sales as well. But really, it's also providing a means for us to be able to fulfill future demand as delivery becomes more and more a way of life for everyone. So feeling great about all 3 initiatives. They're all on track and doing really well.
The next question is from the line of Peter Keith with Piper Sandler.
Hal, I was hoping you could talk about the pet food category that was not called out as an area of outperformance within Q. I think there's been some concern out there with investors of maybe market share loss or maybe the category seeing deflation. What specifically did you guys see in Q4? And what are you expecting for pet food in '26.
Peter, this is Seth. Thanks for the question. relative to Pet, I would approach Pet and how we're thinking about it in kind of 3 different kind of frameworks, particularly as we look ahead for kind of 2026 and beyond. The first thing I would just say is Pet does not have to over deliver an outsized growth for us to achieve our overall comp targets. We're needs-based, multi-category retailer. We have a history of balancing our full portfolio to deliver our comp growth rates.
And there's not -- we're really not relying on any single category kind of going forward. The second way I'd look at Pet is also from a share perspective. We're not seeing any indication that we're losing share in pet. We're holding our own, we might not be at the outsized pace that we were over the course of the last couple of years, but the data that we get is a very data-rich industry that we're holding our own. We're holding trips. Our customer remains very engaged in the category. For an example, last year, we saw over 2 million pets come through our pet washes. Our PetVet clinics grew in sales over 20% in those stores.
So we're seeing really good engagement from our shoppers in the category itself. And then third, I would just say, hey, we're excited about what's ahead. I mean from the assortments, from the layouts, we're focusing on more localized assortments, making sure that we're allocating brand and space in our stores to the brands that fit kind of regional preferences in a given market.
As Hal mentioned as well earlier, we're continuing to expand kind of fresh and frozen into that category. That is the fastest-growing category in the space, and we'll have a few hundred stores this year in that particular area as well. And we're constantly looking to revitalize our brands as well, like for Health, continuing to see that kind of customer engagement and interaction.
And as the category returns to kind of historical growth, we feel like we're really well positioned to continue to maintain our share and being in a position to grow share long term here as well. So thanks for the question.
The next question is from the line of David Bellinger with Mizuho.
Maybe a bit bigger picture, but you mentioned some of these initiatives layering in for 2026, even maybe 40 basis points of comps from direct sales is very incremental. But if we back some of these things out, why is the core business of Tractor sort of underperforming now? We're talking about a wider range of outcomes. These outcomes basically widening out. And plus, can you square that away with some of this increased promo activity we heard about in Q4. Is that something contained to the period or something that we could see bleed into 2026 as well.
David, thanks so much for the question. We are very excited as we enter the year 2026. I think as always, as we commented, there's a wide range of outcomes, we think that are allowable for the year. And I think we're starting in the right prudent mentality. As it relates to promos, we really haven't seen that carry over into 2026. I admit there's been a lot of volatility in retail for these first 5 or 6 weeks.
And so I think time will tell on that. But to date, we've not seen that carryover. We all -- I would say all already have most part, our spring plans already laid out, and we're planning for a more normalized environment on that as well. But certainly, we'll be prepared to respond if necessary. But I'd just start out by -- just close by just saying we're feeling very optimistic about 2026. We like the setup we have coming into 2026. The first 5 or 6 weeks have been a nice start to the year. We're optimistic about the potential for tax refunds.
We're optimistic about the potential for a strong spring after 2 tough springs. We think we've got a lot of strategic initiatives underway. Our team is engaged. Supply chain has never been better. Stores have never been operating better. We think we've got a great setup as we head into 2026 here, and we're looking forward to getting into the year and coming back and reporting on some strong actuals for you.
Listen, we've hit the top of the hour, maybe even going a minute past. So we'll go ahead and call it now and wrap the call up. I do want to thank everybody for joining us. And as a reminder, we look forward to speaking with you again during our Q1 earnings on Tuesday, April 21. As always, please don't hesitate to reach out with any questions. Thank you for your time and attention today.
This will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.
Tractor Supply — Q4 2025 Earnings Call
Tractor Supply — Q3 2025 Earnings Call
1. Management Discussion
Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's Conference call to discuss third quarter 2025 results. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded.
I would now like to introduce your host for today's call, Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.
Thank you, Alissa. Good morning, everyone. We appreciate your time and participation in today's call. On the call today, participating in our prepared remarks are Hal Lawton, our Chief Executive Officer; and Kurt Barton, our CFO. We will also have Seth Estep, Rob Mills, John Ordus and Colin Yankee, joined the call for the question-and-answer portion. Following our prepared remarks, we will open the floor for questions. Please note that a supplemental slide presentation has been made available on our website to accompany today's earnings release.
Now let me reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission.
The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. [Operator Instructions] We appreciate your understanding and cooperation. We will also be available after the call for any further discussions.
Thank you for your time and attention this morning. And now it's my pleasure to turn the call over to Hal Lawton.
Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. Before getting into our results, I want to thank our more than 52,000 Tractor Supply team members. Their commitment, hard work and passion for Life Out Here continue to set us apart. By delivering legendary service they build the trust and loyalty that defined our brand, and their dedication to our lifestyle remains the foundation of our leadership in rural retail.
The Tractor Supply team delivered a strong third quarter, in line with our expectations, driven by ongoing share gains in our consumable, usable and edible businesses, agile execution through an extended summer season, and healthy transaction growth that was supported by our consistent focus on value and service. Our view is that our third quarter results largely mirrored the broader U.S. consumer environment augmented by some share gain. We saw a strong start to the quarter with spending trends moderating into September. This pattern aligned with what we observed across the retail landscape and, in our case, was amplified by 2 key dynamics. First, the tailwind of an extended spring in July; and second, the headwinds of an unseasonably warm weather in September and the absence of emergency response.
So let's start with a few top line sales highlights from the quarter. First off, we grew net sales 7.2% to a third quarter record of $3.72 billion. Comparable store sales increased 3.9%, driven by a balance of transaction growth of 2.7% and average ticket growth of 1.2%. And importantly, we had positive comps in all 3 months, positive comps in 11 weeks, a flat comp in 1 and negative comps in only 1 week. We are particularly pleased to extend our track record of comp transaction growth, a hallmark of Tractor Supply and a strong signal of the health and engagement of our customer base.
Our customers remain loyal and connected to their lifestyle, continuing to shop with us across categories and channels. And so let's turn to some customer engagement metrics, which remained a clear strength in the quarter.
First, customer satisfaction remains strong with scores continuing their positive trajectory, marking a record 17 quarters of consecutive improvement. Additionally, we achieved record Q3 highs across some key customer metrics, including total customer count, Neighbor's Club membership, reactivated customers and retention rates. Neighbor's Club continues to be a powerful differentiator and represents over 80% of our sales. We saw gains in member retention and spend per member, and our Home Count Heroes program continues to attract new customers. We're also making progress in how we serve customers using data. With the implementation of our new customer data platform last year, our team is now able to better personalize offers and messaging, helping us deliver more relevant and engaging experiences across channels.
Now let's shift to category performance in the third quarter. In line with recent quarters, the consumer remained discerning in their spending with categories that offer newness, strong value and needs-based continuing to outperform. Our comp sales growth was driven by strong seasonal performance in spring and summer products, along with continued momentum in our core year-round categories. As we moved from the second quarter into the third, seasonal categories strengthened meaningfully. After a more modest first half, we benefited from the bathtub effect of the extended summer season. We believe this was about a 50- to 60-basis-point contribution to the third quarter that would have historically been in the first half.
As it relates to seasonal, the team did a great job capitalizing on the elongated summer season, whether through strategically positioned inventory, enhanced financing offers or targeted labor investments, across the company, our merchants, to our store teams, to our supply chain, the organization leaned in to capture every single sales opportunity. And a great example of that execution was in our tractors and riders category, which delivered another strong quarter. Our industry-leading lineup of zero-turn mowers, combined with the disciplined inventory management and effective merchandising, continue to resonate with customers and drove share gains in this category in the quarter.
Additionally, other categories in seasonal that saw standout results were lawn and garden, sprayers and chemicals and power equipment parts and accessories. In our hallmark area of C.U.E., we saw stronger than average growth in livestock, [indiscernible], poultry feed and supplies and wildlife supplies. And in wildlife supplies, we continue to expand our position as a destination for outdoor enthusiasts across gun safes, deer corn, feeders, hunting [indiscernible], attracted, trail cameras and more. Our customers are responding to the depth of the inventory and the newness that we're bringing into the category including the launch of the Field & Stream brand. We now have nearly 50 SKUs in this brand available in store and online with a robust pipeline and development, and this launch strengthens our position as the destination for the Out Here lifestyle.
In discretionary and weather-dependent categories, particularly those in the fall season, such as recreational vehicles, grilling, safes and generators, sales continued to lag, reflecting both the cautious big ticket consumer and the absence of storm-related activity this year. As it relates to big ticket, overall, the strength in tractors and riders offset the softness I just mentioned in discretionary and emergency response categories, resulting in essentially a flat comp performance for the quarter. And finally, in companion animal, trends remained stable, but below company averages. The consumables business remains flattish, with seasonal strength in animal health, and we have seen some sequential improvement in pet supplies and equipment as well.
We also continue to execute well across our strategic initiatives and operational priorities. Digital sales grew at a low double-digit rate, representing a notable sequential improvement from the second quarter. Nearly 80% of online orders were fulfilled by our stores, highlighting the strength of our local network and store base. Same-day delivery and deliver from store outperformed, reinforcing the convenience and reliability of our model and the value of the final mile capabilities that we're building out.
Petsense by Tractor Supply marked its 20th anniversary and congratulations to that team, and it highlights the differentiated pet specialty model out in rural America. Our distribution centers delivered another strong quarter of productivity gains, supported by disciplined execution and efficient inventory flow across the network. This execution helped ensure we remained in stock on the product our customers count on, particularly with the extended seasonal demand.
Turning to pet pharmacy. We continue to see steady growth in orders and customer adoption. Each week, we're seeing an increase in Neighbor's Club subscriptions of prescription and over-the-counter products, leveraging our Allivet acquisition. Our customers continue to engage with our suite of pet services, which also includes pet washes and vet clinics.
On the real estate front, we remain disciplined and confident in our growth strategy. We opened 29 new Tractor Supply stores in the quarter, bringing our year-to-date total to 68. New store productivity continues to perform very well. Our pipeline of 2026 and into 2027 remains robust with significant runway for low-risk, value-creating organic growth ahead.
We also continue to invest in our existing store fleet. We now have 55% of our chain in the Project Fusion layout and nearly 700 garden centers. These are capital investments that provide a multiyear runway for growth and extend the terminal value of our stores. They help us be more relevant to both our core customers and our new customers, allowing us to garner a greater share of their spending and be the dependable supplier for their lifestyle.
