Tractor Supply Co (TSCO) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Tractor Supply's conference call to discuss fourth quarter and full-year results. Please be advised that the reproduction of this call, in whole or in part, is not permitted without prior written authorization of Tractor Supply Company. I would now like to introduce your host for today's conference call, Ms. Cara O'Brien of Financial Dynamics. Please go ahead.

Thank you, operator. Good afternoon everyone, and thank you for joining us today. 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 future operating financial performance of the Company. Although the Company believes that 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.

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 the call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a time at a later time. Later, Tractor Supply Company undertakes, lastly, pardon me. Lastly, 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 CEO. Jim, please go ahead?

Thank you, Cara. Good afternoon, everyone. I'm here today with Tony Crudele, our CFO, Stan Ruta, EVP of Store Operations, and Greg Sanfort, our new EVP of Merchandising. First, I'd like to turn briefly to our performance during the fourth quarter. Although the macro-environment continued to pose challenges with our results for the quarter, we were able to grow traffic in our stores and better manage our inventory levels. As a result, total sales grew by 15%, to 723 million, while same store sales grew at 3.8%. This top line growth drove our earnings per share 7% higher to $0.77 per share. I'm proud of the efforts from our store and store support teams and our important fourth quarter. Their hard work ensured our stores were fully stocked, well-displayed, and our customers were both greeted and served.

Our sales increase for the fourth quarter was primarily driven by our core lifestyle merchandise, including animal health and pet supplies, as well as winter-related merchandise categories, including footwear, snow removal, heating, and related woodburning and wood-cutting products. In several categories, our sales and inventory forecasting a match demand very well. In others, we implemented a mark-down cadence and accelerated some promotions to hit our inventory targets. With this plan in place, we are able to achieve normalized inventory levels and to begin reversing a trend in average inventory per store. Tony will provide more color on that later in the call. During, turning now to review --- of the full year, we successfully anticipated a very dynamic retail environment, and while the consumer was pressured and uneasy throughout the year, we achieved sales growth of 14% and comps of 3.4%.

To provide more detail behind the drivers of our success in 2007, I'll go over some of the accomplishments for the year. I was pleased with our overall performance in the stores on many different levels. We grew our business and ended the year with 764 stores. We expanded our geographic reach and entered new markets, such as Louisiana, Maine, New Hampshire, Rhode Island, and New Mexico with a total of ten stores, while opening 73 new stores in existing tractor Tractor Supply states. As has been our history, our new stores are delivering sales and profit on plan. Additionally, we reached our new store opening target for De's with six new stores this year. Opening a first store in eastern Washington and an additional store in Oregon during the year, allowed to us begin testing this concept in markets outside of Del's brand awareness reach and in markets where locally-grown hay is plentiful. We continue our merchandising efforts to ensure that we are offering our customers the best selection and mix to serve their out-here life style.

By the end of 2007, 565 of our stores had the expanded apparel resets. All of our stores had the enhanced animal and pet merchandise. These SKUs benefited our comp performance throughout the year. Our 41 [Highline] pet stores, produced a two-month look at category and format performance. We had some wins. We had some disappointments, and some categories where we simply need more time to evaluate. Our plans are to roll-out the best items in categories through the chain as the year progresses. We are confident that we will benefit from the roll-out, and not have to incur full capital or operating expense of the extensive reset activity we undertook in the test stores. The 41 test stores meanwhile continue to serve as our hard-line laboratory.

We also made great progress on customer relationship management initiative this year. We've been able to match the profile of our existing customers to potential customers that share those same attributes. As a result of our successful direct mail test and developing expertise, we will reallocate our advertising spend in 2008. We'll move more to direct mail, which will allow us to effectively reach our most important customers with the right offer and at the right time. We continue to use television to support and build brand awareness for Tractor Supply Company. As planned we launched our e-commerce web site in the fourth quarter. During the holiday season, we received very positive reaction to our new e-commerce offering. We see significant potential as we expand the product and content offering. I will go into our '08 plans for e-commerce later into the call.

We've proven our capacity to grow the chain at 13% to increase earnings and to position the Company for the long-term. While new store occupancy has caused the deleveraging of SG&A during the last seven years, we made progress in 2007. New stores improved in Q4 and throughout '07, have low occupancy costs as a percent of sales than stores opened in recent years. As a result, we will see the deleveraging of our occupancy costs reduced in half in 2008, and expect occupancy costs to increase at a lower rate again in 2009. We included our first year of applying lean principals which we call TVS to our store support center processes and opened two new value streams. We believe that TVS is a tool that will enhance our efforts to reduce cost and waste.

At the board level, we appointed several new directors to our board throughout the year, George MacKenzie, John Adams, and Rick Frost have provided additional strength to our board. And most recently Bill Bass was appointed Director earlier this month. We've added experts in the areas of e-commerce, merchandising, procurement, logistics, specialty retailing and finance. The expertise brought by our new board members matches very well and complimented that of our existing board members. Further, as many of you, know we completed our long-plan succession plan when Joe [Scarlet] was named Chairman Emeritus in November. In addition to thanking Joe for his years of dedication to our company, I'd also like to thank Sam Reed and Joe Maxwell who departed from our board in 2007 for their contributions, both to our board and to our company, over the years.

While this was certainly not a year without challenges, I'm pleased with our achievements in 2007, and enthusiastic about the opportunities in 2008, and certainly over the long-term. We continue to make investments in our infrastructure, in our stores, and our people. I'd like now to turn the call over to Tony to review the financial performance and to discuss our outlook for this year.

Thanks, Jim. Good afternoon, everyone. We diligently navigated through a tough retail environment in the fourth quarter and we are very pleased with our results. We achieved key goals of driving double-digit sales growth, through both increased transaction and average ticket, while managing our inventory increase well below our sales increase. Sales for the fourth quarter ended September 29, 2007, increased 14.8% to $723.3 million, compared to last year's fourth quarter sales. The total comp sales for the period were 3.8%, noncomp sales were approximately $84.3 million, or 11.7% percent of sales.

As we discussed in our Q3 conference call, sales were soft in October as a result of unseasonably warm weather. As the cold weather rolled in during November, we recouped the October sales shortfall in the month of November had the strongest comp increase within the quarter. Sales comp sales were below the Company average, as a result of warmer and weather conditions in the Northwest, which negatively impacted seed and hay sales. We estimate that the (inaudible) impact our comp sales was approximately 80 basis points, which was consistent with our expectations. With respect to regional sales trends, comp sales were the strongest in the northern states buoyed by the colder year-over-year trends. This was consistent from East to the Midwest.

Sales were the weakest in the Southeast, where moisture levels remained low and were negatively impacted by the weak Florida economy. We continue to grow customer traffic with comp transaction counts up 2.7% for the quarter. This was driven by the strength and continued growth of our core consumable business. Average ticket on a comp basis increased by approximately 100 basis points. Although we still see softness in spending on larger ticket items, it was a less significant decrease than previous quarters, and the mix of the large ticket items has less of an impact in Q4, as writer sales are not as significant in the fourth quarter as they are in the second and third quarters.

