Tractor Supply Co (TSCO) 2008 Q1 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to Tractor Supply Company's Conference Call to discuss first quarter results. [OPERATOR INSTRUCTIONS] Please be advised a reproduction of this call in whole or in part is not permitted without prior written authorization of Tractor Supply Company. And as a reminder, ladies and gentlemen this conference is being recorded. I would now like to introduce your host for today's conference Ms. Cara O'Brien of Financial Dynamics. Please go ahead Cara.

Thank you operator. Good afternoon everyone and thank you for joining us. 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 and 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 this 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. Lastly, Tractor Supply Company undertakes no obligation to update any information discussed in this call.

Now, I'm pleased to introduce Mr. Jim Wright, Chairman, President and CEO. Jim, please go ahead.

Thank you Cara and good afternoon everyone. I'm here today with Tony Crudele, our CFO; Stan Ruta, EVP of Store Operations; and Greg Sandfort, EVP of Merchandising.

As you may know we always refer to our first quarter as our get-ready quarter as we prepare for the important spring selling season. This year we are cycling very favorable weather as well as record sales and profits from last year's first quarter.

As we enter 2008, we expected buying patterns for this year to be similar to the second half of 2007. However, throughout the first quarter consumers became even more cautious with their spending than we anticipated. This appears to have affected overall sales and traffic as well as initial sales of big ticket items. Additionally, we believe the warm weather in February and the cold weather in March also impacted first quarter performance of our seasonal merchandise.

With that said, during the quarter we made progress on our key initiatives for 2008 to grow and to improve the business. Let me briefly discuss a few of those highlights. First we did grow total sales by 2.9% and improved gross margin by 70 basis points to 30.7% despite the challenge in external environment and comping against record performance in Q1 of 2007. Secondly, we are pleased with the solid progress we made on our inventory management initiatives. We were deliberate with our line review process and took a disciplined approach to improving the productivity of our inventory. To protect gross margin, we implemented a controlled markdown cadence that allowed us to clear through the remaining holiday, cold weather, and gift inventory much better than last year. We also experienced early benefits from our price optimization strategy. Finally, we continued to generate solid growth in our core consumable categories including animal health and pet. Core lifestyle products have been a driver of growth and repeat business over the past few years. We believe that our position as a market leader in these categories will remain a key strength for our business in this more challenging environment as our consumers rely on Tractor Supply Company for their everyday, non-discretionary lifestyle needs.

In conclusion during the quarter, we were able to make key improvements in the business and our enhanced merchandise management initiatives are already beginning to gain traction. However, we do recognize that there's been a shift in how consumers are behaving, given the economic pressures that are affecting them. That said we've adjusted some of our plans and are diligently managing all current costs and initiatives to address the consumer environment while continuing to position Tractor Supply for the long term as a growth company. In doing so, we're intensifying our efforts in key areas and began to make progress late in the first quarter.

I'll discuss our plans for the remainder of 2008 later in the call. But first, I'd like to turn the call over to Tony to review our financial performance during the quarter and our outlook for the remainder of the year.

Great, thanks Jim. Good afternoon everyone. While sales did not meet our expectations, we are pleased with several aspects of our performance which included solid gross management and inventory management and SG&A control. For the first quarter ended March 29th, 2008, sales increased 2.9% to $576.2 million compared to last year's first quarter. Total comp sales for the period decreased 6.5% and non-comp sales were approximately $53.4 million or 9.3% of sales.

Please note that we had one less selling day in the quarter due to the Easter shift. The one less day negatively impacted Q1 comps by approximately 170 basis points. Dell stores comp sales, although negative, performed better than company average.

While our core consumable business continued to thrive, sales from discretionary and big ticket items were lower due to weak consumer spending, coupled by a late spring. Such categories include short line equipment, compressors, trailers, generators, and riders. Although comp transaction count was down 3.8%, this compares to a strong comp transaction increase of 7.1% last year.

So for the two-year period we had a net positive 3.3% increase in comp transactions. This was the first decline in comp transaction count in nearly two years. Average ticket was down 2.9% and represented less than half the comp sales decline.

