Tractor Supply (TSCO) Q4 2025 Earnings Transcript

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Date

Thursday, January 29, 2026 at 10:00 a.m. ET

Call participants

• Chief Executive Officer — Hal Lawton
• Chief Financial Officer — Kurt Barton
• Executive Vice President, Chief Merchandising Officer — Seth Estep
• Executive Vice President, Chief Technology, Digital Commerce and Strategy Officer — Rob Mills
• Executive Vice President, General Counsel and Corporate Secretary — John Ortiz
• Executive Vice President, Chief Supply Chain Officer — Colin Yankee
• Senior Vice President, Investor Relations and Public Relations — Mary Winn Pilkington

Takeaways

• Net Sales -- $3.9 billion, increasing 3.3% year over year, with new store growth and modest average ticket growth as primary drivers.
• Comparable Store Sales -- Up 0.3% due to modest growth in average ticket and resilience in essential categories; offset by declines in big ticket and emergency response categories.
• Diluted EPS -- $0.43 for the quarter, reflecting modest sales growth, elevated promotions, and continued strategic investments.
• Digital Sales Growth -- High single-digit percentage for the quarter and full year, with improved personalization and delivery capabilities cited as key factors.
• Regional Comps -- 11 of 15 regions posted positive comps, while the South Atlantic saw mid-single-digit declines due to storm activity laps.
• Customer Fundamentals -- Identified customer counts grew approximately 2%, with a slight moderation in spend per customer.
• Consumable, Usable, Edible Categories -- Grew low to mid-single-digit comps, led by livestock, equine, poultry, and wildlife supplies.
• Big Ticket and Emergency Response Categories -- Declined high single digits, attributed to lower discretionary demand and absence of major storms.
• Gross Margin -- Decreased approximately 10 basis points year over year for the quarter; full-year gross margin expanded 16 basis points due to cost management offsetting tariffs and higher delivery costs.
• SG&A Including D&A -- Increased approximately 70 basis points to 27.5% of sales, mainly from planned investments, new stores, and Alabet acquisition; expense management cited as a positive.
• Operating Income -- Declined 6.5% year over year as a result of lower sales growth, gross margin pressures, and continued investments.
• Tax Rate -- Effective tax rate improved by 250 basis points to 19% due to the timing of tax planning initiatives, including a discrete federal benefit.
• Average Inventory per Store -- Up approximately 5%, with one-third of growth from tariffs and the rest from actions to support demand and in-stocks.
• Store Openings -- 99 Tractor Supply stores opened during the year, with robust early productivity observed and more than 210 delivery centers now active.
• Direct Sales Initiative -- Ended year with nearly 50 sales specialists, launching direct sales for 375 stores, targeting $50 million in sales for 2026 and plans to double the specialist count.
• Alabet Contribution -- Delivered approximately $100 million in sales for the full year, cited as reinforcing customer demand in pet and animal prescriptions.
• 2026 Guidance—Total Sales Growth -- Projected at 4%-6%, driven by new store openings and improving comp sales.
• 2026 Guidance—Comparable Store Sales Growth -- Expected range of 1%-3%, supported by AUR (Average Unit Retail) growth and modest transaction growth.
• 2026 Guidance—Operating Margin -- Expected to be 9.3%-9.6%, with margin expansion tied to cost management, exclusive brands, and supply chain efficiencies, offset by delivery and tariff costs.
• 2026 Guidance—Diluted EPS -- Forecast of $2.13 to $2.23, maintaining midpoint flexibility given environmental uncertainty.
• 2026 Guidance—Net Capital Spending -- Targeted between $675 million and $725 million, focusing on growth initiatives and opening 100 new stores.
• 2026 Guidance—Share Repurchases -- Planned range of $375 million to $450 million, equating to approximately 1%-1.5% of shares outstanding.
• Project Fusion Store Format -- Nearly 60% of stores remodeled to the Project Fusion format, reported to offer improved economics and customer relevance.
• Final Mile Delivery Expansion -- More than 150 new hubs planned, targeting 375 hubs and coverage for over 1,200 stores by year-end, aiming to lower delivery costs and improve fulfillment.
• Private Brand Initiatives -- Plans include expanding Freshpet presence, updating For Health offerings, and extending the Impeckable brand for poultry categories.
• Sale-Leaseback Program -- Sale-leaseback benefits for operating income expected to be flat year over year.

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Risks

• Fourth Quarter Results Below Expectations -- CEO Lawton said, "our fourth quarter results came in below our expectations," citing headwinds from storm-related laps, discretionary moderation, and soft holiday categories.
• High SG&A Pressure -- CFO Barton stated that SG&A, including D&A, "increased approximately 70 basis points to 27.5% of sales," primarily due to new store growth and Alabet acquisition, with only partial offsets from cost control.
• Ongoing Tariff and Delivery Cost Impacts -- CFO Barton identified "incremental tariffs, elevated promotional activity, and higher delivery-related transportation costs" as drivers for the gross margin decline and expense pressures, which are expected to persist into 2026.
• Uncertain Consumer Environment -- Management highlighted mixed signals in the broader operating environment, with references to "declining consumer sentiment and a robust national debate around affordability" alongside positive factors like a strong tax refund season.

Summary

Tractor Supply (NASDAQ:TSCO) reported modest sales and EPS growth with mixed regional and category performance, producing results below original targets due to pronounced headwinds from the absence of emergency weather events and continued softness in discretionary and big ticket categories. Management signaled confidence in the needs-based model and outlined a detailed growth roadmap, highlighting expansion in digital, direct sales, and supply chain initiatives, as well as further advancements in private label portfolios, final mile delivery coverage, and store fleet modernization. Forward guidance for 2026 indicates expectations of 4%-6% sales growth, with a focus on expense discipline but acknowledgment of ongoing headwinds from tariffs, delivery, and promotional pressures. Company leaders provided explicit operational benchmarks for new initiatives—targeting $50 million in direct sales for 2026, more than doubling last-mile delivery hubs to 375, and opening 100 low-risk, high-return stores—while pointing to a normalized operating margin path and ongoing capital returns to shareholders. Active customer engagement and retention metrics remain elevated, strategic projects now show greater self-funding characteristics, and executive commentary repeatedly emphasized normalization and stabilization as company priorities in the uncertain retail landscape.