Gross margin improved by ten basis points. Our direct margin rate improved through better buying and increased imports. On a year-over-year basis for the quarter, import purchases increased from 7% to 8% of cost purchases, and for the full year, imports rose to approximately 7.1%, up from the 4.4% at this time last year. This trends is tracking favorably toward our long-term target of 13% of sales. Our improved gross margins were partially offset by slight increase in shrink and freight. Freight expense increased 16 basis points, compared to the prior year quarter, as a result of the increase in imports, and a greater than 25% increase in diesel fuel prices in the fourth quarter.

SG&A, including depreciation as a percent of sales, was 25.6%, an 80 basis point increase from the same quarter in the prior year. A deleveraging resulted principally from payroll and occupancy from new stores that have lower sales volumes than the mature store base. We opened 26 stores and relocated one store in the fourth quarter, compared to 18 store openings in the prior year's fourth quarter. For the year, we opened a total of 89 stores compared to 82 for 2006. We continue to make progress on our real estate strategy to position the Company to leverage occupancy expense, as we continue our expansion. Our future stores approved in the fourth quarter, occupancy as a percent of sales improved by 40 basis points versus the stores approved at this time last year. And that is after cycling the implementation of our current strategies from last year. As we prepare our detailed 2008 plan, it is apparent that these initiatives have taken hold and that the real estate costs will begin to moderate in 2008.

Now turning to the balance sheet on a per store basis, inventory levels, excluding Del's, decreased approximately 5.2% at the end of the quarter. Our calculation is based on average cost of inventory and excludes in-transit inventory, and inventory held at unopened stores. In-transit inventory at the end of the quarter increased to $24.9 million compared to $17.9 million in the prior year, as a result of imports and in-transit domestic purchases. We also showed improvement in our turns for the quarter, which improved six basis points year-over-year, as we better managed inventory and took advantage of the increased footsteps. Full year term was down seven basis points. We believe that several of our actions to improve inventory productivity are beginning to gain traction. This includes better exit strategies on one-time special buys, focused approach on new inventory, new store inventory levels and less productive inventory, and more rigorous training program on our [E-3] inventory management software. We believe that although we made significant strides this past quarter, this will be an ongoing effort as we continue to be more productive with our inventory. Greg Sandfort is tasked with heading up this initiative, and we expect Greg and the merchandising team will continue to make progress in this area going forward.

We experienced an increase in accounts payable financing of our inventory, from approximately 37.3% up to 38.3%, resulting principally from better accounts payable management and vendor dating. Given the increase in imports, we are satisfied with the progress we are making. Capital expenditures for the year were approximately $84 million which was significantly below our planned expenditures of approximately $100 million, because we conservatively managed our capital in the quarter, we spent less capital than forecasted on new stores planned to open in the fourth quarter, as well as in early 2008, and we pushed some IT projects into 2008. I'll talk a little bit more about planned Capex for 2008 in a moment.

During the fourth quarter. we repurchased $1.35 million shares for a total of $55.1 million under our stock repurchase program. For the year, we repurchased a total of 3.2 million shares, totaling 150 million. We estimate that the share repurchase program benefited earnings by $0.02 per share in the fourth quarter. We currently have approximately 50 million remaining under our current stock repurchase program. Subject to prevailing market conditions, we expect to continue to make additional purchases as part of our long-term objective of reducing our cost of capital. Looking at 2008 for the full year, we anticipate sales to range between $3.01 billion and $3.08 billion, and 11% to 14% increase over 2007. Our top line guidance reflects an expected comp store sales increase of approximately 1% to 3%. We expect impact of cannibalization in 2008 to range between 70 and 90 basis points.

We expect full year 2008 net income to range, approximately, to be in range of approximately $98.5 million to $101.5 million, or $2.54 to $2.62 per diluted share. We expect EBIT margin to decrease 35 to 40 basis points for 2008. While we anticipate expansion of gross margin profit from our merchandise initiatives, we expect deleveraging of SG&A expenses as a result of our store expansion program and limited comp sales growth. We anticipate that gross margin will increase through increased imports, and private label offering, and price optimization. Additionally, we expect the increase in fuel prices to be less dramatic, particularly in the second half of the year. Although we believe that our gross margin initiatives will continue to be beneficial, we anticipate a tough retail environment that will not be tolerant of retail price increases.

We also continue to be aggressive in moving clearance merchandise, as part of our inventory reduction strategies during the course of the year. With comp sales anticipated to be less robust within this retail environment, it will be more difficult to leverage our SG&A, as we continue our commitment to grow our store base 13% annually. Occupancy costs, and to a lesser extent payroll, has had a deleveraging impact that will continue until the new stores reach maturity. We have executed several initiatives to drive down the occupancy costs as part of our efforts to be more efficient with our capital. We are very optimistic about the overall performance of our new stores. In fact, 2007 store group has out performed the prior two years new stores, when comparing annualized first year operating profit results.

As we have previously forecasted, we are beginning to see this deleveraging moderate in 2008. We expect stock option expense to increase to approximately $14.5 million or $0.23 per share, which provides an SG&A head wind. This represents an increase of approximately $4.2 million, or $0.04 to $0.05 per share over 2007. This results principally from the incremental expense of the 2008 stock option awards, with essentially no roll-off of previous year grants, some of which were on a different investing cycle than the current program. There were no changes to the structure of the stock option plan this year. We expect that we will leverage our marketing, field management, distribution centers, and corporate overhead expenses in 2008. However, we will cycle against 2007, a year in which we fell below our internal plan and the incentive compensation pay out was limited. Therefore, we do not anticipate obtaining any leverage from these areas as we forecast a more normalized incentive comp expense for 2008.

We forecast that an effective tax rate will increase to 38.5%, from 37.9%. This results principally from changes in state tax laws that we estimate will increase our tax burden. In 2008, we plan to open approximately 95 to 100 stores, including eight to ten Del's stores. We expect that approximately 50% of the stores will be opened in the first half of the year, which is similar to the store opening strategy executed in 2007. We do not anticipatory relocating any stores in 2008.

Total capital expenditures are expected to range between $100 million and $105 million, a $20 million increase over 2007 Capex budget results, principally from an $11 million expansion of our Waco distribution facility, additional new store capital required, as we continue our initiative to shift our mix of new stores from built-to-suit to second-use real estate, and some of the IT initiatives that we shifted from 2007 to 2008. In addition to the $100 million to $105 million, we have earmarked an additional $20 million of capital for new store site acquisition and development. This program will be executed on a site-by-site basis, with the objective of lowering our overall occupancy cost while improving our return on invested capital.

