Tractor Supply Company · NASDAQ:TSCO
Tractor Supply — Q3 2020 Earnings Presentation
86 slides from Tractor Supply's earnings presentation, Oct 23, 2020
Slide 1: Enhanced Earnings Event Q3 2020
Enhanced Earnings Event Q3 2020 October 22, 2020 2
Slide 2: Welcome
Welcome Mary Winn Pilkington SVP, Investor and Public Relations
Slide 3: Agenda
Q3 2020 Earnings Recap Hal Lawton Kurt Barton President & CEO EVP, CFO & Treasurer Life Out Here Hal Lawton President & CEO Deliver Legendary Customer Experiences Seth Estep EVP, Chief Merchandising Officer Operate the Tractor Way John Ordus EVP, Chief Stores Officer BREAK Advance Our ONETractor Cap
Slide 4: Reconciliation of GAAP to Non-GAAP Financial Measures
Reconciliation of GAAP to Non-GAAP Financial Measures The Company’s presentations may include certain non-GAAP financial measures such as free cash flow, leverage ratio, EBITDA and EBITDAR. This supplemental information should not be construed in isolation or as a substitute for related GAAP measure
Slide 5: Q3 2020 Financial Review
Q3 2020 Financial Review Hal Lawton President & CEO
Slide 6: Thank You Team Tractor!
RONCRS i ya ect hi a Team Tractor! Lg (a ae ae . FOR LIFE OUT HERE
Slide 7: COVID-19 and Natural Disasters Support
COVID-19 and Natural Disasters Support Health & Safety Thanking Supporting Our Activities Our Team Communities Personal Protective Appreciation Bonuses COVID-19 Relief Efforts Equipment Barriers in Stores Pay Increases Disaster Relief & Aid Temperature Checks Family Meal Appreciation Diversity & Inc
Slide 8: All in an Extraordinary Performance by the Team
All in an Extraordinary Performance by the Team Balanced Growth Across Months, Products and Geographic Regions Continued to Attract New and Reengaged Customers Strength in Transaction-Driving CUE Categories Exceptional Growth in Big Ticket Leveraging Our Strategy: Investing for the Future
Slide 9: Q3 2020 Performance: Strong Sales Growth
Q3 2020 Performance Strong Sales Growth Net Sales Growth ($ in billions) $2.61 HIGHLIGHTS $1.98 +31.4% Record Level Sales Performance Continued Market Share Gains Q3 2019 Q3 2020 Triple-Digit eCommerce Growth Comp Sales Growth 26.8% Seasonal Weather Trends Favorable 2.9% Q3 2019 Q3 2020
Slide 10: Broad-Based Strength in Customer Trends
Broad-Based Strength in Customer Trends New Customers and Reengaged Customers Existing Customers Q2/Q3: +10M 17.8M Neighbor’s Club Members
Slide 11: Q3 2020 Financial Review
Q3 2020 Financial Review Kurt Barton EVP, Chief Financial Officer and Treasurer
Slide 12: Q3 2020 Performance: Gross Margin and SG&A
Q3 2020 Performance Gross Margin SG&A Expenses As a % of Sales +138 bps +14 bps Expansion 36.4% 26.8% 26.7% Leverage 35.0% Q3 2019 Q3 2020 Q3 2019 Q3 2020 Key Drivers Key Drivers • Lower Depth and Frequency of Sales Promotions • Leverage in Occupancy, Personnel and Other Operating Costs • Less Clear
Slide 13: Q3 2020 Performance: Profitability
Q3 2020 Performance Profitability Operating Margin Net Income EPS +152 bps +56.1% +58.8% $1.62 $191M 9.7% 8.2% $1.02 $122M Q3 2019 Q3 2020 Q3 2019 Q3 2020 Q3 2019 Q3 2020
Slide 14: Q4 2020 Outlook
Q4 2020 Outlook Net Sales $2.6B to $2.7B Comparable Store Sales +15% to +20% Net Income $163M to $175M Earnings Per Share $1.37 to $1.47
Slide 15: Life Out Here
Life Out Here Hal Lawton President & CEO
Slide 16: Tractor Supply is the #1 Rural Lifestyle Retailer
Tractor Supply is the #1 Rural Lifestyle Retailer with Strong Omnichannel Capabilities As a Purpose-Driven Company, our Culture is a Competitive Advantage We have a Resilient and Proven Business Model with a Strong Track Record of Performance We see Significant Opportunities for Growth with a Health
Slide 17: We Are Unlike Any Other Retailer: We serve a Lifestyle
We Are Unlike Any Other Retailer: We serve a Lifestyle.
