Tractor Supply Company. Third Quarter 2015

Transcription

1 Tractor Supply Company Third Quarter 2015

2 Safe Harbor Statement The Company claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of The Company intends these forward-looking statements to speak only as of the time of the presentation and does not undertake to update or revise them, as more information becomes available. These statements discuss, among other things, expected growth, store development and expansion strategy, business strategies, future revenues and future performance. These forward-looking statements are based on estimates, projections, beliefs and assumptions, including, but not limited to, competition, product demand, economic conditions, inflation, consumer debt levels, governmental approvals, ability to hire and retain qualified employees, weather, etc. Actual results may materially differ from anticipated results described in these forward-looking statements. Please refer to the Risk Factors section of the Company s Form 10-K for more details. 2

3 Our Unique Position Leading Rural Lifestyle Retailer Largest operator for the lifestyle Primarily located in rural communities 1,400+ stores in 49 states Our Customer Land and animal owners Self reliant and DIY Loyal and growing Unique Niche Dependable supplier Items to care for home, land, pets & animals 3

4 Mission and Values Driven Culture 4

5 2014 Highlights Opened 107 stores Grew revenue 10.6%; same store sales 3.8% Improved operating margin to 10.3% Grew Earnings Per Share 14.7% to $2.66 Returned $383M to shareholders through share repurchase and dividend 5

6 1H 2015 Highlights Opened 58 stores Grew revenue 12.2%; same store sales 5.7% Grew Earnings Per Share 18.5% to $.1.54 Paid $49.1M in cash dividends Repurchased $124.5M in stock 6

7 Track Record of Growth 2,000 1,500 1,000 1,001 1,085 Stores 1,176 1,276 1,382 $8 $6 $4 Sales (in $ billions) 1,492-1, $2 0 '10 '11 '12 '13 '14 '15* $0 '10 '11 '12 '13 '14 '15* $500 $400 $300 $200 $100 $0 Net Income (in $millions) '10 '11 '12 '13 '14 '15* $4 $3 $2 $1 $ E.P.S '10 '11 '12 '13 '14 '15* * 2015 estimates as of July 22,

8 Strong Comp Traffic Trends 8% 7.4% 6% 5.3% 5.0% 4.7% 4% 3.0% 3.2% 2% 0%

9 $3 Consistent Quarterly EPS Growth $ $ $ Q 2Q 3Q 4Q FY

10 Continuing Operating Margin Expansion Opportunity 15% New long term target of 11.5% 12% 9% 6% 3% 6.3% 6.3% 6.7% 3.4% 7.0% 12.2% 13.1% 13.6% 13.3% 13.9% 7.0% 7.3% 8.4% 8.9% 9.0% 9.7% 10.4% 11.2% 8.3% 9.4% 10.0% 10.3% 0% 1Q 2Q 3Q 4Q FY

11 Operating Profit Philosophy Balanced focus on sales and margin Will not risk market share for margin rate Will continue to take calculated risks test and learn utilize, learn and improve from C.O.E. process Excited about pipeline of opportunities 11

12 Unique Merchandise Assortment Comprehensive, yet tailored, assortment Livestock & Pet Hardware, Tools & Truck Percent of Sales % 5% Seasonal, Gift & Toys Clothing & Footwear 20% 44% Agricultural Products 22%

13 Merchandising Principals Dependable supplier Differentiated products Quality and value Introduce newness Maintain commitment to the Out Here customer 13

14 Store Growth Opportunity 14

15 2014 Store Openings Total: 107 in 31 states 1 4 new stores 5-9 new stores 10 or more new stores 15

16 1H 2015 Store Openings Total: 58 in 21 states 1 4 new stores 5-9 new stores 10 or more new stores 16

17 Store Expansion 2,500 Target Broader consumer base / appeal New markets Increased attribution Store Count Stores closer together 17

18 Organic Store Expansion Opportunities Increasing market share Houston, TX area (stores closer together) Northeast area (broader appeal) 18

19 The 2,500 Opportunity 123/ / / /825 Tractor Supply Store Count 2Q15 / Opportunity (excludes 21 Del s & 2 HomeTown Pet stores) = DC Locations (AZ coming 2015) Total: 1,415 / 2,500