Finally, we're making solid progress on advancing our Life Out Here strategic initiatives with a focus on direct sales in final mile. These initiatives strengthen our foundation for long-term growth and relevancy to our customers.
To summarize, the third quarter demonstrated the strength and consistency of our model, healthy customer engagement, strong execution and continued progress on our Life Out Here strategy. As we look ahead, we believe it is appropriate and timely to narrow our fiscal 2025 guidance. This guidance reflects our year-to-date performance and outlook for the remainder of the year. We remain excited about our strategy and our ability to deliver long-term value for our shareholders. And with that, I'll turn the call over to Kurt to provide more detail on our performance and outlook.
Thank you, Hal, and good morning to everyone on the call. As Hal highlighted, our third quarter top line performance aligned with our expectation. Each period of the quarter delivered positive results, supported by consistent transaction growth throughout. Sustained growth in transactions remains a hallmark of Tractor Supply and a key indicator of the health of our business model. In addition, all geographic regions across the chain delivered positive comparable sales for the quarter. These results underscore the broad-based nature of our performance and the consistency we are seeing in the business. This was especially evident in the performance of our C.U.E. categories, which outperformed the chain average and had mid-single-digit comparable sales growth every month of the quarter.
While the early part of the quarter benefited from the extended spring selling season, the later portion was pressured by lingering summer heat and dry conditions with no meaningful shift to fall weather.
As far as emergency response sales, while we did not receive a significant year-over-year sales lift from emergency response last year, we did have a hurricane event in 2024 that provided some benefit to sales. This year, we had no emergency weather-related activity, which represented a modest headwind to our third quarter comparisons.
Let me add a few additional comments on our comp sales to complement Hal's remarks. The transition from price deflation to modest inflation year-over-year was consistent with our expectations for the quarter. Average ticket increased 1.2%, driven principally by higher average unit retail. This was primarily the result of a higher, but stable commodity cost environment and, to a lesser extent, selective price adjustments as higher product costs flow through our supply chain.
Moving down our income statement. Our gross margin increased 15 basis points to 37.4%, in line with our expectations. This performance reflects the continued discipline of our merchant team in managing product costs and consistent execution of our everyday low price strategy. These benefits more than offset the anticipated pressure from tariff costs and higher transportation costs as we lapped last year's benefit from the opening of a new distribution center along with the modest cost increase to support our strategic investment and final mile delivery.
We remain very pleased with our ability to expand gross margin in this environment, which speaks to the strength of our cost management initiatives. Selling, general and administrative expenses, including depreciation and amortization, were $1.05 billion, up 8.4% from last year. As a percent of net sales, SG&A deleveraged 29 basis points to 28.1%. This outcome was in line with our expectations and reflects a few puts and takes. They were primarily 3 drivers of the deleverage. First, the planned strategic investments in our business to launch initiatives such as direct sales; second, higher incentive compensation from stronger performance, primarily at the store level and the lap from last year's lower accruals; and then third, a lower benefit year-over-year from our sale-leaseback strategy. These factors were partially offset by ongoing productivity initiatives and leverage and fixed costs from the stronger sales performance.
Importantly, within gross margin and SG&A, we view our investment spending as critical to supporting our strategic priorities and long-term growth while continuing to balance expense discipline with the opportunities ahead.
Our effective tax rate decreased to 21.0% from 22.3% in the third quarter last year, largely due to the timing of planned tax strategies for the purchase of federal tax credits, which we expect to normalize over the full year. On a year-to-date basis, our effective tax rate is 22.3%, just 10 basis points higher than last year's rate.
Diluted earnings per share was $0.49, up from $0.45 in the prior year. Our inventory position remains in excellent shape. Our average store inventory is up a modest 3.4%, reflecting healthy sell-through and strong inventory management by the team. Year-to-date, we've returned more than $600 million of capital to our shareholders through dividends and share repurchases.
As we look ahead, we're focused on finishing the year with the same discipline and agility that have guided our results year-to-date. The fourth quarter carries typical seasonal variability, but we're confident in our ability to respond quickly to changing conditions and deliver within our outlook range.
For the fourth quarter, we anticipate comparable store sales growth in the range of 1% to 5%, reflecting a wider set of possible outcomes given the current consumer environment. And keep in mind, winter weather is often the primary driver of our fourth quarter business, more so than the holidays and the related gift buying. As a result of this outlook, we are narrowing our fiscal 2025 guidance range. We now expect net sales growth of 4.6% to 5.6%, comparable store sales growth of 1.4% to 2.4%, operating margin between 9.5% and 9.7% and diluted EPS in the range of $2.06 to $2.13.
Shifting further out, while we are not giving formal guidance for 2026, and with a caveat that we are still in the planning process and the macro environment can change rapidly, I thought it would be helpful to make a few comments about how we are thinking about next year.
As we look to 2026, we expect to open 100 new stores compared to 90 this year. This increase reflects our continued confidence in the strength of our new store economics and the long-term growth potential of our model. We anticipate a consistent pace of openings throughout the year. For 2026, we are optimistic about maintaining the step-up in comps that we are forecasting for the second half of this year. We expect transactions to remain a strength, with average ticket staying positive and the early benefits of our strategic investments contributing to that momentum. This level of comp sales growth should also support progress in our operating margin rate. To that end, we would anticipate fiscal 2026 to be a more normalized year as it relates to our investment levels and the corresponding pressure on operating margin.
Margin rate expanding proportionately as comp sales growth increases beyond that level.
Stepping back, with our peak capital investment cycle as a percent of sales now behind us, we believe 2026 will reflect continued P&L normalization. This progress positions us to deliver solid sales growth with the margin improvement opportunity in line [indiscernible]
Life Out Here strategy. For the balance of the year, our priority remains on being a dependable supplier, delivering compelling value and providing more meaningful in-store and online experiences. Let me share some of the key in-store and merchandising activities that we have planned. We remain excited about the continued momentum of our Hometown Heroes program, which is part of our Neighbor's Club benefits for military service members, veterans and first responders.
This year in the weeks leading up to veterans [indiscernible] to connect with our communities in very special ways from Touch a Truck events to Marathon [indiscernible] for kids to thank you to our hometown heroes and honor wall. These types of events create a lot of energy and excitement for stores. And if you get a chance, it's a great day to be in them.
The winter and holiday season always create [indiscernible]. It's a sense of fun and excitement across our business as our teams showcase the best in Tractor Supply for our company leaning into that responsibility with depth of inventory, the right price and fresh and trusted brands that reinforce our relevance.
While holiday gets the spotlight, it's winter readiness that drives the heart of our business and where we consistently show up for our customers when they need us most. And once again, our now famous [indiscernible] holiday restrictors capturing customer attention and social [indiscernible] great price. And this year's tool to event brings outstanding value to our customers with leading brands and exclusive TSC offerings in power tools, accessories and storage.
This event highlights us as a gifting destination for the homesteader lifestyle. Our holiday sets always bring energy and excitement to our stores. But as I said, what truly drives our business in the fourth quarter is the weather. And when winter weather arrives, our customers know they can depend on Tractor Supply. From localization to direct sales to pet and animal Rx to Final Mile, exclusive and private brands and retail media, the team is fully engaged in executing detailed road maps that will drive growth and long-term value creation.
To close, we operate in a large, attractive market that rewards consistency, connection and authenticity to a lifestyle. Our investments in our new store base, in our existing stores, in our technology, in our supply chain and in our talent are strengthening our competitive advantage and enabling us to consistently gain share. Combined with strong new store returns, ongoing rural migration and disciplined expense management, we believe we are well positioned to deliver long-term value for our shareholders.
With that, let's open up the call for questions.
[Operator Instructions] The first question is from the line of Steven Forbes with Guggenheim.
2. Question Answer
Good morning, everyone. Hal, curious if you can give us an update specifically around the direct sales rep build-out. And maybe how many you plan to have in place by year-end? What will store -- the final mile coverage be on a percentage of the store base? And then lastly, just like how should we be thinking about the benefit of the incremental sales potentially offsetting the initial start-up costs, right, associated with the initiative next year? It sort of sounds like you're implying that there's a potential sort of net benefit to margin next year as this program ramps and you start getting the benefit of sales flow through?
Steven, thanks for joining us on the call, and thanks for the question about direct sales. I'll give a couple of high-level comments and then turn it over to John to provide further detail. But at the highest level, what I'd say is we remain incredibly bullish and confident in our direct sales initiative. It's off to an excellent start, right on top of the expectations that we set at the beginning of the year in terms of rollout sales rep ramping, the sales attributed to that ramping, et cetera. As we've been clear this year, there was some expense investment that we've made in that business to get it launched and ramped. That's embedded in the guidance that we've been giving throughout the year.
As it relates to next year, we are looking for the initiative to self-fund itself. So there would be no further incremental investment into the initiative as it's ramping now and starting to self-fund itself. I'll turn it over to John to give some of the highlights on the number of reps we've hired recently and over the last 9 months and how they're doing on sales and what our outlook for next year is.
Yes. Thanks, Stephen. Our direct sales business continues to scale rapidly with reps covering -- we're over 300 stores now. I think it's 312 as of today. Our big barn customers are comping at nearly 50%, with our direct sale specialists working directly with them. And we're selling over $200,000 a week now in sales and continue to ramp pretty fast. We're taking that legendary service that our stores do a great job in, and we're taking it out to the big barn customer. I'll give you just a quick example of a recent customer. So customer in the Florida market was buying feed at a competitor somewhere else. After 3 visits and it normally takes about 3 to 4 visits for us to complete that sale, that customer decided to move to us. They're buying 80 bags of feet, not 2 skids of feet, buying them every other week, and we're able to create that relationship and an ongoing relationship. And then we'll continue to build on that basket as we go.
Our team builds these relationships with our customers and our specialists have over 10 years -- on average, 10 years of experience in this industry and 100% of them live the lifestyle. So we're very pleased with the people we've hired. We're very pleased with where we're at. We've done 4 cohorts now for training classes. The first, obviously, class in April, and that's starting to ramp up faster, and we're seeing that ramp as each week as that class ramps up.
To answer your question on specialists, we're at 48 specialists right now. We'll continue to look at markets this -- for the remaining of this year where we'll have modest growth with another 8 to 10 reps. And as we get to next year, we'll continue to file the final mile team as they grow out there, we'll let them get established and then we'll come in a little bit behind them, and then we'll start doing direct sales in those same markets, where average ticket continues to be strong, about 7x as the company average, and we're very pleased with what we're seeing in the the departments that are doing -- that are driving the sales of the departments that we thought they would feed fencing and Equine being the big one.
The next question is from the line of Michael Lasser with UBS.
