Tractor Supply Co (TSCO) 2003 Q3 法說會逐字稿

Welcome to the Tractor Supply third-quarter conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in a question and answer session. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded on Tuesday, October 14, 2003. I would now like to turn the program over to Cara O'Brien, of Financial Dynamics. Go-ahead please.

Good morning everyone and thank you for joining us for Tractor Supply Company's conference call to discuss third-quarter results. You should have all received by now a copy of the press release which was issued yesterday afternoon. If you have not received a copy, please contact my office at 212-850-5600 and we will send one out to you immediately. Before we begin, let me take a moment to reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This conference call may contain forward-looking statements that are subject to significant risks and uncertainties including the financial performance of the company. Although the Company believes that the expectations requested in its forward-looking statements are reasonable it can get no assurance that such expectations or any of its forward-looking statements will prove to be correct. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in the Company's filings with the SEC. The information contained in this call is accurate only as of the date discussed. An investor should not assume that the statements will remain operative at a later time. Tractor Supply Company undertakes no obligation to update any information discussed in this call. Now I'm pleased to introduce Mr. Jim Wright, President and Chief Operating Officer; and Mr. Cal Massmann, Chief Financial Officer; both of Tractor Supply Company. Jim, please go ahead.

Good morning everyone. I will be handling the call this morning as Joe is home recovering from the flu that he came down with yesterday. We have a very rigorous week planned this week. We are all heading off tomorrow to a grand opening of our new distribution center in Waco, Texas. A board member tour of that and stores, a board meeting and following all of that, an investor conference on Friday of this week in Austin Texas, and a tour of our store in Bastrop, Texas. So Joe is recharging his batteries enabling him to travel with us starting tomorrow. With me, in addition to Cal is Jerry Brase, Senior Vice President and GMM; and Stan Ruta, Senior Vice President of Store Operations.

First of all the agenda for the call, we will be reviewing Q3 and the year; then a general business discussion, and then Cal will go through in some detail the financial highlights, and then we will be taking questions.

Take a look at the Q3 of this year; our same-store sales were up a substantial 13.7 percent and this was on top of last year's 7.7 percent. The sales of this quarter were driven principally by a late spring which pushed some of June's normal business into July of this year. Also we had planned to launch our fall and winter selling season earlier this year due to the learning that we acquired with our Northern expansion last year. Winter does begin earlier in the north country and this year we were more prepared for that than a year ago. In addition, hurricane Isabel and other major weather events brought some disaster relief sales our way. We enjoyed the volume, however most of those sales are done at a slightly lower margin.

We also had some aggressive clearance activity as we entered the quarter heavy with spring and summer goods as we announced at the end of last quarter's call. We are delighted to say that those inventories have now been normalized and we're very comfortable with our current carryover level of spring and summer goods. We also had some very solid merchandising programs and promotions in Q3 at this year. As I mentioned, our margin was disappointing, we are 180 basis points below prior year. Of that, 130 basis points was due to our cycling the opening of 87 new stores in Q2 and Q3 last year which resulted in a Q3 benefit of increased vendor support. In addition to that, about 50 points were due to the impact of mix spring goods and emergency response as I mentioned. Big-ticket goods and sold at a lower margin. We're delighted, however, with 110 basis points improvement in SG&A, and our EPS for the quarter came in at 30 cents, versus 27 last year and slightly ahead of expectations.

As a mentioned our inventories did end the quarter slightly higher, however we believe we are very well-positioned for the fourth-quarter sales, and again have very negligible spring and summer carryover. Cal will give you a little more detail on the quarter in just a moment. For the year to date, our same-store sales are up 6 percent, if you recall at the end of the half we were up 2.1 percent. So we got a significant acceleration in year-to-date sales. Our gross margin year-over-year is off 60 basis points, SG&A, however is down 190 basis points. Earnings per share, $1.03, versus last year's sixty-four cents.