• CEO Lawton stated, "customer engagement remained healthy throughout the quarter," with Neighbor's Club members representing over 80% of sales and team member turnover at historic lows among store managers.
• Seth Estep reported that 75% of direct sales specialists were external hires and highlighted the attainment of the company's first $1 million specialist in December.
• CFO Barton confirmed that gross margin pressures from tariffs are expected to persist at similar rates in the first half of 2026, contributing most to planned ticket inflation.
• Hal Lawton characterized the Q4 pullback in discretionary categories as "transitory," specifically linked to weak holiday seasonal demand and the lap of storm benefits, rather than indicative of a broader structural slowdown.
• Alabet’s $100 million contribution in pet and animal prescriptions during the year was noted as evidence of growing customer adoption within this new focus segment.
• Direct sales and final mile initiatives are now largely self-funding, with savings in logistics and earlier cohorts offsetting ramp costs for 2026 expansion.
• Approximately 50% of new store openings in 2026 are planned as fee development, offering significant unit-level cost savings versus previous models.

Industry glossary

• Project Fusion: Tractor Supply’s store remodel strategy focused on enhancing localization, customer experience, and economic returns.
• Final Mile Delivery: The distribution and logistics initiative targeting the completion of online and in-store orders by delivering goods directly to customers' homes, particularly for large or complex purchases.
• Neighbor's Club: Tractor Supply’s customer rewards and loyalty program, representing a significant portion of total company sales.
• AUR (Average Unit Retail): The average retail selling price per unit sold, referenced as a primary driver of comp sales and ticket growth.
• Fee Development: A real estate development model where the company handles property acquisition and store build-out, often yielding improved economics versus third-party developer arrangements.

Full Conference Call Transcript

Mary Winn Pilkington: Thank you, Alyssa. Good morning, everyone. We appreciate your time and in today's call. On the call today, participating in prepared remarks are Hal Lawton, our Chief Executive, and Kurt Barton, our CFO. We will also have Seth Estep, Rob Mills, John Ortiz, and Colin Yankee join the call for the question and answer portion. Following our prepared remarks, we'll open the floor for questions. Please note that a supplemental slide presentation has been made available on our website to accompany today's earnings release. Now let me reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statement are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission.

The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. As we move into the Q&A session, please limit yourself to one question to ensure everyone has the opportunity to participate. If you have additional questions, please feel free to rejoin the queue. We appreciate your understanding and cooperation. We will also be available after the call for further discussions. Thank you for your time and attention this morning. Now it's my pleasure to turn the call over to Hal.

Hal Lawton: Thank you, Mary Winn, and good morning, everyone. Before we begin, I want to recognize our team members, first responders, and local communities impacted by winter storm Fern. Our teams moved quickly to support our neighbors during challenging times and continue to do so. It reinforces our role as a dependable supplier when our customers need us most. Turning to the business. The opening video highlights the progress our team made in 2025 and does a nice job of setting the context for the discussion that'll follow in this earnings call. As within a year, 2025 was not without its challenges.

I want to thank our more than 52,000 Tractor Supply team members for staying focused on our purpose, operating with discipline, and making the adjustments necessary in a dynamic environment while continuing to evolve the business. That work positions us to build on our strategic advantages and remain a consistent share gainer in an attractive market. Before getting into the details, I want to acknowledge that our fourth quarter results came in below our expectations. Results reflected a shift in consumer spending, with essential categories remaining resilient while discretionary demand moderated and emergency response was absent versus last year. There were three primary drivers of our performance that I'd like to drill down on.

First, as we cycled the benefit from last year's Hurricane Helane and Milton storm recovery, it became clear that it contributed more meaningfully to our results in 2024 than we had originally estimated. In contrast, 2025 was a historically quiet storm season with no hurricanes making landfall in the Continental US for the first time in a decade. We now estimate this dynamic represented roughly a 100 basis points headwind to comps, most pronounced in the South Atlantic. The second main driver was big ticket categories, excluding emergency response, and they experienced a step down versus our trend in Q3. Our inventory levels and pricing were competitive, and we do not believe we lost share in these categories.

Instead, we believe customers were more selective and that some discretionary spending shifted towards categories outside of our addressable market in the fourth quarter. Lastly, performance across select holiday periods and seasonal categories such as holiday decor, toys, things like dog toys and snacks, and power tools were below our expectations. This reflected a highly promotional holiday environment combined with softer demand. Again, we believe these dynamics were category-specific, quarter-specific, and broadly consistent with what we saw across retail. At the same time, customer engagement remained healthy throughout the quarter, and our consumable, usable, and edible categories continued to perform very well, reinforcing the resilience of our needs-based model.

We estimate we had one of our strongest quarters of share gain in farm and ranch, stayed disciplined on cost, and continued to execute the fundamentals of the business while investing strategically in our growth priorities. Now let's transition to the fourth quarter and full year 2025 results. For the fourth quarter, net sales increased 3.3% to $3.9 billion, with comparable store sales increasing 0.3% driven by modest growth in average ticket. Fourth quarter diluted EPS was $0.43, reflecting the combined impact of modest sales growth, elevated promotional activity, and continued investment to support our strategic initiatives. Our digital business delivered high single-digit growth. We posted positive comps in 11 of our 15 regions.