Looking at sales patterns throughout the quarter, the sales were strongest in January and comp sales were positive. This was consistent with our expectations as we had the easiest year-over-year comparison in January. We expected that February and March would have difficult comparisons because of very favorable selling conditions in the prior year with an extremely cold February and early spring in March. Excluding the one less comp day in March 2008, as a result of the Easter shift, both months had negative comps and performed similarly.

With respect to regional sales trends, comp sales were negative in all regions of the company. As expected, the southwest was the least impacted by the year-over-year weather comparisons. The weakest performance occurred in the north and northern Midwest states which were most subject to the weather variabilities.

Turning to gross margin, we achieved an approximate 70 basis point improvement. Slightly less than half of the improvement resulted from the better product mix as a result of fewer rider sales and other big ticket items which had below company average margins. Additionally, we benefited from strong markdown management in the quarter and our price optimization initiatives that are beginning to take hold.

On a year-over-year basis for the quarter, import purchases were flat at slightly under 6% of cost purchases for the quarter. The lack of increase in import volume in the quarter resulted from better management of the flow of seasonal merchandise in our effort to improve turns as well as the continued strength of our core consumable business which for the most part is domestically sourced. Our improved gross margins were partially offset by an increase in freight expense which increased by 25 basis points compared to the prior year quarter and was related to fuel increases and the mix of goods that had higher than chain average freight costs.

SG&A, including depreciation, as a percent of sales was 30.8%, an increase of approximately 240 basis points from the same quarter in the prior year. Obviously the negative comp store sales impacted our ability to leverage expenses in the quarter. It should be noted that we did leverage our advertising expenses because we had one less circular in the first quarter of 2008 compared to the prior year quarter. Based on our expectations for a cooler March, we held Demo Days in early April this year instead of March as we did in 2007. As many of you know, Demo Day is our annual spring event that encourages our customers to try our latest riders before buying them. The circular ad plan for the second quarter is comparable with the prior year.

We opened 27 stores and did not relocate any stores in the first quarter compared to 22 store openings and 7 relocations in the prior year's first quarter. As a result, pre-opening expenses were approximately $2.4 million compared to $2.1 million in the prior year quarter.

Looking at the balance sheet on a per-store basis at quarter end, inventory levels decreased approximately 8.2% compared to the prior year. Our calculation is based on average cost of inventory and excludes in-transit inventory and inventory held in unopened stores. In-transit inventory at the end of the quarter was consistent year over year at approximately $23 million.

We have a keen focus on inventory management and exited the winter season in great condition. We believe that several of our actions to improve inventory productivity are beginning to gain traction. Greg and his team will continue to drive this improvement.

Although turns decreased 10 basis points to an annualized 2.21 turns as a result of the softer sales, we believe that we are better positioned moving into the spring selling season to drive inventory turnover improvement on a full-year basis.

We improved our accounts payable financing of inventory from approximately 43.5% up to 47%, resulting principally from better accounts payable management and vendor dating. Again this has been a focus for the merchandise team and we are making substantial progress.

Capital expenditures for the quarter were approximately $26.5 million, the majority of which relates to our new store opening program and includes $8.5 million for the acquisition of two store properties. Last year, first quarter Cap Ex was $16.4 million.

During the first quarter we purchased 77,000 shares for $2.9 million for a cumulative total of $153 million since the inception of our stock repurchase program in February 2007. During the first quarter as the market became more volatile and more risk was introduced, we slowed our repurchase program. At quarter end, we had approximately $47 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.

The benefit of our inventory and accounts payable financing initiatives cannot be overlooked as we have managed to complete $153 million of stock repurchases over the last 14 months and funded store growth and the related inventory by adding less than $50 million of revolver debt. This also is evident in the limited increase in interest expense over last year. Although interest rates are now lower than we anticipated at the beginning of the year, we are pleased that our outstanding revolver balance has been well below our plan as we execute these various initiatives.