In so far this year we have added 29 new stores with another two to three coming in this quarter. Today we have over 460 stores and as we have previously announced, we are looking forward to the opportunity to open over 1300 stores over time. So far this year we have upgraded 13 of our stores, seven more to do yet this year. We are delighted with the performance of those remodeled and relocated stores. By the way again, holding our sales to a very high threshhold of comp store sales whenever we relocate a store, and whenever we substantially improve or increased the size of a store, it comes out of the comp base. So far the results on these stores are solid double-digit increases. Our goal by 2006, the end of 2006 is to have no dated real estate in our system.

Speaking of summer operational initiatives, we have made significant progress against virtually every objective that we have on the plate. As I discussed several times, we are a relationship and service-based retailer. These objectives can only be optimized through the efforts of the right people executing the right plan to a level of excellence. Year-to-date our store manager turnover is below last year's sold results, and last year was 40 percent below our 2001 turnover level. We currently have 272 assistant managers on the team. This is a program that did not exist 18 months ago. The majority of these assistant managers will be ready to manage a Tractor Supply Store within the next 18 to 24 months. Currently our store manager trainee count is at 101. Many of these team members are ready to go to manage a store as we speak. And all of them will be prepared to do that over the next several months. We are in great shape for Q1 openings for next year. We are well down the path to becoming an employer of choice. Our work force is stable engaged and they are being trained and developed.

This quarter we held five regional training and selling conferences. These were attended by 900 store managers and store team members over a three-day period of time in each region. The focus of these meetings were recognition of year-to-date successes at the region district and store level. We again reenforce the Tractor Supply culture, work on team building and trained our team members on our new drug-free workplace initiatives. As well as training was provided on four upcoming seasonal categories. The learning from these sessions will be cascaded to our stores via a series of in-store meetings. We believe our commitment to training and the increase in tenure and experience of our store managers is largely responsible to the outstanding sales increases and the expense leverage that we achieved in the third quarter.

During the third quarter Joe, Stan, Jerry and I, as well as Cal visited several stores in different markets. We are delighted with the consistency of presentation and crisp execution and the focus on our customer's needs. Our regional managers and district managers continue to do a very solid job of setting the pace and establishing priorities. Our entire team continues to work on our eight Best Practices initiatives which we previously discussed. In the quarter we had an outside consultant assess two of our Best Practices to provide an independent view and a benchmark on our processes and priorities. We're delighted to report they found us to be completely on track and the goal of each of these Best Practices is to look at and take work and confusion out of our stores. Our use of internal teams as opposed to an outside consulting board will result in more timely and complete institutionalization of all new processes, again all (indiscernible) will be reallocated to customer service.

Our branding and advertising initiatives which we introduced in Q1 of this year have been measured and we are pleased with year-over-year gains and the awareness of Tractor Supply, and the specific categories that we are advertising. While difficult to measure, we believe we are on the path to building an emotional connection with our customers. Today our team members understand the brand promise of Tractor Supply and our customers are beginning to see it and feel it. Our move to national cable television advertising has also been validated as awareness is up in current markets and those markets that we will enter in the future.

Awareness of our advertising is up over 50 percent amongst our customers. And a product recall is up by a factor of four, year-over-year, while last year our best recall item was that George Strait was on television for Tractor Supply. This year our consumers are telling us to repeat the product and categories that we are advertising. We also continue to receive letters and e-mails from consumers asking as to build a store in their market. Another way we can tell our advertising is reaching our consumer.

The evolution of our print advertising continues. Our print program is substantially different than 12 or 24 months ago. We hold ourselves to a very high standard. We measure margin dollar lift, we call this return on advertising dollar and year-over-year our gains are very, very substantial, measuring our advertising effectiveness that way.

We also revised our Web sites in the second quarter. Our unique visitors to the Web site is up 250 percent and the number of minutes they spend online with us at each visit has doubled. We believe our advertising marketing efforts, great customer service, and new product lines are the key behind our ever-increasing transaction count. For the quarter and the year, our sales have been driven by increased customer traffic, the volume of velocity of merchandise testing has created an element of discovery for our customers, our merchants are driven to provide a "what's for our customers", we are every refining our assortment to meet the basic needs of our customers out here lifestyle. A significant portion of her sales today are being produced by skews that have been introduced over the last three and half years and continue to aggressively test new products and new lines.