However, this strength was offset by the two regions in the South Atlantic, which declined mid-single digits as I mentioned previously, were lapping storm activity. Customer fundamentals remained solid during the quarter. Identified customer counts increased approximately 2%, while spend per customer moderated just slightly. From a category standpoint, consumable, usable, and edible were strong, as I mentioned previously, and they delivered low mid-single-digit comparable growth, led by livestock, equine, and poultry, and wildlife supplies. Our winter seasonal categories posted modest comp growth with cold weather conditions largely neutral for the quarter. Again, as I mentioned previously, this strength was offset by continued pressure in big ticket and emergency response categories, which together declined high single digits.

Turning to the full year, 2025 was a year of steady progress as we navigated a challenging and uneven retail environment. Throughout the year, we stayed focused on executing the fundamentals of the business, serving our customers well, and advancing our Life Out Here 2030 strategy. Net sales increased 4.3% to $15.5 billion, driven by new store growth, the addition of Alabet, and comparable store sales gains of 1.2%. Diluted earnings per share were $2.06, reflecting disciplined execution while continuing to fund strategic investments across the business. Total active customers and high-value customer retention continued to be strong, and customer service scores once again reached all-time highs. Neighbor's Club continued to grow with membership representing more than 80% of sales.

Team member engagement remained high, and turnover stayed near historic lows, particularly at the store manager level. On the technology front, our digital business continued to scale in 2025, delivering high single-digit growth for the year. This performance reflects continued improvement in personalization and conversion as well as our delivery capabilities. More broadly on the technology front, we expanded our use of AI across the enterprise, including expanding our relationship with OpenAI. The capabilities are improving forecasting, inventory flow, and team member productivity, helping us operate more efficiently and better serve our customers. A hallmark of Tractor Supply continues to be opening productive new stores.

We opened 99 Tractor Supply stores and once again saw robust early new store productivity performance. Our distribution centers delivered mid-single-digit productivity improvements for the year while maintaining excellent safety and engagement results. We also opened our first bulk distribution center in 2025 and broke ground as part of our Life Out Here 2030 strategy. 2025 was a year of meaningful progress in building capabilities to support long-term growth. We focused on strengthening what we do best while continuing to scale new initiatives that expand how we serve our customers and grow our share of wallet. On the stores front, we continue to embed localization into new stores and remodels, with 160 stores localized as of year-end.

With nearly 60% of our stores in the Project Fusion format, we continue to see attractive economics and improved customer relevance from our remodel program. We also advanced our final mile delivery initiative, which lowers the cost to serve online orders and expands our ability to fulfill larger, more complex orders. During the year, we increased capacity and execution, expanding to more than 210 delivery centers, covering nearly 25% of our store base. In direct sales, we ended the year with approximately 50 sales specialists covering 375 stores. While both initiatives are still early, we're encouraged by the traction we're seeing in customer engagement, basket size, and repeat behavior.

In pet and animal prescriptions, 2025 was focused on building the foundation and integrating capabilities into the Tractor Supply ecosystem. While customer adoption progressed more gradually at the beginning than we have liked, Alabet accelerated throughout the year and delivered approximately $100 million in sales in the total year, reinforcing the customer demand in this category and the opportunity ahead. Taken together, these initiatives strengthen our foundation, improve execution, and position Tractor Supply for durable, long-term growth outcomes. As we plan for 2026, we are preparing for a wide range of demand. We're planning for continued net sales growth supported by new store openings and improved comp sales and better leverage as our investments mature.

In our view, the broader environment remains uncertain, with a wide range of potential consumer spending outcomes. We continue to see mixed signals, including an all-time high stock market and a strong projected tax refund season. However, that's alongside declining consumer sentiment and a robust national debate around affordability. These dynamics are not unique to Tractor Supply. Strong customer relevance, scale, and disciplined execution position us favorably. With that, I'll now turn the call over to Kurt for further insights on our results and our outlook for 2026.

Kurt Barton: Thank you, Hal, and hello to everyone on the call. I'd like to start by walking us through the cadence of the quarter. Looking at comp sales, October started soft as we lapped the hurricane response, followed by a rebound in November as it got colder and the hurricane lap dissipated. We entered the final five weeks of the year with relatively flat quarter-to-date comps. December, inclusive of Black Friday, produced modest gains. By all accounts, broader retail sales growth, especially general merchandise, stepped down in December. Average ticket increased 0.3%, driven by approximately two points of retail inflation, offset by softness in big ticket categories and a decline in units per transaction.

The retail inflation was primarily the result of a higher commodity cost environment and selective price adjustments as higher product costs flow through our supply chain. The decline in UPT reflects the softness in certain discretionary seasonal and holiday categories. Turning to margins, fourth quarter gross margin declined approximately 10 basis points year over year as ongoing cost management was offset by incremental tariffs, elevated promotional activity, and higher delivery-related transportation costs. The largest variance versus our expectation was the promotional environment, particularly around Black Friday and Cyber Week, as customers were more deliberate in how they allocated their spending. Our view is that these promotions were transitory and specific to the operating environment in Q4.

Stepping back for the full year, gross margin expanded 16 basis points, underscoring the underlying strength of our margin structure despite the more challenging dynamics. SG&A, including depreciation and amortization, increased approximately 70 basis points to 27.5% of sales, driven primarily by planned investments and fixed cost deleverage at the lower level of comp sales growth. These pressures were partially offset by continued productivity and cost control. Our expense management was a strong point for the quarter. SG&A, inclusive of D&A expense, increased 6% over the prior year, with nearly two-thirds of the growth rate attributed to new stores and the acquisition of Alivet, providing evidence of a more normalized cost structure.

Operating income declined 6.5% year over year, reflecting the combined impact of the modest sales growth, gross margin performance, and the investments to support our key strategic initiatives. Our effective tax rate for the fourth quarter improved approximately 250 basis points to 19%, primarily reflecting the timing of certain tax planning initiatives, including a federal tax benefit discrete to the quarter representing half of the rate reduction. Average inventory per store was up approximately 5%. About one-third of the growth reflects the impact of tariffs. The remaining portion of the growth reflects our deliberate actions to support customer demand and in-stock levels going into 2026. We remain comfortable with our inventory position.

