Thanks. Good morning, everyone. My name is Peter Keith, Senior Research Analyst at Piper Sandler, covering hardlines and leisure. Welcome to day two of our Growth Frontiers Conference. Very pleased to have Tractor Supply with us. Doesn't need much of an introduction, but they are the largest farm and ranch retailer in the country. They are essentially the definitive 800-pound gorilla, and they are Nashville-based. So we have four people from Tractor Supply today. We have Kurt Barton, CFO. We have Seth Estep, Chief Merchandising Officer, and in the front, we have Mary Winn Pilkington, VP of Investor Relations. We also now have Joseph Underwood, who just today has become IR manager. So make sure to meet Joseph. In the spirit of Nashville, I do want to mention to the webcast, we have Kurt Barton here in jeans and cowboy boots, and he looks fantastic. Peter, you're fine. Yeah. I guess that's, that's my way of saying, "Welcome to Nashville- Yeah. our town. Hope you enjoy it. Yeah. All right, guys. Well, let's kick it off. We got 25 minutes here. We get a lot of questions on Tractor Supply and just the health of your consumer. A little bit more rural consumer, a little bit different than what Wall Street, analysts look at. So maybe you guys could just touch on how is your consumer today, any evolution in the spending trends that you've noticed? Yeah, Peter, I'll take that. First, good morning to everybody. Again, I'll just say welcome. Thank you for coming and hearing more about Tractor Supply. In regards to the consumer, this year no doubt had its twists and turns. There's a number of macro factors that, you know, were either in line with our expectations, but, you know, even several, you know, surprises as we think about how this year is playing out. In the last couple of weeks, there's certainly been a lot of news from all of retail as the first half results have been reported. A number of pressures, and many of those are applicable to all of retail and even applicable to Tractor Supply. To answer your question about how do we see the consumer, I'll first say the consumers, particularly our customer, still describe as healthy. I'll hit a couple of things, one, from a macro perspective, and then, you know, second, a little bit, you know, specific to, you know, what we're seeing. From a macro perspective, the consumer healthy, real wages, you know, a net positive. The customer, the consumer is employed, and, you know, I think that's important, a big difference between, you know, today versus how others, you know, compare back to, you know, 2008 and 2009, and I think that's an important factor. But the consumer is definitely value-driven. They're prudent, they're being very discerning in what they're spending. They're focused on value and big-ticket, you know, purchases, as we expected for this year, certainly, under pressure. Specific to us, you know, we look at our business and our consumer. Q2 had, for instance, the highest record number of active customers shopping Tractor Supply, so that's a real positive. In line with what we expect for this year, discretionary, big ticket, which is roughly 15% of our sales, you know, continues to be pressured. In regards to our core business, much as you hear, the consumables, the needs-based items, running very consistent, very strong. It is much like we are as humans in the grocery store and Tractor Supply as the grocery store for the large animal and the pets. There's good consistency. And then lastly, you know, for our consumer, we look at our seasonal business, which when we talk seasonal, well, you know, the shifting of the seasons, it's the one area that I would say is maybe the biggest shift from our original expectations as to what is the consumer needing for the fall/winter, the spring/summer, and so forth. We're an outdoor, out here, you know, supporter. So if weather is, you know, just volatile, you know, you can either have your swings on that. And I'd... You know, we just continue to recognize that weather can either be a tailwind or a headwind. And, you know, thus far as we've, you know, experienced this year, it's been a unique year- Yeah ... with the current weather headwinds. That's how we frame up. We recognize weather is transitory, but the core of the consumer, pretty solid. Okay, great. So I know you did talk about the some of the big ticket pressure on the Q2 earnings call, I guess, maybe a month and a half ago, two months ago. But one thing that stood out to me that was interesting is you talk about the transaction trends had accelerated through Q2, and that trend had continued into early Q3. And I'd like to just hear more about that, if there's something that's unique about the business or the consumer shopping, that's driving that type of acceleration. That's a really important metric in retail. Yeah, it is. And it's an area that we're extremely, you know, proud of, and it's a good sign of our consistency in the business. Where we saw some initial transaction decline, I'll go back to, you know, either what you're cycling or some of the weather pressures. For instance, Q1 was, you know, had some pressure on transactions, but