Tractor Supply Co (TSCO) 2012 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 2012 results. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

Please be advised that 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. Jennifer Milan of FTI Consulting. Please go ahead, Jennifer.

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 statement will prove to be correct. Import 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 Securities & Exchange Commission.

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 later time. Lastly, Tractor Supply Company undertakes no obligation to update any information discussed on this call. Now I am pleased to introduce Greg Sandfort, President and Chief Operating Officer. Greg, please go ahead.

Thank you, Jennifer, and good afternoon everyone. I'm here today with Jim Wright, our Chairman and CEO, and Tony Crudele, our CFO. We are very pleased with our first-quarter results and are very excited that we achieved another significant milestone for Tractor Supply Company, generating first-quarter sales of over $1 billion for the first time in the Company's history.

Our results continue to reflect broad-based strength with solid performance in all areas of the store and in all regions. Our team again executed exceptionally well in what continues to be a very challenging retail environment. The strides we are making in the areas of inventory management, merchandise allocation, and expanded regionalization of our assortments continued to contribute to our performance.

We are delighted to have generated another quarter of double-digit increases in both sales and profitability on top of record results a year ago. Now, let me provide a little more detail on our first-quarter performance. We did anticipate stronger first-quarter results than our business has historically exhibited due to the calendar shift created by the 53rd week last year. We also benefit from our improved ability to both plan for and react to seasonal weather patterns and changes in our customer's wants and needs.

As stated on our prior call, we accelerated product flow with spring sets in our southern markets this year, while planning concurrent marketing expenditures in those same regions to drive sales. These planned shifts based on our analysis of historical sales patterns allowed us to more fully capture peak demand in these markets, especially given the early break we experienced in spring weather this year.

At the same time, we are recognizing and reacting more quickly to the sales trends and customer demand that develop in our business daily. With the warmest winter on record, we acted quickly in January and February to clear through winter seasonal merchandise to minimize seasonal carryover. With our improved ability to react, we were able to take advantage of the early spring weather in March, increasing inventory flow of top seasonal SKUs and adjusting store replenishment patterns.

Our proactive planning approach and improved systems capability enabled us to allocate our merchandise more productively than ever before. In terms of specific sales drivers, our CUE categories remain key to increasing both traffic and sales, contributing to our sixteenth consecutive quarter of comp transaction count increases. We saw particularly strong performance from seasonal merchandise categories, especially big-ticket items in the outdoor power equipment category.

Along with sales of big-ticket items, it was also gratifying to see our parts and repair business remained strong, where more typically we would experience customers either replacing or repairing these items, certainly not doing both. As we think about our first-quarter performance, we were particularly pleased to see such broad-based strength across nearly all categories within the store and all regions of the country.

To mention a few, customers were very receptive to our expanded assortments in live goods which we introduced early in the south this year. Four H is still gaining momentum and we have plans to expand the program to approximately 600 stores by the end of this year, a significant increase from 300 stores at the end of 2011.

Additionally, our hardware and tools division continues to perform well, and our private brand GroundWork Lawn & Garden products added to our momentum across our seasonal categories. We continue to test and refine and our assortments while successfully pursuing our strategy to balance both product selection of national brands, while increasing private brand mix across multiple categories.

I'd like to speak briefly if I could about our new store performance, which also contributed to our strong first-quarter sales. This year, we opened 33 stores in the first quarter, compared to 26 stores in the first quarter last year. And on average our openings were completed earlier in the quarter than a year ago. This is a record for TSC in terms of first-quarter store openings, and we are on pace to open 50 of the 90 to 95 new stores planned for 2012 in the first half of this year.

In aggregate, the new stores we opened in the first quarter are exceeding their expected performance, and as we continue to expand our footprint in key regions, we remain very comfortable with our targeted annual square footage growth rate of approximately 8%. In closing, our first-quarter results further confirm the momentum we believe we are gaining from the ongoing structural improvements we have made in our business.

These improvements have enabled us to plan, prepare, execute, and react better than ever before. We always look to refine our assortments and provide compelling values to our customers every day, while improving our ability to meet their needs with the right products in the right locations at the right time.

Looking to the remainder of 2012, we continue to be confident regarding the opportunities that lie ahead, and we believe we have the right people, products, and programs in place to increase our consumer engagement and further build our tractor supply brand. I'd like now to turn the call over to Tony to review our financial results for the quarter and discuss our outlook. Then, Jim will then share his closing remarks.