20 Store Growth Cadence e 2016e 2017e 2018e TSC Stores ~ 120 ~ 120 ~ 120 Growth Rate (gross) 8.2% ~ 8.0% ~ 8.0% ~ 7.5% ~ 7.0% Store Count 1,382 Open at a gross new store growth of 8% through 2016 Continue our Del s transition through 2016 Build SG&A infrastructure to support ~120 new stores per year Store manager development SSC team member investment Hold store growth at ~120 stores per year subsequent to

21 The Road Ahead 21

22 Long Term Initiatives Sales Gross Margin Reduced Cost Store Growth / Team Member Investment Continuous Improvement Customer Relationship Management (CRM) / Loyalty Program Systems Merchandising, Distribution, Corporate Systems, etc. Supply Chain Investment / Alternative Fulfillment Options Omni-channel enhancements 22

23 2015 Priorities Systems DC system upgrades Continued security enhancements Inventory Demand Planning Customer Relationship Management (CRM) Customer attribution Customer loyalty program pilot Supply Chain Casa Grande construction Hagerstown expansion (completed Q1 2015) Mixing center implementation Omni-channel enhancements Platform upgrade (completed July 2015) Enhanced content Alternative delivery methods 23

24 Long Term Operating Margin Target 12% 11% 0.5% 0.5% 0.2% 10% 11.5% 9% 10.3% 8% 2014 Comparable Sales Gross Margin SG&A 2019e 24

25 Driving Operating Profit Dollars Driving Sales C.U.E. Localization Drive Aisle New Products Increasing Gross Margin Price Management Inventory Management Strategic Sourcing Exclusive Brands Creating Efficiencies TVS Technology Supply Chain Sustainability

26 Sales-driving Initiatives Localization Drive Aisle Merchandise C.U.E. Driving Sales New Products 26

27 Driving Repeat Traffic C.U.E. Be the most dependable supplier Grow market share Improve in-stock levels Continue to improve price management Expand assortments 27

28 Focusing on Local Markets Localization Relevant assortments Brand preferences Customer feedback Town Hall meetings A D assortments 28

29 Improving the Shopping Experience Drive Aisle Merchandising Increase basket Utilize event merchandising Enhance Treasure Hunt experience Learn from customer Improve impulse item offers 29

30 Keeping the Assortment Fresh New Products Pipeline of opportunities Structured test program Culture of risk-taking Open buying days Category resets 30

31 Gross Margin Initiatives Price Management Exclusive Brands Inventory Management Gross Margin Strategic Sourcing 31

32 The Price is Right Price Management Does not mean price increase Utilize test and learn approach Will not risk market share Focused on Regular Price Add Promotion and Clearance modules later 32

33 Managing the Seasons Inventory Management Allocate more productively Regionalize the assortments Continue to adapt & react to trends Seize opportunities End seasons clean 33

34 Improving Inventory Productivity Inventory Turns Defined test programs '09 '10 '11 '12 '13 '14 Disciplined flow of merchandise Improved ability to adapt and react to trends Committed to ending seasons clean Dedicated to meet customer needs through emergency response 34

35 Finding the Right Sources Strategic Sourcing Determining factors Product quality Sufficient supply chain & vendor stability Price / landed cost Multiple sources preferred 35

36 Only at Tractor Supply Exclusive Brands ~ 30% of sales Brand development approach Provide value to customers Opportunity for growth 36

37 Livestock & Pet Growing Exclusive Brand Offering Seasonal, Gifts & Toy Products Hardware, Tools & Truck Clothing & Footwear Agriculture 37

38 Livestock & Pet Well-Known National Brands Seasonal, Gifts & Toy Products Hardware, Tools & Truck Clothing & Footwear Agriculture 38

39 Marketing Initiatives Increase Sales to Existing Customers Expand Customer Base Community Connection Building the Brand Marketing Strategy 39

40 Driving Traffic Increase Sales to Existing Customers Multi-channel & digital marketing Advertising distribution strategy CRM 40