The question is on any changes you're seeing around the consumer behavior who lives in the Life Out Here environment? Especially because the perception is that trends have slowed quarter-to-date and folks are wondering is that due to just the weather? Or is there something more that's going on?
And then as part of it, you were helpful in giving some color on the contribution from your initiatives $200,000 in incremental sales per week. If you could build on that and give us a sense for how you think about that contribution as you move into next year across all of the initiatives that you have in place?
Michael, and thanks for joining the call today, and good morning to you. I'll start out first just on the state of our consumer. Our consumer remains strong, resilient. We shared some of the metrics in our prepared remarks, but we had exceptional customer metrics in Q3, whether it relates to engagement and their shopping patterns or whether it relates to overall customer satisfaction. Those trends have not changed dramatically as we moved into Q4, very much steady as she goes. I'll highlight a couple of things on that.
As we all know, the core component of that is our C.U.E. business. Our C.U.E. business continues to run very stable and very much in line with our year-to-date trends, and that's the fundamental underpinning some foundation of our business. Certainly, would acknowledge that the first couple of weeks here, 3 weeks or so of October, have had unfavorable weather for us. But it's the last few days started to get cool across the country, and we feel very good about the outlook for the balance of the quarter. That's reflected in our guidance of 1% to 5% comp.
And as we talked about in our prepared remarks as well, the biggest driver of variation in our sales into Q4 is a winter storm. And if you go back over the last decade or so, it's about 50-50 in those last 2 weeks if you get a polar vortex or a really, really significant cold snap. You look at like 2018, I think, is a great example for this quarter where it started out warm in October, very similarly. Our first couple of weeks were tougher comps. There was a government shutdown going on and holiday sales that year were some of the weakest holiday sales in the last decade. And we still put up a 5.7% comp for that year -- I mean for that quarter because the last 2 weeks, we had incredibly strong winter business. And we think our guidance reflects -- if you go back over the last decade plus, we're right in that -- the guidance range we've given that midpoint to 3% comp is even if you exclude like '20 and '21 where we had really high comps those 2 years, you exclude those, our center point still right at about 3% for comp for Q4.
So we feel really good about the guidance we've given in Q4. It is all about the cold weather and winter that starts to happen in December. We're really optimistic about our holiday. We've got a lot of things locked and loaded for that. Our Hometown Heroes event should give us the opportunity to get into the market very early in a very unique way for Tractor Supply. So just can't say enough positive things about how we're thinking about the balance of Q4, and we feel as bullish on Q4 as we did 3 months ago on our most previous earnings call.
As it relates to the comments John made on direct sales, Michael, I'd say a few things. First off, John mentioned, we've got a little over 40 sales reps right now, 48 sales reps in place. I'd say 20 to 25 of them are really doing the bulk of the sales driving right now out of that first cohort, second cohort of classes, and driving that $200,000, $250,000 a week we're seeing right now. And we're ramping sequentially every single week. So we feel really good about the continued benefit that, that's going to drive for us into next year. And we've always talked about 2026 would be when you start to see the impact of the initiatives in our results.
At our next earnings call, we certainly will be providing guidance for '26 and more detail on how the initiatives layer into that guidance, but no doubt, direct sales will be a complement and a driver of our growth next year. Thanks so much for the question, Michael.
The next question is from the line of Kate McShane with Goldman Sachs.
We wanted to ask a few more questions around pricing and tariffs. The color you gave around ticket was helpful. How should we be thinking about ticket in Q4, especially when it comes to like-for-like price increases? And just when it comes to the change that we saw in the narrowing in the top line of guidance today, how much of that is because of the change in terms of what you're expecting to flow through in terms of price?
Kate, this is Seth. Thanks for the question. For tariffs and kind of pricing as we look ahead, I would just kind of take a step back first and just say, first and foremost, that I'd just really highlight the team that we have the tools and the team in place and have done a really nice job up to this point to navigate. And at this point, we're about halfway through the initial incremental tariff impact kind of year-over-year as it's kind of flowing through to the P&L. We have taken some price where we have needed to here and there. Where we have, we have not seen a lot of elasticities yet. It has driven a little bit of AUR, but not a lot of elasticities.
When you think about a look ahead, I would just say our top priority really is to continue to be that advocate of value for our customers. Our guidance implies that we're going to continue to navigate the additional costs that flow through to the P&L in Q4 as a result of these tariffs. Where we do take price, we're going to continue to be surgical. We do have a portfolio approach. As you know, C.U.E. is such a big part of our business, 40% to 45%. And you think about that and mostly domestic based on that. It continues to be operating within kind of in line with where we are kind of today and foresee that kind of going forward.
So as we think about price, as we look ahead, again, we're going to continue to navigate. Our focus again is on value perception. It's on managing margins. And at the end of the day, we're going to continue to make sure that we are priced right to make sure that we continue to take market share.
The next question is from Scot Ciccarelli with Truist.
So Kurt provide some comments on '26. So when you guys look at next year and the OI margin expansion you referenced, is the potential on the 2%-plus comp coming from SG&A leverage? Is it coming from growth? Is there a mix? Can you just provide any more color or clarity around the thought process around that?
Yes, Scott. What you heard from me in my remarks, I'd summarize by saying we expect and see momentum in our gross margin expansion in 2026. The pressures on SG&A that you saw this year, we had said we were going to make a very purposeful investment to launch Final Mile and direct sales and that was going to put 15 to 20 basis points of pressure on operating margin in 2025. As you heard Hal mentioned just a second ago, the next cohorts and the 2026 launch we anticipate paying for itself, and there's no incremental pressure on SG&A. So between that and some of the transitory type items that were pressured this year, SG&A has less pressure in 2026 as we see it today and allowing us to be able to leverage at a lower, more normalized comp rate as I mentioned in that low 2% range.
And just as an example, for Q3 and even our expectation for Q4 of this year with 20 basis points of pressure on initiatives on year-over-year pressure from incentive comp just compares and even some timing on the benefit or the pressure on sale leaseback. You look at the core of the business and SG&A is in a really good shape. And it's really another great example of how, at this point, we can leverage SG&A at a lower comp rate and be able to grow operating margin modestly if we achieve that low to mid-2% range. And it's really about being able to move past the investments. And I hope that helps in regards to seeing the potential for next year.
The next question is from the line of Steven Zaccone with Citigroup.
I wanted to ask on the same-store sales growth, so to follow up on Michael's question earlier. The fourth quarter, why does the low end of the guide include 1 comp? Third quarter was back to Algo. So just help us understand why there's a wider range for the fourth quarter? What gets you to the low end versus the high end? And then as we think about '26, thanks for the preliminary views, is there anything to be mindful of first half versus second half just since inflation was a factor in first half versus second half of this year?
As it relates to Q4, it's really just reflective of the range of outcomes that we see in the fourth quarter, as we've mentioned previously, cut it dominantly based on weather. I think if you go back and look at our kind of 10-year trend on the fourth quarter, that's -- it's kind of the range that we've seen historically in this quarter. And anyway, so I'd just say that. That's kind of reflective of what we're seeing. The second thing I'd say, as it relates to next year, there's really not a lot of ins and outs on the sales side for next year. A little bit of maybe of Q3 benefit I referenced in my earnings scripts that might flow into Q2. But other than that, I think the sales should be pretty straightforward. You probably got a little more AUR benefit in the first half of the year than the second half of the year, at least what we know now. Kurt mentioned, we've got a DC opening next year. That's got a little bit of a start-up cost that will impact operating margin in the first half, but we get the cost of goods benefit on that on the second half from a new discount we get with our vendors for opening up a new DC that should pretty much wash itself out for next year just between the 2 halves a little bit.
So I'd say nothing too out of the ordinary next year. I think that's one of the big things in Kurt's prepared remarks, we were trying to get across -- we expect it to be very much more of a normalized year than we've had in the last 5 or 6 years, whether that's across our P&L, whether that's across commodity deflation, inflation, et cetera.
The next question is from the line of Zach Fadem with Wells Fargo.
Kurt, on your '26 comments, maybe we could talk a bit more about the comp building blocks. Maybe we talked a little bit about direct sales, maybe we could touch on Allivet. I'm curious how you think about other things like commodity inflation and tax refund stimulus. And adding this all up, is it fair to anticipate a return to comp algo in '26?
The information that I've shared thus far is about the length of what, at this point, I think it's appropriate to share on our thoughts for 2026. It's really been intended to say the P&L is more normalizing. And at a run rate relatively consistent with what you're seeing in the second half of this year, there's an opportunity for margin inflection. We certainly will be able to share some of the details on how we build up to our guidance range for comp sales in the back half of the year.
Things that we've said thus far that I'll just reiterate that it's important to understand, we see AURs continuing to be in a positive scenario the back half of this year and going into 2026. Transactions continue to be a core foundation for our comp sales growth, and we anticipate that for 2026. So in general, the consumer continues to engage in the lifestyle. We have a solid demand for our core business. We anticipate transactions and ticket to both contribute. The strategic initiatives, which just launched this year, including Allivet, we're excited about the momentum. We anticipate that each of them will give some contribution. But I would just say at this point, early in each of those stages, those contributions are important to be able to show the acceleration of the momentum of the business, but won't be the key drivers of the comp sales growth. And we'll give you more information on what our range is and what the key contributors are in our January call.
The next question is from the line of Chuck Grom with Gordon Haskett Research Advisors.
Maybe a question for Seth or John or maybe Rob. Given the increasing tariff drop, curious if you make any changes to your seasonal assortment for the holiday some other retailers have talked about swapping out certain products? And I guess, if so, how that supplementing of assortments could impact sales or gross margins here in the fourth quarter?
And then just 1 quick 1 follow-up for Kurt. I think historically, your leverage gets you about 15 bps above or below. Is that -- would that still be the case based on that low 2% potential comp next year?
Chuck, this is Seth. I'll start, and then I'll kick it over to Kurt for your second question. For holiday, I would just say, going back to post the April announcement of the tariffs, the team did a really great job analyzing all the programs that were set aside for the back half, looking at where we thought there could be elasticities where tariffs could come in and went right away to kind of adjusting potential buys and things of that nature.
I would tell you that like there's not a significant meaningful amount of updates and shifts that occurred other than maybe going from direct to importing some products, defining domestic supply and demand, looking for products that had other countries and origins of supply. And I would just say that the team did a really nice job pivoting to those other countries of origins as well as taking advantage of opportunistic buys so that we can make sure that we have a really compelling offering as it comes, and we look ahead to holiday. So we're really confident when we look ahead and be able to manage not only tariffs, but also being able to offer that kind of assortment that our customers expect for us around this time of the year. I'll kick it over to Kurt and let him go to the second question.