it also was an extremely mild, warm winter that doesn't drive the demand for our business in for all that insulated outerwear, fuel, heating, et cetera. But then Q2 bounced right back. And as inflation begins to moderate, and as we started to see and said we would expect to see disinflation, it again puts a little bit of a tailwind and strength on our transactions. We expected transactions to be a strength this year, and we're, we're seeing that. The consumables, the companion animal, the large animal, what our customers come in for routinely, we are the lowest cost to serve. We are dependable. We have been in stock, our inventory's in good position, and we're confident and continue to be fueled by what we believe is grabbing market share and outperforming the competition in the core of our business, and that's really the traffic driver. Okay, great. So one more question, I think, probably for Kurt, would be on the inflation, deflation. I guess on the consumable side, the concern that some investors have is that corn, soy, other grain prices have come down, and that might put some downward pressure on horse feed, animal feed. I always like to say, a horse doesn't really care how much the bag of feed costs, it's gonna eat the same amount. Yeah. Is there a risk now that maybe you're seeing disinflation, but we ultimately pivot to deflation into early 2024? Sure. We, the year so far is playing out pretty close to what we expected. We said that we could see 3%-4% net inflation year-over-year for this, this year, most of that coming off of what we believe was peak inflation in Q4 of last year. And the inflation that we're seeing is a bit of just a wrap of the cost increases, retail price increases put in place last year. Disinflation has certainly been the theme of this year. We've seen that in our business, perhaps slightly, you know, faster than our, our expectations going into this year. We saw high single-digit inflation at retail prices in Q1, moderating to mid-single-digit, and likely to see, as we expected, low single-digit in Q3. Q4 really looks to be that quarter where you're basically at about a push. And, I think we're at the point, the theme is plateau. Steadiness is really the environment at this point, with some net puts and takes in there. The commodities, as you mentioned, have been coming down over the last 18 months, and there are some aspects to feed that are different today than, say, you know, in the 2013, 2014, and 2015 time periods, where the inflation was pretty much all about commodities. But bagged feed has transportation, labor, manufacturing costs, all of which have increased. And so, the level of deflation of the commodity, we really look at it as it's starting to really, you know, bottom out, and a bit of a steadiness is how we see the near term. Okay. All right, great. Well, let's move over to Seth, and I want to talk about some of the business drivers. So one of the things I love about this conference we have in Nashville now is we can go visit retail stores on the Monday before the conference starts. So we went to the Hendersonville Tractor Supply store. Like I say, it's got all the bells and whistles. It's got the Project Fusion, it's got the garden center, the pet, the pet wash. So Seth, I was wondering if you could just unpack some of those a little bit. Yeah. Maybe Project Fusion, how many stores, side lot, how many stores? And what is the sales lift do you think you're getting when those types of remodels are implemented? Yeah, absolutely, Peter. Good morning, everyone. So, yeah, Project Fusion is our largest remodel program we've ever implemented at Tractor Supply, and at the end of Q2, we had north of 700 stores that had gone through Project Fusion. This year, we should end the year at close to 40% of the chain of actually being remodeled, and we'll exit the year north of 400 stores with a garden center. Very pleased with the results that we continue to see there. These are aged stores. A big portion of our fleet was over 10 years of age, and since that time, we have really changed some of our merchandising strategies, our space allocation, and Project Fusion is bringing all those to life. So in our Fusion only, we continue to see close to mid-single-digit lifts in kind of year one. We continue to see lifts continue in year two. And in combo stores, which also contain the garden center and some of the other things that you saw, it's kind of high single digits that we continue to see in year one, and we continue to see that lift in year two as well. So very, very pleased with that. If you think about some of the space allocations and what you saw types there as well, you know, you saw a Carhartt shop. We're north of 140 Carhartt shops. We look at that on a local and regional level to make sure we're putting the right programs in the right stores. You saw an expansion in our pet allocation that's there with a significant additional space allocation with pet, as well as some pet services. We will see actually north of 1 million pets in our stores this year in things like pet wash and things like that you saw at Hendersonville. And then obviously, like, live