Turning to our current outlook for the full year 2008, as we evaluate the retail environment at this time we believe there is much uncertainty. As discussed, we began 2008 with the expectation that the consumer spending would be similar to the second half of 2007. Through the first quarter, the economy weakened further. Although the first quarter can provide some insight into the business trends, we believe it is important to view our business in half-year increments. Although April-to-date performance has been more consistent with our original 2008 outlook, it's too early to declare a trend for our most important quarter. Therefore at this time, we believe it is more prudent to plan that the consumer will continue to be cautious.

Under that scenario, we revised our sales expectations to reflect first quarter results and currently anticipated sales trends. We now expect 2008 net sales to be approximately $2.98 billion to $3.04 billion from our prior guidance of $3.01 to $3.08 billion. We expect same-store sales for the year to be approximately flat to 2% compared to prior expectations of an increase of approximately 1% to 3%. We remain committed to improving the business while growing the chain throughout the year. To offset lower top line expectations, we are tightly managing costs and further reducing incremental expense. Later in the call, Jim will discuss an aggressive expense management program we began implementing in the first quarter that we believe will help offset the shortfall in our current full-year sales expectations.

We believe maintaining our expansion strategy is key to positioning the company for long-term growth. While we may shift into 2009 the opening of 6 to 8 of our 95 to 100 new stores we plan to open this year, we will continue our organic growth strategy. In addition to our cost management program, we will be prudently managing our capital expenditures. Although our capital expenditures are driven principally by our store expansion program, we have levers in place to reduce our original 2008 guidance by 10% to between $90 million to $95 million, excluding any purchases of store properties.

Based on Q1 results and our cautious outlook, we are trending at or slightly below the low end of our previously provided range, which was $2.54 to $2.62 per diluted share. We will continue monitoring trends closely throughout the second quarter, again our most important selling season and profitable quarter. We anticipate this will influence our outlook for the remainder of the year. We will provide a more definitive outlook at our Q2 conference call with our belief that our business needs to be viewed at the half year.

Now I'd like to turn the call back to Jim and he will discuss more details on our plans for the remainder of 2008.

Thanks Tony. At the beginning of this year, we laid out three key initiatives for 2008 which are to first grow the business, improve the business, and to continue to focus on people. As many of you know, our efforts to improve the business this year are focused on refining our CRM strategy, tightly managing our real estate and occupancy costs, and executing key merchandising initiatives. In light of the shifts that we've seen thus far in consumer spending patterns, we've placed an intense focus on our near-term initiatives. We believe this will help us negotiate the current consumer environment and better position our business for when we return to a more normalized consumer spending patterns.

It's also been important to note that we are prepared to act quickly should demand for seasonal big ticket goods strengthen. We have revised our plans for the remainder of 2008 and have taken prudent action that will allow us to better offset pressure on sales and rising costs. I'll now provide some additional information regarding the actions we have implemented.

While we're implementing an aggressive and proactive expense management program focusing on reducing incremental discretionary costs, we believe this will help us offset potentially softer sales. If we achieve sales results that are in line with our current full-year forecast, it will also assist us in leveraging SG&A. Most importantly we believe we can make these changes without sacrificing customer service. The actions we've taken include managing store payroll aggressively to correspond with store sales variability; maintaining the current personnel base and restricting non-strategic hires; stopping all non-critical projects and reducing non-essential capital expenditures. We will continue however to fund the critical store maintenance items.

Cutting costs in areas such as marketing, store support center, transportation, distribution technology and business travel as well as other areas have also been implemented. Additionally we are evaluating ways to offset the impact of inflation on commodities. Costs have been rising on steel, corn, soy and petroleum-based products at considerable rates. Historically we've had success in passing these costs along to our consumers. We also believe there are certain opportunities to raise prices strategically. We are now several months into a rigorous price elasticity study that we began testing on certain products in certain zones with marginally higher prices. And we are pleased with the progress we made thus far in this area.