Yes, Chuck, the -- going back to my comments about the over -- moving beyond the peak investment cycle gives us the ability at lower comp rates more historical tractor supply norms to be able to have some level of inflection in operating margin. When we gave our long-term guidance, we said we generally look in this guidance range to be able to grow our operating margin 5, 10, 15 basis points annually. And as we were able to achieve comp sales above that inflection point, I believe that scenario is very much in play for 2026.
The next question is from the line of David Bellinger with Mizuho.
I want to ask you about the hunting supplies expansion. We've noticed rollout of [indiscernible] in the ammunition category as part of our checks. Can you help us size the revenue opportunity and the potential comp uplift there? How many stores can this reach? And any early reads from your core customer?
David, it's Seth. Thanks for the question. I would start with just saying that wildlife and recreation supplies have been a core kind of category growth strategy for us. If we go back even over the last 5 years, and we continue to be really, really pleased with the growth of the categories and those items as we're looking at those in the store. So when it goes directly to ammo, I would say amo for us was just kind of a natural extension to that kind of outdoor wildlife and recreation category. We are the market leader in safes. We are growing significantly and, call it, feed and attractants. And when you look at those categories, amo was kind of like that next iteration of C.U.E. when you think about that Wildlife category for us.
Today, I would tell you we're in roughly about half of the chain. We've ramped that recently where we started with a small pilot and we're pleased with the initial results. We also have it online. And I'd say for a little bit for the foreseeable future, it would be in about that kind of store count as we kind of go into 2026, and we continue to manage that out. So again, amo is kind of that natural extension to it. But I would just say more broadly, you're going to continue to see us go deeper and deeper into wildlife and outdoor recreation categories because not only has it been a key growth driver for us in the business for the last 5 years, but as we look ahead, and that's part of the things that you're seeing with us with the Field & Stream partnership that we're launching, we're having those new exclusives kind of coming out.
And for us, we're looking at that as like what's that kind of next category of growth similar to what we've seen over poultry kind of over the course of the last 5 years, 10 years, et cetera. So thanks for the question.
The next question is from the line of Chris Horvers with JPMorgan.
So a couple of follow-ups on the top line. You talked about 50 to 60 bps of spring seasonal demand, spring/summer shifting into the third quarter. We also talked about some fall headwinds. So was that 50 to 60 sort of a smaller tailwind as you think about how it played out in September?
And then as you think about the ticket component of comp, following up on an earlier question, into the -- Seth, you mentioned you're about halfway through rolling out pricing, but also into the fourth quarter, your mix goes more highly towards imported goods. So would you think that ticket could perhaps be up 2.5% in the fourth quarter or maybe a little bit more given the mix shifts?
Chris, it's Kurt. In regards to the ticket question, we anticipate that our ticket will have a similar, maybe slightly higher impact on the fourth quarter for some of the things that you mentioned. The ticket had minimal impact this quarter on mix in -- including big ticket. So ticket is benefiting from the stable commodity market with some slight increase in the input cost, including tariffs. That may moderate up a bit in the fourth quarter.
We've always said that in this quarter, there's volatility in regards to elasticity as well. So some of that includes for ticket, how much impact may be in the basket, et cetera. So we look at both transactions and ticket being a key contributor to the fourth quarter and maybe more outsized on ticket in the fourth quarter than it was in the third quarter, and transactions will move in regards to demand for the business. And particularly, as Hal mentioned earlier, the demand related to cold winter weather impact. So look at it that way in regards to the benefit. And then Remind me the first part of your question, Chris?
Was, yes, Kurt. The was whether do you think that 60 basis point lift from the shift from 2Q to 3Q on the seasonal business, would you think it was less of a tailwind considering what happened in September? Or is that sort of your view of the net impact of weather in the third quarter?
Yes. Let me -- I'll just step back on the third quarter in general. And we often say is the quarter favorable or unfavorable weather related. And third quarter overall was favorable from a weather perspective. And there's been some puts and takes in there. But if it's relatively point of comp benefit from a good solid weather condition in the third quarter, that's a pretty good range to look at it. Within there, Hal mentioned that areas on a delayed start to the second quarter and then the bathtub effect, some of that is what fell into July that may often be part of the second quarter. But overall, particularly July and August were set up as a favorable solid third quarter. And then on the tail end of it, you had a headwind on there. But we do overall look at the third quarter as a solid, good, favorable weather condition type quarter.
The next question is from the line of Robert Ohmes with Bank of America.
Just 2 quick questions. Maybe Hal, can we get an update on Retail Media for Tractor Supply? And then another question for the team would just be, I think you guys are on the the release you put out mentioned softness in select discretionary categories. A little color on that. Was it apparel? It sounds like it wasn't big ticket overall, but would love to get any color on that.
Robert, thanks so much for the question today. I'll take the second one, and then I'll toss it to Rob to share some details on direct sales -- I'm sorry, on retail media. As it relates to the softness in discretionary really not much difference than what we saw in Q3 than what we saw in Q1 and Q2. The seasonal big ticket certainly continues to resonate with customers. When there's a need, they're purchasing. We saw that in July and August with riding lawn mowers as we called out. But on the flip side is if there's not a big driver of demand right now. We still see customers being a little bit cautious in their purchase as a big ticket. And for us, those are things like, say, dog kennels and crates, could be it's things like -- that we've called out also like trailers and gun safes, some of those every day, bigger ticket businesses that we sell. There's just a little bit of kind of cautious from the consumer on that. It's been that way all year. And I think what we were trying to call out in Q3 is that the strength in riders offset the weakness there, also the weakness we mentioned in the last couple of weeks of emerging response. As you can imagine, we sold a lot of generators in weeks 38 and 39 of last year contributes to big ticket growth and contributes to average ticket growth and we didn't have those sales this year. But not -- I wouldn't call anything new out in big ticket in Q3 as it relates to even the trends we saw in the first half.
All right. And Robert, this is Rob. I hope well. So first, from a retail media perspective, we're continuing to make really strong progress. We entered this year with Retail Media with 2 primary objectives; one, to expand our partnerships and ultimately drive revenue. And we're on track for this year to deliver a triple retail media revenue growth year-over-year. So we're very pleased about that. We're doing that by expanding the partnership count over 80%. Our average partner revenue is up by nearly 50%, and we're introducing new products and capabilities to our partners, such as branded pages, off-site products and expanding our in-store display retail media offerings.
We're really early still into retail media. I would call it, kind of say the first inning, but we're really pleased with the progress the team has made. We have extreme focus. We have strong value proposition back to our partners, really focusing on the footsteps in the rural market area. And in '26, where we're going to double down expanding our vision to more of the self-service capabilities, the model related to more product placement, related to ads as well as products in general. So with these expansion, the momentum that we're seeing in our partnership as well as just continuing to put the focus on our value proposition, we feel we're well positioned going into '26. We're very pleased. The team has done a great job.
The next question is from the line of Peter Benedict with Baird.
I guess I'll ask on on AI, just maybe an update on what you guys are doing in that area, and what your kind of outlook is for how you're going to layer it into factor supply?
Yes. Peter, thanks so much for the question on AI. We've got a lot of exciting things going on, on that front. And I'm going to break it into 3 buckets: enterprise-level software, the second is custom-built that we call off-the-shelf enterprise software. Second, I'd call custom-built enterprise software. And then the third I would talk about is around agents and automation. First off, on the enterprise kind of purchased software. All of our vendors that we work closely with are now rolling in AI modules, AI analysis, AI capabilities, whether that's in ERP systems, whether that's in replenishment systems, marketing, et cetera. So we are fast adopters there where appropriate, obviously, with clarity of understanding of functionality and security.
The second one, in terms of custom built, we talked about that several times in the past. Those software systems applications that we built out, we continue to scale, we continue to refine and they continue to -- and they've become more and more key parts of just how we operate every single day. So whether that's Heigura, which is increasing in its use, whether that's Tractor Vision, in terms of our customers calling out when customers need help in areas that our team members might not have visibility to them or whether that's in CorSo, which drives day-to-day operational tasks. So those are just 3 examples of custom-built applications that are scaled out now and continue to ramp in their impact in use by our team members.
On the third 1 around kind of automation and agent build-out. Over the last 6 months, we've done an enterprise integration with OpenAI. We now have over 1,200, I think 1,500 users that now have OpenAI enterprise accounts that's integrated with our Snowflake Data Lake. And what that allows us to do now is to start really across the organization, building agents to automate and make things simpler and faster. An example of that would be in, say, our Fast team, where in the past, when a Fast team member would finish a planogram reset, they would take a picture, they would send it to their District Manager -- District Fast Supervisor, they would review it and provide manual feedback. We've now built up the capability where that picture is taken, AI assesses the picture and gives immediate feedback to the team member and our District Fast Supervisor only has to get involved with escalations. And so it just makes everybody's job more efficient and allows us to execute faster. And kudos to the team across really all dimensions of our organization for embracing it and driving that productivity enhancements that it can provide.
Listen, we'll just got time for maybe just 1 more quick question. So let's see if we can slip 1 more in.
Our final question will come from the line of Spencer Hanus with Wolf Research.
I just wanted to ask on store growth, stepping up for next year. Where do you see most of that growth center? Is it new or infill markets? And then how are you thinking about the cannibalization from that growth and then the returns on those stores as well?
Yes. Thanks for the question. Appreciate it. So on new store growth, first, I'd just say, as we look backwards, the last 18, 24 months, there were some questions around our new store productivity being lower, and we talked about there was a lot of noise in there. And as we said then, ex the noise we've been running pretty consistent and we continue to be pretty consistent. The new store productivity numbers of late are continuing to show that our new store productivity is running strong and consistent. Our new stores are performing above pro forma. Our site selection and model is the best we've ever had in our pipeline is strong. And the real estate construction team are doing an excellent job continuing to build out these stores in the right locations. We know that cannibalization, we can build out markets. We can grow the overall market, and we're seeing cannibalization numbers come in even lower than what we predict them to be. So we know that the growth is out there. We see growth across the entire United States, but a lot of our growth will continue to be in the West as we're opening a new DC out there, and Idaho will continue to grow stores up there as well.
Well, I know we've hit the top of the hour, so that will wrap our call. I'm around and any time anybody needs anything at all. So thank you all for joining our call today.
Thank you. This will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.
Tractor Supply — Q3 2025 Earnings Call
Tractor Supply — Piper Sandler 4th Annual Growth Frontiers Conference
1. Question Answer
Great. Good morning. Thank you, everyone. So my name is Peter Keith, senior research analyst at Piper Sandler covering broadlines and hardlines. I'm very happy to have Tractor Supply with us today, who is Nashville-based. And so just for a quick introduction who's on stage with me, we have Seth Estep, Chief Merchandising Officer; Kurt Barton, CFO; and then we have the famous Mary Winn Pilkington in the back; and Rena Clayton Rolfe, also sitting next to her, Manager of Investor Relations. So welcome, everyone. Thanks for coming.