Thanks, Greg, good afternoon everyone. We had another terrific performance in the first quarter with broad-based strength from nearly all aspects of the business. For the quarter ended March 31, 2012, on a year over year basis, net sales increased 22% to $1.02 billion, and net income per grew by 120% to $40.3 million or $0.55 per diluted share.

As a reminder, our Q1 2012 results reflect the calendar shift associated with the 53rd week in 2011. Comp store sales increased 11.5% compared to last year's reported increase of 10.7%. Adjusting for the week shift, last year's comp store sales increase would have been 7.6%.

We are pleased with the strong comp store sales growth, which was driven by a combination of both ticket and transactions. Non comp sales were $59 million, or approximately 5.8% of sales. Comp transaction count increased for the sixteenth consecutive quarter, gaining 4%. We had one less comp day as a result of the calendar shift, which we estimate would have added approximately 110 basis points to the comp transaction count and overall comp sales.

Our CUE products serving our customers' basic and functional needs remained an important driver of footsteps. The trend in average comp ticket exceeded the comp transaction increase for the second consecutive quarter. Average comp ticket gained 7.1% versus last year's reported 2.3% increase.

The increase resulted from a combination of inflation, an increase in big-ticket purchases, which benefited from early rider -- riding lawn mower season, and an increase in items per transaction. We continue to experience broad-based sales strength with respect to both merchandise categories and geographic regions. All nine of the geographic regions had strong positive upper single digits or low double-digit comp store sales.

Generally, sales were strongest in the northern regions as a result of record warm weather and favorable moisture levels. The broad-based nature of sales growth supported positive comps during each month of the quarter, with March being the strongest month as a result of the early spring.

As we stated in our business update, we believe that due to the early spring weather this year, a significant amount of sales in Q1 were likely pulled forward from Q2 that we do not expect to occur in the second quarter. Although difficult to estimate, we looked at the normal selling cycle of the more significant spring categories, and overlaid that with the selling trends of the early spring for those categories.

We estimate that approximately $34 million to $38 million in sales may have shifted into Q1 from Q2, representing approximately $0.09 to $0.11 in earnings per share. Inflation was at the high end of our expectations for the quarter as we estimate that it contributed approximately 400 basis points to our top line sales. Inflation was most evident in bird feed, livestock feed, pet food, and lubricants. Turning now to gross margin, which as a percent of sales decreased by nine basis points to 32.6%.

Direct product margins percent continues to be negatively impacted by mix shift to CUE products and by inflation. While the overall gross margin rate declined slightly, we increased the number of units sold and maintained the gross margin dollars earned on each unit. The merchandise the team continued to do an excellent job managing gross margin dollars during the quarter.

We are aggressively managing our mark-down cadence as we took advantage of solid traffic patterns to quickly clear cold weather merchandise, and reduce the seasonal inventory risk posed by this year's condensed winter. We estimate that this had a negative impact of approximately 20 basis points on gross margin. The freight headwinds we have been experiencing is beginning to moderate, as we begin to cycle the higher freight costs of last year.

Freight costs increased by 14 basis points over last year, compared to 37 basis points in the fourth quarter. This increase was driven by higher fuel costs and the costs associated with increased import activity of seasonal goods. The increase in big-ticket sales also had a negative impact on margin of close to 20 basis points.

As a part of our strategic sourcing initiative, import purchases in the quarter accounted for 8% of total purchases, which is a greater than 36% increase year over year. Shrink was favorable, 16 basis points to our gross margin rate as we continue to see improvement from our loss prevention programs and continued employment of technology. Overall we are pleased with our ability to successfully manage gross margin while continuing provide great values to our customer.

For the quarter, SG&A, including depreciation and amortization, was 26.3% of sales, reflecting nearly 300 basis points of improvement from the prior year's quarter. The improvement in SG&A rate resulted principally from leverage provided by our strong same store sales growth.

Over two-thirds of the SG&A leverage came from store payroll and occupancy. We maintained very strong payroll management as a result of profits improvements, and better allocation of hours to high-traffic periods. This coupled with the same store sales growth created significant SG&A leverage. Although the warm January and February hampered winter sales, we did receive a benefit on the occupancy line as several expenses such as utilities, snow removal, and floor care were very favorable relative to last year.

Incentive compensation was lower than last year and had a favorable impact of 31 basis points on our SG&A rates for the quarter. Turning to the balance sheet, at quarter end we had $126.7 million in cash, compared to $140.4 million last year. During the first quarter under our stock repurchase program we acquired approximately 54,700 shares, or $4.1 million.