While we must execute specific actions to protect our business during this uncertain time, we have not lost sight of the importance of focusing on people. We are committed to providing knowledgeable and friendly customer service in every store every day. We've been tracking customer service levels now for the past two quarters. We're utilizing this information as we continue to study and learn about the key drivers of customer delight and loyalty. Thus far we are pleased with our baseline scores and we plan to further strengthen our relationships with consumers during the year. We'll ensure that our merchandise is compelling and relevant, our inventory levels are appropriate, our in-stock position is strong and that our employees are providing the best possible in-store experience.

Looking forward we continue to be very enthusiastic about the long-term opportunities ahead for Tractor Supply. We are committed to maintaining our growth during this challenging time. We'll grow by opening stores in new and existing markets, by increasing sales to existing stores through merchandise changes, and investing in our ecommerce platform. The key to our success has always been our dedication to the unique niche we serve and our ability to meet the distinct needs of those living the real lifestyle. As a result, Tractor Supply Company is the authority in our niche. We enjoy a defendable position and we are very well positioned for a long-term growth in sales and improved returns.

This concludes our prepared remarks. And operator we'd now like to open the call to questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Matt Nemer from Thomas Weisel Partners. Please go ahead.

(inaudible) everyone. My first question is if you could give us some feel for what you're seeing in the big ticket outdoor power equipment category here in early April?

Yes in April we've seen a reversal in trend and positive comps although, I'm sure you recall Matt that last year April started with very, very soft results. So while it is certainly an improvement from what we've seen thus far this year and is comp positive, we are cycling a pretty easy April.

Okay so any change to your ordering plans in that category right now or do you think-- I think at the analyst day you mentioned that you were thinking units would be down but price would-- average ticket would drive the dollars higher.

Yes we are still believing that that will be as the year plays out, our new premium product is doing really quite well. And at the same point in time, we are being conservative in the amount of inventory we have on hand and are frankly well positioned to exit the season whether or not we hit our expectations.

Okay and then secondly I just wanted to turn to the expense management program that you mentioned. Is it possible to quantify the potential impact of that and is that factored into your commentary on the previous guidance that you provided?

Matt what we've done-- this is Tony. What we have done is gone through and identified in various categories some more in the variable as far-- variable category versus discretionary. We have been able to quantify that but it does relate significantly to how we perform on the sales line. So there's a lot of variability in the way that we will implement the program. It is reflected in our guidance. Obviously our guidance has a change relative to the overall sales, compared to the original guidance. And the additional expenses as we measure them throughout the period are reflected in the EPS-- the revised EPS guidance.

Got it. And then lastly just one quick housekeeping item but on the balance sheet, is there anything to read into the change in other accrued expenses that came down pretty significantly sequentially in year over year?

No there's really nothing that needs to be identified there. And again the focus for us is really on the accounts payable and the inventory relationship.

Got it. Great, thanks very much.

Your next question is coming from Peter Benedict.

Hey guys. A couple of questions. How much-- how should we be thinking about the benefit that 2Q comps from the Easter shift? Should it be a similar 175 bps, a little more, a little less?

Peter if you look at the quarter obviously a much larger sales volume. So therefore as a percentage it will be smaller. But I would guide you closer to the-- sort of 1.5 range versus the 1.7.

Okay that makes sense. Can you talk a little bit about the trade down activity that you might be seeing in the store? I think Jim back at the analyst day you had mentioned that you might have started to see some of that in some of the premium horse feed area. Can you give us an update on that?

Interesting that we are seeing that our premium pet and premium equine consumer is holding firm. They continue to buy and we continue to see nice sales increases there. Folks that were buying in the middle both with quality and bag size are trending down to more of an economy and in some cases in pet to private brand. Frankly that's margin positive for us. It's sales negative and margin dollar and percent positive for us. There is some trade down in bag size. And generally that is also margin positive. So when we add it all up there is some shift in behavior but nothing that would be detrimental to the P&L.

Okay and can you talk a little bit about the drought conditions you're seeing. It was getting a little bit damper in some of the regions. We start to now anniversary some real dry conditions last year. I mean is there any positive thing to read into that in terms of the potential for the second quarter or is it too early to tell?

Well certainly on a macro level across all of our markets we are wetter and greener than a year ago. Parts of the southeast remain seriously drought involved but on a balance we are, at this point in time, it's early but we are in much better shape than a year ago.