goods. Like live goods, gardening was the number one hobby of our shopper, that when we talked to them, they said they did not engage with Tractor Supply or think of Tractor Supply first, for us to be able to support those needs. And that's what really drove us to look at our side lot, that area of the space that just traditionally housed, like, fencing and things like that, to where we could end up just implementing, like, a garden center. We're very pleased with how that's going to date. So, excited for this year, and we'll be excited to continue to roll into spring next year to continue to expand on the garden center. Great, okay. Maybe on garden center, just seems like a like a home run, as you say, get into live goods, you can do Christmas trees... Yeah ... in the winter. How many stores in totality do you think you can get to, as a percentage of the chain? Yeah, we think we can get close to 60%. Yeah. About 60% of the opportunity that's there. A lot of that just has to do with actually where we have that side lot in our store. We have a big portion of our stores that could have been in a strip center prior, that, like, that side lot is, like, in the front of the store, like, in the parking lot, and we just physically can't do that. But the cool thing is that when we're working with our vendors and suppliers today, is that we can take a lot of those concepts and start to build out the front apron at the same time, even the stores that don't have garden centers, to take advantage of that hobby. So we're all in on garden. Our customers love garden, and we're gonna keep going after that category. Okay, that's great. Yeah. And both of you guys have been at Tractor Supply for a long time, so with Project Fusion, it's hard to put into words. Yeah ... you do kind of have to see it, and it's, I think everyone that visited the store with me was really impressed with the, how appealing the store was. But just in the history of it, Tractor Supply, I think, has had a pretty static model- Yeah ... for a long time. Is this now the sort of first reinvention of what the four walls could have inside, that you've done? Yeah. So, we embarked on a One Tractor remodel a few years ago. We did about 35 locations. We took a step back, we paused it. And then over the course of 2020, we really said that, "How could we bring these things to life when we look at our total adjustable market?" So this is kind of the first really major remodel program that we've had. I would say we're in version kind of 3.0 already. So we're not static with it, even as we're doing it. The visual and the look and feel will be very similar, but we're changing space allocations. We're looking to see what's working, looking to stretch into some categories and see if someday we're like, "Hey, will this respond to our customer?" If not, if not, like, where can we reallocate that space? So it's a constant evolution. We've continued to invest in analytics, and over time, you'll continue to see 3.0, 4.0, 5.0. But with that, just to make sure we have the right assortment, right space, right time, right region, all those type things. Great, okay. Yeah, it really is, it's a nice format, and I've been to Tractor Supply for a long time. Let's talk about the accelerated store growth opportunity, too. So that was a really big announcement you guys made- Mm-hmm ... on the Q2 earnings. Maybe just give the audience just a recap of what you're thinking about in terms of total store potential and then annualized unit growth. Yeah. So on the Q2 earnings, we announced the increase from a targeted expectation of 2,800 stores in the U.S. to 3,000. We are pretty routine with reevaluating the demographics, the market, our customer, every three-four years, putting it into our real estate model. So to some extent, Peter, it wasn't that unique on the timing and what was and not that unique or surprised us, that this is really the first time we took all of the new Neighbor's Club customer data since the beginning of the pandemic, which, by the way, pre-pandemic, roughly like 15 million Neighbor's Club members and north of 31 million today. So the amount of data that we have on customers, giving us insights on lookalikes, et cetera, and what each market could produce, we put that through our real estate model to take all the seed points, bake in cannibalization. It's very routine for us, other than having even stronger systems today, gives us the confidence that there are new markets, ones that we saw before that maybe would not hurdle our financial model, but others that we would drop in right in between two other stores. So it's a mix of both of those scenarios, where there's green space. Now, we put a store in a location that there isn't a Tractor Supply, but we could certainly take a store and drop it into a market that we have strong recognition and be able to, you know, help alleviate some of the capacity constraints in existing stores. So, very excited about our confidence of 3,000 target over the next, you know-- And that gives us a good runway of about 10, 10 years on store growth. Okay. And then, yeah, so annual and annualized unit growth