In September we held our sixth annual vendor conference. 198 of our vendors attended this three-day event. This 198 vendor group represents 75 percent of our cost of goods. Each of these vendors met with our buying team to discuss strategy, trends and market support. Sessions were also attended by the vendors on training, (indiscernible) merchandising, branding, and our supply chain opportunities and initiatives. These meetings were also used to set objectives for the following year by vendor, by buyer.

In August we opened a new 300,000 square foot distribution center in Waco, Texas which replaced 185,000 square foot leased facility. The center's employee and radio frequency and voice recognition technology, Today after only ten weeks of operation and productivity of this distribution center is matching that of our David Cumberland and Pendleton, Indiana which has been using this new technology for ten months. The Waco Distribution Center currently serves 78 stores and on the tour adds 140 stores over the next several years. We're delighted with the effectiveness of this investment. The freight savings going into Waco were more than offset, or will certainly offset the increased operating cost of the new, larger facility. Today we are very well positioned to capture growth with the brands of people, the strategy to focus to successfully grow Tractor Supply Company. Now on to Cal for some financial discussions.

First on the income statement. Net sales for the quarter increased nearly 22. Seasonal products and emergency response related sales were the strongest compared to 2002 when season products were somewhat weak due to drier conditions and a lack of the early cold weather. All categories in all regions had good performance. The northern regions had the strongest performance as per store increased from approximately $690,000 last year, to approximately 785,000 and the 2003 quarter. For the quarter, same-store sales increased 13.7 percent, compared to 7.7 percent last year. Margin declined 180 basis points to 30.2 percent, that included 130 basis points from reduced vendor support. The balance of it is due to the change in mix of sales.

Selling general administrative expense as a percent to sales improved 90 basis points in the quarter on top of the 90 basis point improvement last year, primarily as a result of the strong same-store sales performance leveraging payroll, fixed occupancy costs, and advertising costs, offset somewhat by higher bonus accruals, planned sales and net income results. Depreciation expense increased as a result of the assets that were added for the new stores and the Waco DC, however as a present to sales it declined 10 basis points. The income tax rate for the quarter is 36.7 percent. We expect this to be the full-year rate at this point in time. Net income for the quarter was 3.4 percent of sales compared to 3.6 percent of sales last year, reflecting the lower margin goods that led us to the sales increase.

Earnings per share on a fully diluted basis is 30 cents or 11 percent higher than at last year's comparable 27 cents. Looking at things on a year-to-date basis, they are generally in line with our overall expectations and kind of take out some of the shifts from quarter to quarter between Q2 and Q3.

Moving on to the balance sheet; inventories and inventory management, average total system inventory per store is $811,000. Approximately 6 percent above last year. This increase includes more test programs, higher levels of direct import goods, additional inventories to support higher demand, and the initial impact of placing inventory in the Waco DC The Waco DC received additional SKUs, and the Pendleton and Omaha DCs will need less inventory in the future and that's working its way through the system this quarter.

Inventories net of payables were $388,000 per store at the end of this quarter, compared to $428,000 per store last year, and we actually on a leveraged basis are cutting our inventory investments on a per store basis down compared to the prior year. Inventory turns are currently about 2.8 times per year an improvement over last year's 2.7 times.

On financing activities at the quarter end, our line of credit borrowings were $43 million, and that was after purchasing the Waco DC for approximately $13 million. And that compares to $77 million that was borrowed under that line of credit last year.

Year-to-date capital expenditures are about $39 million, and we currently expect the full year of CAPEX to be a little over $60 million and that will include some ramp up for store openings early next year. We expect the credit line plus the cash flow from operations to be sufficient for our financing needs over the foreseeable future and we will present details of our future plans with regard to cash flow, borrowings and capital expenditures and the other areas that have to do with what will be done with the positive cash flow that the Company expects to generate.