And last question Tony can you give us the share count that you're assuming for the '08 EPS number? I think before you had said that the guidance excluded buyback. I know you didn't do a ton, but just trying to-- your model's pretty sensitive to the share count. So can you give us a sense of what the share count number is you're assuming for the full year?

Yes at the beginning of the year, other than some additional options that were granted, we were at about 38.5 million. And then obviously as you stated does not include any additional share buyback.

But we should be assuming about 38.5 for the year?

Correct.

Okay, thanks.

Your next question is coming from Jeff Wiemer of JPMorgan.

I have a quick question on your guidance. What's your new gross margin SG&A outlook for the year?

Gross margin and SG&A?

Yes.

Again we give full year guidance and we update just on the EPS level and do not provide the detail.

You can't even give direction?

Well we feel very good relative to gross margin. Obviously our earlier direction we anticipated having increased and improved gross margins. We had given guidance that we thought there would be tougher comparisons in the first quarter. But as we move forward, we expected to show enhanced and year-over-year. When it comes to SG&A, we had again stated that we expected to deleverage during the year. However obviously our Q2 is one of our stronger sales performing quarters and we would anticipate having improved performance over Q1 obviously. But again overall for the remainder of the year we expect SG&A to delever.

Okay and then you had mentioned that you're there for your customers' non-discretionary sales. What percentage of your business is that really as only you got 6 to 8% of your customers actually make their living from farming there?

We go down and we take a look at the various categories. And obviously as we go through it it's difficult to necessarily define particular items or categories as discretionary, potentially impulse. So we tend not to share that information because there is a lot of subjectivity in doing that analysis. So we slice it in various different ways. We do not restrain it to just those pure 6 to 8% of the two farmers that make a living-- their main income from farming. So we'll tend to look at various items to different categories and create a basket. So we don't provide that detail since it's a subjective calculation.

Okay, thanks.

Hello? Operator?

David, your line is live.

Hi, am I on?

Yes.

Hi, David Cumberland with Baird.

Hi David.

A few clarifications on the reduction in incremental expenses. Did you get any benefit from that in Q1?

Yes David we really started to take a hard look as we moved through February. Obviously January as we stated we did have a positive comp and sales did perform very similar to our expectations. As we moved into February, we started to take action near the end of February. So we had some impact principally in the month of March.

And then the improvement you've seen to date in April, is that independent of the benefit you're getting from the Easter shift?

Yes it is. Again as we moved into April, the performance on the sales line has been very consistent with our original 2008 outlook.

And then on the lower EPS guidance, does that reflect only Q1 or also to some extent a lower plan for the balance of the year?

Yes it definitely includes a lower sales plan for not only Q1 but for the entire year offset by some of the expense control that we anticipate to have relative to that lower sales volume.

And then lastly on marketing, a couple of questions. One with Q1 being by far your smallest quarter does some of what you've been doing on the targeted marketing side get really dialed back and then ramped up more starting in Q2? And then as you talked about the reductions in incremental expenses I think Jim mentioned marketing is one of those items. I'm curious about in what way you're taking out marketing costs?

Sure the-- when we look at marketing there's-- everything that our consumer would see that is linked to driving sales has pretty much been left in tact. We were down one circular in Q1 on a year-over-year basis that the rest of the year we anticipate cycling circulars with circulars. Our TV spend will be proportionate to last year. We're taking a very diligent look at research. As an example we're taking a look at production costs. As another example, we have a certain amount of marketing costs that we allocate each year for testing. And we significantly reduced or scraped marketing testing for this year. So fundamentally Dave we're just-- we're sticking with the basics and investing in those vehicles that our customers are most likely to see and are most likely to drive traffic.

And then my initial marketing question was regarding in level that you do in Q1 versus Q2?

Well it would be a substantially-- we are substantially noisier in Q2 than Q1 for the obvious reason it's 20% or so of our business versus going to the high 20% of our business and really out-of-season versus in-season activity.

Great. Thank you.