Slide 18: Locally GREAT. Nationally STRONG.
Locally GREAT. Nationally STRONG.
Slide 19: Our Culture is a Competitive Advantage
Our Culture is. a Competitive Advantage ie iy i | Towork hard, have fun, by provi ing make money legendary ‘service and great rday low prices. products at every’ ‘ OUR CUSTOMER ed to being an integral part of UF by being the most depet Lifestyle solutions. ‘We are committ ‘customers’ lives Supplier
Slide 20: A Strong Track Record of Performance
A Strong Track Record $9.9 B in LTM of Performance Sales 2020 2019 Q3 2018 Store Growth CAGR 2017 $5.0 B 2016 ~10% over the last 20 years in Sales 2015 2014 ~7% over the last decade 1,000th Store 2013 2012 2011 2010 2009 2008 $1.0 B 2007 in Sales 2006 2005 2004 2003 2002 2000 2001 1999 1997 1998 199
Slide 21: A Strong Track Record of Performance
A Strong Track Record of Performance Broad-based Consistent Positive +10 Years of Positive Topline Growth Comp Store Sales Traffic Growth Operating Margin Strong Free Cash Disciplined Improvements Flow Generation Leverage
Slide 22: Our Commitment to ESG
Our Commitment to ESG We believe that a healthy environment, Inaugural Submission vibrant communities and transparency to CDP in 2020 of our corporate governance practices are keys to a secure and prosperous future, and we are dedicated to making further progress over time. Published First Annual ES
Slide 23: Attractive Market Tailwinds
Trip Consolidation Smaller Format Security Attractive Market Homestead Sanctuary Tailwinds Self-Reliance Humanization of Pet / Pet Ownership Rural Revitalization
Slide 24: Highly Fragmented Market
Highly Fragmented Market ~10% $110B Our Total Addressable Market Opportunity Source: Estimates based on external industry sources and company data.
Slide 25: Significant Opportunities for New Store Growth
Significant Opportunities for New Store Growth Opportunity 2,500 Current Store Count As of September 26, 2020 1,904 Profile Model Site Selection
Slide 26: Strategic priorities: integral part of customers' lives
Deliver Legendary Customer Experiences Advance Our ONETractor Capabilities We are committed to being an integral part of our customers’ lives as the dependable supplier of Operate the Tractor Way Out Here Lifestyle solutions. . Anytime • Anywhere • Anyway Go the Country Mile for Our Team Generate H
Slide 27: Deliver Legendary Customer Experiences
Expand and deepen our customer base by providing personal, localized and memorable customer engagements. Deliver Legendary Customer Experiences
Slide 28: Advance Our ONETractor Capabilities
Evolve our anytime, anywhere, anyway customer experiences by digitizing our business processes and furthering our omni Advance Our channel capabilities. ONETractor Capabilities
Slide 29: Operate the Tractor Way
Drive operational excellence and productivity through continuous improvement, increasing space utilization and implementing advanced Operate the supply chain capabilities. Tractor Way
Slide 30: Go the Country Mile for Our Team
Connect, empower and grow our Team Members to enhance their lives and the communities they live in, enabling them to provide legendary Go the Country service to our customers. Mile for Our Team
Slide 31: Generate Healthy Shareholder Return
Allocate resources in a disciplined and efficient manner to drive profitable growth and build shareholder value. Generate Healthy Shareholder Return
Slide 32: Combination of Deep Tractor Supply Experience and Relevant Industry Expertise