41 CRM Strategy Direction Gather Customer Information Objective: Leverage deep understanding of our customers (who they are, how they shop, how they want to interact with TSC) to deliver personalized and relevant communications that will increase their loyalty to Tractor Supply. Today : Zip codes / phone numbers Future : Affinity Program Build Customer Insights Today : Segmentation based upon store purchase behavior Future : Segmentation that is multi-dimensional, behaviorbased and omni-channel Personalize Communications Today : Direct mail / Future : Triggered communications, 1 to 1 messaging across channels, real time CRM Focus Areas Increased customer retention and loyalty 41

42 Current Customer Profile Hobby Farmer Lifestyler Business Value Revenue Ticket Highest Highest Lower Lower Lowest Varies % Household Lower Highest Lowest Large Animal Feed Pet Food Hardware Top Departments Hardware Lubricants Pet Supplies Hardware Lubricants Sprayers & Chemicals Pet Food Bird Feeding Hand Tools Age Older Younger Varies Profile Property Distance Shop Habits Own more land Live further from stores Destination shopper Own less land Live closer to stores Convenience shopper N/A Live closer to stores Convenience shopper 42

43 Driving New Traffic Expand Customer Base Broad appeal categories Prospect marketing Drive trial through existing advertising methods 43

44 Getting Involved Community Connection 4-H and FFA support Sponsorships of local fairs and community events Empowering stores 44

45 Developing Awareness Building the Brand Authority For Life Out Here Exclusive brand marketing On-line content 45

46 TSC & E TEAM SALES EXECUTION CUSTOMER It s About People & Developing Leaders Developing the Know-How to Drive Sales Intense Focus on the Customer Driving High Level of In-Store Execution Operating Initiatives 46

47 Building The Team It s About People & Developing Leaders Hiring our customers Rewarding success Team retention Developing people & succession planning 47

48 Developing the Sales Force 48

49 Taking Care of the Customer Intense Focus on the Customer G.U.R.A. Developing customer relationships Sharing success stories Utilizing actionable customer feedback 49

50 Executing to the Plan Driving High Level of In-Store Execution Consistent store processes Tractor Value System (TVS) Leadership store visits Measuring store standards 50

51 Financial Outlook 51

52 Compelling Long-Term Annual Growth Targets Grow Stores ~ 8% square footage Same-Store Sales Growth ~ 3% - 5% Improve Operating Margin ~25 bps Grow EPS in the Mid-Teens as a % annually Invest to Grow Business ~ $250m Return Cash to Shareholders 52

53 Long Term Outlook 2015e 2018e Stores ~ 1,500 ~ 1,800 Sales ~ $6.2b to $6.3b ~ $8.1b Same Store Sales ~ 3.0% - 5.0% Gross Margin ~ bps annually Expense Leverage ~ 5-10 bps annually Operating Margin ~ mid 20s bps annually E.P.S.* ~ 13% - 15% annually * Includes impact of share repurchase program. 53

54 Free Cash Flow (est. $ in millions) e 2016e 2017e 2018e Est Cumulative Operating Cash Flow $ 2,500 CapEx $ 1,050 Free Cash Flow $ 250 $ 320 $ 320 $ 370 $ 440 $ 1,450 Cumulative $1.4b of Cash Available to Return to Shareholders 54

55 Capital Investment Targets 2015e 2018e New Stores $100m $120m Maintenance / Updates $50m $60m Distribution Centers $60m $80m Technology $30m $40m Total ~ $250m - $300m Annually Consistent Infrastructure Investment in Future Years 55

56 Capital Allocation Targets 2015 to 2018 Investing for Growth ~ $250m - $300m annually Dividend 20 to 30% Payout Ratio 15 to 20% Dividend Growth Share Repurchase ~ 50% - 60% of Operating Cash Flow ~ $280m - $400m annually ~ 2% - 3% Shares Purchased annually Dividend Reinvest in the Business Share Repurchase Creating Shareholder Value 56

57 Consistent Capital Allocation Last Five Years Next Four Years 13% 40% ~17% ~37% 47% ~46% $2.0b Cap Ex Share Repurchase Dividend ~ $2.5b 57

58 Reasons to Invest in Tractor Supply Growth company in a unique niche Serves an expanding customer base Clear strategic plan, rigor and passion Balanced approach to managing business Driving sales Improving gross margin Managing growth investments Defined capital allocation strategy Focused on Shareholder Value Creation 58

59 Thank you! 59