Your next question is coming from Mitch Kaiser from Piper Jaffray.

Hey guys, it's actually Peter Keith calling in for Mitch. Thanks for taking the question. I just had a question on the gross margin. And Tony I believe on last quarter you were anticipating maybe a negative mixed shift from the spring that happened last year in early sale through. And that looks kind of like the opposite had happened. Actually mixed shift was a benefit because of lower sales. So I guess how should we think about that based on how things are kind of stepping back here in early April? We're now thinking about a negative mixed shift early on in the quarter?

I think that would be appropriate given that the mixed shift that we experienced obviously we talk about big ticket but big ticket's also including riders. We saw that mixed shift predominately in March where it was colder, where we had less rider sales. So anticipating stronger rider sales in April should have a negative impact on the mix from a margin perspective.

Are there other items that are higher margin like fertilizer or other seasonal items that you're now selling through that could offset that a bit?

Potentially and it could be offset really by our markdown cadence as we move through spring goods. As we demonstrated in the first quarter, we managed through that process very well as well as some of our price optimization initiatives or strategies being employed throughout that quarter and having that ramp up to a certain extent. So we think there are definitely ways to circumvent some of that negative-- the negative impact of the mix of the hard line goods.

Okay, alright thanks. And then just on how you're seeing things here in April. Just to make sure that we're clear on the trend. You said the sales here in April have just kind of pulled back to your original plan. Is that sort of your original full-year guidance of 1 to 3 comp or was it your plan around Q2 that sort of internal?

It was really to our internal plan for Q2 and obviously we are cycling a very weak April. So it'd be logical to assume that our planning for April is stronger than to-- than the 0 to 2 or the 1 to 3 that we talked about for the full year.

Okay, thanks. That's helpful guys.

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

Afternoon.

Hi Jack.

First just a follow-up, someone mentioned about your expectations for the last three quarters of the year. Could you give us a sense how much lower your expectation is for the comp on average for those three quarters? I know you don't want to be specific about that number but how much you took out?

Yes, no we really like to try to stick to just updating our full-year guidance in total versus trying to break it out by either quarter or the remaining three quarters of the year.

Okay fair enough. And you've talked about gas prices impacting the comp in the past, is that figuring in heavily into the way you're looking at that? Have you seen some sensitivity this time around?

Well obviously the first quarter we saw our traffic comp was down. I guess 2.9% of the comp came from-- actually no it was 3.8% decline in store traffic. Certainly that was related I think to overall consumer sentiment. Certainly gas was a piece of that. It's very difficult with everything that's swirling around right now for us to break out any one variable and point to that as key to our consumer's behavior.

And then just last question, did I hear you correctly that you may push 6 to 8 stores out into '09? And if that's the case, could you talk about a little bit more about what the thinking is there? Is it just logistics or does it have something to do with sales performance, pre-opening expense? I mean what's going on there?

Sure yes, it's-- there is obviously a drag on December openings, November openings. There's also drag in one-year on stores we open in January the following year there's a pre-opening cost drag in December. We see this as first of all the right thing to do for this year and also it will allow us to reposition ourselves to front load new stores more heavily in the first half as we go forward over the ensuing years.

In terms of sales productivity, there's no real surprises there?

No it's our forecast. As we talk about the overall range, we brought the overall range forecast for the year and that is reflected in that new number.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question is coming from Wayne Hood from BMO Capital.

Yes Jim, back to the stores I guess a second. Why not, in this kind of environment, I mean even over the new few years, why not back that store opening plan down more aggressively? I mean you could still be considered a high-growth retailer at 9% unit growth rather than 13? And you could probably do a little bit more predictable. And it's not like anybody you're racing to get sites where somebody's going to steal them from you. I'm just thinking why not contemplate that?

And another question I had is, has there been any adjustments to bonus accruals in light of the revisions to sales plans here? And if so, how does that impact the store managers who really are not-- you know they look at you setting the plan and you're already missing the plan three months into the whole. And if you're saying I'm not going to make my bonus for the year, sometimes management turnover goes up in that environment. So how are you dealing with that?