Hal Kurt Seth Melissa Christi Rob John Ben Colin Lawton Barton Estep Kersey Korzekwa Mills Ordus Parrish Yankee President & EVP, EVP, EVP, SVP, EVP, EVP, EVP, EVP, Chief Executive Chief Financial Chief Chief Human Resources Marketing Chief Tech, Chief Stores General Counsel Chief Supply Officer Offi
Slide 33: Focus on Delivering Strong and Sustainable TSR
Focus on Delivering Strong and Sustainable TSR Differentiated and Disciplined Capital Durable Core Business Stewardship #1 rural lifestyle retailer Deliver Legendary Strong and durable with substantial growth potential Customer Experiences financial performance and free cash flow Growing and loyal c
Slide 34: Drive Space Productivity
Drive Space Productivity Seth Estep EVP, Chief Merchandising Officer
Slide 35: Significant Opportunity for Improvement
Significant Opportunity for Improvement Sales per Square Foot vs. Select Retail Peers $600 $500 $400 $300 $200 $100 $0 Source: Company Documents & Analyst Reports, LTM Q2 2020
Slide 36: Drive Space Productivity
Drive Space Productivity Leverage Technology Project Side Lot & Analytics Fusion Transformation Grow Sales per Market Customer Market Profitability Square Foot Share Acquisition Basket
Slide 37: Leverage Technology & Analytics
Leverage Technology & Analytics Drive dollars per square foot using analytics, customer trends and market share opportunities Provide localized Digitize site-level store assortments and portfolio for initiatives, planogram efficiencies testing and fixture optimization
Slide 38: Leverage Technology & Analytics
Leverage Technology & Analytics Seasonal Group 1 Division Store Group 2 Clustering Group 3 Group 4 Group 5 Group 6
Slide 39: Locally GREAT. Nationally STRONG.
Locally GREAT. Nationally STRONG.
Slide 40: Project Fusion
Project Fusion Enhance the customer experience, protect the brand, drive sales & improve space productivity Age Distribution of TSC Stores 9% > 20 Yrs 25% 15-20 Yrs 17% 10-15 Yrs 5-10 Yrs Opportunity Across 0-5 Yrs 27% 22% 60% to 70% of Store Base
Slide 41: Project Fusion
Project Fusion 2020 2021 Target: Accelerate: 75 Stores 150 to 200 Stores
Slide 42: Side Lot Transformation
Side Lot Transformation Interior Leveraging Outdoor Space to Become the “Out Here” Lawn and Garden Authority Side Lot Average of 15,500 sq. feet Underutilized of Selling Space Exterior
Slide 43: Side Lot Transformation
Side Lot Transformation – Garden Center – – BOPIS Drive-Thru Pickup – – Compelling Value Prop – Contactless Customer Experiences Localized Customer Engagement New Customer Acquisition & Retention Become the “Out Here” Lawn and Garden Authority
Slide 44: Side Lot Transformation
Side Lot Transformation 2020 2021 Target: Accelerate: 55 to 65 Stores 150 to 200 Stores Opportunity Across 60% to 70% of Store Base
Slide 45: Side Lot Project
<te~ SIDE PROJECT FOR LIFE OUT HERE
Slide 46: Initiatives to Drive Sustainable Sales for Space Productivity
• Significant Initiatives to Drive Sustainable Sales for Space Productivity • Growth Investments in Technology, Project Fusion and Side Lot Transformation to Gain Market Share and Drive Comparable Store Sales • Merchandising and Shopping Experience Initiatives to Grow, Attract and Retain Customers
Slide 47: Operate the Tractor Way
Operate the Tractor Way John Ordus EVP, Chief Stores Officer
Slide 48: Significant Opportunity for Improvement
Significant Opportunity for Improvement Customer Facing Percent of Hours Index = 100 OPPORTUNITY 2018 2019 Best-in- Class Retail
Slide 49: Tractor Way Program Foundation
Tractor Way Program Foundation Focus on Labor Intensive Processes Weekly Recovery Freight + & Daily Maintenance + Feed to Floor = Sales Leader