Thanks for having us.
Yes. Thank you, Peter.
All right. So let's kick off. I think one thing that's great about Tractor Supply is you guys have this very big niche kind of rural customer base, hobby farmer customer. So it's a big segment, but it's also unique in the landscape of retail. So maybe, Kurt, if you could just talk about how you feel about your consumer health right now. What are you seeing with spending trends and overall maybe home balance sheet health?
Yes, we have seen the customer behave very consistent throughout 2025. And I would describe our customer as stable, healthy, continuing to engage in the needs-based business and the rural lifestyle. I'll give you a couple of examples of consumer behavior in what we see and the demand for our business. We've had consistently -- even prior to 2025, we just continue to see throughout this year consistency in the number of transactions. And we often look at the volume of transactions and the consumable business being the biggest indicator of the health of our business, the health of our customer, their engagement in the lifestyle.
And as you saw in both Q1, Q2, we even indicated the strength of how Q3 was starting out that the transactions have been consistent. The consumable business is strong and been really a driver of our business. So best that we see our customer today on the -- on what we see for the demand, we'd say continue to be very healthy and stable. The broad consumer sentiment data but even some of the individual consumer sentiment information we get as we routinely pulse our customers just shows an increased view on their sentiment and their view of their personal finances continue to be stronger as the year has progressed.
Okay. That's great. And so there is some emerging optimism around housing. You guys are in a direct housing play. But how do you think about maybe the impact of housing on your business the last couple of years as we've been in a relatively soft market?
Yes. Peter, as you said it, Tractor Supply is not as direct of a recipient of demand based on housing market either strength or softness. But no doubt, as customers engage, move into and shift out of some markets into the rural communities, we're a benefactor of that. And just as a point of reference, while there was a significant growth in rural migration and the movement out of urban and suburban into ex-urban and rural markets where a vast majority of our stores are that growth in 2020 through 2022 was unprecedented.
But still in the last 3 years, we've continued to see net migration into our markets. And so we would like to be able to -- we look forward to and like to see the housing market show signs of growth. I think we're starting to see some of that. There's some momentum, the belief that we've seen the trough and the lowest part of that in 2024 and early 2025, I think, is well supported. So there's a bit of a halo effect and an indirect benefit to Tractor Supply from fencing and lawn and garden. And as big barns or big farms, should I say, may get purchased and larger subdivisions move in, there's certainly a customer that we benefit from.
So there's a benefit to our business as interest rates lower and housing market begins to grow again, but not an area where it's a key driver for our business.
Fair enough, yes. We were just looking at some data through mid-2024 and it's on that rural migration, and it still remains nicely intact. So it seems like something that could accelerate as housing starts to pick up.
Certainly, it's an area where housing is cheaper, and mobility allows the consumer to be able to move a little bit further out. And as the millennials and other cohorts begin to have that first home buy, there's a stronger percentage moving into where the cost of living is a little bit lower, and that's right in that ex urban and rural markets where we serve.
Yes, 100%. Everyone wants to get the big house, the yard, get a dog and some chicken, right? So let's pivot next question to Seth. So as you guys may have heard there are some tariffs to talk about. So maybe just talk about the process so far how your team has been managing through tariffs, how those price increases are starting to roll in and any consumer reaction thus far?
Yes. So what we indicated earlier in the last call as well and have been consistent throughout the year is that the first half this year was kind of minimal impacts from tariffs, with a little bit of a modest pickup as we went into Q3 and then more of the impact from a P&L perspective would flow into Q4 and then 2026. Our team, I would say, right away, we stood up to what we call the tariff task force, really looking at the implications, how we need to look to navigate the sourcing, resourcing requirements, making sure that we have product on shelf that we can have programs intact and also make sure that we could be that value dependable supplier that we're known to be.
As we're going through Q3, Q4, we're starting to see costs start to flow through some.
Kurt's mentioned a few times our C.U.E. business, our consumable, usable and edible, it's 40%, 45% of our sales. It's obviously minimally impacted. We're leveraging that to drive footsteps, making sure we're getting customers in there. But where we're starting to see some costs flow through more in those import type items, we're starting to see some of that cost start to pass through on select items as we navigate.
We've got a ton of tools in place from competitive price intelligence, et cetera that we're able to monitor those type of things and make sure that we're priced accordingly. But we've seen minimal consumer reaction at this point to anything that we've taken price on. So I just commend the team on to be able to navigate at this time and we feel confident that we'll have the ability to navigate and deliver the sell side as well as deliver the margin that we're looking to deliver at the same time.
Okay. Yes, that's interesting. I guess maybe to summarize, too, it's not the everyday items that are going up, it's infrequent purchases that maybe consumer doesn't know exactly what it should cost.
Correct, correct. I mean part of our merchandising philosophy is kind of that surprise and delight. As you walk in our store, we call it our drive aisle or center courts. Those are the types of things that are more impacted from the direct import side of the business. And so a lot of those are like onetime buys and things of that nature where you're establishing that retail. And you also have the ability to resource if need be to make sure you're delivering what the consumer is looking for.
Okay. Yes, great. Well, let me just follow up on that because surprise and delight is that we've heard that phrase for 20 years. I think it's a great way to describe Tractor Supply. Maybe, Seth, if you could hit on even just some of the merchandise initiatives that you and your team are working on, even like new product trends, new things you're bringing into the store that are providing that great customer experience.
Absolutely. So surprise and delight is something that's key to us, but there's really kind of like 3 core merchandising tenets that we always talk about. One is dependable supply, the other one is newness and innovation and the third is differentiation and exclusivity. And I'd kind of hit on all 3 of those with new programs and brands. Our C.U.E. business, again, we continue to talk about that, livestock feed, pet food, et cetera. The team has done really robust reset activity this year across those and introduced a lot of new items.
And one of the things that we're continuing to see a lot of uptick on is like in our private label product there as well. So 4health is a very large national premium private label that we offer. We get some sub-brands on that with our UNTAMED and our Shreds that really consumers have really gravitated to. If we think about other core categories that are core to the lifestyle, welding's one of those. We are a leader in welding. We just launched Lincoln Electric, which is the #1 brand in welding and that is -- consumers have really gravitated to that, surpassing some of the expectations. And then you think about differentiation and as well as exclusivity. One of the things that we're very excited about earlier this year we announced a partnership we're launching with Field & Stream.
We just launched our first handful of select products. Consumer reception has been very strong. And as we look to the back half, we're going to have some fairly large programs starting to launch under the Field & Stream brand, mostly in late November, December with another full lineup coming out of spring next year, which really goes to some of the category trends that we're seeing in like [ wildlife ], recreation. Everything we do is always centered around the lifestyle.
And so from the merchant team's perspective, they're always just looking at what are the trends where consumers going and what are the right brands that we can kind of anchor on to make sure we're delivering the products they're looking for.
Okay. Well, in the last year, you had the 3-foot tall skeleton chicken for Halloween. If you could top that, it's probably setting up for a pretty good.
We've got a great Halloween selection. So if you go to one of our stores, you'll see some very unique items in there for sure. This year, it's a big skeleton, a buck like a dear. So it's -- consumers are loving it.
Outstanding. All right. Okay. So I go back to Kurt and this is more of a short-term question. You guys have already kind of set up the answer. But it's just on the second half comp outlook. And so I know that's a question point for investors where the full year range is 0 to 4%. First half of the year, I think on average, you were up about 0.5% or so. So it implies some stronger trends in the back half. Maybe just flesh out where that confidence comes from on this pickup on the comp growth.
Yes. We said in our most recent guidance that we see a range of possibilities of -- for the year, a comp in the 0% to 4% for the year. It's -- first, I'd say there's a wideness certainly to recognize the impact on tariffs. It could be from ticket to the impact on the downside of the consumers' response. But we also indicated we feel really strong about our ability to navigate and center around the middle of that comp range.
But that, to your point, implies an uptick in the comp sales in the back half of this year. We also saw as we entered into this year and described it as a transitional year, the 2 real headwinds on our comp sales over the last 18 months have really been the shift of -- on PCE from goods to services. And as that balances back out as the consumer is shifting their priorities of spend more back to a historical norm on PCE. And in our case, that's mostly how -- that's where it impacts some of the discretionary parts of our business.
As that normalizes out, that allows us to be able to be more in line with our long-term algo and then really the level of deflation shifting from inflation where we've been seeing some of the significant pressure on the consumable side of the business on deflation. We're seeing both of those shift away from the pressure points to more neutral to even signs of positive. As an example, even in Q2, we exited Q2 on more of an inflationary benefit on the consumable side rather than deflationary. So what you see in the second half of the year is less pressure and in some cases even some benefit from those 2.
But really the comparables on the back half of the year what we're going up against are a little bit better. There was -- we're cycling in Q3 significant heat and drought last year, so it was not ideal for the third quarter for demand of -- from the consumer who lives and works outside of the land. And then there was minimal hurricane or emergency response demand last year. There was a soft mild winter and in our business, we are in the business of helping customers in cold weather.
And so the comparables are better in the second half than the first half. So we anticipate still consistent growth in transactions where ticket was a bit of a pressure in the first half. In the second half of the year, we're expecting a balance of both growth in transactions and ticket.
Okay. Sounds good. Yes, it does seem -- the weather data we look at, it looks like September has been a little bit cooler for a good chunk of the country so far. Okay. So to either one of you, I did want to ask about the competitive backdrop. What's kind of great about the business, you don't have natural brand name competitors, certainly nothing national scale, maybe some regionals. But how do you feel about that competitive landscape today? Is it intensifying? There's been some concern that a few big box home improvement players might be getting into your space. Anything that's on your radar right now?
I'd start by saying both Seth and I have been with the company and seen over 20 years each in our business and the rural market and supporting Life Out Here. And we've been through times where our peers and competitors will engage in parts of the Life Out Here product assortment, et cetera, whether that's equine, pet, poultry, et cetera and so forth. We keep our eye and our pulse on all the activity of our peers.
Our focus certainly is about the #1 thing that we offer is a full great assortment to serve the entire hobby and the entire Out Here lifestyle. That means what you need for your land, your animals, your pets, your equipment, we are a convenient but small and easy shop that offers our customers everything. And that's the most important thing is having what they need for all of the aspects of their lifestyle as well as great customer service.
And we've seen -- like I said, we've seen a number of times where other retailers might dip their toe in or dabble into some of the areas. And the best thing that we do is play offense and continue to just have the most reliable and dependable inventory, the best assortment, great customer service. And as I indicated, we're having record years in the number of engaged Neighbor's Club members and retention, transactions strong.
