Tractor Supply Company First Quarter 2016

Tractor Supply Company
First Quarter 2016
Safe Harbor Statement
The Company claims the protection of the safe-harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
The Company intends these forward-looking statements to speak only as of the
time of the presentation and does not undertake to update or revise them, as
more information becomes available. These statements discuss, among other
things, expected growth, store development and expansion strategy, business
strategies, future revenues and future performance. These forward-looking
statements are based on estimates, projections, beliefs and assumptions,
including, but not limited to, competition, product demand, economic
conditions, inflation, consumer debt levels, governmental approvals, ability to
hire and retain qualified employees, weather, etc.
Actual results may materially differ from anticipated results described in these
forward-looking statements. Please refer to the Risk Factors section of the
Company’s Form 10-K for more details.
2
Our Unique Position
Leading Rural Lifestyle Retailer
• Largest operator for the lifestyle
• Primarily located in rural communities
• ~1,500 stores in 49 states
Our Customer
• Land and animal owners
• Self reliant and DIY
• Loyal and growing
Unique Niche
• Dependable supplier
• Items to care for home, land, pets & animals
3
Mission and Values Driven
Culture
4
2015 Highlights
Opened 114 stores
Grew revenue 9.0%; same store sales 3.1%
Improved operating margin to 10.4%
Grew Earnings Per Share 12.8% to $3.00
Returned $396M to shareholders through
share repurchase and dividend
5
Track Record of Growth
Stores
1,588-1,593
2,000
1,500
1,000
1,085
1,176
1,276
1,382
1,488
Sales (in $ billions)
$6
$4
500
$2
0
$0
'11
'12
'13
'14
'15
Net Income (in $millions)
$500
$400
$300
$200
276
328
371
'16*
455-467
410
'11
$1
$0
$0
'13
'14
'12
'15
'16*
5.16
'13
'14
6.23
'15
2.66
1.51
'11
1.90
'12
'16*
3.40-3.48
$4
$2
'12
4.66
5.71
E.P.S.
$100
'11
4.23
$3
223
6.9-7.0
$8
3.00
2.32
'13
'14
'15
'16*
* 2016 estimates as of January 27, 2016
6
Strong Comp Traffic Trends
6%
5.0%
4.7%
4%
3.0%
3.2%
3.3%
2014
2015
2%
0%
2011
2012
2013
7
$0
1Q
2011
2Q
2012
2013
3Q
2014
4Q
0.82
0.81
0.68
0.55
0.48
0.64
0.55
0.46
0.35
0.29
1.12
0.95
0.87
0.73
0.61
0.42
0.35
0.31
0.27
0.12
1.51
3.00
2.66
2.32
$1
1.90
Consistent Quarterly EPS
Growth
$3
$2
FY
2015
8
Continuing Operating Margin
Expansion Opportunity
15%
Long term target of 11.5%
12%
10.4%
10.3%
10.0%
9.4%
8.3%
10.5%
11.2%
10.4%
9.7%
9.0%
9.4%
8.9%
8.4%
7.3%
7.0%
13.9%
13.3%
13.6%
7.0%
6.7%
3.4%
3%
6.3%
6.3%
6%
13.1%
12.2%
9%
0%
1Q
2Q
2011
3Q
2012
2013
4Q
2014
FY
2015
9
Operating Profit Philosophy
• Balanced focus on sales and margin
• Will not risk market share for margin rate
• Will continue to…
‐
‐
‐
take calculated risks
“test and learn”
utilize, learn and improve from C.O.E. process
• Excited about pipeline of opportunities
10
Unique Merchandise
Assortment
Comprehensive, yet tailored, assortment…
Livestock & Pet
Hardware, Tools & Truck
Seasonal, Gift & Toys
Percent of Sales – 2015
9%
5%
44%
19%
Clothing & Footwear
Agricultural Products
23%
11
Merchandising Principals
Dependable supplier
Differentiated products
Quality and value
Introduce newness
Maintain commitment to the Out Here customer
12
Store Growth
Opportunity
13
2015 Store Openings
Total: 114 in 33 states
1 – 4 new stores
5 - 9 new stores
10 or more new stores
14
Store Expansion
2,500 Target
Broader
consumer
base / appeal
Increased
attribution
New markets
Store
Count
Stores closer
together
15
The 2,500 Opportunity
140/424
193/352
564/899
572/825
Tractor Supply
Store Count
4Q15 / Opportunity
(excludes 17 Del’s & 2 HomeTown Pet stores)
= DC Locations
Total: 1,469/ 2,500
16
Store Growth Cadence
2015
TSC Stores
2016e
2017e
2018e
2019e
114
~ 120
~ 120
~ 120
~ 120
Growth Rate (gross)
8.2%
~ 8.0%
~ 7.5%
~ 7.0%
~ 6.5%
Store Count
1,488
• Open at a gross new store growth of 8% through 2016
• Continue our Del’s transition through 2016
• Build SG&A infrastructure to support ~120 new stores per year
• Store manager development
• SSC team member investment
• Hold store growth at ~120 stores per year subsequent to 2016
17
The Road Ahead
18
Long Term Initiatives
Sales
Gross Margin
Store Growth / Team
Member Investment
Reduced Cost
Continuous
Improvement
Customer Relationship Management (CRM) /
Loyalty Program
Systems – Merchandising, Distribution, Corporate Systems, etc.