Although we anticipate making further purchases under our stock repurchase program, pursuant to prevailing market conditions, we do not include potential future repurchases in our forecast. As we've emphasized in the past, we believe our business can be more accurately assessed by looking at the halves, not the quarters. As the weather can significantly change and shift the timing of our sales. I would like to remind you that our results were unusually strong in the first quarter of 2007. This will provide a difficult comparison for results in the first quarter of 2008, which we expect to be a more normalized, get ready quarter for us. Based on our weather forecasting service, we anticipate March and April to be more seasonally normal than in 2007, which would suggest some sales shifting from Q1 into Q2 this year, since April was unseasonably cool last year.

We expect to experience some margin pressure in the first quarter, but we anticipate margin growth in the second, third and fourth quarters, as we progress on our 2008 initiatives. Additionally, keep in mind that we have one less comp day in the first quarter as we are closed on Easter which shifts to March this year instead of April. Consistent with prior years, we look at the second and fourth quarters as our most productive quarters, as well as where we anticipate having the most opportunity for earnings improvement versus the prior year. As in the past at each quarterly conference call, we will provide more color on our expectations for the subsequent period. Now I'd like to turn the call back over to Jim for more details on our plans for 2008.

Thanks, Tony. Looking to 2008 and beyond, we will be resolute in our efforts to continue growing our business. Although we are being prudent, to ensure we manage our business appropriately given the current retail environment, we are confident that we have the right strategies in place to continue building a sound foundation for future growth, and ensuring that we are the authority and the store of choice, for those living the out-here lifestyle. Before discussing our priorities for this year, I'd like to remind you of our forward-stated, long-term strategic objectives for growth. First, we expect to grow sales by maintaining our commitment to our overall in-store experience. To support this, we will grow our units at 13% a year, improve our store performance with increased traffic and ticket, enhance the merchandise mix, focus on service and season advice, and implement our multichannel strategy.

Second, we will continue to grow our operating profit margin, as a result of increasing our direct imports, our private and controlled brands, through price optimization and through SG&A leverage over time. Third, we expect to grow profit from our core households, by increasing market share of our closely targeted households, and developing our CRM capacity to provide for a single view of our customers across all channels. And lastly, we expect to grow our return on invested capital. This will be driven by improving our inventory turnover, our vendor inventory float, and improving our capital utilization. Those four initiatives best position Tractor Supply for a bright future.

More immediately, we are focused on ensuring that our 2008 objectives complement our long-term agenda and advance our growth. Now first, there are opportunities to grow our business, by maintaining our store expansion program, by refining our merchandise selection, and building out our e-commerce offering. Our stores and our merchandise for the quarter of our business, we expect to open 95 to 100 stores including eight to ten Del's stores this year. We will continue to find ways to increase sales within our existing stores, changes to our merchandise assortments, and presentation. As the changes in apparel and animal health and pet departments have and will continue to contribute to our sales growth, we believe the next opportunities with the hard-line merchandise that we have been testing and refining.

We also expect to improve the merchandising and productivity of our end caps, our seasonal mass areas, and our front end. We will complement our in-store strategy by continuing to develop our e-commerce initiative. We expect sales to ramp up throughout 2008, so we will begin leveraging e-commerce in 2009. We will also continue to develop the next phases of our integrated multichannel strategy throughout 2008. Phase Two will allow to us become more efficient in handling special orders within our stores by, creating the capacity to order merchandise on-line and pick it up at our stores, or order an item in the store and have it delivered to our customer's home. In Phase Three, we will create a series of specialty catalogs that are focused on the special interests that make up the out-here lifestyle. Ultimately, we believe the strategy will allow us to generate store traffic, improve our inventory management, and to tailor some of our in-store assortments.

Secondly, we believe, there are certain areas of our business that will be improved by implementing new merchandise initiatives, refining our CRM capacity, and reducing our real estate and occupancy costs. In the near term, we expect to continue refining our CRM strategy. We did a good job of gathering data on our customers in 2007. Now, as we shift our advertising spend toward more targeted direct mail, we expect a solid execution of strategy, allow us to efficiently, be efficiently reaching our most important customers, with pride, to promotional messages we find compelling. Bringing our real estate occupancy costs in line, will continue to be a key driver for improving our SG&A margins going forward.

We are tightly managing the build out costs of our new stores through value engineering. We successfully increase the mix of second-use locations versus build-to-suit. They perform just as well and are more efficient. We are now, we now are benefiting from stores located in the silver mile versus the golden mile, due to lower land costs and equal sales performance. The new merchandise initiatives that we will be focused on in 2008, I will be implementing price optimization strategy, improving our inventory management, and accelerating our strategic direct sourcing and proprietary brands strategy.

I'd now like to turn the call over to Greg Sandfort, our new Chief Merchandising Officer, to elaborate on these merchandising initiatives and discuss some of his initial observations. Greg has already become a very valuable member of our team. He has a terrific history with over 30 years in the department store and specialty retailing management experience. Throughout his career, he has proven his ability to implement solid merchandising programs and improve inventory management. Most recently as you recall, he was Co-President of Michael's, Inc. Greg?

Thank you, Jim. Good afternoon, everyone. I'm very pleased to be part of the Tractor Supply team. The Company has done an outstanding job developing a strong culture, driven by a focus on serving our unique customer. I've been thrilled to see the firsthand in our stores, how seamlessly Tractor Supply's mission and values are carried out throughout the entire organization every day, and from a store support center back to our stores, where it is most evident to our customers. As the Company has grown into a major national chain, it has truly preserved a local hometown feel and look. That being said, part of TSC, being part of TSC is an exciting opportunity for me, and as we continue to be committed to being the leader in this niche market,. I think that in order for us to meet the customers evolving needs, I've identified several key areas of focus that I expect to enhance our performance as we go into near and the long-term.

Specifically as you heard from Jim and Tony, I will be focused on several merchandising performance initiatives in the upcoming year. Number one, we believe there's an opportunity to improve our pricing strategy by taking advantage of pricing optimization. In the next year, we will be using a more holistic approach to establish optimal pricing throughout our product sales cycles. We will combine analysis of price elasticity, and sound business practices to establish appropriate price points that resonate better with our customers. Going forward, we expect this new price optimization strategy to benefit our same store sales and gross margin results. We also expect better inventory management to contribute to the Company's overall margin improvement in capital efficiency efforts. We will accomplish this by refining our test strategy, that will mitigate our risk on new products as we role them out to the chain. Further we are using our TVS, Tractor Value System methodology, to improve our line review process and ensure that the appropriate inventory investment, pricing and products that we choose are correct for the stores.

We are also placing renewed focus on our plan-around process as well. This process begins many weeks ahead of anticipated merchandise changes with the buyers, negotiating with our vendor partners on a unique product, and appropriate pricing. The process concludes with seamless execution of the new products, why they enter stores, and new plan-around merchandise being placed into its designated home, ready for our customers to purchase. Next, we see significant opportunity to accelerate our direct sourcing of merchandise. By focusing on increasing our direct sourcing, we will be able to produce the best products for our customers from both a quality and value perspective.

