Tractor Supply Company

Tractor Supply Company
Third Quarter 2015
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
• 1,400+ 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
2014 Highlights
Opened 107 stores
Grew revenue 10.6%; same store sales 3.8%
Improved operating margin to 10.3%
Grew Earnings Per Share 14.7% to $2.66
Returned $383M to shareholders through
share repurchase and dividend
5
1H 2015 Highlights
Opened 58 stores
Grew revenue 12.2%; same store sales 5.7%
Grew Earnings Per Share 18.5% to $.1.54
Paid $49.1M in cash dividends
Repurchased $124.5M in stock
6
Track Record of Growth
Stores
1,492-1,497
2,000
1,500
1,000
1,001
1,085
1,176
1,276
1,382
Sales (in $ billions)
$6
$4
500
$2
0
$0
'10
'11
'12
'13
'14
Net Income (in $millions)
$500
$400
$300
$200
168
223
276
328
'15*
412-422
371
$0
'14
'15*
'13
'14
4.66
'12
'15*
3.00-3.08
2.66
$3
$0
'13
'11
5.71
$4
$2
'12
4.23
5.16
E.P.S.
$1
'11
3.64
'10
$100
'10
6.25-6.33
$8
1.12
'10
1.51
'11
1.90
'12
2.32
'13
'14
'15*
* 2015 estimates as of July 22, 2015
7
Strong Comp Traffic Trends
8%
6%
7.4%
5.3%
5.0%
4.7%
4%
3.2%
3.0%
2%
0%
2009
2010
2011
2012
2013
2014
8
$0
1Q
2011
2Q
2012
2013
3Q
2014
0.81
0.68
0.55
0.48
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
4Q
2.66
2.32
$1
1.90
Consistent Quarterly EPS
Growth
$3
$2
FY
2015
9
Continuing Operating Margin
Expansion Opportunity
15%
New long term target of 11.5%
12%
10.3%
10.0%
9.4%
8.3%
11.2%
10.4%
9.7%
9.0%
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
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
Comprehensive, yet tailored, assortment…
Livestock & Pet
Hardware, Tools & Truck
Seasonal, Gift & Toys
Percent of Sales - 2014
9%
5%
44%
20%
Clothing & Footwear
Agricultural Products
22%
Merchandising Principals
Dependable supplier
Differentiated products
Quality and value
Introduce newness
Maintain commitment to the Out Here customer
13
Store Growth
Opportunity
14
2014 Store Openings
Total: 107 in 31 states
1 – 4 new stores
5 - 9 new stores
10 or more new stores
15
1H 2015 Store Openings
Total: 58 in 21 states
1 – 4 new stores
5 - 9 new stores
10 or more new stores
16
Store Expansion
2,500 Target
Broader
consumer
base / appeal
Increased
attribution
New markets
Store
Count
Stores closer
together
17
Organic Store Expansion
Opportunities
Increasing market share
Houston, TX area
(stores closer together)
Northeast area
(broader appeal)
18
The 2,500 Opportunity
123/424
188/352
549/899
555/825
Tractor Supply
Store Count
2Q15 / Opportunity
(excludes 21 Del’s & 2 HomeTown Pet stores)
= DC Locations (AZ coming 2015)
Total: 1,415 / 2,500
Store Growth Cadence
2014
TSC Stores
2015e
2016e
2017e
2018e
107
110 - 115
~ 120
~ 120
~ 120
Growth Rate (gross)
8.2%
~ 8.0%
~ 8.0%
~ 7.5%
~ 7.0%
Store Count
1,382
• 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
20
The Road Ahead
21
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
22
2015 Priorities
Systems
• DC system upgrades
• Continued security
enhancements
• Inventory Demand Planning
Supply Chain
• Casa Grande construction
• Hagerstown expansion (completed
Q1 2015)
• Mixing center implementation
Customer Relationship
Management (CRM)
• Customer attribution
• Customer loyalty program pilot
Omni-channel enhancements
• Platform upgrade (completed July
2015)
• Enhanced content
• Alternative delivery methods
23
Long Term Operating Margin
Target
12%
0.2%
0.5%
11%
0.5%
10%
9%
11.5%
10.3%
8%
2014
Comparable
Sales
Gross Margin
SG&A
2019e
24
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
Sales-driving Initiatives
Drive Aisle
Merchandise
Localization
C.U.E.