As I indicated, comp sales continuing to show signs of continued growth in there. So for us, we're mindful and keeping an eye on the competitor, but the most important thing for us right now and what's really been the differentiator in the years past in these situations is our ability to be able to meet the customers' needs and be best at serving this rural lifestyle.
Yes. Okay. Great. So next question to Seth, a little bit on Neighbor's Club and a little bit on the chicken. It's one of my favorite topics. But I think it's such a fascinating theme for you guys is this backyard chicken demand. The latest stat I think was chickens are now the third most popular companion animal pet effectively, right?
So we've had some great chicken, backyard chicken strength in the first half of the year. We had it 2 years ago. What does the purchase cycle look like for a chicken owner? Someone who's getting into the hobby. Does that -- is it a big boom and then fades or do you think it kind of holds steady for a while?
No. It's one of our favorite categories to your point. It's like an exciting category for us that we continue to be incredibly focused on. A couple of quick stats on that and then specifically answer the final question there is around 1 in 5 of our shoppers actually own backyard flock. So about 20% of our customers are engaged in the category. We continue to have record years. One of the things that excites us about where the momentum is going in backyard flock is obviously we had the eggflation earlier in the year that got a lot of people thinking about it. .
But even when egg prices came down, we have not seen a slowdown in the hobby and new entrants into the hobby. So this year, we're continuing that kind of record path. We're also seeing about half of the individuals that are buying backyard flock and chickens in our store are continuing the hobby and adding to their flock, and there's kind of a natural replacement cycle that goes along with it.
And then the other half are new that we're seeing into the hobby as well, which is always great because when you see about that kind of half and half split, you're getting that repeat purchase, you're getting people coming in and buying their livestock feed, they're buying everything else that can go with it.
While at the same time when people are new to the hobby, we love it because they need a coop, they need water, they need everything that goes to -- go with it. And in many cases, it's like a family activity, they're creating this experience. And it's just such a natural category that goes along with gardening, everything that we kind of support in that kind of backyard hobby.
So for us, when you do those things, it's just like the full basket of those entrants. And then you have the others that are continuing on -- that kind of build their flock. We'll see our average customer actually continue to add, I mean, up to 10, 12 birds in their flock and many of them have names at that point. And to your point, they become their companion animal and our merchants continue to kind of push the envelope on how do you kind of think about premium products to the table like companion animal whether it be with backyard poultry treats or even things like believe it or not like toys, like instead of dog toys like things for chickens, and it is absolutely resonating with the customers. So it's a great category, one that we're -- we definitely plan to continue to own.
I think chickens eat a surprising amount of food, right. They got to eat a lot of protein to make those eggs.
Exactly.
So what is a chicken customer you see in Neighbor's Club? Are they coming in at least once a month?
Most do. And it's -- because you think if they're owning anywhere between 6 and 12 birds, an average bird will eat around 80 to 100 pounds of [indiscernible] livestock feed per year. And you think about that kind of replacement -- that going in to buy their feed is kind of like that kind of grocery footsteps for us. So it's one of those things that drives repeat purchases like month over month over month and year over year as they're kind of replacing the flock as well.
Peter, a couple of things I'd add to that. Our Neighbor's Club data tells us 80% of our Neighbor's Club members own at least 1 pet. That's 4 in 5, 1 in 5 own chickens and. So the overlap in combination of dog, cat, poultry has got a high level of overlap there. And so for those reasons, the typical pet owner is coming in at least once or twice a month for their needs. And we're seeing that chicken customer, the -- we're seeing a high level of percentage moving into other categories.
And we even have like exclusive brands like the Molly Yeh apparel and very prominent in -- on social media with chicken owners, et cetera. So we're able to continue to work through social media on our Neighbor's Club to be able to take that new customer and expand them across the store.
Yes. It does so. I think it's such a fascinating theme for you guys. It's a -- chickens live 5 years, people have to feed them, and they come into store, they start buying more products. So it's a great trend.
Just in interest of time, we've got a couple of minutes. You've got some really nice longer-term initiatives in play with Allivet, Final Mile, the merchandise localization. It seems like Final Mile was one that got some attention on the last earnings call. Maybe just update us on that initiative, how it's going? And any metrics you could provide that's getting you excited?
Yes. Why don't -- I'll take that, Peter. First, I'd say there's Final Mile and then we also have our direct sales big barn customer and those often get talked consistently with each other, and they should because our Final Mile is the enabler for a number of sales opportunities and sales vectors that we've got between digital and the buy online, deliver from store but also the big barn direct sales in the large, palletized bulk goods. But our Final Mile is moving along really well.
It started with for a few years 300 stores where we began to really test this where we have a hub of a driver and a truck trailer being able to serve 4 to 5 stores in that area and be able to take our own team member with high quality that knows our business and can build a relationship and be able to serve big bulk delivery or that Final Mile on a digital sale. That's moving along well. We've moved into markets like Florida, Texas, California.
We've got at this point I think 50, 60 hub stores. So you think about that plus the 4 to 5 stores they're serving in place. We'll continue to roll that out later this year and then get on a real routine of growing that on a year-to-year basis. The direct sales is a field sales team that is driving business with ag centers, big barns that larger customer that we weren't able to service well on their big needs because they need palletized large bulk items being delivered and that group basically is a fast follower to our Final mile by, call it, 30 days after the Final Mile is in place.
Our field team who has been trained and been given the tools with lead, like sales lead systems, et cetera, we use our Neighbor's Club and other purchase data to identify these customers. All of that is moving along just as we planned for this year. So we're excited about direct sales because it is a $1 billion business that we anticipate to be a 5-year growth plan, but one of the most exciting strategic initiatives and Final Mile is an enabler for it and also a way for us to be able to be even more efficient and more competitive in those Final Mile deliveries in rural America, which is one of the toughest ones to break into. And we've got nearly 2,400 locations today. So we are the closest to our customers and believe we can have the most efficient and the fastest delivery with our Final Mile team as we roll that out.
And you're building on a sales team then on the direct side to pull in some of those incremental new big customers.
Exactly. You think about a horse stable that may have 24 horses and oftentimes that may be 24 different owners that need their product delivered for the most expensive animal to own. And so those are customers that get deliveries versus come into the store. So it's unlocking one of the last final areas for us to be able to reach into in a greater -- it grew our TAM, and it gives us a greater opportunity to reach additional customers.
Okay. That's exciting. So we look forward to tracking that longer term. So we're going to wrap it up there. But Kurt, Seth, thank you very much for spending some time with us. And good luck with the rest of the year and keep up the good work.
Thank you, Peter.
Thank You.
Tractor Supply — Goldman Sachs 32nd Annual Global Retailing Conference 2025
1. Question Answer
Okay. Good morning. Thank you for joining us. It's our pleasure to introduce Tractor Supply Company. Today, we have with us Hal Lawton, President and Chief Executive Officer of Tractor Supply. Hal has served as President and CEO since January 2020. We have with us too, Kurt Barton, Executive Vice President and Chief Financial Officer and Treasurer of Tractor Supply. Kurt has been in the role since February 2019. And we'll start there, and thanks for joining us, both of you, today. Thank you.
Yes, thanks for having us, Kate.
I think if we can just start maybe talking about the health of the consumer, you guys see a really broad swath of the consumer. And so we'd love to hear your view on what you're seeing and hearing and what you expect for the second half this year.
Yes. From our view, the consumer is healthy and resilient, remarkably resilient. You think about the challenges the consumer has been through over the last 5, 6 years, and they've just been remarkably resilient through it. They've evolved, iterated, adjusted based on the conditions, but GDP continues to be strong. Consumer spending continues to be strong. And that's what we see in our business.
We saw a nice sequential improvement through the second quarter, last quarter. Talked about how the third quarter was off to a good start. We had positive comp transactions in the first half, positive comp transactions in both quarters, strong new customer growth, total customer growth. They're engaging in our C.U.E. business. We had very good big ticket purchases as well, better than expected in the second quarter. So just the consumer remains strong and very resilient.
Great. Could you maybe differentiate a little bit in terms of the categories in which you're seeing us right? You talked a little bit about big ticket, which has been a nice headline for you guys in the C.U.E. categories. The discretionary areas for everyone has been maybe a little bit more muted. And so we wonder if you could talk through each category, how you see, again, that possibly strengthening what the consumer preference is there?
Yes. For us, I think it's very situational based on consumer need and in the moment. So for instance, -- if I break our bucket -- our categories just generically into 3 buckets for the sake of this discussion, we always talk about our C.U.E. business, consumable, usable and edible businesses. So those are things like dog food, horse feed, poultry feed, but also categories like fertilizer and grass seed, lubricants for tractors. So it's really things that our consumers consume, use or eat, right?
And -- but they're needs-based demand-driven. Those businesses continue to be very strong for us, nice mid-single-digit comps. They're the transaction drivers in our stores. We aren't seeing trade down at all in those categories. We're seeing just normal everyday behavior in those categories, and we continue to gain share in those categories. The second I'd say is kind of the kind of seasonally related bigger ticket businesses or just seasonally related businesses.
And for us, it's as goes the weather many times, those businesses go. So it was kind of a cooler-ish and wetter April and May, then summer came in June and July, and we saw our business pick up. And it was not only did we see things like just your normal lawn and garden businesses performing well, but we also saw big ticket like riding lawn mowers performing well. And those were very strong for us. And we think we gained some significant share in the space, but also just our consumers had a demand and a need for that. And yards were growing fast.
People are having to mow their yards a couple of times a week through the end of May, June and July, and it was kind of an extended season, and we saw strength in big ticket there. And then the third category would be just more your core discretionary, not as much seasonally related, let's say, something like a gun safe or -- another category would be like recreational vehicles, a little seasonality. Those 2 categories were really big for us last year.
So we are lapping on top of some growth from last year, but they were a little more muted. But I think that's one of the attractive things about Tractor Supply is our portfolio of categories. And if you look over the last 6 years with the comps that we've had, it's always been the case that our C.U.E. has been really stable, and then we kind of have other dynamics going on, the other 40%, 50%, 60% of the portfolio, but we're able to kind of navigate it because of that.
So maybe while we're talking about the health of the consumer, I think, we have to talk about tariffs and just what kind of impact that might have. And on the last earnings call, you mentioned seeing tariff impacts in the second half and beyond. I think that has to do with how fast you turn and, again, the categories that you're selling. Have you taken any pricing so far in the categories? And what elasticity response have you seen?
Yes. First, I'll say on tariffs. First of all, I'd say there was some unreasonable expectations or maybe not quite grounded in kind of how balance sheets and inventory turns and the fact there were some thoughts that like tariffs might start coming through in both cost and in pricing in the first half of this year, even the beginning of the -- in towards the first half. But the facts are this is the way that all comes through on the balance sheet.