Supply Chain Investment / Alternative Fulfillment Options
Omni-channel enhancements
19
Driving Operating
Profit Dollars
Driving
Sales
Increasing
Gross
Margin
Creating
Efficiencies
C.U.E.
Price
Management
TVS
Drive Aisle
Strategic
Sourcing
Localization
New Products
Inventory
Management
Exclusive
Brands
Technology
Supply Chain
Sustainability
20
Sales-driving Initiatives
Drive Aisle
Merchandise
Localization
C.U.E.
New Products
Driving
Sales
21
Driving Repeat Traffic
C.U.E.
• Be the most dependable
supplier
• Grow market share
• Improve in-stock levels
• Continue to improve price
management
• Expand assortments
22
Focusing on Local Markets
Localization
• Relevant assortments
• Brand preferences
• Customer feedback
• Town Hall meetings
• A – D assortments
23
Improving the Shopping
Experience
Drive Aisle
Merchandising
• Increase basket
• Utilize event merchandising
• Enhance Treasure Hunt
experience
• Learn from customer
• Improve impulse item offers
24
Keeping the Assortment
Fresh
New
Products
• Pipeline of opportunities
• Structured test program
• Culture of risk-taking
• Open buying days
• Category resets
25
Gross Margin Initiatives
Price Management
Exclusive Brands
Inventory
Management
Strategic Sourcing
Gross
Margin
26
Managing the Seasons
Inventory
Management
• Allocate more productively
• Regionalize the assortments
• Continue to adapt & react to
trends
• Seize opportunities
• End seasons clean
27
The Price is Right
Price
Management
• Does not mean price increase
• Utilize “test and learn”
approach
• Will not risk market share
• Focused on Regular Price
• Add Promotion and Clearance
modules later
28
Only at Tractor Supply
Exclusive
Brands
• ~ 30% of sales
• Brand development approach
• Provide value to customers
• Opportunity for growth
29
Finding the Right Sources
Strategic
Sourcing
• Determining factors…
• Product quality
• Sufficient supply chain &
vendor stability
• Price / landed cost
• Multiple sources preferred
30
Exclusive/ National Brands
Livestock & Pet
National
Exclusive
Seasonal, Gifts &
Toy Products
National
Exclusive
31
Exclusive/ National Brands
Hardware, Tools
& Truck
National
Exclusive
Clothing & Footwear
National
Exclusive
Agriculture
National
Exclusive
32
Marketing Initiatives
Increase Sales
to Existing
Customers
Expand
Customer
Base
Community
Connection
Building the
Brand
Marketing Strategy
33
Driving Traffic
Increase
Sales to
Existing
Customers
• Multi-channel & digital
marketing
• Advertising distribution
strategy
• CRM
34
CRM Strategy Direction
Gather Customer Information
Objective: Leverage
deep understanding of
our customers (who
they are, how they
shop, how they want
to interact with TSC) to
deliver personalized
and relevant
communications that
will increase their
loyalty to Tractor
Supply.