Taken together, while 2025 was not the year we had planned, some of the challenges we faced were largely transitory rather than structural, and we made meaningful progress strengthening the business as we head into 2026. Let me now turn to our outlook. We view the upcoming year as a period of normalization for the business. For 2026, we expect total sales growth in the range of 4% to 6%, driven by continued new store openings and improving comparable store sales. We expect comp sales growth of 1% to 3%, supported by continued improvement in average ticket as AUR growth trends are expected to continue, along with modest transaction growth.

From a gross margin perspective, we expect continued expansion, driven by ongoing cost management initiatives, growth in our exclusive brands, retail media, and continued supply chain efficiencies. These benefits are partially offset by delivery costs and tariffs. Overall, these positive gross margin drivers remain firmly in place. On the expense side, we expect measured SG&A deleverage. SG&A will experience some pressure from the opening of a new DC in the second half of the year and a more normalized incentive compensation burden in most quarters. After several years of elevated investment, we expect D&A growth to moderate and move more in line with sales growth this year.

Taken together, we expect operating margin in the range of 9.3% to 9.6%, which implies we can maintain operating margin at the midpoint of the range. For planning purposes, we are assuming an effective tax rate of approximately 22% and interest expense that is generally consistent with 2025, reflecting our ongoing approach to disciplined capital structure and leverage. We are forecasting diluted EPS in the range of $2.13 to $2.23 as we manage the business, we are anchored to the midpoint of our guidance while maintaining flexibility to respond to changes in the operating environment. Net capital spending is expected to be in the range of $675 million to $725 million, with the majority focused on growth initiatives.

We plan to open 100 new stores that are low-risk, high-return organic growth opportunities. Our new store pipeline is robust, and we expect to see greater consistency of openings across the year. In 2026, approximately 50% of our new stores will be fee development, which continues to provide cost efficiencies, improved site quality, and more favorable long-term economics. We also expect share repurchases between $375 million and $450 million, representing approximately 1% to 1.5% of shares outstanding. While we remain focused on supporting our strategic priorities, we also expect those investments to increasingly self-fund. Our capital allocation priorities remain unchanged.

We will continue to invest in our flywheel: new stores, remodels, supply chain capacity, digital, and newer growth initiatives like direct sales and final mile delivery, while maintaining a competitive and growing dividend, consistent share repurchases, and a strong balance sheet. Overall, we believe this positions Tractor Supply to continue executing effectively and deliver long-term value for shareholders. As always, we view our results in halves rather than the quarters given the seasonality of the business. Turning to the calendarization of key line items, we currently expect comp sales performance to be relatively balanced across the year, with each half contributing relatively equally to the comp sales growth.

We expect every quarter to be within the range of 1% to 3% growth. We are planning for a more normalized spring season, which would result in a rebalancing of sales between Q2 and Q3. While the first quarter began against tougher comparisons, recent winter weather has supported demand across our core categories. That said, importantly, a majority of the quarter remains ahead of us, with March representing more than 40% of first-quarter sales, and each successive week becoming more impactful as spring conditions emerge across the country.

From a margin standpoint, we expect gross margin performance to be stronger in the second half of the year as comparisons ease and benefits from our new distribution center begin to flow through. SG&A deleverage is expected to be modestly higher in the first half, driven by an earlier cadence of new store openings, a more normalized incentive compensation, and the lapping of strategic investments, which ramped up near midyear 2025. We expect the cost of the new Idaho DC to add approximately $10 million of incremental expense on the year, most of this in the second half.

We anticipate Q1 EPS to be comparable to the prior year as it bears a heavier burden of these three key SG&A factors I just mentioned. Given the prior year's compares, we expect stronger EPS growth in Q2 and Q4. So stepping back for a moment before I wrap up, I want to address the underlying earnings power of Tractor Supply. While our recent earnings performance has been influenced by our comp sales trends, we have been transparent that the backdrop has not been conducive to achieving our long-term outlook. We continue to believe the company is capable of delivering 3% to 5% comparable store sales growth over time. As that growth materializes, operating leverage naturally follows.

Our model shows an inflection point in the low 2% comp range. As comps move above that inflection point, we would expect operating margin to improve by roughly five to 20 basis points per year. This will allow us to progress back toward our target operating margin over time, consistent with our long-term framework. To close, we remain focused on execution, productivity, and advancing our Life Out Here 2030 strategy. We believe the actions we are taking position the business for durable long-term value. Now I'll turn it back over to Hal.

Hal Lawton: Thank you, Kurt. As we begin 2026, we're staying focused on what is resonating most with customers across retail: value and essentials. Needs-based products are a core strength for Tractor Supply. We are effectively the grocery store for our customers' animals and pets, with the scale, frequency, and relevance that come with that role. That allows us to lead on value, invest with confidence, and remain the dependable supplier our customers rely on every day. While much of the country is still in winter mode, spring will be here before long, particularly for Southern markets.

As that transition unfolds, we're committed to being a dependable supplier for our customers' spring needs while also bringing meaningful innovation and newness across the store to keep Tractor Supply relevant and differentiated. This year, Chick Days will be bigger than ever, with more stores participating and more selling weeks. Chick Days is retail theater like no other and continues to be a powerful traffic driver with existing customers and a gateway for new customers, particularly backyard homesteaders and hobby farmers. This year, we're leaning into chick health and wellness, expanding breed assortments, and deepening education support for both new and experienced poultry customers.

We're also extending Chick Days online to 365 days a year and expanding our exclusive Impeckable brand with more functional treats and toys. Taken together, these efforts reinforce Tractor Supply as the destination for poultry while driving differentiation, value, and engagement across channels. As we prepare for the spring selling season, we're leaning into targeted newness in the categories where customers are actively investing. That includes refreshed assortments in lawn and garden on our exclusive Groundwork brand, including expanded outdoor living and grilling accessories, and also a stronger, more curated rider's presentation in our flagship stores featuring Bad Boy, Cub Cadet, and Toro.