A lot of -- every retailer has a different way they do accounting, retail accounting, cost accounting, et cetera. We're cost accounting, but those all have different ways of things flowing in. Also, all of us obviously worked with our vendors to try to navigate different dates. So I think you're starting to see as you head into the second half of this year, more kind of tariff costs flowing through people's P&Ls, and you'll start to see more pricing action associated with that where appropriate.
For us, we talked about the portfolio a couple of times today already. We do take a portfolio strategy. We're committed to kind of our overall operating margin rates, but the profitability by SKU may vary depending on how the market conditions and also whatever costing is happening there and whatever retails we think are doable. We have taken a little bit of price, but very much kind of in the context of the market as well. I think you'll see a little bit more through the balance of the year.
I think it will -- if you do the math, you're talking modest percentage points or 2 of price increases across the market, nothing in the high to mid-single digits or anything like that in the market. And I think you'll see that play out into the first half of '26 as well as a lot of these costs are really coming through, as you said, in the second half of this year and will continue into next year as long as -- as well as the pricing associated with that.
On elasticities, we haven't really seen much elasticity in the market right now. Again, we haven't had what I'd call very material price increases, maybe things somewhere in the -- on a handful of SKUs, somewhere in the 5% to 10% range, some others in the low single-digit range. And we haven't seen elasticity impact on those price moves at all really.
So then that kind of leads us to just given your size and scale and just strong merchandising prowess, how do you see the tariff landscape playing out competitively? Meaning are you monitoring price gaps? Are you taking a look or taking advantage maybe of any opportunity there to take market share, like you mentioned before?
Yes. I think we're running the business the way we always do, just in the context of some incremental costs coming through. We have a very sophisticated cost management system, margin management system, pricing intelligence system and price scraping system. We also have monitoring of elasticity by SKU as well based on pricing actions we take. So very sophisticated.
And I think this is -- as you deal with tariffs and you have these kind of large amounts of uncertainty coming through, I think this is where scale will matter and sophistication will matter. And retailers who have more of that we'll be able to better navigate their P&L, better navigate their inventory and also, to your point, Kate, take advantage of the market conditions where you might see someone -- you might see some pricing opportunity to take share in the market as well.
And that's certainly how we always think about it on our key categories is making sure we're the market leader on pricing and setting ourselves up to take share.
If we could maybe just switch to margins and maybe more of like a shorter-term conversation. You reported your quarterly results a little bit earlier than a lot of other retail, just based on your December year-end calendar. But your expectation for gross margin expansion in the second half is maybe a little bit lower than the first half. Could you maybe walk through some of those drivers? And what do you think is maybe the most sustainable gross margin range for Tractor Supply longer term?
Yes, Kate, I'll start with a backdrop. The first half of the year, much in line with our expectations, we expanded gross margin by roughly 30 basis points. That was in a bit of a headwind more than we expected on strong consumable product sales, as Hal mentioned. So those items tend to have a little -- bit more of a mix pressure on us, but still a really strong 30 basis point improvement in gross margin expansion.
We said even in the beginning when we came into this year that we expected gross margin to be -- to grow, but not at the same level in the second half of the year. It's principally 3 things, and those 3 things generally apply much like we thought at the beginning of the year. None of them really that significant, but -- we began seeing incremental supply chain benefit last year in the third quarter when we opened up a new distribution center.
It's really one of the biggest unlocks. When we have a new distribution center, we can get reduced miles, better rates, new lanes, et cetera. We'll lap that in Q3. We also expected to see a bit more pressure on the C.U.E. consumable items that we're selling because we do see that as a key driver. And there's certainly the strength of the traffic of our business is coming in consumables, and that puts a bit of pressure.
And then recognizing on the topic of tariffs that we expect some pressure in the back half of the year. So the combination of those 3 things, none of them really that meaningful movement puts us still at gross margin expansion in our expectation, but below the 30 basis point improvement that we saw in the first half of the year. It's likely more to be in that 5, 10, 15 basis point improvement in the back half of the year.
Okay. I think -- and this is just my opinion, but you guys had a December Analyst Day where you focused on new investments and longer-term strategies. And I don't know, I do feel like maybe the tariff discussion has become front and center now, and you're not hearing as much about the longer-term strategy as maybe we would have heard back when you delivered it in December.
So I thought we could take this time to maybe go back and revisit it because you're doing a lot of things. The Allivet acquisition and integration, the Final Mile delivery, the direct sales and the localization. So I wondered if you could maybe just walk through each initiative for us and how you're prioritizing resource allocation for these initiatives.
Yes. Thanks for giving us an opportunity to talk about the Life Out Here strategy and our kind of second wave of it. In October of 2020, we introduced the first version of our Life Out Here strategy, and there was a number of initiatives that we launched at that time, including our Fusion remodel program, our Garden Center build-out, our revised Neighbor's Club program, but also some other programs like our FAST team.
As we are now in year 5 of those, each of those initiatives have a couple of years left of kind of tailwinds that they will be generating for us in the business. And as those start to subside, what we wanted to do is have a second set of initiatives, kind of the horizons for growth that would layer right on top of those and continue to drive Tractor Supply's growth out into the back half of this decade.
And so to your point, we launched a number of new initiatives beginning of this year, namely our -- we did an acquisition of Allivet, which was a pet and animal pharmacy company, and we've integrated that into the business and connected that into our Neighbor's Club program. That's one big strategy we have.
Over -- nearly 80% of our customers have dogs, over 50% of our customers have more than 1 dog. They have a tendency to be much heavier than the average dog in the country, so it fits very well also with our 41 million Neighbor's Club members. So we've got a lot of synergy to be able to put together on that acquisition and that initiative. The other one, to your point, is direct sales. This is very much kind of a B2B play for us. If you think about hardlines retail sectors, say, auto or home improvement, where there's been a kind of B2B angle they've been able to pursue, very similar for us.
There's a number of kind of larger farms, equine facilities, kennels, dog breeders, et cetera, that have large annual purchase needs that we can have a direct sales team go out and call on and grab that share and grab that incremental business. We think both of those first 2 opportunities are $1 billion in revenue opportunity for us in the future.
And then the third thing is our final mile initiative. And that's really basically rolling out the ability to get items delivered to an end consumer's home in a owned way through Tractor Supply vehicles. We're building that in a hub-and-spoke like way where every 3 or 4 stores, there will be a truck and a trailer that will be associated with that territory, and we'll be able to deliver not only the direct sales orders that I mentioned that will be in the range of $4,000 to, call it, $20,000, $30,000 in size, to even orders that are placed online as well as orders of big bulky things that are placed in our stores.
So we see that as a fundamental extension of our strategy and kind of next wave of logical customer service that we'll provide. And then the last one, as you mentioned, was localization. This is really the kind of wave 2 of our Fusion remodel program. For the first 4 or 5 years of that program, it was really one cookie cutter like approach across the country. Now that we've implemented a number of systems related to planograms and store clustering, we're able to overlay that and tailor about 15% of the square footage during a Fusion remodel program to be specific to the needs of that area.
So if it's more outdoor recreation, we'll lean in there. If it's more equine, we'll lean more there. If it say is more of a hardware store, we'll lean more in there from a category and space allocation perspective. So 4 big strategies that we're pursuing. The first 2 are more expense-based -- sorry, Allivet was an acquisition, but the next 2 were more expense-based. And then obviously, the last one, a little more capital-based. But big initiatives for us, again, all about layering on the initiatives that we launched in 2020 to create multiple horizons for growth for us really through the back half of the decade.
And then just my follow-up question to that. Obviously, Allivet was an acquisition, but how you view maybe inorganic versus organic when it comes to these 4 initiatives?
Yes, I'd start by saying our -- from a capital allocation perspective, our #1 focus is always investing in the core business. And we have a very proven flywheel, and we want to make sure we don't underinvest in that flywheel as we move forward. After investing in the business, we're very much committed to a dividend for our shareholders at about a 40% payout. And then after that, we have share buybacks. We typically buy somewhere in the 1% to 2% of shares outstanding a year. And then from an acquisition perspective, those are typically more opportunistic for us.
We've done a couple of acquisitions since I've been in the role over the last 5.5, 6 years, and we've had kind of about the same. Like once every 3 or 4 years, you might see us dip our toe into the water on acquisitions for a modest type acquisition to the extent it's aligned with our strategy. Another example of that was Orscheln Farm & Home, of course, when we acquired them a few years ago.
So maybe that's a good transition to your real estate strategy because you do plan to open 100 new stores. I think also you acquired some of the Big Lots locations, which I'm not quite sure we've seen you do before. So maybe, again, you can compartmentalize the -- just the organic growth versus real estate acquisition between Orscheln and then maybe the Big Lots stores, too.
Yes. I'll start by saying the hallmark of Tractor Supply is comp store growth plus new store growth. And that's been a hallmark of us for 30-plus years. This is a company that's had 1 year of negative comps in the last 30-plus years. That was in 2009, and it was a minus 1% comp. And this is a company that successfully built between 70 to 100 new stores a year for really the last 20, 30 years as well. So it's a hallmark for us. On the new store front, we are very sophisticated in how we approach new stores, both in terms of the real estate location, the financial modeling that goes around it, what we actually build in that location and then ramping our new stores up to their full maturity curve.
Our new stores in the last year, as an example, as we're ramping up to 100 new stores, back from about 70 or 80 during the COVID years. Our new stores are performing incredibly well right now, exceeding our forecast, new store maturity curve, getting off to an excellent start, ROICs and paybacks all working out very well. And that's what gives us the confidence to build the 90-plus stores this year and 100 stores next year.
To your point, we did also acquire 18 Big Lots locations. Those locations, we think of them nothing -- really no differently than we would have retrofit. So about half of the stores that we open a year are new, built-to-suit from scratch. The other half are retrofit where we'll go in and take a piece of real estate that's already been developed and retrofit it and make it fit to a Tractor Supply model.
The Big Lot stores, that's how we think about them, is really a retrofit. And we did the math on will we be better buying this lease-out in the open market after they've gone through the bankruptcy process? Or would we be better off taking them through the bankruptcy process. And we went through both of those views. Obviously, each situation was a little bit independent, but we ended up settling on 18 of them that we thought made financial sense. And they're very easy boxes for us to retrofit. The way they're built in terms of basically a square-ish rectangle, we can set them up just excellent. They work really well for retrofit for Tractor Supply.
And most of those stores will be converted and opened to Tractor Supply stores before the end of this year. So there may be some that flow into 2026. But to Hal's point, it's easy. And it's retrofit stores at the right locations when they're in those markets that we've already identified as part of our target of 3,200, we love to look at those second use locations. And again, part of our portfolio of driving like low-cost, efficient, profitable new stores.