Accounts Payable is approximately 52 percent of inventory at the end of this period as compared to 44 percent last year. Our guidance for Q4 of '03 is provided in the press release. It can be summarized as follows; net sales of about 335 million to 365 million; comp store sales ranging from about 4.5 to about 5.2 percent improvement; EBIT margin improvement of 30 to 40 basis points, compared to your last year's pro forma; and the vendor funding change is expected to have less impact on the EBIT margin in Q4 than it did in Q3; with net income for the quarter expected to be in the 14.4 to $15.4 million range and that places EPS for the year in the $1.34 to $1.36 range, compared to about ninety-six percent on an apples-to-apples basis last year. Excluding the items, the comparison is about $1.39 cents for '05 because we had the EITF, compared to $1.13 in '02, net of the cost associated with opening the 87 stores.

Guidance for fiscal year 2004 will be provided in connection with the Webcast that we have planned for this coming Friday. Now back to Jim for some additional comments.

Just one point I would like to reemphasize and that is our progress against our employer of choice initiative, which we announced a little over two years ago. At that time we said we would measure our success based upon the resume flow, both quality and quantity. We are delighted today with our resume flow on both of those metrics. As an example, we opened our new distribution center in Waco, Texas in August of this year, and have done no advertising as for our team members from the existing Waco distribution center yet. As a today, we have received almost 1000 applications for people hoping to join our team in Waco, Texas. We believe, as a matter of fact, we know, that being employer choice will fuel our ability to execute the plan, delight our customers, and grow our store count. With that, let's now open it up for questions.

(OPERATOR INSTRUCTIONS) David Carintino (ph) of Robert W. Baird.

Good morning, congratulations. Can you elaborate on key merchandising programs planned for Q4 and how that compares to last year?

This is Jerry Brase. David, we've got a number of things that are keyed up for our fourth quarter this year that we believe will significantly drive our comp store sales. We've introduced a number of new programs and initiatives earlier this year that we didn't have a year ago. Such examples include; the new Cub Cadet commercial 2-cycle outdoor power equipment program, IAMS and Eukanuba Pet Foods, which are new to Tractor Supply that were rolled out chainwide in the first quarter of this year, Levi Strauss apparel was rolled out chainwide at the end of July, and as you are aware the fourth quarter is the biggest quarter of the year in the apparel business. We are pleased what we're seeing from Levi so far. In addition, we are about to launch a new private-label line of Tractor Supply insulated workwear apparel, under the name C.E. Schmidt, which is the name of our founder for our company in celebration of our 65th anniversary this year. We think that will drive significant sales for us in the fourth quarter of this year. So again, those are some of the key initiatives we have teed up that will drive comp store sales in the fourth quarter, David.

Thanks a lot and congratulations again.

(OPERATOR INSTRUCTIONS) John Lawrence of Morgan Keegan & Co.

To follow David's question, could you talk about the performance of the Quality Stores in the quarter. I know that (indiscernible) talked about it was real early, but rather those stores really acted like a comp or an open store or a mature store. Can you talk about that a little bit?

In the aggregate, we are delighted with all new stores performance including those that were previously Quality Stores. They are trending, actually exceeding our expectations. And we are delighted with the comp store sales.

Secondly, can you to about the smaller market stores now that you've had another quarter to look at those?

Again we have only a few of those but they continue to perform well. They are comping at average and are landing a very solid bottom line.

Thanks guys.

David Campbell from Davenport.

Good morning and congratulations. Jim, you mentioned you are studying ways of improving the operational efficiency in the stores and then reallocating the labor savings to customer service. Can you elaborate a little bit more on exactly what you are going to be looking at and over what time frame you expect to make these changes?

You bet. Actually, I will have Stan take you through that as he is running the Best Practices for us.