We estimate there was minimal impact to EPS from share repurchases in the quarter. Average inventory levels per store at quarter end were 1.3% lower than last year. Annualized inventory turns were 3.06 times, or at 26 basis point improvement versus last year. We are very pleased with the inventory productivity, particularly in light of the earlier flow of merchandise for the spring season, the embedded inflation, and having one more distribution center than at this time last year.

Capital expenditures for the quarter were $31.8 million, compared to $28.9 million last year. This increase in capital spending related principally to the opening of more stores during the first quarter 2012 than in the first quarter last year. We opened 33 stores this quarter, versus 26 stores in the first quarter last year. Turning to our outlook, as reported in our April 12 business update, as a result of our strong performance in the first quarter, we increased our financial expectations for full-year 2012.

We expect net sales for the full year to range between $4.61 billion and $4.68 billion. Correspondingly, same store sales for the year are expected to increase in the range of 4% to 5.5%. Net income is now expected to be in the range of $260 million to $265 million or $3.52 to $3.60 per diluted share.

I would like to quickly discuss a few of the specific drivers underlying the assumptions for the remainder of the year embedded in our full-year guidance. We expect the retail environment will be stable, and our customers will continue to shop our stores for basic and everyday needs as they did in Q1 and in 2011, and that they will remain price conscious and value oriented. With the week shift in our calendar this year, on an adjusted basis, we will be cycling a very solid 7.1% same store sales increase in the second quarter.

Now let me remind you that we had soft sales in April last year due to very cold weather. So, although the sales for April to date have been very favorable to last year, we believe that it is more appropriate to view April and May sales on a combined basis before forming an opinion on the second quarter, especially in light of the sales pull-forward into Q1 from Q2.

Although we expect to drive margin improvement during the remainder of the year through our gross margin initiatives, we expect limited to flat year over year gross margin improvement in Q2 as a result of freight headwinds and continued mix shift to more freight intensive CUE products. However, similar to the first quarter, we do expect freight headwinds to moderate in the second quarter as we begin to cycle the accelerated fuel costs we experienced in 2011.

With respect to inflation, we expect that impact will moderate in the second quarter as we begin to cycle the commodity price increases that we experienced last year. Overall we expect inflation -- the inflationary impact of 3% to 4% in the second quarter, and we have increased our inflation forecast range to 2% to 3% for the full year from 1% to 2% previously.

We expect leverage -- to leverage SG&A as we continue to be more efficient with our store payroll, and leverage occupancy at our forecasted comp sales range. For the full year we still forecast the effective tax rate will be approximately 36.8%, and -- an increase from 36.5% in 2011. This will result principally from a reduction in expected federal tax credits.

We have made no changes to our expected store growth rate or plans for capital spend. We plan to open 90 to 95 new stores in 2012; 50% to 55% of which will open in the first half of 2012. We project capital expenditures in 2012 will range between $160 million to $170 million, which includes approximately $40 million as a placeholder for our leased store acquisition program, $11 million for potential land acquisition for a southeast distributions relocation, and an incremental $6 million as part of our e-commerce re-platforming.

We will continue to make purchases under our share repurchase program, as part of our long-term objective of reducing our cost of capital and maintaining targeted cash balances of $100 million to $150 million. With our limited share purchases in the first quarter, we currently estimate that diluted shares outstanding, inclusive of option, grant, and share repurchase activity, will approximate $73.8 million for the full year.

To conclude, we are very pleased with the performance in the first quarter, we are proud that our initiatives are driving both top and bottom line increases, and believe the Company is well-positioned for another record year in both sales and earnings. Now I'd like to turn the call back over to Jim.

Thanks Tony. Good afternoon, everyone. Tractor Supply has made substantial progress on many initiatives over the past few years that are enabling us to plan, react, and execute better today than at any time in our company's history. The operational benefits from these improvements continue to take hold as clearly was demonstrated by our record first-quarter performance.

As an example, our proactive planning allowed us to benefit from this year from earlier spring selling season in southern markets. We also reacted quickly in northern markets to minimize the seasonal risk posed by the condensed winter season this year, and then shifted very quickly to capitalize on the early spring weather seen in March. Frankly we would not have been able to execute at this level only a year ago.

Regarding the current retail environment, consumers continue to look for compelling value, purchases continue to be driven by need, and take place closer to need. We remain firmly committed to our strategy providing exceptional value to our customers in this environment. We will continue to refine our assortments and the in store experience, to maintain newness and to keep our customers highly engaged with the Tractor Supply brand.