We're also creating a dedicated in-store destination for outdoor power equipment and battery-powered tools, bringing together leading brands like Husqvarna, DeWalt, Toro, and DreamWorks to make it easier for customers to shop and complete their projects. By midyear, we'll also be rolling out expanded outdoor and wildlife recreation aisles in 500 stores. This includes a broader field and stream presence, extending beyond hardgoods into apparel and footwear, along with a more complete assortment of food to support wildlife feeding and recreation. These updates strengthen our relevance with customers who live and work outdoors and reinforce Tractor Supply as a destination for both everyday needs and seasonal pursuits.

Beyond outdoor and wildlife, we're also expanding our Freshpet food offering, following a successful initial pilot, with plans to add Freshpet to additional stores by midyear and continue building from there. At the same time, we're investing in our For Health private brand, including refreshed packaging, new fresh food products, and updates to lines such as shreds and untamed. In pet and animal prescriptions with Alabet, we're focused on deeper integration, embedding prescription in our vet clinics and pet watch experience, and strengthening our subscription offering on tractorsupply.com. As we move from spring into summer, we'll then layer in seasonal moments like our Americana program, combining patriotic assortments and in-store experiences with continued focus on value and care for animals.

Taken together, these efforts reflect our ongoing investment in private brands and curated assortments that strengthen value, support margins, and reinforce our role as a dependable supplier. Combined with continued investments in our core flywheel, we're advancing our Life Out Here 2030 strategy and strategic initiatives. Two of our highest priority initiatives are direct sales and final mile, which are gaining traction and becoming increasingly important in how we serve customers with larger, more complex, and needs-based purchases. In direct sales, we're continuing the rollout of this initiative, including building the capabilities, tools, and operating discipline needed to scale, along with plans to approximately double our sales force over the course of the year.

Turning to Final Mile, our focus in 2026 is on lowering the cost and improving the efficiency of our digital order delivery while enabling large and bulky store purchases and supporting direct sales. To do that, we're planning to add more than 150 new hubs this year, taking us to approximately 375 hubs and covering more than 50% of our stores by year-end. One way to think about that level of coverage is that it gives us last-mile delivery capabilities across more than 1,200 stores and reaching over 15 million customers.

We are also increasing utilization of our own delivery network while further integrating with gig providers, allowing us to optimize final mile execution and lower our cost per delivery across all channels. While both direct sales and final mile are still early, we're encouraged by the progress we're seeing and the role these capabilities can play in expanding how we serve our customers. Importantly, they sit behind continued investment in our core growth engine, including opening approximately 100 new stores, advancing our store remodel program with roughly 160 to 170 fusion projects with localization, expanding distribution capacity with our new Idaho DC, and continued investment in digital capabilities.

Taken together, these investments support a disciplined, balanced approach to growth and represent meaningful long-term opportunities as we work to address a larger share of our approximately $225 billion total addressable market. To close, we remain confident in the long-term opportunity for Tractor Supply. We operate a differentiated needs-based model that has proven resilient across cycles. We continue to gain share in a highly fragmented market. The actions we're taking—investing with discipline, strengthening our core, and scaling our capabilities thoughtfully—support a year of greater normalization in 2026 and position the business to deliver more consistent performance and create long-term value for our shareholders. With that, thank you for joining us this morning. We'll now open the call for questions.

Mary Winn Pilkington: Thank you, Hal. Before we move to Q&A, one note for planning: Due to a scheduling conflict, we will release our first quarter 2026 earnings on Tuesday, April 21. For the balance of the year, we would anticipate returning to our normal reporting cadence, but just wanted everybody to be able to get that on their calendars now. With that, I'll turn it over to begin our Q&A session.

Operator: Thank you, Mary Winn. We will now begin the question and answer session. If you would like to ask a question, please press star. If for any reason you would like to remove your question or your question has been answered, you may press star two. As a reminder, if you are using a speakerphone, remember to pick up your handset before asking your question. Our first question comes from the line of Steven Zaccone with Citigroup. Please go ahead.

Steven Zaccone: Hey, good morning. Thanks very much for taking my question. I wanted to start on gross margin. So it sounds like for '26, you're still expecting expansion, but it's gonna be second-half weighted. Should we anticipate gross margin declines in the first half? And then specifically on promotions, what gives you confidence that the promotions will be confined to the fourth quarter and not persist into '26?

Kurt Barton: Hey, Steve. It's Kurt. Thank you for the question. To your point on gross margin, we gave guidance on our expectation that we can continue to expand gross margin. The fundamentals of our gross margin initiatives are still very solid. There is a stronger opportunity for expansion in the back half of the year. But we are not anticipating gross margin in the first half of the year. The puts and takes that we described in the fourth quarter, as I mentioned, are very transitory. Our gross margin initiatives, our cost management, are still producing a strong opportunity for gross margin expansion, albeit modest, particularly in the first half of the year.

Operator: The next question comes from the line of Jonathan with Jefferies. Please go ahead.

Jonathan: Alright, good morning, and thanks for taking my question. It sounds like 1Q started against tough compares, but you saw some outsized demand due to winter storm Fern. Recognizing that March is a large chunk of the quarter, with each quarter anticipated to be between 13%. Is that to suggest the quarter-to-date trend is in that range? Could you just clarify maybe how the first couple of weeks in the quarter in aggregate are trending? Thank you.

Hal Lawton: Hey, Jonathan, and good morning. Thanks for joining the call. I think you've encapsulated it pretty well. As you mentioned, the first few weeks, we were lapping winter weather from last year and storms. And it was warm in the first three weeks of this year. And so we had offsetting comps there. And then, of course, with winter storm Fern, you know, we had the flip where we were having strength due to storm preparations and storm recovery on top of some warmer weather last year. You know, case in point on that often happens at the beginning of the year.