as a percentage, how should we think about that now? Because that's a little bit, Yeah ... stepped up. That it certainly is. You know, pre-pandemic, typical that a Tractor Supply store may produce year one, you know, $3.5 million and grow to what was then, you know, the average of about $4.5 million-$5 million. But the average Tractor Supply store is $6 million-$6.5 million today, and they come out the gates roughly 75% of a mature store and then have about a five-year maturation period. So the stores continue to have a really strong return on invested capital, and again, all of that fueled our confidence in raising our targets. Okay. I'm guessing, too, I think, with COVID, just introduced a lot of new people to Tractor Supply that you've retained. We'll talk about Neighbor's Club more in a second. But I'm guessing with the real estate strategy, that you're able to take a fresh look at different types of customers that are now shopping that you didn't previously have, and so that's giving us confidence in the higher store target. Am I thinking about this new data set correctly? Yeah, definitely. Yeah. Give you a couple of examples. Our percentage, when you break down our customers as a percentage shopping with us, in the last three years, the percent of customers in that millennial cohort moved five full points. And that's not because of decline in other areas, because Gen X, baby boomers continued to grow as they moved into our market. But it was really an indicator and a result of a rural migration movement. You've heard us talk about that. By the way, Hal Lawton was on CNBC this morning and basically addressing that new customer as, how does Tractor Supply fuel our existing core customer, the hobby farmer, and this new millennial customer that has moved out of urban, suburban, to get a lower cost living, mobility, and work allows for long, you know, do that longer commute? We're seeing a strong growth in our markets, and this customer wants to engage in our lifestyle of pets, animals, poultry, having their own backyard chickens and... But it's a new customer that we believe we are a source that can help them in a non-threatful way to engage in something that could be, in their mind, complex. Yeah. But we've got the experts in the store to help them start their flock or build their land. Yeah. Well, I'm a huge fan of that backyard chicken trend. I think it's great for you guys and fun to talk about. So let's go talk about the Neighbor's Club, though. Yeah. So, Seth, for you, Kurt just mentioned 31 million members. Yep. Neighbor's Club has sort of evolved in the last three-four years, and maybe you could just talk about that evolution, how you've layered into tiers, and- Yeah ... kind of what the benefits are of those changes. Yeah, absolutely. So, in 2021, I think it was April 2021, we relaunched our Neighbor's Club program. And with that, we get into a reward, a tier-based program, points-based program, and it really resonated with our customers at that time. We're now north of 31 million members, as Kurt said. We're gaining around five million members per year, and we're seeing incredible engagement with that. Today, Neighbor's Club represents about three quarters of our sales. With that, our Neighbor's Club members spend about three times more than our non-Neighbor's Club members. Our highest tier customer base, which we call our Preferred Plus, with those tiers, really, really sticky. Over 95% retention in that customer base. They shop us multiple times a month. And just as we relaunched it a couple of years ago, you know, how we did in our Q2 call, we're looking at how do we continue to drive engagement, and over the next 12 months- 18 months, we're gonna continue to add enhancements. We integrated with our private label credit card, we've looked at things from dot-com perspective. We're integrating pet services, we're integrating things like a buy X, get one free on, like, pet washes and pet services. Just how we continue to use that Neighbor's Club to be sticky and deepen that integration into the lifestyle we serve. So a lot more to come over the next 12 months- 18 months as well, but super excited about the benefits of Neighbor's Club program. Okay, great. I think one topic that's important here at the conference is shrink. So I just wanna hit on that. You guys have been one of the few retailers that have not called out shrink, and maybe is there something unique about the business model, the product assortment? Maybe you're not as risk to shrink as other retailers. Yeah, I'll take that one, Peter. Yes, certainly, I'll start by saying shrink, theft within retail, organized retail crime, as that's been highly discussed, talked about much more of late, it is a real factor in retail. There is no doubt, the retail industry is fighting a strong battle, and it impacts margins, safety, you know, in stores, et cetera, for team members and customers. Our shrink is a bit of a - we're a bit of, you know, anomaly on this particular topic. Our shrink's been generally steady, actually slightly down as a percentage of sales in 2022. Year to date, running lower in 2023. If you think