I am also working to increase our private label brands and better define our existing brand mix by category. While I am still evaluating the characteristics for each of our private brands, we will continue to drive improved margins on these products through differentiation, quality and price point. For example, our MasterHand tool storage, it's been well-received by our customers, and we believe that there are opportunities to further leverage MasterHand in several other categories. So in summary, our stores are in great shape and successfully executing these initiatives, make for an even better shopping experience for our customers while driving improved financial performance. The energy and passion for the business permeates every level of this organization, along with a sincere appreciation and knowledge of the out-here lifestyle. Our business strategy is solid. Our customers continue to shop our stores, and I look forward to contributing to the team and the future success of Tractor Supply. I'd now like to turn the call back to Jim.

Thanks, Greg, and we will now open the call for questions.

(OPERATOR INSTRUCTIONS) Your first question is coming from Brad Thomas of Lehman Brothers. Please go ahead, sir.

Well, I'll just say congratulations on a solid quarter, during tough holiday season.

Thank you, Brad.

Just briefly on your guidance, could you maybe give us a little more color, in terms of what you're factoring in from a macro standpoint? Tony, I know you said you were expecting a tough retail environment, but are you expecting it to get much worse from the way it is right now?

Brad, this is Jim, our assumptions are that at this point in time, that '08 looks a lot like the second half of '07. Beyond that, we can't guess, but we do believe that we can manage it to these numbers if kind of, if the current state is the normal state we've got going forward.

Okay. And then if we do see a more significant slow down in the sales trends, could you maybe talk about where there might be some opportunities to control costs? I know this year, you did a good job of controlling the Capex, for example.

Brad, I won't go into details, but we have already built our contingency plans. We've talked to the management committee, which is the top 12 executives in the Company. They understand their obligations and responsibilities, and opportunities, if sales fail to materialize.

Okay. Maybe then, one last question. Last quarter, Jim, I know you mentioned that you were looking for your POS to enable some freed up time from the backroom to allow for some more customer service. Do you know if that had much of a benefit on sales?

Stan Ruta here, yes, we've picked up time in our backroom because of the new backroom functions we've rolled out. And it's allowing us to reallocate that labor to the sales floor to help us improve professional inventory accuracy and better service our customers.

Was there a meaningful increase in the level of customer service during the quarter?

Brad, this is Jim, it's really hard to assess. I guess a couple of things to look at. One, when don't --- when we report traffic, we are reporting transactions, so we don't measure rings and swings. So due to the fact that we have a ticket,, a transaction increase, along with a ticket increase, we can certainly assume that our customers are being served at a higher level. A year from now, we will have better data because we are now just launching a true customer satisfaction index initiative, where we will be getting feedback from every store, every quarter and be able to statistically evaluate the level of service we are providing directly from the voice of our customers.

Okay. Great. Thanks so much.

Your next question is coming from David Cumberland of Robert Baird. Please go ahead, sir.

Thank you. Can you please comment on your expectations for the lawn equipment category in 2008?

Yes, the LP industry is saying that down 6% in units this year, on top of a down '07, down '08. We believe, that we can be flat in dollars. So, we are anticipating, probably down in units but flat in dollars, and that is based upon a couple of initiatives. One, we were very successful with a premium brand that's exclusive as a chain to Tractor Supply called Bad Boy that this year we will be rolling out chain-wide. It was in less than 40% of our stores last year. It's a high dollar unit,and uniquely positioned, I think, for our customers with a lot of grass to cut. We are also launching a national brand called White Outdoor Power Equipment. That will replace the high-end of HUSKEE. There's some feature benefits to our customers with White Outdoor. We've also, we are launching a very high-end, unique exclusive to Tractor Supply and [comtada) dealers front-mounted, a zero-turn unit, that's at the high-end of our price point. And also with that, with regard to flat on dollars and maybe an increase in profitability, is we've been very, very rigorous on both our exit and our entry inventory positions in this category, and our planning for this category for '08.

Excuse me, on the left side of this door, are you no longer planning to reset the left side in 100 more stores in Q3?

That's correct, yes. The test that we did on the left-hand side, as I mentioned we had some full winners, we had some that need more time, and we had some disappointments. So what we will be doing in the 41 stores, replacing disappointments with other additional stores, through the chain, we will take the best SKUs, the winners, but we will be able to do that without going through the cost, the labor cost and the capital cost, of the extensive reset that you saw last year, either at our store or at the leaders, the managers meeting.

My last question on the e-commerce business, at the start of '07, you talked about $0.03 per share of incremental spending with minimal offsetting benefit. Was the impact roughly in line with that, and then would you expect this to be neutral or possibly even accretive in '08?

Hi again, David, this is Tony. Last year, it met our expectations and we were very consistent with the guidance that we provided. We expect obviously this year to start to ramp the sales. We do expect that it will generate a loss and the impact will be very similar, in a similar range to last years. So as a percentage, it will be less impactful, but from a cents per share basis, it should be in about the same range.

When would you expect this to be accretive?

We are looking at 2009 for it to be accretive.

Thank you.

Thank you. Your next question is coming from Mitch Kaiser of Piper Jaffray. Please go ahead, sir.

Good afternoon. I was hoping you could comment your expectations for the Southeast. I know the draught impacted you pretty significantly last year down there. What are you forecasting for the particular region, especially given the water restrictions that I think continue in that area?

We see some moderation. Frankly Kentucky, Tennessee, North Georgia, the latest forecast we got shows some moderation, some draught relief. Florida, actually south Florida is going to get worse, is the apparent expectation. I guess so on the overall, I would say slightly favorable this year over last year on outdoor power equipment in the Southeast.

Okay. So, south Florida you think is economic, it's not weather related?

It's certainly economic, but in addition to that, there is going to be a forecast right now, lower two-thirds of Florida, will be more draughty in '08 than in '07.

And then, Tony, you mentioned margin pressure in the first quarter. Is that gross margin pressure or you think it's SG&A pressure, particularly as you go against your most difficult comp of the year? Could you clarify that a little bit in more detail?

Yes, I was talking more specifically about gross margin product margin, and it generally comes from a couple pieces. One, last year, the merchandise that we were selling through, in, particularly in March, when the weather was more spring like, we expected that we would have, we had better seasonal sort of margin and less pressure there. Whereas, we as forecast March to be a little bit colder. And then, we are also taking some action on slow-moving inventories to move into this quarter. And we also, we had very similar sell through toys and gifts in the fourth quarter. So it was comparable to last year, but as we moved into this quarter, we were much more aggressive in marking that down and clearing it through. So, those are some of the items that we see causing some margin pressure in the first quarter.

I'm not sure that I'm exactly following. I thought had you about 60 basis points of gross margin erosion last year. And I thought you took some pretty aggressive markdowns, in first quarter last year, right?