New Products
Driving
Sales
26
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
27
Focusing on Local Markets
Localization
• Relevant assortments
• Brand preferences
• Customer feedback
• Town Hall meetings
• A – D assortments
28
Improving the Shopping
Experience
Drive Aisle
Merchandising
• Increase basket
• Utilize event merchandising
• Enhance Treasure Hunt
experience
• Learn from customer
• Improve impulse item offers
29
Keeping the Assortment
Fresh
New
Products
• Pipeline of opportunities
• Structured test program
• Culture of risk-taking
• Open buying days
• Category resets
30
Gross Margin Initiatives
Price Management
Exclusive Brands
Inventory
Management
Strategic Sourcing
Gross
Margin
31
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
32
Managing the Seasons
Inventory
Management
• Allocate more productively
• Regionalize the assortments
• Continue to adapt & react to
trends
• Seize opportunities
• End seasons clean
33
Improving Inventory
Productivity
Inventory Turns
3.50
3.23
3.25
3.32
3.28 3.29
3.09
3.00
2.88
2.75
• Defined test programs
• Disciplined flow of
merchandise
• Improved ability to adapt
and react to trends
• Committed to ending
seasons clean
• Dedicated to meet
customer needs through
emergency response
2.50
'09
'10
'11
'12
'13
'14
34
Finding the Right Sources
Strategic
Sourcing
• Determining factors…
• Product quality
• Sufficient supply chain &
vendor stability
• Price / landed cost
• Multiple sources preferred
35
Only at Tractor Supply
Exclusive
Brands
• ~ 30% of sales
• Brand development approach
• Provide value to customers
• Opportunity for growth
36
Growing Exclusive
Brand Offering
Livestock & Pet
Seasonal, Gifts &
Toy Products
Hardware, Tools &
Truck
Clothing &
Footwear
Agriculture
37
Well-Known National Brands
Livestock & Pet
Seasonal, Gifts &
Toy Products
Hardware, Tools &
Truck
Clothing &
Footwear
Agriculture
38
Marketing Initiatives
Increase Sales
to Existing
Customers
Expand
Customer
Base
Community
Connection
Building the
Brand
Marketing Strategy
39
Driving Traffic
Increase
Sales to
Existing
Customers
• Multi-channel & digital
marketing
• Advertising distribution
strategy
• CRM
40
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 : Affinity Program
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
41
Current Customer Profile
Hobby Farmer
Revenue
Value
Ticket
% Household
Top Departments
Age
Profile
Property
Distance
Shop Habits
Lifestyler
Business
Highest
Highest
Lower
Lower
Lower
Highest
Lowest
Varies
Lowest
Large Animal Feed
Hardware
Lubricants
Pet Food
Pet Food
Pet Supplies
Hardware
Bird Feeding
Hardware
Lubricants
Sprayers & Chemicals
Hand Tools
Older
Own more land
Live further from stores
Destination shopper
Younger
Own less land
Live closer to stores
Convenience shopper
Varies
N/A
Live closer to stores
Convenience shopper
42
Driving “New”Traffic
Expand
Customer
Base
• Broad appeal categories
• Prospect marketing
• Drive trial through existing
advertising methods
43
Getting Involved
Community
Connection
• 4-H and FFA support
• Sponsorships of local fairs and
community events
• Empowering stores
44
Developing Awareness
Building
the Brand
• Authority “For Life Out Here”
• Exclusive brand marketing
• On-line content
45
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
46
Building The Team
It’s About
People &
Developing
Leaders
•
•
•
•
Hiring our customers
Rewarding success
Team retention
Developing people &
succession planning
47
Developing the Sales Force
48
Taking Care of the Customer
Intense Focus
on the
Customer
• G.U.R.A.
• Developing customer
relationships
• Sharing success stories
• Utilizing actionable
customer feedback
49
Executing to the Plan
Driving High
Level of
In-Store
Execution
•
•
•
•
Consistent store processes
Tractor Value System (TVS)
Leadership store visits
Measuring store standards
50
Financial Outlook
51
Compelling Long-Term
Annual Growth Targets
Grow Stores ~ 8% square footage
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
Return Cash to Shareholders
52
Long Term Outlook
2015e
2018e
Stores
~ 1,500
~ 1,800
Sales
~ $6.2b to $6.3b
~ $8.1b
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.
53
Free Cash Flow
(est. $ in
millions)
2014
2015e
2016e
2017e
2018e
Est. ‘15 – ’18
Cumulative
Operating Cash
Flow
410
550
590
640
720
$ 2,500
CapEx
160
230
270
270
280
$ 1,050
$ 250
$ 320
$ 320
$ 370
$ 440
$ 1,450
Free Cash Flow
Cumulative $1.4b of Cash Available
to Return to Shareholders
54
Capital Investment Targets
New Stores
2015e
2018e
$100m
$120m
Maintenance / Updates
$50m – $60m
Distribution Centers
$60m – $80m
Technology
$30m – $40m
Total
~ $250m - $300m Annually
Consistent Infrastructure Investment in Future Years
55
Capital Allocation Targets
2015 to 2018
• Investing for Growth
– ~ $250m - $300m annually
• Dividend
– 20 to 30% Payout Ratio
– 15 to 20% Dividend Growth
• Share Repurchase
Dividend
Reinvest in
the
Business
Share
Repurchase
– ~ 50% - 60% of Operating Cash Flow
– ~ $280m - $400m annually
– ~ 2% - 3% Shares Purchased annually
Creating Shareholder Value
56
Consistent Capital Allocation
Last Five Years
13%
Next Four Years
~17%
40%
47%
~46%
2010 – 2014
$2.0b
Cap Ex
~37%
Share Repurchase
Dividend
2015 – 2018
~ $2.5b
57
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
58
Thank you!
59