Good morning, David. David, the work around the Best Practices really comes back from the back from feedback our store managers and our store team members and as part of our workout initiative that we have at Tractor Supply. We currently have eight Best Practices that have been identified by the field that can help us become a more efficient by just putting areas of the store operations under the microscope and finding better ways to do things and become more efficient. The eight Best Practices we have are point-of-sale; new store opening process; just to give you an example there, we believe we can open new stores a week to ten days faster by just doing things differently on the new store opening process; freight movement, to take work out of the store; maximizing our opportunities in high-volume stores. We're looking at store administration, virtually that team is looking at every piece of paper that the stores handle, and looking to become more efficient in all areas when it comes to paperwork and store administration. Inventory accuracy to improve our in-stock and inventory conditions in our stores. We've got a Best Practice team on district manager development as we continue to grow, we are going to have a need for more district managers and multi-unit managers; and were putting a major initiative on coming up with enhancing our current training program for new district managers for the company. And finally, the eighth Best Practice team is working on improving our clearance and discontinued merchandise opportunities in our stores today. All of these we think will eliminate time, really just give us the opportunity to take work out of the store and continue to make as operate faster, better and more efficient going forward.

Do you anticipate using any new technologies to help you on this process?

Yes we will in different Best Practice teams. For example, point-of-sale that is right at the front end, our cash register units, as we got initially into this program, our IT department, who was involved in the Best Practice team and the head of the Best Practice initiative team for point of sales said, "We are just going to take and start with a clean sheet of paper, and analyze everything that we are currently doing, all of those what we want to do going forward and come back to the executive team of Tractor Supply with possible recommendations on enhancing or replacing some of our equipment"

Thanks Stan, and a question for Cal. Cal, how much to you think your markdowns contributed to the sales in the third quarter and what was the impact on the gross margins?

That is a difficult question because of the combination of both mark downs and mix to the products that have lower margins. To isolate those is something that we haven't done. We believe it's more a result of mix to products that have lower margin that typically don't sell as robustly as they did in this year's third quarter. And the markdowns that we normally take on those products with a higher balance of sales. Jerry, do you have any additional thoughts on that?

No. I think that is addressed.

I did notice that you were doing a better job of funding your inventories through payables. How have you been able to stretch out those payables?

It's not only stretching payables it's also improving turn. As turn improves the amount of payables that you have compared to your inventory improves as well. It's particularly significant at the end of the third quarter because some of that inventory buildup that we had was right at the end of the third quarter in anticipation of having sales in the fourth quarter. There have been times in the past when those deliveries would have been early in the fourth quarter. So some of it is a matter of the timing of receipts compared to the balance sheet date and then some of it is just better terms that we've been able to negotiate with our vendors.

That is also a natural outcome of strong comps, strong comps lead to more rebuys (indiscernible) inventory, so the comps drove a piece of that as well.

And in the fourth quarter, the midpoint of your sales range equates to about a 8 percent sales growth which is pretty much in line with your year-over-year store growth. How do you match that up with your 4 to 5 same-store sales expectations?

I would have to work through that with you, David. There is a lot of moving parts in that. I would want to go through what your assumptions are, so if you give me a call later, I'll try to provide some clarification to where your mind is at.

It seems like once again you are being conservative on sales planning, but I will speak to you later, I suppose.

Is that a question or a statement?

That was a statement. Any comment on sales so far in October -- ?

We have just given guidance. I am not prepared to change that. The guidance is what it is, it's in a fairly tight range. Bottom line is what we focus on and we have a reasonable degree of confidence that we will be able to achieve that bottom line.

Andrew Wolf of BB&T Capital.

A couple of questions on distribution. Cal, you mentioned on getting product into the Waco DC added to your inventories per store and your inventories, can you quantify what it added to your inventories or inventory per store?

In the aggregate, it was about $4 million.

Jim, you mentioned that the DC becomes mature at 140 stores and I was just wondering if by that you mean it reaches capacity, or it reaches sort of its peak point of profitability?

