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Original Source: FD (FAIR DISCLOSURE) WIRE
. Cara O'Brien, IR . Jim Wright, Tractor Supply Company, CEO . Tony Crudele, Tractor Supply Company, CFO . Greg Sandfort, Tractor Supply Company, Chief Merchandising Officer . Brad Thomas, Lehman Brothers, Analyst . Stan Ruta, Tractor Supply Company, EVP . David Cumberland, Robert W. Baird & Co, Analyst . Mitch Kaiser, Piper Jaffray, Analyst . Chris Rapplejay, SunTrust Robinson Humphery, Analyst . Jack Murphy, William Blair & Company, Analyst . Peter Benedict, Wachovia Securities, Analyst . Brian Nagel, UBS, Analyst . Matt Nemer, Thomas Weisel Partners, Analyst . John Lawrence, Morgan Keegan, Analyst . Dan Wewer, Raymond James, Analyst . Jeff Wiemer, JPMorgan, Analyst . Vivian Ma, Oppenheimer, Analyst . Jay McCanless, FTN Midwest Securities Corp, Analyst . Wayne Hood, BMO Capital, Analyst
. Andrew Wolf, BB&T Capital Markets, Analyst
TSCO reported 4Q07 Sales of $723.3m and 4Q07 EPS of $0.77. Co. expects full-year 2008 sales to be $3.01-3.08b and expects full-year 2008 net income to be approx. $98.5-101.5m or $2.54-2.62 per diluted share.
A. Key Data From Call 1. 4Q07 Sales = $723.3m. 2. 4Q07 EPS = $0.77.
3. 2008 CapEx = approx. $84m. 4. 2008 share repurchase = 3.2m shares totaling $150m. 5. 4Q07 share repurchase = 1.35m shares for a total of $55.1m. 6. Expected full-year 2008 sales = $3.01-3.08b. 7. Expected full-year 2008 net income = approx. $98.5-101.5m. 8. Expected full-year 2008 diluted EPS = $2.54-2.62.
S1. 4Q07 Business Summary (J.W.) 1. Highlights: 1. Total sales grew by 15% to $723.3m and same-store sales grew at 3.8%.
1. This topline growth drove EPS 7% higher to $0.77 per share.
2. Sales increase in 4Q07 was primarily driven by core lifestyle
merchandise, including animal health and pet supplies, and
many of winter-related merchandise categories including:
1. Footwear. 2. Snow removal. 3. Heating and related wood burning and wood cutting products. 3. In several categories, sales and inventory forecasting matched demand very well and in others Co. implemented a markdown cadence and accelerated some promotions to hit inventory targets. 1. With this plan in place, Co. was able to achieve normalized inventory levels and to begin reversing the trend in avg. inventory per store. 2. Full-Year Highlights: 1. Achieved sales growth of 14% and comps of 3.4%. 2. Steadily grew business and ended the year with 764 stores. 3. Expanded geographic reach and entered new markets such as Louisiana, Maine, New Hampshire, Rhode's Island, and New
Mexico with a total of ten stores, while opening 73 new stores
in existing states. 4. New store opening targets were down with six new stores this year. 1. Opening Co.'s first store in eastern Washington and an additional store in Oregon during the year allowed TSCO to begin testing this concept in markets outside of Del's brand awareness reach and in markets where locally (Indiscernible)
is plentiful. 5. Continued merchandising efforts to ensure that Co. is offering its customers best selection and mix to serve their lifestyle. 1. By 2007-end, 565 of stores have expanded apparel resets. 6. All of Co.'s stores have the enhanced animal and pet merchandise. 1. These SKUs benefited comp performance throughout the year. 7. 41 [on line]pet stores produced a two-month look at category of format performance. 1. Had some wins and had some disappointments in some categories where Co. simply need more time to evaluate. 2. Plans to rollout best items in categories to chain as year progresses. 8. Is confident that Co. will benefit from rollout and not have to incur full capital or OpEx of extensive reset activity undertaken in test stores.
1. 41 test stores continues to serve as hard line laboratory.
9. Made great progress on customer relationship management
initiative this year. 1. Has been able to match profile of existing customers to potential customers that share those same attributes.
2. As a result of successful direct mail test in developing expertise, Co. will reallocate it's advertising spends in 2008.
3. Continues to use television to support and build brand awareness for TSCO. 10. Launched e-commerce Website in 4Q07. 1. During holiday season, Co. received very positive reaction to new e-commerce offering. 2. Sees significant potential as Co. expands product and content offering. 3. Initiative: 1. Has improved capacity to: 1. Grow chain at 13%. 2. Increase earnings. 3. Position TSCO for long-term. 2. While new store occupancy has caused de-leveraging of SG&A during last [seven] years, Co. made progress in 2007. 3. New stores improved in 4Q07 and throughout 2007.