As we enhance our assortments we will maintain our focus on being the most reliable supplier to our customers for their consumable, usable and edible needs. We remain focused on private label brands. This is been a very successful strategy for us, as most recently demonstrated by the strong performance seen across several seasonal categories with GroundWork in the first quarter of this year.

We believe we have further opportunity to build on our private label initiative across multiple categories, particularly in areas where is there is not currently a strong brand allegiance. We continue to roll out price optimization and improve our capacity to grow both market share and margin rate. We also continue to mine data from our CRM and direct mail programs, refine our marketing strategies and improve the productivity of our marketing spend.

We are confident that we can increase the share wallet with existing customers, and to grow our customer base. We will also continue to expand our footprint in key regions, as we grow towards our recently increased domestic potential of 2,100 stores. As Greg mentioned, our new stores that we opened this year are collectively exceeding our expectations.

Our prudent approach to expense management, along with our commitment to a strong balance sheet, will allow us to continue investing in our business and increasing shareholder value. And with that, Operator, I'd now like to open the call for questions.

(Operator Instructions)

David Magee, SunTrust Robinson

Just a question regarding the log goods trial that you have been doing. Could you give us, if you care to, the impact on comps, or what the relative margin looks like on that product?

David, this is Greg. So that I understand your question, you're talking about the live goods products?

Yes.

Yes, live goods, as far as a percentage of comp, we don't usually talk to that. What I can say is this, it is in different levels throughout the Company. We mentioned earlier that we started with a heavier penetration in the south, and that was the first set of deliveries and then we moved into the mid and to the north and it is just starting to get dense in the north.

Very pleased with our sell throughs. As a matter of fact, we found that we have more potential for more business because some of the sell throughs were really far greater than we thought chasing a little bit of that business. Categories of -- we're not like the big boxes, it's different products. It's fruit trees, and it's not shade trees, it's not flowering shrubs it's more greenery and things of that nature.

So, what I can to you about the business is that we're still in the early stages of developing this, it's unique to us. From a margin standpoint, if it is managed well, it would be clearly in line with the overall company margins and we haven't -- were not seeing anything at this point in time with our current performance that would lead us to believe any different.

Thank you, Greg. And secondly, on the big ticket purchases, is there anything that would give you confidence that the uptick that you seen in the first quarter will persist in the second quarter?

I would give you a positive on that of no. I don't think that what we've seen early on gives us any feeling that the customer is responding back and saying it is time to now replace versus repair, because as I mentioned in my comments, our repair business continues to be very very strong, continues to grow year after year. So, I don't think replacement cycle is here just yet.

Okay, great, thanks a lot.

Vincent Sinisi, Bank of America.

Wanted to ask about, you said your inflation expectations for the year now basically are a percent higher than what you had been originally thinking. Can you give us any clarity into the terms of is anything truly catching you off surprise from a cost perspective, and then maybe an update to your gross margins for the year. I believe last you had spoken about you said somewhere in the neighborhood of 10 basis points to 15 basis points.

Yes, this is Tony. When it comes to inflation, again, I like to remind you that this is really just a snapshot, a point in time, where we will look at currently where we are at an compare it to last year. So, again, it is not a true projection.

When we do that, the difference that we saw versus a quarter ago when we gave our full-year projection, is in two areas. One in the birdseed category as well as in the grass seed area. Those are two areas that sort of jumped out of this that the inflation was a little bit -- where the prices held up a little bit higher than we had anticipated when we looked at it three months ago. So, those are two drivers, other than that, I would say that we are generally close to our forecast.

Okay, great, thanks. And then as a follow-up if you could just give us a current state of where you are with the smaller market stores? How many right now and maybe for this year, the percentage of new stores you think that may be the smaller markets?

Sure, when it comes to small markets -- and we probably purposefully haven't provided information as to the numbers because when we look at that program, we really look at it as looking at it -- taking a store and sizing it properly for market. So, now, as we look out on the 2100 potential store sites, we just really see it as a mix and on a go forward basis, we will continue to update as far as square footage growth and still targeting 8% of square footage growth.

But when we look at the stores, still very productive, and we will grow the base and as you look at the remaining, say, thousand stores in just in round numbers, 300 of which we look at as being small market store, we are going to be opening those in the rateable proportion.

Okay, fair enough, thank you for that. And good luck for the rest of the year.

John Lawrence, Stephens.