Again, relative, one of the keys is cycling March, by having seasonally fresh goods in March last year, with the spring-like weather. We don't expect to have that opportunity.

Okay. But, inventories are pretty clean going into the quarter, though, only up 7%, I think on a year-over-year basis, right?

Going into the quarter, we are generally very pleased with our inventory position.

And then on the fourth quarter you said, some clearance items. Would you be willing to categorize what that was on the gross margin hit to below out some inventory?

Generally, we don't get that granular.

Okay. All right. Thanks, guys. Good luck.

Thank you. Your next question is coming from David Magee of SunTrust Robinson Humphery. Please go-ahead, sir.

Hello, this is Chris [Rapplejay] on the call for David today. I had a question about your, some of the gift items that you featured in the holiday, and how you felt they performed, relative to expectations and what that may lead you to do next holiday. Thanks very much.

Yes, good question. We had very good sell through. The only surprise we had, was that with all the news on led paint, we saw some consumer slow down with regard to the metal diecast toys. Not a significant issue for us, but there was some shift away from normally, which is a pretty good demand item for us in metal toys. Beyond that, we had some learning. Every year when you into, you have test a few new things, a few new price points. Some of those worked, some of those did not. But on balance, we had a very good gift season.

Okay. Thanks very much.

Thank you. Your next question is coming from Jack Murphy from William Blair. Please go ahead.

Good afternoon. A couple of questions. First, Tony, could you talk a little bit more about the incremental or potential incremental $20 million in Capex? You said something about new site acquisition opportunities, something like that. Could you just flush that out a little bit?

Yes, over the past couple of quarters, we have talked a little bit about acquiring sites. And we've looked at basically the cap rate versus the developers reselling of the site. And we felt that economically, it would make more sense for us to work up front with the developer, with the developers, doing some self-development and/or acquiring some of those sites. So we've set up a contingency in our Capex projection, that we would utilize to do some site acquisitions or assistance with the developers in developing those sites.

Okay. I want to make sure that was the same issue that you talked about. And then, also could you --- I want to circle back to the comment, Jim, you made that the environment, you didn't anticipate the environment being one in which you could pass on pricing or be a difficult environment for consumers to accept pricing. Is there any particular areas that you know, you are seeing concerns there that kind of prompt that comment. If you could just give us a sense on that?

I actually now, where we are seeing the inflationary categories, those categories that are a significant portion of cost-of-goods is petroleum-based or corn or soy-based. Actually we've seen the industry move, and the consumer accept, and we've seen unit movement continue to run. Our comment is more broad-based, recognizing that the consumer, is in some cases, staying home a little bit more, certainly being more conservative with their dollars. It's more of a broad feeling that we have that this is not the time that we will be able to gain a tremendous amount of traction through a price increases. That said, however, we do believe that we have opportunity to strategically raise prices. Due to the fact, that we have a number of price zones, where we have perhaps been more competitive than we need to be. We are also a few months now into a more rigorous price elasticity study. And we are going to move from an opinion-based pricing strategy where we believe an item or a category is highly visible to our consumers to a scenario where we begin testing a zone or two, with marginally higher prices and we measure elasticity against a control group.

Great. And then just one last question, given this context or the guidance parameters that you've given here, could you just give us a level of comp? Obviously it's outside of the guidance, at which you think that you would be able to get leverage full-year 2008?

Yes, we've stated in the past that we really need a four to 4.5% comp to leverage while we are in the 13% store growth mode.

So, even with the occupancy drag, that would, you still feel that's the case?

Yes, specifically for 2008. Now that might lessen as we move into 2009, but generally that's what we are seeing. As we stated in the call, we obviously, there's a non-cash drag when it comes to the stock option plan as well. So really, those are the two key ingredients for SG&A deleveraging.

Thanks.

Thank you. Your next question is coming from Peter Benedict of Wachovia. Please go ahead.

Hey, guys. Thanks. I just wanted to get a better understanding of your approach here on the share buy-back. It sounds like from the guidance, you are not really assuming much. But you were pretty aggressive in the last quarter, prices were a lot higher than we are at right now, in terms of the stock. Is it an unwillingness to dip into the revolver in the credit line in this environment or are you just trying to be conservative on the outlook, and have buy-back be upside to the numbers?

Well, Peter, this is Tony. What we are saying is that, in our guidance, we have no projection for, or no forecasting for the share buy-back. So, we anticipate that we will buy back shares. However, it is not included in the forecasted numbers.

All right. Good. That helps. And then just on the, I just was hoping you could maybe elaborate a little bit further on the price optimization test that you guys were doing. It sounds like you got some initial traction on that. Is that something you can try to push forward with in '08? And are there any new zones that you are going to try to test that in or just kind of keep doing it in the ones that you've been doing it in?

We will as the year unfolds, we will begin rolling out and testing different categories and different zones, watching the elasticity and then rolling forward where it makes sense for us to optimize. We have another initiative that we are going to be pursuing. If you look at our pricing today, we have a lot of odd penny pricing, and we have the opportunity to move that up to logical retail price points. And there's some opportunity for margin expansion there, provided that those goods do not, we do not have a unit decline in that product, and that is frankly, yet to be discovered.

Thanks, Jim. Tony, just one more thing on the first quarter. So it sounds like gross margin expected to be down year-over-year. Certainly with the tough sales comparison, you probably have comps down as well. You did say, I just want to make sure, that you thought, you would get a normal, get-ready quarter earnings environment, earnings per share? I mean historically you guys have done kind of flat to maybe, plus $0.05 or so in the first quarter if you exclude last year. Is that the type of range, we should be thinking about?

Yes, when we talk about get-ready, we expect very limited earnings in the first quarter. So it should be consistent with past trends, other than the 2007.

Great. Thanks very much.

Your next question comes from Brian Nagel of UBS. Please go ahead.

I have a couple questions. First off, with respect to the competitive environment, the holiday was much more challenging for many of the retailers. You guys performed well. Have you seen any, with that as a backdrop, have you seen any more aggressive price promotions or just promotional activity out of some of the retailers you compete with in the various categories?

Nothing that's impacted us. There's a tremendous amount of --- not tremendous. There's more off-price activity going on, more couponing and so forth. But in product categories that are most important to us in the fourth quarter, that noise had very little impact on our business. We were really not compelled to match anyone's promotional effort. The one thing that is structurally in our industry today on big ticket, is the twelve-month, no interest, no pay, and that obviously comes at a cost. We did that with a little more activity there to match our competitors on some big ticket products in Q4. But having said that, we are, a couple of points.