That would be capacity as we currently view throughput. Technology and other approaches between now and the time we have 140 stores in what we define as the Southwest that could change, but that is our feeling today. Our point is it is efficient today and we have lots of capacity for growth as a result of that new larger DC?

Can that be increased in size again, that DC?

That certainly can be. We've got enough land to almost double it, but I doubt we will ever choose to do that.

That was one of the considerations in taking it on balance sheet and owning it is to have control of the facility and it's a whole lot easier to do an addition to something where you own the facility as compared to when you don't.

My last question, back to Cal I guess, you kind of pre-guided soon after the quarter ended to 28 cents and reported 30, so I was just wondering what was the variance that happened as you closed the books between today and then?

The intent of the guidance was to say that we would be approximately in line with the analyst consensus estimate. At the Friday before that press release that was a 28 cents, first call posted some things over the weekend and then some people's systems it said 29 cents on Monday, the first working day after the end of the quarter, I can't call it within a penny. The intent of the message was that the EPS that all of you were guiding to would be achieved and that the incremental sales because of the mix of those sales wouldn't drop through to the bottom line. It wasn't to pinpoint a 28 cents just like any one number is unlikely to hit, therefore the range of 34 to 36 for the quarter that we're currently in.

Barbara Allen of Natexus Bleichroeder.

I wondered if you could could comment a bit on the competitive environment? Is there anything out there that concerns you or worries you or encourages you?

We've seen, obviously we are in a marketplace all of the time and recently completed a tour of several regional farm store chains in several midwestern states. We came away from that multi store and multi-state tour very encouraged for the fact that we are more differentiated, more focused and we believe delivering a more convenient from location timewise shopping experience from those most direct competitors. With regard to competition from the Big Box, there are always moving and revolving, we are always moving and evolving. And I can't say that the landscape there has really changed principally..

Thank you.

(OPERATOR INSTRUCTIONS) Gary Mourits (ph) of Morgan Stanley.

Good morning, guys. I just was wondering if you could get a little more on the drag on vendor funding and how you kind of see -- I know you kind of said it was going to be less in the fourth quarter, just wondering if you could give more specific?

Maybe just by way of background, in the year 2002, we added a significant number of stores and we went back to the vendors and asked them for additional support money to promote the sales and reopening of the stores and the real estate that we acquired from Quality. In the first quarter of this year, the accounting was changed such that when it rather than being an offset to the vendor marketing, that became an adjustment that lowered the cost of merchandise sold. It had a significant impact in the third quarter on the EBIT margins because relatively speaking our balance of advertising occurs in the second and fourth quarter and then therefore the impact in the third quarter was more significant. So this is really our vendors partnering with us in the 2002 year for things we then spent in promoting those stores. To some extent the third quarter is an anomaly in that the new accounting sorts it out differently than the old accounting did. I don't know if that helps. But going forward, our guidance is that we will continue to improve our EBIT margins at 30 basis points a year for the next several years and that will take into consideration the new accounting and not really specific as to whether that is in gross margin or operating expenses. But we do see opportunity to improve that EBIT margin contribution.

One more quick one. Just on -- I'm wondering if you can go back and really look at how potentially the relationship with John Deere and Home Depot impacted your seasonal sales?

We have continued to analyze our power equipment performance with the addition of John Deere earlier this year. We felt the impact on our outdoor power equipment business was not specifically related to the addition of John Deere at Home Depot. That was through the first half. We've done some cursory analysis during the third quarter. We actually saw significantly strengthened outdoor power equipment sales which both Jim and Cal eluded to in the July, August time period this year. So it's very difficult to put a finger on the fact that John Deere at Home Depot had any material impact on our outdoor power equipment business at all.

Thanks very much guys.

Greg Hartley Kalmar Investments.

A couple quick questions for Jerry. Could you please comment on merchandising programs during the third quarter that were particularly successful, and secondarily as it relates to these new programs, can you talk about directionally where gross margins are likely to trend? Are you consciously adding programs that enhance gross margin or how do you look at that? Thanks.