Just really quick, Tony, would you comment a little bit on the $34 million or $38 million that you basically extracted from the second quarter, and just talk a little bit about some of those product categories that you feel like have pulled forward. Greg mentioned, I guess OPE a little bit. But so if that is the case, how much of the cycle do you think is over for that product, or certainly declining as we get into the second quarter?

Right, we clearly looked at some of the stronger lawn and garden categories. Obviously the one that comes to mind is riding lawn mower, probably the easiest to wrap your mind around. Obviously, when you look at that it is very difficult for us to assess whether there is going to be continued pent up demand or if there is a replacement cycle. So, what we did was we looked at the selling curve that we've normally seen in past, we've looked at years that were very reflective of the current year that we are in.

And we looked at what the cycles were and then compared to the norm and said, we estimate that this amount of sales potentially came earlier. Now again, that doesn't necessarily mean that there may be some additional sales and that curve may be extended. And that is what we don't know as of yet. But we looked at categories such as the riders, sprayer chemicals, lawn and garden, seed, grassy, things like that where there might be just one planting.

And there might not be a secondary purchase later in the quarter. And, again, best estimate, and we really only find out as we work through the April/May time cycle.

Dan Wewer, Raymond James & Associates.

(Technical Difficulty) -- for expenses at a store level were essentially flat year over year, it looks like that is the best showing since the second quarter of 2009, and typically there would be 2% to 3% underlying rate of inflation in different categories. Is this going to be sustainable? And then also curious why would the incentive comp have declined given the success the Company achieved during the quarter?

Dan, Tony again. The one thing in answering the first thing of whether it is sustainable, I would say no, it is not, not to the order of magnitude that we saw in the first quarter. As I stated earlier, because of the warm winter some of the expenses that we normally would incur, we did not. And so we had some significant favorable variances when it came to utilities. Obviously, gas and electric, and floor maintenance, and snow removal.

So, those were two -- three or four of the key elements that I would tell you that it would not be the normal year over year expense increase that you would see. So, not sustainable from that standpoint. When you look at the bonus accrual, obviously, it is based on what our expectations are for that particular quarter. And each year, we are obviously challenged based on a forecast for that particular year.

And as we looked at the variance, and estimate the bonus in the first quarter, obviously there is a lot of subjectivity as to how we perceive the entire year to be coming out. Additionally, there is some either over- or under-accruals when it comes to the prior year and being caught up or not. So, there was some play there as well, when it comes to the bonus accrual, but obviously --

Could you extrapolate that the reduction in the accrual actually implies that first quarter was below your original expectations, your in house expectations.

No. The first quarter was well above our expectation.

And just out of curiosity, you guys have been amazing in your ability to forecast weather, and how to adjust your merchandise allocation. What is your crystal ball say about the second quarter?

Dan, hi, this is Greg. We don't have a crystal ball, unfortunately. We have a weather service we use. We use NOAA, we look at our business -- I think the differences simply this. We have a tremendous working relationship with the vendor community, probably stronger today than it ever been.

We build a lot of our products on forecast, and then we flow against what is developing in the business. So, it's easier to address things early in the season because you've got production there and you've got capacity. It's more difficult in the later part, but with the favorable March weather, we were able to basically just turn the dials and push the inventory through and chase that business.

And again, we anticipated a little bit of that because as I said, we shifted the south deliveries earlier, we've been hearing from our stores that we needed the product down there much earlier, and we also shifted a piece of our marketing effort into the first quarter. Both of which proved to be very prudent and very beneficial for the first quarter business. So, this is just about running the business a lot smarter and also having some capabilities that we have today that we honestly, Dan, we didn't have in years prior.

Peter Keith, Piper Jaffray & Co.

This is actually Jon on for Peter. I realize you guys don't guide by quarter but with the shifting weeks in Q2 is there any way you can give us some kind of range or rough quantification how we should think about the Q2 comp?

Well, when it comes to the Q2 comp, as I mentioned in the prepared remarks, the reported comp last year was 4.6%. Which was the lowest during the year last year, so there was an expectation that that would be our easiest compare. But, what we adjusted for the comparable weeks that we will have in the quarter this year, it is a 7.1% quarter. So, it is a little bit more robust.

A little bit more challenging quarter than what it would appear when it comes to the quarters.

Okay, great. And then secondly, I know it is really early for you guys in your new TV ad initiative. I think you are running I believe three test markets, but could you give us any indication on how or where non shoppers are responding to the message?