Okay the first question, we think it's prudent this year to push a few stores into next year. We remain committed to our 12 to 13% growth. If I looked into a crystal ball and said we were going to be in this consumer malaise for three years, I would have a different answer. My crystal ball says to three to five quarters on the outside. Is that accurate? I have really, it's my best guess. And we are a growth company. We have an entire engine from store management development, store management training, real estate team. A very, very long pipeline that is easy to stop and very expensive to rebuild. So if we were to stop slow growth to 9% and then in some ensuing year seek to accelerate back to the 12 or 13, we would have-- we would incur a drag on earnings at that time. So with the visibility we have right now, we have chosen to stay at the 12 to 13% growth.

With regard to store management turnover and the impact the economy may have on them, our store managers have a tremendous and district managers have a tremendous amount of authorship in the plans for their stores. Bonus payouts were not great last year either unfortunately cause they-- we win as a team and we suffer as a team. And last year our store manager turnover was flat with the prior year. And Q1 of this year it is actually beneath that of last year and I'm extremely proud of our team. They're highly energized. And also bear in mind that our store managers are compensated not only on store level four wall profit at end of year, they're also compensated monthly on hitting their sales plan. So they're-- on an individual store level, they have a tremendous amount of opportunity to drive the sales and be successful.

Okay and then my final question was to Greg I guess. Where can we expect your inventory per store to be down at the end of the second quarter, particularly in some of the seasonal categories as we look coming in at the end of the second quarter? And that'll be all for me. Thank you.

Okay I would tell you that similar to what we probably experienced here from last-- I'd say fourth quarter into first quarter, it won't be as steep going forward because we've made a lot of adjustments as we move forward so that that slope will be much less but it'll continue to improve. And it's really as much as it is bringing the inventory down by stores as it is the quality of that inventory as well. I'm sure you're out in our stores and you've got to be noticing that the quality of the inventory is coming up. We're crisper. We're going to be cleaner. And that's also going to add to long term the profitability of the company as we move through the third and fourth quarters. So it's a balance of both.

Alright, great. Thank you.

Your next question is coming from Jay McCanless from FTN Midwest.

Hey good afternoon. Thanks for taking my question. I just wanted to stick on the inventory issue for a second. I'm playing the role of I guess devil's advocate saying that conditions actually worsen from here. What areas of the store would you look to turn back in terms of inventory? I mean the riders and the larger OPE would be the easy answer but if you look at the rest of the store, where would you want to lighten up?

Well to be very honest with you, it is early in the game for us. Second quarter tells us a lot about how the year will perform. We made the appropriate adjustments in the plan as we saw the business developing through the latter part of fourth quarter and into early first. So I would tell you-- I won't give you anything in specific as to this area or that area. You kind of hit on the rider business and the OPE business is definitely one that you have to watch closely. We have done the following though. We have asked a number of our vendor partners to hold some more inventory. Basically kind of, if the business opens up, we can reach in and start to pull some merchandise forward. We're being very cautious also with our placements overseas. We're buying more to I think the appetite of what we see right now in the market and our consumer base. So there's nothing in specific. It's still very early to sit there and try to forecast what we think the year's going to be.

Okay thanks. And then my other question, I know you said in the prepared remarks that you all bought two stores this year. Is there any thought with real estate prices moving down in certain areas to going to more owned stores versus leased stores over time?

We've addressed that question in the past. And we believe that there will be some opportunities. It would not be a main strategy but where we can use our capital to improve our store productivity and lease percentage costs, we will aggressively go after that. So if opportunities do present themselves, we think we're in a good position to be able to execute on that strategy.

Okay, thank you.

Your next question is coming from John Lawrence from Morgan Keegan.

Afternoon guys.

Hi John.

Jim just quickly could you update us a little bit on-- I know you talked about it at the fourth quarter call, just another sort of update on the 50-store test on the left-side of the store. I know it's still early but just a little update there first of all.

Sure I'll actually have Greg take that.