Today : Zip codes / phone numbers
Future : Loyalty Program (Neighbors Club)
Build Customer Insights
Today : Segmentation based upon store purchase behavior
Future : Segmentation that is multi-dimensional, behaviorbased and omni-channel
CRM
Focus
Areas
Personalize Communications
Today : Direct mail / email
Future : Triggered communications,
1 to 1 messaging across channels,
real time
Increased customer retention and loyalty
35
Driving “New”Traffic
Expand
Customer
Base
• Broad appeal categories
• Prospect marketing
• Drive trial through existing
advertising methods
36
Getting Involved
Community
Connection
• 4-H and FFA support
• Sponsorships of local fairs and
community events
• Empowering stores
37
Developing Awareness
Building
the Brand
• Authority “For Life Out Here”
• Exclusive brand marketing
• On-line content
38
TSC & E
TEAM
SALES
CUSTOMER
EXECUTION
It’s About
People &
Developing
Leaders
Developing the
“Know-How” to
Drive Sales
Intense Focus
on the
Customer
Driving High
Level of
In-Store
Execution
Operating Initiatives
39
Building The Team
It’s About
People &
Developing
Leaders
•
•
•
•
Hiring our customers
Rewarding success
Team retention
Developing people &
succession planning
40
Developing the Sales Force
41
Taking Care of the Customer
Intense Focus
on the
Customer
• G.U.R.A.
• Developing customer
relationships
• Sharing success stories
• Utilizing actionable
customer feedback
42
Executing to the Plan
Driving High
Level of
In-Store
Execution
•
•
•
•
Consistent store processes
Tractor Value System (TVS)
Leadership store visits
Measuring store standards
43
Financial Outlook
44
Compelling Long-Term
Annual Growth Targets
Grow Stores ~ 120
Same-Store Sales Growth ~ 3% - 5%
Improve Operating Margin ~25 bps
Grow EPS in the
Mid-Teens as a %
annually
Invest to Grow Business ~ $250m - $300m
Return Cash to Shareholders
45
Long Term Outlook
2016e
2019e
Stores
~ 1,590
~ 1,950
Sales
~ $6.9b to $7.0b
~ $8.8b
Same Store Sales
~ 3.0% - 5.0%
Gross Margin
~ 15 - 25 bps annually
Expense Leverage
~ 5 - 10 bps annually
Operating Margin
~ mid 20s bps annually
E.P.S.*
~ 13% - 15% annually
* Includes impact of share repurchase program.
46
Free Cash Flow
($ in millions)
Operating Cash
Flow
CapEx
Free Cash Flow
Year End Debt
Leverage Ratio
Peak Borrowing
2016e
2017e
2018e
2019e
Est. ‘16-’19
Cummulative
$ 590
$ 660
$ 700
$ 780
$2,730
250
280
300
300
1,130
$ 340
$ 380
$ 400
$ 480
$1,600
$ 200
$ 260
$ 350
$ 430
2.0 x
$ 340
2.0 x
$ 390
2.0 x
$ 470
2.0 x
$ 560
Cumulative ~ $1.6b of Cash
Available to Return to Shareholders
47
Capital Investment Targets
New Stores
2016e
2019e
$125m
$140m
Maintenance / Updates
$50m – $60m
Distribution Centers
$30m – $80m
Technology
$30m – $40m
Total
~ $250m - $300m Annually
Consistent Infrastructure Investment in Future Years
48
Capital Allocation Targets
2016 to 2019
• Investing for Growth
– ~ $250m - $300m annually
Dividend
• Dividend
– $0.20 per share quarterly (raised May 2015)
– 20 to 30% Payout Ratio
– 15 to 20% Dividend Growth
Reinvest in
the
Business
Share
Repurchase
• Share Repurchase
– ~ 50% of Operating Cash Flow
– ~ $280m - $400m annually
– ~ 2% - 3% Shares Purchased annually
Creating Shareholder Value
49
Consistent Capital Allocation
Last Five Years
14%
Next Four Years
20%
48%
42%
2011 – 2015
$2.4b
Cap Ex
38%
38%
Share Repurchase
Dividend
2016 – 2019
~ $3.0b
50
Reasons to Invest in Tractor
Supply
•
•
•
•
Growth company in a unique niche
Serves an expanding customer base
Clear strategic plan, rigor and passion
“Balanced approach” to managing business…
– Driving sales
– Improving gross margin
– Managing growth investments
• Defined capital allocation strategy
• Focused on Shareholder Value Creation
51
Thank you!
52