Greg, a great question. A couple of comments; one is in the third quarter the fact is that we did more things from the standpoint of driving the business with the promotional events, major presentations in the stores as well as the recent activities that took place in the field in the months of July and August. Commenting on those recent activities they were most prevalent in our equine and our pet supplies departments during that time period. And the results from the major resets that we've done, as a result of some of the line review work that we've completed has been almost instantaneous. They were very meaningful in contributing to our third-quarter sales performance. In addition, the key marketing events that we've put out there earlier in the summer months, things like our bucket bonanza event, our truck and trailer blowout, which was a major focus point, we did a major equine event and a materials handling event in the month of August; as well as focusing on the use of our incap space and our center court space better this year than we have in the past. All of those have contributed incrementally to our sales and many of those events were new for us and we weren't comping up against from last year. I think that is what the shopping experience is all about, keeping it fresh for our customers.

As it relates to gross margin in these initiatives, can you to help us understand directionally how you, where these are likely to go. Do you just look at it from a dollar gross profit perspective or do you also analyze the margin of incremental programs?

Both. The fact is if you take gross margin dollars to the bank you don't take percentages to the bank. For us as an organization, we've got a number of growth categories that are identified that are in lower margin segments of our business. That having been said, it's incumbent upon us to counter balance that with offsetting growth in higher margin categories for us as an organization. We are very cognizant from our strategic plane to make sure that we have a good balance of both going forward, so that we can deliver the incremental increases in the EBIT margin that Cal has been referring to in terms of the guidance he has provided to the stream.

Greg Hartley Thanks very much.

Brent Rystrom of Piper Jaffray.

Could you give me a quick feel for who it was when you described seeing some chains out there in the midwest. I am assuming you sell Mills and Blains (ph). Some characterization of who you were talking about?

It would be all of the various members of the midstate and the wheat belt buying group. We mentioned Mills and Blains, we are in those stores, we visited Orschlans (ph), Runnings (ph) and a variety of other small regional chains and independent players.

Anybody in particular impress you?

Of that group, there is no question that Mills runs the best stores. That is a very different model. It is a 170,000 square foot box, they could be with Home Depot or Wal-Mart Supercenter and carry the categories we carry, but frankly, with all that footage when you get down and count the SKUs versus what we have, we are toe to toe with them in depth and breadth.

Thank you.

Our follow up comes from David Campbell of Davenport.

Jerry, just a related question following Greg's question. You mentioned that merchandising resets were particularly successful in the animal and horse category. How did that category do overall for you this quarter and in particular how did the Premium Private Label of pet food brands do that you rolled out this year?

David, those categories collectively outperformed the Company's comp, the companies comp was 13.7 percent. So they were strong double-digit performers above the Company average at this point I think that's about as specific as I would like to get at this point, David.

Thank you.

If there are no more questions, let me wrap this up very quickly. Again, we continue to be a very, very excited and optimistic about our future. We are highly differentiated, we've got tremendous, tremendous momentum. We caution you to continue to look at us in 6 month increments as opposed to getting too worried about quarter-to-quarter performance as weather can trip us over from quarter-to-quarter, as it did this year. This year June came in July for Tractor Supply Company. A few words about our people. We continue to have very top-flight sales team members in our stores, our store managers are confident and very enthusiastic, our district managers today are maturing, they are very, very competent. I am pleased with the support functions, both here and in each of our DC's. We continue to be highly differentiated within our niche. Our customer base is growing and numbers and affluence, and they are becoming more youthful all the time. We again make decisions for the long-term and we are all here for the long run. We are excited about the future and we look forward to talking to all of you in January. And again, we will be in Austin, Texas Thursday night for an investor reception and we will be in our best drop Texas store just east of Austin for an investor store tour and and presentation on Friday. I look forward to seeing you there if at all possible. Thank you very much.

Thank you, this does include our conference call for this morning. You may now disconnect your lines. Remember that we do have a replay domestically, you may dial 1-800-934-4850; for internationally, 1-402-220-1178. Thank you and have a great day.