And how do we think about cannibalization for these stores? Again, you've been very successful and consistent at growing a good number of doors every year, 3,200 is the goal. But I would imagine just as things get a little bit more dense, there might be more propensity for cannibalization. So how do you manage that?
There's always some level of cannibalization in our business. And when we look at, evaluate a new store, one, when we evaluate the potential within that store, we hold that store's IRR accountable for any level of cannibalization on existing stores. We're still at the spot where there is what we call in most of these locations, healthy cannibalization. Stores that started out at $6 million or $7 million, they become $8 million, $9 million or $10 million stores, and that box becomes tight.
And so we look at that as well as the opportunity to just grow in an overall market. When we look at cannibalization and new store maturation and the level of contribution it gives to our comp sales, the #1 metric to look at is how much pressure on comp sales is cannibalization giving? How much benefit are we getting from our new store growth, et cetera. And net of those, we're still getting good solid contribution to our comp sales.
If it gets to the point you start to get near that, I think, in retail, then you start questioning, are you getting a little tight on the number of new stores if the cannibalization is outsizing the new store benefit to comp sales. We are not in that position. We continue to have a really good healthy contribution in our comp sales. It's not only part of our top line sales growth, but it's continued one of the many drivers of our comp sales growth.
And then if we could just ask a question around going back to the December Analyst Day, you introduced a long-term algorithm, which updated your long-term comp target of 3% to 5%, your sales growth at 6% to 8% and operating margins of 10% to 10.5%. Again, just given the more volatile environment that we've been in since those targets were put out, how do you think about achieving those targets? And how do you manage through it?
Yes. In December, we introduced that next 5-year long-term algorithm. We feel -- we felt then and feel today very confident about our team's ability to hit the long-term algorithm. As a backdrop, we said, to your point, the 3% to 5% comp, the op margin at 10% to 10.5%, and we said 2025 is more of a transition year. And we said with a number of the macro pressures, we could see 2025, along with the ramping up of our strategic initiatives being that transition year, it's very much playing out like that as a transition year.
You look at the results coming out of Q2, our expectations for the back half of the year. And on the top line, all trend indications are very much in line with what we said and expected. We are entering into and a lot of the reason to believe we are at and achieving the long-term algorithm on the top line of that low -- that high-low or mid-single-digit comp sales. So very much hitting our expectations on that. We also said on the operating margin that with our long-term goal of 10% to 10.5%, that at a low or mid-single-digit comp sales, as we've gone past the peak investment cycle at this point and even Hal mentioned some of the newer initiatives that are more asset-light that we see in a low and mid-single-digit comp sales that we can grow our operating margin 5 to 15 basis points annually.
And so we're seeing strong growth in our gross margin expansion. We said this year as part of our operating margin, we were going to invest 15 or 20 basis points of operating margin to launch these new strategic initiatives. And outside of 2025, with the trends that we're seeing in the business, we believe that we can hit the long-term algorithm and start to also see operating margin expansion with that.
Great. Thank you. We are asking every company that sits with us on stage, Hal you know we've done this enough times, 5 questions. And everybody gets the same questions. And we've already touched about -- on this a little bit in the first question, but health of the consumer. What are your expectations for the environment, a little bit less about your business, more about the environment. In the second half of 2025 relative to the first half, do you expect things to be the same, better or worse?
The same.
And then I know you didn't give guidance for '26, but do you have a view on the health of the consumer for '26, same, better or worse?
The same.
Okay. And We talked a little bit about pricing with regards to tariffs. We talked a little bit about elasticity. Could you maybe talk about what your plans for pricing is for the remainder of this year and into '26? And as an aside, because we -- I didn't ask this before, but should we expect to see much in terms of assortment changes in the back half, given, again, what the supply chain has looked like for the last few months?
Yes. On pricing, I think we continue to just -- I think our merchants and the team now has kind of absorbed tariffs. Still a lot of work and more dynamic than we probably expected going into the year. But I think our team is kind of navigating that now. We've got all the tools set up. We know exactly how that's coming through moving average cost. We've got kind of the lay of the land with our import providers, with our domestic vendors. And we're kind of navigating that well, monitoring the market, the competitive behavior and adjusting accordingly.
And I think we've given our guidance. Kurt just talked about gross margin rate, very comfortable that we can navigate in that construct. And then as we move into 2026, I think the first half is going to be much of the same. The tariffs really, for the most part, didn't start going through at least our P&L, given our December end until really the end of the first half.
So we're going to be cycling that all the second half. I think you'll have a similar set of competitive dynamics occurring then as well. And we expect the consumer to be solid through that. And we think 2026 is setting up to be a solid year for the country and the economy and for Tractor, particularly if we're going into a little bit of a rate down cycle.
Our third question is around inventory. Can you talk about your expectations for inventory growth in the second half? And do you see or have you seen any disruption in shipments due to the global supply chain?
Yes. Don't see -- I mean, inventory, first off, I'd say, has been a hallmark of success for Tractor Supply. I think we're one of the maybe only retailers that had not had an inventory situation at some point over the last 5 or 6 years. It's pretty much been within a point or 2 of comp sales growth each quarter, our inventory growth and would expect that to continue to be the case. We've also been very fortunate even in the context of tariffs and some of the supply chain disruptions to have not had issues in our stores in terms of out of stocks.
Teams navigated and managed those very well, found alternative vendors where there was necessary or worked with our existing domestic vendors to adjust accordingly. I don't think you'll see much of that going into the back half of this year. Maybe a few of the seasonal programs, you might see a little lighter buys and some slightly higher inventories because those came out of countries that have higher tariffs, everybody is kind of trying to figure out those elasticities. But otherwise, I think you're going to -- for the vast majority of our business, it's steady as she goes and very straightforward. And I think it will -- that's how it will play out for next year as well.
Okay. Our next question is on margins. What is your expectation for non-tariff margin drivers? This is into '26 again. Freight, wages, materials, do you expect it to be the better, same or worse?
Starting with freight. I think the backdrop is generally freight, both domestic and import are at or near pre-pandemic levels today. And so the backdrop puts us in a position with pretty much the same, maybe a slight or modest rate increases, I'd expect, for 2026. Wages, same. And then on materials, for us, commodity pricing is probably the biggest material type input cost. And commodity pricing is also at more historic lows at this point. And so it's hard to predict what commodity pricing is going to be like in 2026, but our expectation would be same to modestly up in 2026 based on the position where it's at today.
Great. And then our last question is about the competitive landscape and consolidation. I do think we've seen more bankruptcies and more door closures this year than we've seen in quite some time. Do you think market share consolidation will speed up, slow down or be about the same in '26?
I think it will be about the same. To your point on retail, 2020, '21 and '22, I think as we -- the industry went through those dynamics, it delayed some of the inevitable, right, that we all -- if you go back and you read about retail in 2017, 2018, 2019, there was a lot of store closings occurring and a lot of commentary about future store closings occurring. And I think '20, 21, '22 delayed that, and you're starting to see that pick up in '23 and in '24 and into '25. And I think that will continue as we look forward.
The good news is for Tractor Supply is, we haven't shut a store down in 10 years -- over 10 years. We have -- all of our stores are incredibly cash flow positive, profitable, doing very well. We've got -- we have significant scale in our industry and a number of other distinct advantages as we talked about, whether it's our digital assets, our supply chain, our Neighbor's Club program. We take all those competitive advantages, and I think it allows us to continue to gain share.
And we've been a beneficiary of share for multiple decades now in the industry. And I think certainly, the fragmentation is still out there. I think small businesses struggle in these sorts of dynamic environments; particularly, the ones that we compete with, which are mostly kind of operate on a cash flow basis. And that all sets ourselves up for some nice dynamics to continue to take share.
Okay. And with that, we'll conclude our chat. Thank you.
Thank you. Appreciate it.
Thank you.
Thank you for joining us today.
Financial data from Tractor Supply
Revenue
Revenue is the sum of all sales generated by a company, e.g. for its products or services.
Revenue (TTM) metric explainedDirect Costs
Direct costs are the costs incurred directly in connection with the manufacture of the product or service.
Gross Profit
Gross Profit indicates how much of the revenue remains in the company after deducting direct production costs. If the percentage share of sales is calculated, this is referred to as the gross margin.
Gross Profit metric explainedSelling and Administrative Expenses
Selling, general and administrative expenses (SG&A) include all expenses for marketing and sales as well as the general administration of the company.
Research and Development Expense
Research and development costs (R&D) provide information on how much the company invests in the research and development of its products. The costs are particularly interesting as a percentage of revenue and in comparison to direct competitors.
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the company's earnings before interest, taxes, depreciation and amortization. The EBITDA margin is calculated as a percentage of sales.
Depreciation and Amortization
Depreciation represents reductions in the value of the company's assets (e.g. due to wear and tear on machinery).
EBIT (Operating Income)
EBIT (Earnings Before Interest and Taxes) is the company's profit before interest and taxes, also known as the operating income. The EBIT Margin is calculated as a percentage of sales at
.
Net Profit
Net Profit represents the profit or loss after deduction of all costs.
Net Profit metric explainedStocksGuide Premium
| Jun '26 |
+/-
%
|
||
| Revenue | 15,751 15,751 |
4%
4%
100%
|
|
| - Direct Costs | 10,002 10,002 |
4%
4%
64%
|
|
| Gross Profit | 5,749 5,749 |
4%
4%
36%
|
|
| - Selling and Administrative Expenses | 3,820 3,820 |
7%
7%
24%
|
|
| - Research and Development Expense | - - |
-
-
|
|
| EBITDA | 1,928 1,928 |
1%
1%
12%
|
|
| - Depreciation and Amortization | 509 509 |
7%
7%
3%
|
|
| EBIT (Operating Income) EBIT | 1,419 1,419 |
3%
3%
9%
|
|
| Net Profit | 1,012 1,012 |
7%
7%
6%
|
|
In millions USD.
Don't miss a Thing! We will send you all news about Tractor Supply directly to your mailbox free of charge.
If you wish, we will send you an e-mail every morning with news on stocks of your portfolios.
Tractor Supply Stock News
Company Profile
Tractor Supply Co. engages in the retail sale of farm and ranch products. It operates retail farm & ranch stores and focuses on supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. The firm operates the retail stores under the names: Tractor Supply Company, Del's Feed & Farm Supply, and Petsense. Its product categories includes equine, livestock, pet, and small animal; hardware, truck, towing, and tool; heating, lawn and garden items, power equipment, gifts, and toys; recreational clothing and footwear; and maintenance products for agricultural and rural use. The company was founded by Charles E. Schmidt, Sr. in 1938 and is headquartered in Brentwood, TN.
StocksGuide Premium
| Head office | United States |
| CEO | Mr. Lawton |
| Employees | 39,000 |
| Founded | 1938 |
| Website | www.tractorsupply.com |