Slide 50: Positive Feedback from Our Customers
Positive Feedback from Our Customers GURA Overall Availability Product Satisfaction of Assistance Availability +180 bps +120 bps +250 bps +190 bps More accurate Certified Stores saw inventory and 33% less 2% better sales performance BOPIS cancellations vs. those that did not
Slide 51: Introduce New Products, Innovate, Reinvent Processes
Introduce New Products Innovate for Life Out Here Reinvent Existing Processes
Slide 52: Stabilize and Optimize
Maximize 2022 and Grow Stabilize 2021 and Optimize
Slide 53: Commitment to Provide Legendary Customer Experience
Commitment to Provide Legendary Customer Experience
Slide 54: Slide 54
Slide 55: For Life Out Here
FOR LIFE OUT HERE
Slide 56: Strong Operational Foundation in our Stores
• Strong Operational Foundation in our Stores: Operating from a Position of Strength • Ability to Reinvest Efficiencies into the Customer Experience to Drive Sales • Labor Productivity Opportunity: Optimize and Grow FAST Over Time • Selling Culture Supported by Our Mission of Legendary Customer Serv
Slide 57: Advance Our ONETractor Capabilities
Advance Our ONETractor Capabilities Rob Mills EVP, Chief Technology, Digital Commerce and Strategy Officer
Slide 58: Our Omni Channel Journey
Our Omni Channel Best-in-Class Journey 2020 No capability 2015
Slide 59: Our Digital Opportunity
Our Digital Opportunity E-commerce % of Sales vs. Select Retail Peers 20% 15% 10% 5% 0%
Slide 60: Improvements that Drive Sales
Improvements that Drive Sales Online Conversion Index = 100 2015 2016 2017 2018 2019 2020
Slide 61: Delivering Legendary Experiences
Delivering 78.6 Legendary Experiences Online Experience Customer Satisfaction 76.5 Industry
Slide 62: Delivering Legendary Customer Experiences, Digitizing, Omni Channel
Delivering Legendary Customer Experiences Digitizing Our Business Processes Furthering Our Omni Channel Capabilities
Slide 63: Delivering Legendary Customer Experiences
Delivering Legendary Customer Experiences
Slide 64: Digitizing Our Business Processes
Digitizing Our Business Processes
Slide 65: Furthering Our Omni Channel Capabilities
Furthering Our Omni Channel Capabilities
Slide 66: Advance Our ONETractor Capabilities
Evolve our anytime, anywhere, anyway customer experiences by digitizing our business processes and furthering our omni Advance Our channel capabilities. ONETractor Capabilities
Slide 67: Deliver Improved Customer Experiences Across All Channels
• Deliver Improved Customer Experiences Across All Channels – Capitalizing on the Evolving, Personalized Customer Journey • Focus on Digitizing Our Business Processes through Data and Analytics • Increase Value with Strong Product Knowledge and Expertise – Providing Rich Content and Digital Interact
Slide 68: Generating Healthy Shareholder Return
Generating Healthy Shareholder Return Kurt Barton EVP, Chief Financial Officer & Treasurer
Slide 69: Focus on Delivering Strong and Sustainable TSR
Focus on Delivering Strong and Sustainable TSR Differentiated and Disciplined Capital Durable Core Business Stewardship #1 rural lifestyle retailer Deliver Legendary Strong and durable with substantial growth potential Customer Experiences financial performance and free cash flow Growing and loyal c
Slide 70: Comp Revenue Trajectory (illustrative)
Comp Revenue Trajectory (illustrative) Pre-COVID COVID Pre-COVID revenue trajectory Note: COVID phases do not correspond with financial reporting periods
Slide 71: Comp Revenue Trajectory (illustrative)