One, we have, we are fortunate in that we have a core business that is somewhat nondiscretionary, and businesses in which we are truly the destination store. Those businesses performed very, very well without increased promotional activity in Q4 and we anticipate that they will continue to grow, and continue to perform well as we go forward. And I guess the next thing is that, with the frequency of our core customers visiting our stores, it would have to be a significant offer to disrupt the shopping patterns. And finally, I think it's an error for us and others may think differently, to get on to the heavy promotional drug during this tough time in retail. At some point in time as we come through this slow period, they are going to have to get back off that or stick with the high/low strategy which I think is counter to what today's consumer wants to shop. They want to shop at their time, at their convenience, and know they are getting a value, not wait for a promotional event.

That's helpful. In the second question I had, Greg, you mentioned in your prepared remarks you talked about the direct sourcing. Just a couple of questions. One, just kind of remind us where we are as far, as what share of your sales or your products now, are direct source. And then second question there is, that was I was over in China looking at some these sourcing operations. What impact if any, would the higher cost we've seen out of some of these emerging markets, could that have upon your direct sourcing efforts?

Let's first, Brian, break it down. We are about 7% direct source from China to TSC. And that number, we plan to grow. I think you've heard us talk about before, we would like to grow that number to the 13% to 15% range over time. The pricing compression that's occurring right now in China, it is kind of two-fold, really. One is raw material costs, are definitely going up. Steel-type products, we've seen some pricing issues there, but we've addressed those at the retail side here. And the consumer I think expects, that some of that product is going to cost more as they enter our store. But we are really just beginning to look at how we can direct source more product, and we are kind of following a little broader net than we did in the past. There's more for me probably to discuss here than we had time today, but I can assure that you we are looking to do more on a direct basis. We are, we have already put together some plans and we will finalize those with our EC and the board in the next probably six to eight weeks, about how we will progress forward. But at this point in time, except for a few minor categories, it's pretty much what we expected and we've been passing the cost increases at the retail level. So we haven't seen any real pull-back by the consumer yet.

Thank you very much and good luck for the next quarters.

Your next question is coming from Matt Nemer from Thomas Weisel Partners. Please go ahead.

My question is regarding traffic trends, which were quite a bit stronger than what we've seen from other retailers. I'm just wondering if you can, if there's any one thing that may be driving that, if there are any changes in the advertising mix or amount of advertising during the fourth quarter or if it's just more a function of the easier comp from last year?

Actually it's, our advertising was, our advertising spent as a percent of sales was level, or slightly down in Q4 year-over-year. The ads really weren't a whole lot hotter than they were last year. What's interesting when you look at our business, is that our traffic was a result of the amount of business we did in consumables, and in pet and animal consumables. We continue to grow those businesses as we have for the last four, five years, at a rate well above the overall chain growth. And once, one of our consumers begins to feed their pet animal on our feed, there's a natural every two weeks, every three weeks once a month repurchase cycle. And we saw that, that was --- really quite well, as we mentioned I think in the press release and the call news.

Is that a mix shift to smaller bags that's driving kind of shorter cycle times, or is it share that's maybe coming from another part of the market?

I think it's share gain. We've actually looked at bag size and average ticket size within those categories, and we do not see our consumers trading down to lower price product to any great degree. And they are not trading down to bag size.

Okay. That's helpful. And then my next question was, Tony mentioned that the '07 store class out performed the last, the prior two years. And I'm wondering on what basis, and can you provide any granularity on the performance relative to the profits of those stores after occupancy expense?

Yes, generally, Matt, we wouldn't disclose in detail. I would say that on a sales level, the '07 stores performed similarly to the '06 stores. But just on an operating profit basis, the profit that they generated far exceeded that of the 2006 and the 2005 stores. It's just an observation, and you know, a lot of times we receive questions on performance of the new stores. But we are very pleased with the stores that we have brought on board, really over the last three years, and we expect as we move them out of this difficult retail environment that these stores really, really will be very profitable going forward.

And then on that same topic, you're ramping your new store growth for Del's. Where, can you give us a sense of what you are planning to do there, what sort of locations or markets, or new markets, will you be putting, will you be placing Del's stores in?

The chain as we bought it was located pretty much up and down I-5 in western Washington. And most of the new growth is going to be eastern Washington, Oregon. The reason we are doing that is, we are viewing '08 for Del's as another year of learning, where we will continue to refine the, how we go to market with regard to advertising, how we sort the stores. And the principal that needs to occur, is to find out how well these stores perform, how fast they ramp to profitability, how fast they take market share in areas where the Del's name is not known and in areas where, where locally grown hay is not available or is available. In the Pacific Northwest, the coastal Northwest, all of the hay is imported in for horse owners and hay does is a significant part of Del's business. Recognizing that that's a unique market, for us to determine the multi-state viability of Del's, we've got to stake the plunge outside of that environment. Our growth will be in those types of markets ---.

Okay, my last question is, you mentioned that some IT projects were pushed out from '07 to '08, is that the environment or is it specific to vendors or products or something else?

It's a combination of one, cost, two, just prioritization. Currently we've reprioritized of bringing our Del's on to our systems. And re-prioritized that and moved a few others. Some involved security, because obviously, there's been a lot of discussion about security and we are taking a much greater focus on security. And so we will grapple with those as we move into 2008, but a lot of it really was based, was based on re-prioritization.

Okay. Thank you very much.

Your next question comes from John Lawrence from Morgan Keegan. Please go ahead.

Good afternoon, guys. Jim, could you comment quickly fourth quarter, on the performance now that you've had C.E. Schmidt for I guess, three seasons or so, the difference between that and the name brand, what did you see in the performance of that private label?

We had a relatively good year in heavy-weight outerwear, both categories, both the Carhartt brand and the C.E. Schmidt performed quite well for us in November and December. October, as Tony mentioned, was abnormally warm, so we kind of missed the first burst of --- at the fullest possible margin. Overall, we are pleased with it. C.E. Schmidt continues to gain share marginly, but we continue to be very, very pleased with our Carhartt business. This was the first fall, first full fall season with the C.E. Schmidt line leather footwear. And frankly, we were delighted with the results of that as a high-quality boot. It's priced at the low end of our, our work boots are priced from $60 to $120. And we brought C.E. Schmidt at around high $60s and tremendous value proposition. We direct imported it, and we were frankly delighted with that, John.

Just a couple of merchandising questions, if you will. Going back to the outdoor power equipment, if you talk about the initiatives, the light, another private label. At the end of the day will the SKU mix go to a lower price point or you are moving the price points up with just better margin?

You answered your own question. John, we are moving the price points up with better margin. That's the strategy.

And so the point that you're sort of vacating is that competitive low-end?

I wouldn't say vacate. What I would say is not trying to grow that piece of the business.

Okay. And lastly could we talk, just one more little bit of about the 41 store test? A lot of that product was expanded lines without the return for that test, is just to, not to expand, I mean not to reset, but just get the benefit from those incremental wins?

Yes, at this point John, that's correct. As you're going through, a few years ago, we significantly expanded our pet department, changed the (inaudible), created a boutique. We also did not go forward with that program, that we complete reset, but we did go forward with the couple hundred SKUs that proved out to be very solid winners for us.