Yes, this is Jim. We ran the first flight last year from late September through Thanksgiving, and frankly we're not happy with the lift we got. We got a lift, but the lift did not come from -- principally come from the aware non shopper. So as a result we did a tremendous amount of research, and the ad flight that is running as we speak in the same three markets, has a significant -- significantly different theme and we have not nuanced at all what products we carry and what products we don't carry.

It is a very straight forward ad campaign, actually, where we have our own store managers as a spokesperson. But the flight just kicked off, and it is premature for us to read anything at this point in time. But we remain really very excited about the number of potential customers who have a misunderstanding of our stores and our products, and who in our test groups, once we've explained it, indicated a very high tendency to want to shop our stores.

So, more to come as we get through the next 13 weeks or so of this test.

Mark Miller, William Blair.

I was hoping you could expand a little bit on the improved shrink? It seems like that benefit to you has picked up here, and should be expect that that can be sustained improvement in future periods? And then I'd like to get an update on one of the other dimensions in the store operations is the store manager retention.

I believe that had improved, or manager turnover had gone from 40% to 14%, but I think that was an improving trend. Is that something also that is helping you on the shrink and where is that right now?

All right, Mark, this is Tony I'll talk just briefly about shrink. We definitely had a very strong performance in the quarter. However, again, it is not something that we would be looking towards on a sustainable level. When we look at what we've done in the area of loss prevention, over the last three to four years we've made investments in technology, specifically put more cameras into our stores, and we've rolled out that program to more than half the chain.

And that has been done over the last several years. Our shrink has shown very sustained improvement over the last three years and that is why you may have some choppy results quarter to quarter, and we obviously had a very successful quarter this year. But on an ongoing basis, we expect that that -- to just be small relative incremental improvements over the next quarter in the next couple of years.

In regard to manager turnover, yes, your memory serves you pretty well. In 2000 our store manager turnover was about 44%. Between there and probably 2004, 2005 we were able to bring that down into the mid teens, where it remains today. The other factor within the mid teen manager turnover we have is the mix of voluntary versus involuntary, and then also the mix of who's leaving that we wished had not.

And we continue -- while we maintain that mid teen level, we are really pleased with the continued talent development and retention rate of those who produce the greatest value for the Company and the shareholder. So, the bottom line is the team continues to strengthen at a store level, and that also is a factor in shrink amongst many many other things.

Great, thanks, and my other question was going to be as you get stores opened earlier in the year, does that free up any field resources for more planogram changes during the year, or is there any side benefit from getting the stores in place earlier other than just being set up for second half sales?

Mark, let me see if I understand your question. Because you say we are opening more stores early does that give us the opportunity to do things in the stores later, because we shifted the talent pool and all hands are on deck earlier is that what you're saying?

Yes.

What it can do for us is give us the ability to do some remodels to stores. We talked a little bit about re-imaging at one point, changing all the sign packages, so we have some capacity later in the year, yes, to have a few more things done into the stores. But we won't go beyond the early October date, because to be honest with you, are then into the fourth quarter and we don't want to put anything in jeopardy. But yes, it would give us a little bit of opportunity.

Alan Rifkin, Barclays.

I was wondering gentlemen if you could provide some commentary on how the advertising line did relative to your plan, and if that was a point of leverage for you at all in the quarter?

Alan, hi, this is Greg. I can talk to that a little bit. We did leverage advertising over a year ago in the quarter even though we had moved some expense in, and that was all primarily driven of course by the sales. Very pleased with how that -- how we did leverage, and how I guess somewhat anticipated, but it really was all driven by the sales. So, it was definitely the right thing to do for the business.

Are you at liberty to say how much -- how much leverage is provided for you in the quarter and what should we expect in Q2?

First of all, I would say that we leveraged five basis points, it wasn't a lot. But we planned a little heavier spend for the quarter, so we came under plan and for the second quarter, I would say that we are going to be similar to a year ago. Even though we did shift one ad because we are looking at a little bit probably at some distribution increases in some markets that we thought were under served a year ago. So, flat second quarter, a little bit of leverage first quarter.

Okay and thank you and just one follow-up if I may, Tony. How should we be thinking about the relatively modest share buyback in the quarter? Is that just a function of where the share price was or, can you going to elaborate on that a little bit?

Sure. Absolutely, it is our philosophy to continue to buy the shares, both as the stock is moving up or as, hopefully, it is declining. In this case, in the first quarter, as we set our matrix up for purchase, and we went into the period in which we don't adjust the matrix, the stock ran outside of that matrix and obviously resulted in very minimal purchases. But, again, we'll continue to support the program on an ongoing basis.