4. Has a low occupancy costs as a percent of sales than stores
opened in recent years. 1. As a result, Co. will see de-leveraging from occupancy costs reduced in half in 2008 and expects occupancy costs to increase at a lower rate in 2009. 5. Included first year of applying lean principles called as TVS to store support center processes and opened two new value streams. 1. Believes TVS is a tool that will enhance Co.'s efforts to reduce cost and waste. 4. Management Update: 1. Bill Bass was appointed Director earlier this month. 2. Completed on-plan succession when Joe Scarlett was named Chairman Emeritus in Nov. 3. Sam Reed and Joe Maxwell departed Board in 2007.
S2. 4Q07 Financial Highlights (T.C.) 1. Highlights: 1. Achieved key goals of driving double-digit sales growth through increased transactions and avg. ticket while managing inventory increase well below sales increase. 2. Sales increased 14.8% to $723.3m vs. 4Q06. 3. Total comp sales for the period was 3.8% and non-comp sales was approx. $84.3m or 11.7% of sales. 4. As discussed in 3Q07, sales were soft in Oct. due to unseasonably warm weather.
1. As colder weather rolled in during Nov. Co. recouped Oct.
sales shortfall and month of Nov. had the strongest comp increase within qtr. 2. Del's comp sales were below Co. avg. due to warmer and wetter conditions in northwest, which negatively impacted seed and hay sales. 5. Estimates that cannibalization impact on comp sales was approx. 80 BP, consistent with expectation. 6. Comp sales were strongest in northern states buoyed by colder
YoverY trends. 1. This was consistent from east to Midwest.
2. Sales were weakest in southeast where moisture levels remained low and were negatively impacted by weak Florida economy. 7. Continues to grow customer traffic with comp transaction counts up 2.7%, driven by strength and continued growth of core consumable business. 1. Avg. ticket on a comp basis increased by approx. 100 BP. 2. Although Co. still sees softness in spending on larger
ticket items, it was a less significant decrease in previous quarters and mix of large ticket items has less of an impact in 4Q07 as rider sales are not as significant in '4Q' as they were in '2Q' and '3Q'.
2. Margins: 1. GM improved by 10 BP. 2. Direct margin rate improved through better buying and increased imports. 3. On a YoverY basis for 4Q07, import purchases increased from 7%
to 8% of cost purchases. 4. For the full year, imports rose to approx. 7.1%, up from 4.4% at this time last year. 1. This trend is tracking favorably towards long-term target of 13% of sales. 5. Improved GMs were partially offset by slight increase in shrink and freight. 1. Freight expense increased 16 BP vs. 4Q06 due to increase in imports and a greater than 25% increase in diesel fuel prices in [4Q07]. 3. Expenses: 1. SG&A including depreciation, as a percent of sales was 25.6%, 80 BP increase from 4Q06. 2. De-leveraging resulted principally from payroll and occupancy from new stores that have lower sales volumes than matured store base. 4. Store Highlights: 1. Opened 26 stores and relocated one store vs. 18 store openings in 4Q06.
2. For the year, opened 89 stores vs. 82 for 2006. 3. Continues to make progress on real estate strategy to position TSCO to leverage occupancy expense as it continues expansion. 4. For stores approved in 4Q07, occupancy as a percent of sales improved by 40 BP vs. stores approved in 4Q06. 1. That is after cycling implementation of current strategies from last year. 5. Inventory: 1. On a per store basis, inventory levels excluding Del's decreased approx. 5.2% at 4Q07-end. 1. In transit inventory at 4Q07-end increased to $24.9m vs. $17.9m in prior year due to imports and in transit domestic purchases. 2. Showed improvements in turns, which improved 6 BP YoverY as Co. better managed inventory and took advantage of increased footsteps. 1. Full-year turn was down 7 BP. 3. Believes several of actions to improve inventory productivity are beginning to gain traction including: 1. A better exit strategy on one time special buys. 2. Focused approach on new inventory. 3. New store inventory levels and less productivity inventory. 4. More rigorous training program on E3 inventory management software. 4. Believe that, although Co. has made significant strides this past qtr., this will be an ongoing effort as it continues to be more productive with inventory. 5. Experienced an increase in AP financing of inventory from approx. 37.3% up to 38.3%, resulting principally from better
AP management and vendor dating. 1. Given increase in imports, Co. is satisfied with the progress it is making. 6. Other Financials: 1. CapEx for the year was approx. $84m, significantly below planned expenditures of approx. $100m as Co.: 1. Conservatively managed capital in 4Q07. 2. Spend less capital than forecasted on new stores planned to open in 4Q07 and in early 2008. 3. Pushed some IT projects into 2008. 2. Repurchased 1.35m shares for a total of $55.1m under stock repurchase program.
3. For the year, Co. has repurchased a total of 3.2m shares
totaling $150m. 1. Estimate that share repurchase …