Right. So would you say a continuation of that on that side of the store?

That's correct, yes, before now. I'm not saying we will never reset that side of the store. But what we've seen is the major benefit is really is in the product And additionally, we've not been a great retail company, with regard to use of end caps on that side of the store. And we believe that we can make some wonderful product presentations through better use and better merchandising of our end caps throughout both right and left-hand side of the store.

Congratulations. Thanks.

Your next question comes from [David] Wewer from Raymond James. Please go ahead, sir.

Guess have a new first name.

Hi, Dan.

To make sure I understand the components of the '08 guidance, and looking at the midpoint would imply EPS growth of around 7%. And that assumes same store sales of the midpoint of 2% which is not bad. It sounds like gross margin rate will increase which is good. And then further, the leverage from occupancy will be about half the (inaudible) of what it was in '07. So then, in trying to think about what's left that's, you know, weighing against the earnings growth, is it just primarily the incentive compensation either through options and the cash compensation, is that the right way to think about the '08 model?

Yes, I would agree with that,. That that, those were the two components that were left with the incentive piece and if you tie that together with the options, those together is the difference that you're looking at. We had mentioned that we have slight deleveraging from our store personnel side, when it comes to adding the new stores as well, but it's not as significant as the impact or the occupancy.

Tony, earlier you were estimating that 4% same store sales growth is needed to do maintain a flat expense rate. Do you think it's actually higher than that in 2008, given that 1% to 3% forecast results in significant deleverage. So that extra percentage point of same store sales growth, it looks like that may not be enough to achieve a flat expense rate.

Yes, I definitely would lean to the higher side. The 4.5% is closer to that. and depending on the environment, five might be reasonable. But, you know, our general guidance has been the four to 4.5 range, and that can be achievable. I think as you see, relative to 2008, I think you are probably close there. I think you will stock option expense start moderate in 2009 as some of the prior year's start to roll off.

My other question, Greg, you had outlined a number of initiatives. When you think about these which ones do you think would pay off the soonest, and when that may occur, and which ones are going to be, you know, will take longer to achieve?

Well, the number one focus for me is really the management of our inventory. And we are really spending a lot of time right now with much more rigor around that entire piece of the company. That's number one. Number two, I would say would probably be the price optimization component, just from the standpoint of early wins and things that we've recognized and identified. So that's probably the two things I would tell you. An then, the direct sourcing piece takes time, and we want to make sure that we move ahead two or three steps and not drop back two or three steps as we do this. So, it's more of, you're getting the platform right first before we really start to move fast there, but that's how I would align the three.

The directs, the inventory management, we already saw the benefits of that in the fourth quarter. So, we are already there, right?

Well, I wouldn't say that we are already there. I would say, we are just beginning.

Okay. And that's going to be achieved, it sounds like, by taking clearance markdowns maybe a little bit sooner during the season?

That's one aspect of it. But I will tell you, that there is a very rigorous look now on a month-to-month basis, with some forward-looking into our open-to-buys and where the business is headed and so on, so forth. So I would tell you that it's, it's my number one focus. Making that inventory much more productive, really evaluating where we are spending our dollars and are we getting the return on those dollars. So, I would be honest, we are just beginning, just beginning.

Finally just on pricing optimization, is the fourth quarter of '08, is it possible you begin to see some benefits by then or should we be thinking about optimization being an'09 payback.

We will see some in 2008 toward the latter part of third and fourth quarter, yes.

Great and good luck. Thank you.

Your next question comes from Jeff Wiemer from JP Morgan. Please go ahead.

Thanks for taking my call. You know, you spoke about some of the changes in outdoor power equipment, specifically on the high-end. But I was wondering if you are changing your mix or SKUs towards the lower price point all in, or making any adjustments to your lower ends offerings?

No, significantly not. The overall strategy is to grow the dollars and grow the profitable sales, maintain revenue on a flat comp, and put our emphasis at the larger units, the more branded units, and the units that are most applicable to our consumers who measure their yards and acres, not in front feet.

Okay. And then also last quarter, you mentioned that if you had good weather would you probably see 150 to 170 --- benefit to this quarters comp. It looks like you probably got all of that and then some. So, I was wondering if weather was neutral was your comp would have been, do you have any sense?

I would say, you're talking about Q4? My sense of the quarter was that the weather was neutral. That weather was negative in October, better in November and December. But on the overall, I would say it was, it returned to neutral after being negative last year.

So you didn't get that 150 (inaudible) or so that you were looking for, okay. Okay. Thanks.

You're welcome.

Your next question comes from Vivian Ma from Oppenheimer. Please go ahead.

Okay. I have two questions, first on the occupancy, I want to get a bit more clarification. For the average rental rates for 2007, could you provide some more color whether it was more or less stable, or did it go up? And what is the outlook for 2008? And I have one more question after that.

Relative to the rates in 2007?

2007 versus -- right, right.

Yes, on the new stores, the rates did increase. But you know, what we do is, and how we report generally, is we look at it more as a percent of sales. So, we are not seeing a significant escalation per se. They were above the 2006 level, but more importantly we look at them as a percent of sale, and we are trying to leverage that down. So, we will see that going down in 2008, as we discussed, and it will be at a much lower level as we move into 2009.

For '08, if you hit on the per square foot basis, do you think it's up or down, like directionally?

It would definitely move down for 2008.

Okay. Okay. My next question is regarding your initiatives in the private brands and the direct sourcing, are there any new product categories that you'd be making a bigger push in '08?

I will only answer this, we did talk about the White Outdoor Power Brand being introduced. We did mention about Bad Boy, and that's just an expansion from a test a year ago. This is the OB --- OBE side of the business. But I think I'd be reluctant to comment on any of the other things that we may be planning at this time.

Okay. Great. Thanks very much.

Your next question comes from Jay McCanless from FTN Midwest. Please go ahead.

Good afternoon, everybody. I want to do ask first on the gross margins, still not understanding why we didn't see better gross margins this quarter with higher traffic, higher ticket, and higher foreign sourced inventories. Could you expand on that a little bit?

I will go first, Jay, some of that was mix. When we look at the products we sold again, I mentioned we did very well with pet and animal feed and food. Those are margin, of below margin categories. The categories where we had the biggest headwinds, I think we also mentioned this in our notes or in the release, were on the tool and hardware side. Those categories are very margin rich, and they did not perform as well as our core animal related business. So, it really was mix more than anything else to drove our margins.

And then on the inventory side, glad to see that you all are focusing again on maximizing the dollars from your inventory. Are there any targets you would be willing to give on working capital improvements, or is it, do you still have the long-term turn target of I believe, it was 3.3 to 3.4?

I've been stating that we have the ability to improve our turnover 15 basis points a year. And since I first started quoting that, we have gone backward 30. I remain resolute in our ability to improve our turnover, about, probably ten next year zone, and 15 accelerating forward. I do believe, possibly offset by direct import, that we do have the opportunity to get north of three and approach 3.3 over term, and that term is probably five years.