(Operator Instructions)

Aram Rubinson, Nomura

Obviously, you did a perfect job of repositioning inventory to take advantage of the weather and such. Was wondering even as you chased a strong comp, did you miss sales, would you say, during the quarter? Is there some way to measure how much sales you did miss it that is the case?

Aram, this is Greg. It is difficult to say what we might have missed. What I can tell you is we did have some very high sellthroughs in some categories, so that would lead me to believe that there is more opportunity as we cycle this for next year.

Okay, thanks. And then just looking to the second quarter, I remember on the last quarter, you commented that comps should be in the 3% to 5% range for each quarter, does the pull forward change that equation, or is that still safe?

Aaron, this is Tony. As we move forward I would look at each quarter is going to generally be within that range, the full-year range, which was very similar to our expectations at the beginning of the year.

Okay, thanks. And just the last thing is, the new stores that you said are opening stronger, I'm assuming you are opening more on the west coast. Are you seeing anything consistent on the west coast that is driving better performance, or just a comment on how you're feeling about that?

We are actually thrilled that we are -- California performed very well, Florida is continuing to perform very well for us. We did not disproportionally open stores in the west coast, where -- it takes time out there. We are very methodical, we want to make sure that we cut the right long term deal. So, there is only a store or two -- two stores in California in the quarter. The rest of the stores were opened -- we expand a little more into New Mexico, we had some activity there. And we will be entering Colorado in Q2.

Adam Sindler, Deutsche Bank.

Two questions if I could. First, on the planning and allocation, obviously this is one of your older is margin initiatives. If you were to look back, maybe to first quarter of 2010, and we had a similar situation here where the year on year winter changed pretty significantly and then the year on year spring changed pretty significantly. Where do you think the impact, if there is any way to think about that, would've been relative to where we are now. And then what is left as we go forward, and then on same store sales, just two questions.

First, I think maybe when we started to talk about price op, you had mentioned that there would be some earlier benefit on comps from price op, if we were seeing any of that. And then secondly, on the big tickets, where in the pricing spectrum? Is it still low end big ticket, or are we moving up to maybe more of the premium products?

Okay, Adam, that was a quick flurry of three, so let me try to slow down and answer all three if I can.

Sure.

Planning allocation. The difference between each year is really the shift of the weather and our preparedness. I mentioned earlier that we, this year for the first time, really delivered into the south markets earlier. We set them early, and then we move the flow toward the north. We weren't doing that two years ago, everyone was setting in similar time, so that is a fairly large point of differentiation.

And that takes more planning and seasoning with the planning and allocation team than you can imagine, because when you're bringing in imports and you're buying domestic and moving timing and your -- stores south and north, it is more complex than I can speak to, but that's a big difference, there. On the price op, price op is something that takes time, because here's what happens. When you go in and price optimize five or six categories, and then say 1000 SKUs, it is not over that point.

You're optimizing, you're watching it, you're seeing what's happening. In the dynamics of the business, being retail, things can change, things can shift. Inflation comes in as a factor, seasonality comes in as a factor. So, what we are learning here is that we are seeing, in some places, we have two buckets that we really talk to the most, that is market share gain and gross margin. The blended bucket it is probably the bucket that is the most difficult to talk to, it is the smallest.

But we are seeing market share growth, and it has all been positive for most of what we have touched to this date. I will leave it at that. As far as big ticket, you asked about mix, is it higher-end, lower end? It is truly a mix. Anything above $350 we consider big ticket.

We did have a nice push in March in some of the outdoor power equipment categories, I would say above $1000, but we do believe that some of that was a pull in out of Q2. So, we're going to just manage our way through April, May, to see how this plays out for the season. But, still cautiously optimistic.

Excellent, thank you, guys.

(Operator Instructions)

Joan Storms, Wedbush

Thank you taking my questions. Quickly, some of the things you mentioned earlier, so, on the forage business as well as the new merchandising issues and you talked a little bit on the call. Can you quantify at all what that could be contributing to forward business as you roll that out across the chain?

Joan, this is Greg. It is tough to say that forage is x% or it's x dollars. What I can tell you is that it is bringing in the overall category of feed products, it does give us an additional balance of the business when a customer can now fulfill most of their needs for their large animal. That was a miss before, so, we are still in the early stages, here.

