Second Quarter 2016

Tractor Supply Company
Second 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 Operational Highlights
Added ~1,600 new Team Member positions
Supply Chain – increased capacity
Omni-channel upgrades / new website
platform
Continued Sustainability
•
Casa Grande Distribution Center – LEED Silver
certified
•
65M kilowatt hours saved
•
21,277 tons of cardboard recycled
•
3.1M wood pallets recycled
5
2015 Financial 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
6
Track Record of Growth
Stores
1,588-1,593
2,000
1,500
1,000
1,176 1,276
1,001 1,085
1,382
1,488
Sales (in $ billions)
$8
$6
$4
500
$2
0
$0
'10
'11
'12
'13
'14
'15 '16*
Net Income (in $millions)
$500
$400
$300
$200
168
223
276
328
371
455-467
410
$0
$0
'13
'14
'11
'12
'13
$3
$2
'12
'10
'15
'16*
'14
'15
1.12
'10
1.51
'11
* 2016 estimates as of January 27, 2016
1.90
'12
'16*
3.40-3.48
$4
$1
'11
4.23
5.16
6.23
E.P.S.
$100
'10
3.64
4.66
5.71
6.9-7.0
2.66
3.00
'14
'15
2.32
'13
'16*
7
Strong Comp Traffic Trends
6%
5.0%
4.7%
4%
3.0%
3.2%
3.3%
2014
2015
2%
0%
2011
2012
2013
8
$0
1Q
2012
2Q
2013
2014
3Q
2015
0.82
0.81
0.68
0.55
0.64
0.55
0.46
0.35
1.12
0.95
0.87
0.73
0.50
0.42
0.35
0.31
0.27
4Q
3.00
2.66
2.32
$1
1.90
Consistent Quarterly EPS Growth
$3
$2
FY
2016
9
Continuing Operating Margin
Expansion Opportunity
15%
Long term target of 11.5%
12%
10.4%
10.3%
10.0%
9.4%
10.5%
11.2%
10.4%
9.7%
9.4%
8.9%
7.3%
8.4%
13.9%
13.3%
7.4%
7.0%
6.7%
6.3%
3%
6.3%
6%
13.6%
13.1%
9%
0%
1Q
2Q
2012
3Q
2013
2014
4Q
2015
FY
2016
10
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
11
Unique Merchandise Assortment
Livestock & Pet
Hardware, Tools & Truck
Seasonal, Gift & Toys
Percent of Sales – 2015
9%
5%
44%
19%
Clothing & Footwear
Agricultural Products
23%
12
Merchandising Principals
Dependable supplier
Differentiated products
Quality and value
Introduce newness
Maintain commitment to the Out Here customer
13
Store Growth Opportunity
14
2015 Store Openings
Total: 114 in 33 states
1 – 4 new stores
5 - 9 new stores
10 or more new stores
15
Store Expansion - 2,500 Target
Broader
consumer
base / appeal
Increased
attribution
New markets
Store
Count
Stores closer
together
16
The 2,500 Opportunity
147/424
200/352
570/899
588/825
Tractor Supply
Store Count
1Q16 / Opportunity
(excludes 14 Del’s & 2 HomeTown Pet stores)
= DC Locations
Total: 1,505 / 2,500
17
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
18
The Road Ahead
19
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
20
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
21
Sales-driving Initiatives
Drive Aisle
Merchandise
Localization
C.U.E.
New Products
Driving
Sales
22
C.U.E.
• Core assortments
• Most dependable supplier
• Grow market share
• High in-stock levels
• Price management
• Expand assortments
23
Localization
• Chain vs site philosophy
• Relevant assortments
• Brand preferences
• Customer feedback
24
Drive Aisle
Merchandising
• Increase basket
• Support event merchandising
• Offer Treasure Hunt
experience
• Learn from customer
25
New
Products
• Pipeline of opportunities
• Structured in-store test
program
• E-commerce test and learn
• Open buying days
• Category resets
26
Gross Margin Initiatives
Price Management
Exclusive Brands
Inventory
Management
Strategic Sourcing
Gross
Margin
27
Inventory
Management
• Seasonal set and end dates
• Ability to adapt and react
• Implementing allocation
system
28
Price
Management
• Science and art approach
• Balance share vs rate
• Clearance management
• Promotional management
29
Exclusive
Brands
• ~ 30% of sales
• Brand development approach
• Value proposition
• Opportunity for growth
30
Strategic
Sourcing
• Dependable supplier
• Landed cost
• Supply chain efficiencies
• Multi-source emphasis
31
Exclusive/ National Brands
Livestock & Pet
National
Exclusive
Seasonal, Gifts &
Toy Products
National
Exclusive
32
Exclusive/ National Brands
Hardware, Tools
& Truck
National
Exclusive
Clothing & Footwear
National
Exclusive
Agriculture
National
Exclusive
33
Marketing Initiatives
Increase Sales
to Existing
Customers
Expand
Customer
Base
Strengthen
Community
Connection
Build the
Brand
Marketing Strategy
34
Increase
Sales to
Existing
Customers
• Digital marketing
• Optimize traditional
National Marketing
channels
• Neighbors Club loyalty
program pilot
• Personalization - relevance
35
CRM Strategy Direction
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.