Okay. And then my last question is looking at gross margins for next year, commodity costs for grains, wheat, soy beans, corn, et cetera, near 20 and 30-year highs. How much of an impact should we expect from these higher prices as we move into '08?

Thus far we failed to pass those cost increases along to our consumer and most critically to this point we have not seen our consumers trading down to lower price products, which those commodities also carry a lower margin. So kind of wildcard. I'm pretty confident that we will be able to continue pricing at retail to reflect cost. The industry seems to be in sinc with that. What I don't fully understand is what the consumer behavior might be if that bag of feed goes, it's already gone from $10 to $12, gross at $12 to $14.

Okay. Great. Thank you.

Your next question comes from Wayne Hood from BMO Capital. Please go ahead.

I guess my questions for Greg and Tony kind of combined. And I guess, Greg, as you have gotten a look at thing as you've come in. Do you think you are going to have to rethink the Company's distribution network, given the import strategy that you want to pursue and just not having enough facilities now to do a big import program in an efficient, cost efficient way? And then I guess if you have to do that in a year from now or two years from now, Tony, does that mean there is going to be a ramp up in capital spending or expenses associated with that, that would come on at a time when occupancy costs might start to moderate? And I have two additional questions, thank you.

I would tell you this that we will do this very logically and very pragmatic as far as how we plan to grow the direct side. Today we have, we have capacity in our DCs actually to handle some of these products. So, there's no short term issue. But I will tell you, you know, once you put this into play and we start to look at the opportunities, there is always a likelihood that we may need a facility on the West Coast. But, as we are expanding our store base toward that direction, we are hoping that the lines will cross at that point.

Relative to our growth, we always earmarked that we would have some funds available most likely in 2009. And now as it stands, more stretched out in 2010 for a West Coast distribution center. Having capital in the budget next year to expand our Waco facility,I think you would see the year- over-year capital infusion not to be significant. And again, it generally is part of our long-term plan. So, if Greg, we're to come in and take a harder look and say that we needed to adjust our distribution network, we have the capital allocated in our long-term plan.

Okay. And I guess I want to come back to several questions that have come up and that is the leverage in the model. That when you look at the third quarter had you a 3.8% comp or almost close to that four to five that we [talk] about to [wide-rich] expenses. So, I was wondering if you could break out or tell us what the delta was when you strip out the new stores. In other words, when you look at the delta and the comparable store sales operating margin, was that flat, up, down 70? I mean, how can we think about that, in trying to measure what the leverage is on the model, on those existing stores tripping out the new ones?

Again, we would not go into that type of detail. We do take a look at it, and we understand the components. And what we are seeing is that -- and what's a challenge in answering the question of, what does it take to leverage at a particular comp level, is when you take that growth component out and the other pieces that are associated with it, such as your preopening expense, your real estate teams, that's where it becomes a question mark as to what are those allocated resources. So as much as we analyze it, we understand the components, I would not be willing to share the details because there's just too many pieces.

Would it be fair though, Tony, to this, that the operating margin was probably down in comparable store sales on a 3.8 comp?

Not necessarily, I would not necessarily assume that.

My final question, just, can you --- give the absolute share count not the weighted share count given the buy back at the end of the quarter, what the absolute shares were?

We'll have -- let me have Randy get back to you on that one.

Okay. Thank you.

Thank you. We have time for one more question. We've already set a record for the call, but we will take one more question.

Your final question comes from Andrew Wolf from BB&T. Please go ahead.

I'll try to make this quick. A couple follow-ups, I think for Greg or Jim or both. Just on the, I think Dan went over this but I thought it was very important. The pricing optimization and I think, Greg, you mentioned your number one goal is going to be to increase productivity of inventory? Starting there, you know, when I think of that, my mind goes to the measured ---- and Jim you kind of alluded to it, you want to get inventory turns up. As financial analysts, Greg or Jim, should we be looking at a [gym Roy] number? And if we should, do you have a goal there, too? Is that how, you know, from a financial accounting point of view, we should be --- seeing how well you're doing with inventory productivity?

Certainly, that is a retail metric. And I'm not sure we can boil it down to a stated objective. But the, and probably unlikely to the share that publicly. But certainly we look at a [gym Roy] on, each of our 364 categories, and have that calculated on a monthly basis. The key drivers are higher margins and lower inventories, and it all works. And we recognize that we have a tremendous opportunity.

Okay. And just, I mean sometimes, you hear the productivity of inventory and it's a more basic thing. There's a lot of dead inventory or you need to do a SKU rationalization, is there anything like that, that you're referring to?

There's very little dead inventory. There is certainly the opportunity in some categories to rationalize SKUs, and we some opportunity to rationalize SKUs across our various store volume groups, and across a different geography. We have been, historically, we have not been nearly as regionally specific in our plan-a-gramming and inventory modeling. Nor have we been as volume specific as we have the opportunity to be with the systems we currently have in place.

Thanks. That's helpful to me. And on the pricing side, Greg, I think you said it was more about elasticity and sort of internal measures. But, is this also about zone pricing and, again, geographic pricing? And what is it replacing currently? I mean, do you guys have a system or is it more of an ad hoc process at this point?

It's a combination. I will tell you that it's really a refinement of what we currently have. We are probably refining it in one or two more, you know, peeling back --- even further. We don't believe that with the mix of business that we have, that we need all the pricing zones that we may currently be supporting. And then secondly, as far as how we are going about this, there's some, as we said kind of holistic things that we can do. There are some systemic things that we are looking at. So it's a combination of both, and we will test it first before we absolutely take the role at my partner stand. And I have to work through this to make sure that this makes sense. If we see any slow down or drop at all, of course that's a flag for us. But we believe, it's a very logical approach and we are very excited about it.

Okay. I think last up if I'm still on, a last quick housekeeping question. I don't know, Tony, if you have the rent expense handy or an approximation of it, that might be useful.

Yes, we don't disclose that. We just talk to SG&A in total, and give general guidance as to some of the components, what are the moving parts. But we don't give specific relative to rent.

Okay. I will wait for the K.

Very good. Thank you. In conclusion, I'm very pleased with our ability to navigate through the challenges of '07. Since the current macro environment may parallel the second half of '07, we are tempering our expectations appropriately. However, we are not going to let external factors prevent us from continuing to reach our long-term strategic growth objectives. The lifestyle we serve will continue to grow. Our role as the authority for that lifestyle will continue to strengthen. Our customers are resistant and resilient, and our team is very committed. In short, we are, and have been, and remain a growth company. I'd like to thank our loyal shareholders, our team members, and customers for their continued support of our business. And we look forward to another exciting year of growth and profitability here at Tractor Supply. And I look forward to speaking to all of you at the next call. Thank you.

Ladies and gentlemen, we thank you. This does conclude our conference call for today.