What we see is some market basket data we have looked at, that people that were buying in other categories that are now buying in the hay or forage category seems to spend more. The typical -- never really, seen in a lot of other categories. So that is about as granular as I think I can really get at this point.

Okay that is helpful. And also maybe back to Jim because we commented on this on the marketing, the awareness of the Tractor Supply brand and people knowing that it is not just about tractors. You had done some TV and like -- I know that people aren't doing a lot of newspaper flyers anymore, but Orchard Supply came public recently and they are doing more newspaper flyers to let people know they are there. Is that something that you can use in your local rural markets?

Yes, newspaper or print is still our mix. We distribute -- we have 15 print events a year and they are distributed either through mail through newspaper distribution. That is down from 25 events a number of years ago. But, it is an important part of our mix, but we discovered that for the most part, print for us has not proven to be a good prospecting media.

We are much better with electronic and what we've talked about, you probably know my point of view on TV over the years, but TV for us has not proven to be a media where we can advertise today and sell tomorrow. It is however a very good media if you are trying to communicate a message.

So, as a result, we are using TV and radio as an aware non shopper test, but we will continue to use print, although frankly we see over time that we will begin to socialize our print spend into more of an emphasis on direct mail.

Okay, that is perfect. Thank you, and then Tony could you just repeat the global sourcing percentages for me. That would be perfect.

Sure --

-- Um, yes, like, from where you were and where you are, I missed that on the conference call. I wrote it down but I think it got it wrong.

Yes, in this quarter, we said that it was 8% imports and that actually represented a 36% increase in the imports year over year.

Thomas Mahoney, Cleveland research Co.

Question on the comp guidance, you raised comp guidance by 75 basis points at the midpoint, and the inflation contribution is a point higher, think you said 2% to 3% versus 1% to 2%. Is there anything moving you incrementally more cautious on the core underlying demand in Q2 through 4Q, other than the pull forward issue?

Not really, when we look at it at the back half, we did not make any significant adjustments to the back half relative to the strong performance of Q1. Generally, we really like to look at Q1 and Q2, and look at the 1st half together. So that, before we make any adjustments to the back half of the year. So, no significant takeaway relative to the overall comp guidance, and the relative impact of inflation.

Okay, and then is there any more color you guys can give on the strength that you have seen thus far in April? If there's any quantification versus once that would be really helpful and then specifically in the big ticket OPE, if that strength has continued in April?

This is Greg, I can talk to a little bit of the -- we'll call it outdoor power equipment categories. You can imagine that as business -- as we saw the business in the northeast shift there this one week, where we had snow and very cold weather, garden products and outdoor power equipment product slowed in that particular market for a few days, but in general the trends are continuing, as they had in through March, but it is still early.

It is still early, because here's what can happen, and we've seen this in the past. If the moisture in the ground stops, meaning we start to dry out, it only takes several weeks in Texas and you literally impact that business severely. And so, we are just being cautious to say that right now we are in great position with inventory, we have ample production waiting if the business continues to perform as it has.

But I would not say that trends are going to be any different at this point, because it is still early in the game and we could have -- they're still predicting drought in the south and it's still a wild card.

I just like to add, it's really critical that we be patient as far as coming to any conclusions on Q2, because last year, as I mentioned earlier, April is very soft, and as we always said if April is soft, the sales will eventually come, and that meant May was a very strong month for us. So, as we come into this year and actually have sort of the opposite scenario occurring, where we are cycling against a very soft April, we would -- our anticipation is that April will be very strong, and it has run to those numbers.

But it is critical to wait to see how we perform against a very strong May next year. When it comes to the cycle on the outdoor power equipment, as we look at that cycle, to the best of our estimation it looks as if the cycle did move forward a week. But, again, it is too early to tell until we actually see the results as we get into May.

And we have no further questions at this time, please continue with any closing comments.

Very good, thank you. First of I would like to elaborate a little on our stock repurchase plan. It is a long-term plan, part of our strategy to return shareholder value. We use a 10b5-1 plan between the open windows and frankly, the plan we set in place, the share price just ran away from our matrix. But we intend to, as we always do, reestablish a matrix from a go forward -- the go forward quarter.

In closing, we are energized by the opportunities we see ahead, our ability to capitalize on those opportunities. We executed extremely well in the first quarter, very proud of the team. We reached another milestone of a $1 billion Q1, which is terrific milestone for us to see. We look forward to the remainder of what it started out to be another exciting year for Tractor Supply Company. And we thank you all for being on the journey with us.

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