You know, this week, as an example, last year was the warmest in thirty-five years, and then this week, this year is the coldest in thirty-five years. So, you know, you get these extremes in the first part of the year. But net-net, to your point, we are tracking, you know, above our plan for the quarter to date. But as you said, there's still a lot of sales left to go. The month of January is, like, 30-ish percent of our sales. The month of March is 40-ish percent. We certainly need the weather to turn in the south in late February to deliver on our plan for March.

But in addition to spring coming up, which we know happens every year, just a little bit different time, you know, we're optimistic about the potential for tax refunds this year. And, you know, think that could be very similar to 2018, and that would be the majority of that benefit would also be in the first quarter. So there are a number of things as we look out at the balance of seven weeks to go in the quarter that give us some optimism. But feeling good about the quarter so far, yes.

Operator: The next question is from the line of Bobby Griffin with Raymond James. Please go ahead.

Bobby Griffin: Hey, good morning, guys. Thanks for taking the questions. Hal, I just want to maybe talk about the discretionary weakness you referenced. I'm just curious, like, can you unpack that a little more? Do you think there's been a step function change where your customer, the more rural-based customers, started to feel maybe some of the pressure other areas of this country felt across retail, or is it really just weather-driven? Just anything there to help us understand that and what the drivers will be for that to get better in '26 and beyond.

Hal Lawton: Yeah. Hey, Bobby, and good morning. When we reflect back on the discretionary for Q4 and a bit of the step down that we saw there, we do think that was specific to Q4 using the word transitory, I guess. And kind of hit on a few things there. First, a lot of it was emergency response as we called out, which was being specific to that quarter. The second one was really kind of these seasonal holiday categories that we really only participate in Q4 in.

And so things like toys, some of the holiday decor, some of the, you know, even like in, like, dog snacks and dog treats, see, like, a lift in those last two weeks kind of that are discretionary in their orientation. We just didn't see that. But, you know, as we head into 2026, we feel very good about our business. We just, as based on Jonathan's question, just gave a little bit of summary of how things are playing to date in the quarter. We feel very good about our big ticket plan for the spring. You know, we've had two successful seasons in riders even with kind of broader big ticket pressure in the market.

Feel very good about our setup as we head into the first half of this year. And do you think most of the step down we saw in Q4 was kind of one-time kind of transitory type things that happened in the month of December. And I think you'll hear that a bit more across retail as it comes out. I mean, by all accounts, December stepped down versus the year-to-date and quarter-to-date. If you look at almost any external data, as it relates to retail sales, and in particular, you see that in general merchandise and big ticket as well.

You see you saw kind of low price point gifting, things like beauty and others, you know, have a good December, but I think most across most categories that were big ticket, you saw a pullback in December.

Operator: The next question is from the line of Kate McShane with Goldman Sachs. Please go ahead.

Kate McShane: Hi, good morning. Thanks for taking our question. Kurt, we wondered if you could walk us through the cadence of how you see tariff costs rolling in here maybe in the first half and how you're managing pricing as a result?

Kurt Barton: Yeah. Kate, I'll share a little bit of what our assumptions are in 2026. And in summary, I'd say there's not that much variation to what we saw in the second half of 2025. As we've said before, we feel like we're basically halfway through the process of cycling through tariffs. Tariffs have had, at its base rate, anywhere from 20 or 30 basis points of pressure. We've been able to offset that through great cost management initiatives. In some cases, there's some price increases selectively, like I mentioned in there. And we would anticipate that the impact in the second and the first half to be very similar. It's one of the key drivers of the average ticket increase.

As we mentioned, there's some level of inflation in AUR. The biggest portion of that would be related to cycling the tariffs in the first half of the year. So not that much different. We step back. We look at the tariffs piece of the business. The team managed it really well. Similar in the first half. Been able to maintain our margins related to that, and we anticipate.

Operator: The next question is from the line of Michael Lasser with UBS. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking my question. You have expressed a lot of optimism that the model can eventually return to the algorithm. So under what conditions, economic or otherwise, are necessary in order to restore the comp growth back to three to 5%, what's a reasonable time frame for that?

And is the challenge today versus ten years ago that Tractor has just achieved so much productivity gain during the last decade through all the initiatives that it's deployed, such that it's just gonna be more difficult to generate the type of growth that the market had been accustomed to in the past because of the base being so much bigger and the market share being so much larger today. Thank you very much.

Hal Lawton: Hey, Michael. Thanks for your question. Good to speak with you this morning. We remain very committed to our long-term algorithm on our comp sales. We feel like we're on a track and a path to return to those comp sales. And, you know, we think we've got the full suite of activities necessary to deliver that, including, you know, big investments we made in our core flywheel, you know, everything ranging from our DC product capacity to all the investments we made in our stores and our remodel programs. Our new stores continue to provide excellent maturity curves, and we've got a number of our strategic initiatives as well.

So feel like the toolkit that Tractor Supply has had for the twenty, thirty years is a tried and true toolkit. We continue to add to it like we always have and feel very confident in our long-term algorithm. We think we're on the path to back that.

Operator: The next question is from the line of Robert Ohmes with Bank of America. Please go ahead.

Robert Ohmes: Oh, hey. Thanks for taking my question. I was hoping you guys could actually talk a little more about the direct sales model and the profitability now, and it looks like you're going to keep ramping it up. Is there a do we think about how many stores, how many sales specialists, you know, what the, how big it needs to be to really become, you know, profitable?

