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Original Source: FD (FAIR DISCLOSURE) WIRE
. Jim Wright, Tractor Supply Company, CEO . Tony Crudele, Tractor Supply Company, CFO . Cara O'Brien, Financial Dynamics . John Murphy, William Blair & Co, L.L.C., Analyst . Edward Yruma, JPMorgan Chase & Co., Analyst . Wayne Hood, Prudential Equity Group, LLC, Analyst
. Reed Anderson, Miller Johnson Steichen Kinnard, Inc., Analyst . Gerry Brase, Tractor Supply Company, SVP Merchandising . David Cumberland, Robert W. Baird & Company, Inc., Analyst . Anthony Lebiedzinski, Sidoti & Co., Analyst . John Lawrence, Morgan Keegan & Co., Inc., Analyst . Stan Ruta, Tractor Supply Company, SVP Store Operations
. David Magee, SunTrust Robinson Humphrey, Analyst . Mike Blahnik, Piper Jaffray & Co., Analyst . R.J. Hottovy, Next Generation Equity Research, Analyst . Stan Pesciatto, Arnold & Blychore, Analyst
TSCO reported that each area of its business met or exceeded expectations for 4Q05. Full-year 2005 net sales increased 18.9% to approx. $2.068b, driven by new store growth, and a 5.7% comp store sales increase. For the full-year 2005, diluted EPS was $2.09 vs. $1.57 in 2004. 4Q05 EPS exceeded the initial expectations coming in at $0.75 vs. $0.54 in 4Q04. For the full-year 2006, TSCO anticipates sales to range between $2.350-2.400b.
A. Key Data From Call 1. Full-year 2005 net sales = approx. $2.068b.
2. Full-year 2005 diluted EPS = $2.09. 3. 4Q05 EPS = $0.75. 4. Full-year 2006 sales guidance = $2.350-2.400b. 5. 2005-end cash position = $21.2m. 6. 2005 CapEx = approx. $80m.
S1. Business Highlights (J.W.) 1. Management Change: 1. Tony Crudele joined the TSCO in late Sept. of 2005, and officially became CFO on Nov. 4. 2. Results: 1. TSCO delivered another strong performance in 4Q05 in a retail holiday environment that was somewhat lackluster. 2. The Co. was able to generate strong comp store sales on top of the 7.7 comp last year, and 9.6 comp in 4Q04. 3. TSCO was able to grow margins and bottom line. 4. Business truly was operating on all cylinders, and each area of the business met or exceeded expectations for 4Q05. 5. TSCO had solid execution in several key areas, which drove performance.
6. The Co. correctly anticipated customers needs, stores executed
well, and today are in excellent condition. 7. Advertising was compelling and the merchandise presentation was simply the best ever. 8. During 4Q05 and throughout 2005, TSCO maintained a strict focus to build on the success of the prior year.
1. As a result, TSCO produced another year of solid performance.
9. In addition to generating strong YoverY comparisons in finance
results, TSCO took significant strides in laying the foundation for a long-term growth and success by successfully
executing many of the objectives highlighted at this time last
year. 3. Store Operations: 1. New store openings: 1. TSCO opened 65 new stores and relocated 18 stores, hitting the high end of projected 60-65 new stores. 1. This new store growth strengthens TSCO in the markets where it currently serves as well at extending its reach into new markets. 2. The Co. entered Massachusetts, Vermont, and New Jersey for the first time this last year. 3. TSCO reduced its turnover for the fifth consecutive year at the store management and store team member levels. 1. During this five-year period, TSCO almost doubled its store count while cutting its turnover in half over that period of time. 4. The Co. continued to make crucial external hires, while also developing and promoting from within. 2. Distribution Centers (DCs): 1. During the year, TSCO completed construction and opened Hagerstown DC, which has been operating at chain level efficiency, since mid-year.
2. TSCO added 250,000 sq. ft. to Pendleton, Indiana DC. 3. In Dec., opened a new DC and Waverly, Nebraska. 4. Closed a small-outdated unit in Omaha, Nebraska. 3. Network: 1. Network is complete for now, and while TSCO expects to add some incremental space in the West as it grows, it will not be building another large DC until 2008. 2. TSCO has initiated lean processes in its distribution
network, and is pleased with the initial value capture. 1. The Co. anticipates the lean process to be widely employed in TSCO over the next several years. 4. Merchants: 1. Merchants did a great job of anticipating the shifts in consumer demand, either leading or quickly following the consumer up market, and driving avg. ticket up 4.3% in comp stores. 2. 3Q05 and 4Q05 were very dynamic and the team responded well to meet unexpected demand as energy costs sharply changed the sales rate, and mix of heating the emergency response, fuel handling, and storage categories.
3. TSCO set out to improve margins throughout the merchandise mix
in each store and market. 4. Year-end sales and GM results illustrated the success of these efforts. 5. Inventory:
1. TSCO completed the implementation of E3 in 4Q05 and has begun
to capture value. 2. While significant learning and optimization lie ahead, TSCO ended the year with the best in-store and DC level in-stock positions percentage at any time in the last five years. 3. Year-end inventory level excluding inventory-on-hand to support the 11 new stores opened in Jan., and the build-up of inventory on newest DC was within acceptable range. 6. Summary: 1. TSCO looks for other ways to strengthen the platform, which it intends to grow 2. Specifically during 2005, the Co.: 1. Targeted and closed on the Del's acquisition. 2. Added Tony Crudele to the team. 3. Appointed a new independent Board Member to the Board. 7. Challenges: 1. The macro environment was impacted by multiple natural weather related disasters.
2. TSCO faces record gas prices and diesel fuel prices. 3. Weak consumer sentiment. 4. In the face of these challenges, TSCO remained focused on achieving its set initiatives and demonstrated the ability to successfully serve customers and meet financial goals at a dynamic external environment.
S2. Financials (T.C.) 1. 4Q05 Sales: 1. 4Q05 sales increased 31%, and TSCO posted 10% comp on top of a strong 7.7% gain last year. 2. 4Q05 included one additional sales date, since stores were closed on New Year's Day in 2004. 1. This accounted for approx. 1 percentage point of 4Q05 comp store increase. 3. TSCO estimates that higher selling prices primarily in steel and petroleum based products contributed roughly 50 BP of the
comp-store sales increase. 4. Same-store sales were positive in all of the regions, and TSCO saw the strongest comp results in the southern stores. 5. Agricultural, seasonal products, and clothing led sales performance. 6. Lifestyle and pet was also strong at approx. co. avg. 7. Store Operations: 1. Opened 18 new stores. 2. Closed one. 3. Finalized the acquisition of 16 Del's stores during 4Q05. 4. Sales resulting from non-comp stores were about $82m, which represents 16.8% of total sales increase in 4Q05. 5. New store sales, as a percent of total sales were almost 13%, which was consistent with new store growth. 6. 4Q05 had an additional week. 1. Of the 31% increase in 4Q05 sales, approx. 6.9% was a result of the additional week. 8. Same-store sales were driven by a fairly even balance of traffic vs. ticket during 4Q05. 1. This represents a departure from the trend TSCO has seen for the past 1.5 years. 2. Ticket increases were the primary driver the same-store sales. 9. Initiatives: 1. TSCO is pleased with its advertising, merchandise assortment, and in-store presentation. 1. The Co. believes that its higher traffic count demonstrates its customers' positive response to these
initiatives. 2. TSCO is pleased that its ticket count continued to increase as well, demonstrating the ongoing …