about the difference between Tractor Supply, others, I think there's really a few factors that make a difference. We've continually invested and held strong in our philosophical model that customer service for reasons of true customer service in a highly relationship touch-based business really creates an even stronger mitigation against, you know, the factors that are driving shrink. Secondly, our box. We're in a 20,000 sq ft box with really like, think about it, one entry point. Our team members are right up there at the front, and it really even also helps, you know, control the risk there as well. Then you think about the product that we serve, you know, high commodity base, big, bulky, heavy items, you know, all that. 50-pound bags of feed, you know, may not be the preferred choice if you've got organized retail crime or a big truck toolbox or a gun safe, harder to take out. So, our investments in our people, our loss prevention, our model of a small box, combined with the natural aspect of our product and where our stores are at in more rural communities, and just the nature of our customers and our rural communities. I think all of that contributes to Tractor Supply being less at risk to that topic. Okay, that's great. So let's maybe time for two more questions. I did want to just ask a little about gross margin, so we can cross off shrink as an impact. But what are the other factors that are the pluses and minuses impacting- Yeah ... gross margin right now and kinda how that might carry forward for a couple of quarters? Yeah, two points. Just a little bit of a quick history on that and what's been the key driver of nearly 100 basis points of gross margin expansion in the last three years that we've held to. Over the past three years, we've had growth in gross margin from really shifting off of promotional to really committed EDLP, everyday low pricing. We've also had committed, and I give Seth credit for this, the merchant team truly using the scale of Tractor Supply, and growing, you know, as we've moved from an under $9 billion to now nearly $15 billion company, that the scale that we get in gross margin. And then, the third would be the investments we've made in supply chain to really drive the landed cost and the transportation. The gross margin expansion over the last three years has come despite the growth in C.U.E. So those that know us, C.U.E, consumables, run at a lower margin rate, so that's a pressure point, and inflation. The historical high inflation rate, just by math, puts pressure on a retailer with gross margin rate. So all of those favorable items, in spite of those headwinds, we do see opportunities in the near term. Next 12 months-18 months, we are optimistic and targeting continued gross margin expansion because of the investments we made in the supply chain, the macro reduction in transportation costs. C.U.E is a bit normalizing, you know, as we've cycled through that and continue with the work that Seth and team is doing to, you know, reduce the, you know, the landed cost on the business. So, it's an area that we believe not only has been a success and one of the high points the last three years, but we do see gross margin expansion being the biggest driver to our op margin goals. Okay, great. So, time for one more question. I'm gonna go to Seth on this, and it just sort of— Talk about, the competitive advantages that you have, in the channel. So you are by far the biggest. You're the 800-pound gorilla. I happen to interact with a lot of other players in this space, so I have a general framework of how you're different. But what are your unique advantages and, you know, I guess, competitive advantages that allow you to outperform and take continued share? Yeah. First and foremost, I'd just say, we serve a lifestyle and we serve a customer, right? And so we are highly focused on the customer and the shoppers that shop Tractor Supply. With that, being the largest and at scale, we're able to drive capabilities that a lot of our competition can't. So we talked about Neighbor's Club already. We talked about the investments in our stores. We talked about opening up the new stores. Also, the capabilities of us continuing to invest in digital, right? Over the course of the pandemic, implementing things like buy online, pickup in store, and deliver from store. You can go on and on with, like, our digital capabilities that we continue to invest in. And then investing in our people. Our people are really a differentiator for us. Kurt talked about that relative to shrink, but also just in general. And, and when you add all those things up, whether it be, again, in new stores, remodeled stores, digital capabilities, investing in the people and investing in the supply chain, major supply chain capabilities versus those in the space as well, we really see that as kinda like an and story and really a differentiator for us to continue to drive market share. Yeah. Okay. All right, great. Cool. Well, keep up the good work, guys. Thank you. Seth and Kurt- Yeah. Thank you so much for spending some time with us today. Thank you. It's a pleasure. Thank you. Thanks, everyone.