Seth Estep: Yeah. Thanks for the question. First, I'll just tell you I'm very pleased with our performance so far. We saw volume at sales per rep, transaction value, average transaction volume all increased in the month and in the quarter. In December, we finished sales of over $2 million. We're seeing a month-to-month-to-month ramp. It's similar to new store maturation curve. Our growth is structural. Our direct sales app is a core growth engine for us. Our people and our process investments are delivering returns, and we're seeing strong momentum exiting Q4 into 2026. 75% of our specialists are external. They're bringing this book of business with them, and they are strong at selling. They all live the lifestyle.

They all have an average of eleven years of experience in the farm and ranch industry. And in the month of December, we had our first $1 million specialist. So I was able to go travel with that person. I could tell you just, like, phone calls throughout the day, the relationship he had with his clients, everybody calling him, all the stuff they need. You can just see that relationship building and building and building there. As we look into 2026, we'll continue to invest in technology and training. We'll double our specialist count, as Hal mentioned. We have found that smaller training classes have been better than the bigger classes, and we're able to do more one-on-one training.

We're targeting around $50 million in sales in 2026. Hal also mentioned that we ended the year with just under 50 sales specialists. We've hired nine in December going into January. And we'll continue to build as this year goes on throughout the year.

Operator: The next question is from the line of Peter Benedict with Baird. Please go ahead.

Peter Benedict: Hi, guys. Thanks for taking the question. I wanted to follow-up on an earlier question. Just on the inflation lift, I guess, 200 basis points, a lot that you're saying was tariffs. I'm just curious if you could talk about the commodity side of that and what you're seeing and what your outlook for 2026 includes from a commodity standpoint? And then my other question is just around the garden centers. You're about 32% penetrated. What's the outlook there? Any plans to go faster, slower, kind of an update on that initiative. Thank you.

Seth Estep: Hey, Peter, Seth. Thanks, Hal. Hey, as we look ahead to this year, you know, we're looking at comp sales, some of what we put in the guide, as we do anticipate a little bit of inflation, you know, that kind of potentially, like, one to 2% range from an AUR perspective. To really help drive that from a comp perspective with some modest obviously, transaction gains with that. And that's kind of a blend, right, with commodities trading kind of within a range in which we manage kind of every day. It's, you know, corns within that, you know, low to mid fours, which we feel very comfortable with that outlook right now.

And as we look ahead, you know, as we manage strategically manage our kind of pricing, you know, we'll continue to monitor, you know, how much is being driven by traffic, how much is being driven by AUR, and we'll continue to flex up and down accordingly. But, yes, some modest continued inflation as we look ahead in the guide to deliver on that comp sales goal this year.

Hal Lawton: And then circling back on garden centers, I'll start out by just saying we remain very pleased and committed to our being in the business of live goods and kind of the outdoor garden business. As expected over the last five years, the way we go after that has continued to evolve. So we have talked about this a little bit before, but we have kind of our now really large live goods garden centers. We've got kind of a medium in size. We have a smaller size. And then we also have another solution set where we do pop-up tents out in our stores.

And so we've gotten really good in our real estate model over the last few years of deciding which one of those solution sets is best for each store. And then we deploy it as such. And as I mentioned in my opening remarks, we'll have well over 1,000 stores this year that between new between garden center stores and pop-up garden centers, and we feel really good about it. And live goods was one of our best performing categories last year as a business.

Operator: The next question is from the line of Oliver Wintermantel with Evercore ISI. Please go ahead.

Oliver Wintermantel: Thanks, guys, and good morning. How should we think about the lap of sales leaseback benefits? And as we move through 2026, should we expect any incremental contributions year? Or does the comparison become neutral?

Hal Lawton: And Kurt can jump in here if we need to get any to the some of the core details of it. I would just say in general, the sale leaseback is going to be flat year over year from an operating income benefit. What I'd love to do is just step back though and just talk about how successful our real estate model that we introduced two summers ago is going. We are now doing own development on 50% of our new stores. That is providing two sets of benefits. One, the benefit the dollars that we would normally pay our developer, we're now able to reinvest that back in the store.

That's saving us somewhere in the high single digit, call it 10-ish percent in total cost to build. And then we're also essentially procuring a lot of the materials that go into building our stores, we're getting high single digit, call it 10-ish percent for savings there as well. So we are getting significant savings. From the cost of building a new store that continues to allow us to deliver high IRRs. And now when we're in the market starting to sell some of those owned stores, we're seeing really strong cap rates on those as well. So the strategy has paid off in spades and more. We're very pleased with the results and the returns it's getting.

And, you know, the cap impact, the operating income impact, etcetera. Just can't say enough about the work that team's doing and the impact it's having on the company.

Operator: The next question is from the line of Michael Baker with D. A. Davidson and Company. Please go ahead.

Michael Baker: Hi. Thanks. Can you talk about the timing of when you start to leverage some of the investments that you've made over the last few years? For instance, you're saying that delivery will still be a drag this year at some point I think the final mile investments you're making start to leverage themselves similarly, with the Big Barn initiative. Just wondering when we see a, I guess, would be a lower comp breakeven point from leveraging the past investments. Thanks.

Hal Lawton: Yeah. Hey, Michael, and thanks for the question this morning. I'll just start out by saying, at a low 2% comp I think that's a really good inflection point for retail. And so that's why we're emphasizing it and putting it out there so folks kinda have that in their model. So I feel really good about that, and I think that stands tall in retail in terms of the right comp percent to be inflecting on your operating margin. Specific to the initiatives, on 50% store coverage, it's basically last year's benefits are paying for the rollout for this year. Incremental to that, there are significant cost savings that initiative will capture this year related to freight.

Specific on freight that we use for Roadie and also which is our gig provider, as well as freight that we use to ship goods from our that will now ship through our stores and then out to the customer for the final mile. And those are million dollars a year in savings that help improve our gross margin, but then also fund that initiative. So that initiative in many ways is kind of self-funding itself as it goes. On the same front, direct sales is doing the same thing. As we talked about last year, we invested around 10 basis points of margin rate between those two initiatives.