CRM
Focus
Areas
36
Expand
Customer
Base
• Broad appeal categories –
pet focus
• Enhance search engine
marketing
• Drive trial through existing
advertising channels
37
Community
Connection
• Enhanced 4-H and FFA
programs
• Sponsorships of community
events
• Empowering stores with tools
38
Building
the Brand
• Authority “For Life Out Here”
• Tractorize content
• Influence marketing – social
media
• Exclusive brand marketing
• Taking the brand to our customer
– Follow Me to the Fair tour
39
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
40
Building The Team
It’s About
People &
Developing
Leaders
•
•
•
•
Hiring our customers
Rewarding success
Team retention
Developing people &
succession planning
41
Developing the Sales Force
Developing the
“Know-How” to
Drive Sales
• Product training
programs
• Frequent communication
• Semi-annual sales
meetings
• Sales culture
42
Taking Care of the Customer
Intense Focus
on the
Customer
• G.U.R.A.
• Developing customer
relationships
• Sharing success stories
• Utilizing actionable
customer feedback
43
Executing to the Plan
Driving High
Level of
In-Store
Execution
•
•
•
•
Consistent store processes
Tractor Value System (TVS)
Leadership store visits
Measuring store standards
44
Financial Outlook
45
Compelling Long-Term Annual
Growth Targets
Grow Stores 115 - 120
Same-Store Sales Growth ~ 3% - 5%
Improve Operating Margin ~25 bps annually
Grow EPS in the
Mid-Teens as a %
annually
Invest to Grow Business ~ $250m - $300m per year
Return Cash to Shareholders
46
Long Term Outlook
2016e
2019e
Stores
~ 1,590
~ 1,950
Sales
~ $6.9b to $7.0b
~ $8.8b
Same Store Sales
~ 3.0% - 5.0%
Gross Margin
~ 15 - 25 bps annually
Expense Leverage
~ 5 - 10 bps annually
Operating Margin
~ mid 20s bps annually
E.P.S.*
~ 13% - 15% annually
* Includes impact of share repurchase program.
47
Strong Cash Flow Supports Capital
Allocation
($ in millions)
Operating Cash Flow
2016e
2017e
2018e
2019e
Est. ‘16-’19
Cummulative
$ 590
$ 660
$ 700
$ 780
$2,730
250
280
300
300
1,130
Free Cash Flow
$ 340
$ 380
$ 400
$ 480
$1,600
Year End Debt
$ 200
$ 260
$ 350
$ 430
CapEx
Leverage Ratio
Peak Borrowing
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
48
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
49
Capital Allocation Targets
2016 to 2019
• Investing for Growth
– ~ $250m - $300m annually
• Dividend
– $0.20 per share quarterly (raised May 2015)
– 20 to 30% Payout Ratio
– 15 to 20% Dividend Growth
Dividend
Reinvest in
the
Business
Share
Repurchase
• Share Repurchase
– ~ 50% of Operating Cash Flow
– ~ $260m - $400m annually
– ~ 2% - 3% Shares Purchased annually
Creating Shareholder Value
50
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
51
Reasons to Invest in Tractor Supply
Growth company in a unique niche
• Serves an expanding customer base
• Continued store growth in rural markets across the country
“Balanced approach” to managing business
• Driving sales
• Improving gross margin
• Managing growth investments
Clear strategic plan, rigor and passion
• Defined capital allocation strategy
• Focused on Shareholder Value Creation
52
Thank you!
53