Yes let me speak to that just for a moment. What we are learning is that some of the things that we have tested we now are relatively confident that we can take in and roll to the chain. And there's handful of those that are actually in play right now and will be into the stores by the end of second, early third quarter. We're still not I would say totally convinced that that complete relay, the expense, and the time that was-- is involved that is that that's the right thing to do for the chain at this point. There have been some great wins. There have been some areas where there's still, to be honest with you, we're now getting into the peak of our season we'll learn more. And we kind of said that earlier. When this went into play, it was really in the down part of our sales cycle. So we needed some time. But we are taking some of the early wins right now that we can document and say good, let's move those forward and we're placing those into the stores. But I will tell you that through second quarter, I think we'll have enough data then to say okay, wins, losses and retrench. So you got to give us at least another quarter.

Okay, but there are some positives you're seeing in April with some of that?

Yes there are.

That you're moving to the other stores?

Yes there are.

And Jim just to follow on the last question about the two pieces of land, parcels, how would you put that in context related to the golden mile versus silver mile of where those are in the real estate plan? And obviously good returns to be able to buy those, how would you put that in context?

We review it very opportunistically but the primary drivers of that decision is one, it's an opportunistic price; two we have a high confidence that the retail traffic is moving to the site over a 10 or 15-year period of time. So that obviously the real estate appreciation would be accretive to the investment decision.

Great. Thanks guys.

Thank you. Your next question is coming from Andrew Wolf from BB&T.

Thank you. Good afternoon. I just have some follow-ups. First on your update on the quarter-to-date business trend, are you able to tell us if the positive comp is in both the ticket and the transaction count? Or is the transaction count still trending negatively?

I guess Andy if you could restate-- you're looking at a comparison as you move into April?

Can you just-- I think you've been saying the first three weeks have been a little better. And you're comping positively. And I'm asking when you break that down between ticket and traffic, is it all ticket with still the negative traffic trend or has your traffic improved?

I'm sorry I understand. You see it on both sides. And it's actually slightly stronger in the transaction side than on the average ticket side. But again let me stress that last year was very soft and it's a very easy comparison. And it was extremely cold in the April timeframe. So as we move into a warmer April, you will see that there is an easier comparison and we would anticipate that transactions would be up and drive that comp store number.

Okay. Thanks. Alright. To your statement on managing payroll I think you mentioned as one of the variable costs you can manage, is that going to affect hours of operations potentially or more in terms of payroll, more just sort of the full-time equivalents on the floor? You know the number of employees per-- however you-- you know the employee concentration?

Andrew this is Stan Ruta and it's just good payroll management that we install anytime business trends shift up or down to curve the payroll accordingly to the sales rate. So as you look at a payroll percentage to total sales, we're-- we manage that and although it's never easy to reduce hours, it's emotional. However, we're not reducing it any more than we would if those sales numbers were set for the stores at the beginning of the year. So it's something we do all the time and something we will continue doing.

No change in hours of operation.

Okay. And lastly just and in some past quarters, maybe it's not as relevant here, you've spoken to LIFO. Is there so much inflation out there at least in some of the categories, feed and so on, did LIFO have any meaningful effect and what are you looking for, for the year?

In the quarter it was not significantly above prior year. So therefore we had no comment on it. As we look to the entire year, we believe that potentially it can be higher than what we had originally viewed it to be when we set our 2008 guidance and our 2008 plan. However not dramatically different at this stage. And obviously it's very early as the key drivers are the price index and the inventory-- the growth in inventory balanced at the end of the year will drive that calculation. So it's a little bit too early to tell. We do anticipate that that number would drive a little bit higher than what we originally had forecasted.

Okay, thank you.

There are no further questions. Please continue with any closing comments.

Okay thank you very much. To close, I'd just like to remind everyone that we understand our customers. We understand their needs. And we have and we'll continue to take action to reduce our costs while we continue to build customer loyalty through offering compelling value on core lifestyle products. And while we certainly all agree that the near term is going to be challenging, our long-term future remains very, very bright. I'm looking forward to speaking to you all at the end of Q2. Thank you.

Ladies and gentlemen, that does conclude our conference call for today. You may all disconnect and thank you for participating.