They are not further dilutive this year on final on direct sales, it's the same way. As John mentioned, we're gonna double the class from fifth this year last year 50 to next year a 100. The class of last year, 50, is basically paying for the investment of the next 50 this coming year. And so there's not incremental dilution on either one of those from a rate perspective and that's what allows us to achieve that breakeven just above the 2% comp run rate. Thanks so much, Michael.

Operator: The next question is from the line of Chris Horvers with JPMorgan. Please go ahead.

Chris Horvers: Thank you, and thanks for taking my question. So I wanted to take the other half of that question. So as you've scaled out the sell to benefits from prescriptions and final mile and direct sales, how do those build? Like, when do you think they'll become sort of a greater portion of the comp such that, you know, the overall trends become a lot less macro sensitive? Is there inflection as this year progresses? And how does that look then in '20? And any quantification around that would be really helpful.

Hal Lawton: Thanks for the question, Chris. And what I'd say is if you take first off, I'd start by saying we expect that those initiatives to provide material benefit this year in our comp. And they did have some nominal benefit in our comp last year. Last year, at the beginning of the year, we kind of said, hey, look, don't gonna get these things ramped up. Making some investments in them. You'll be able to we'll be able to see some of the sales, but we're not gonna be sharing those a lot just because we wanted to get ramped up and get in a good spot. This year, we feel like those are off and running.

As John said, we had 50 sales reps last year. We had the first one to hit a million dollars. We did $2 million in the month of December. We eclipsed that rate in the month of January, so we're seeing the right pace and cadence there. You guys can do the math on that. If you think about the number of reps, and the pace we're running at, you can see the dollars that we would roughly be targeting this year, and that starts to have a material, you know, 40-ish basis point impact on comp.

The same thing starts to happen, you know, in pet and RX as we start to scale that up as well, and we start to see the strong growth rates we see in there, and then that starts to add to it as well. And so feeling really good about these initiatives. And Final Mile, as we talked about, is really it has three purposes. It's driving costs down on our delivery, it's enabling the direct sales as well. But really, it's also providing a means for us to be able to fulfill future demand as delivery becomes more and more a way of life for everyone. So feeling great about all three initiatives.

They're all on track and doing really well.

Operator: The next question is from the line of Peter Keith with Piper Sandler. Please go ahead.

Peter Keith: Hey, good morning. Thanks for taking the question. Hal, was hoping you could talk about the pet food category that was not called out as an area of outperformance within Q4. I think there's been some concern out there with investors of maybe market share loss or maybe the category has seen deflation. What specifically did you guys see in Q4? What are you expecting for pet food in 2026?

Seth Estep: Hey, Peter. This is Seth. Thanks for the question. Hey. Relative to pet, you know, would approach pet and how we're thinking about it in kind of three different kind of frameworks. Particularly as we look ahead for kind of 2026 and beyond. First thing I would just say is, you know, pet does not have to over-deliver an outsized growth for us to achieve our overall comp targets. You know, we're needs-based, multi-category retailer. We have a history of balancing our full portfolio to deliver our comp growth rates. And there's not we're really not relying on any single category going forward. The second way I'd look at pet is also from a share perspective.

We're not seeing any indication that we're losing share in pet. You know, we're holding our own. We might not be at the outsized pace that we were over the course of the last couple years, but the data that we get is a very data-rich industry. That we're holding our own, we're holding trips, our customer remains very engaged in the category. For an example, last year, we saw over 2 million pets come through our pet washes, our pet vet clinics grew in sales over 20% in those stores. So we're seeing really good engagement from our shoppers in the category itself. And then third, I would just say, hey. We're excited about what's ahead.

I mean, from the assortments, from the layouts, we're focusing on more localized assortments, making sure that we're allocating brand and space in our stores to the brands that fit kind of regional preferences in a given market. You know, as Hal mentioned as well earlier, we're continuing to expand kind of fresh and frozen into that category that is the fastest growing category in the space, and we'll have a few hundred stores this year in that particular area as well. And we're constantly looking to revitalize our brands as well, like for health, continuing to see that kind of customer engagement and interaction.

And as the category returns to kind of historical growth, we feel like we're really well positioned to continue to maintain our share, and be in a position to continue to grow share long term here as well. So thanks for the question.

Operator: The next question is from the line of David Bellinger with Mizuho. Please go ahead.

David Bellinger: Hey, good morning. Thanks for the question. Maybe a bit bigger picture, but you mentioned some of these initiatives layering in for 2026, even maybe 40 basis points of comps from direct sales. It was very incremental, but we back some of these things out, why is the core business of Tractor sort of underperforming now? We're talking about a wider range of outcomes. These outcomes basically widening out. And, plus, can you square that away with some of this increased promo activity we heard about in Q4? Is that something contained to the period? Or something that we could see bleed into 2026 as well? Thank you.

Hal Lawton: Yeah. Hey, David. Thanks so much for the question. We are very excited as we enter the year of 2026. I think as always, as we commented, there's a wide range of outcomes we think that are allowable for the year, and I think we're starting in the right prudent mentality. As it relates to promos, we really haven't seen that carryover into 2026. I admit there's been a lot of volatility, you know, in retail for these first five or six weeks. And so, you know, I think time will tell on that. But, you know, to date, we've not seen that carryover. We all I would say all already have most part.

Our spring plan's already laid out, and, you know, we're planning for a more normalized environment on that as well. But, certainly, we'll be prepared to respond if necessary. But I'd just start out by just close by just saying we feel very optimistic about 2026. We like the setup we have coming into 2026. The first five or six weeks have been a nice start to the year. We're optimistic about potential for tax refunds. We're optimistic about potential for a strong spring after two tough springs. We've got a lot of strategic initiatives underway. Our team is engaged. Supply chain's never been better. Stores have never been operating better.

We think we've got a great setup as we head into 2026 here, and we're, you know, looking forward to getting into the year and then coming back and reporting on some strong actuals for you.

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