Comp Revenue Trajectory (illustrative) Post- Pre-COVID COVID Normalized Post-COVID COVID Pre-COVID revenue trajectory Note: COVID phases do not correspond with financial reporting periods
Slide 72: Financial Overview: Pre-COVID vs. Normalized Targets Post-COVID
Financial Overview: Pre-COVID vs. Normalized Targets Post-COVID Pre-COVID Normalized Targets Post-COVID FY19 YoY (3 to 5 years) Comp Sales Growth 2.7% 4 to 5% Net Sales Growth 5.6% 6 to 7% Operating Margin % 8.9% 9 to 9.5% EPS Growth 8.1% 8 to 10% Leverage Ratio1 2.0x ~2.0x 1. Leverage is a non-GAAP
Slide 73: Organic Investments to Gain Market Share and Drive TSR
Organic Investments to Gain Market Share and Drive Strong and Sustainable TSR Key Implementation and Potential Financial Initiatives Value Generation Timing Size Drivers 2020 2021 2022 2023 2024 2025 • Comp growth from new product offerings $ • Garden centers increase sales/square foot • Localizatio
Slide 74: Projected Strong Free Cash Flow Generation
Projected Strong Financial Free Cash Flow Discipline & TSR focus Tuck-in Investments Generation acquisition for top line capacity growth $4B ~$3.5B Investments Returned to Cumulative to support shareholders Free Cash Flow our team generated FY '21-25 Strong Profit balance sheet improvement capacity
Slide 75: Overview of Projected Sources and Uses of Cash
Overview of Projected Sources and Uses of Cash FY21 through FY25 ~$2.5B ~$0B ~$6B ~$4B ~$1.0B ~$0.5B Starting cash Cash from Capital Change Dividends & Closing cash balance ’21 operations1 expenditures in debt Buybacks balance ’25 Strong cash generation enables us to invest for growth and return sig
Slide 76: Disciplined Capital Stewardship
Disciplined Capital Stewardship PRIORITY Capital Allocation Priorities Use of Cash Relative to History Doubling of our Organic growth investments ~2x organic investments Healthy and growing Return to ~30% dividend payout dividend per share ~1.5x ratio on a higher earnings base Offset dilution and Co
Slide 77: Healthy Balance Sheet and Financial Resilience
Healthy Balance Sheet and Financial Resilience Leverage Ratio1 Healthy and resilient balance sheet with ample liquidity Commitment to investment grade rating ~2.0x ~2.0x ~2.0x Opportunity to refinance debt at lower rates Pre-COVID Current Normalized FY19 Q3 2020 Post-COVID Target Future leverage rat
Slide 78: Focus on Delivering Strong and Sustainable TSR
Focus on Delivering Strong and Sustainable TSR Differentiated and Disciplined Capital Durable Core Business Stewardship #1 rural lifestyle retailer Deliver Legendary Strong and durable with substantial growth potential Customer Experiences financial performance and free cash flow Growing and loyal c
Slide 79: Wrap-Up
Wrap-Up Hal Lawton President & CEO
Slide 80: Strategic priorities: integral part of customers' lives
Deliver Legendary Customer Experiences Advance Our ONETractor Capabilities We are committed to being an integral part of our customers’ lives as the dependable supplier of Operate the Tractor Way Out Here Lifestyle solutions. . Anytime • Anywhere • Anyway Go the Country Mile for Our Team Generate H
Slide 81: Tractor Supply is the #1 Rural Lifestyle Retailer
• Tractor Supply is the #1 Rural Lifestyle Retailer with Strong Omnichannel Capabilities • As a Purpose-Driven Company, our Culture is a Competitive Advantage • We have a Resilient Business Model with a Strong Track Record of Performance • We see Compelling Opportunities for Growth with a Healthy an
Slide 82: Thank You!
Thank You!
Slide 83: Slide 83
Slide 84: Appendix
TRACTOR SUPPLY C° Appendix
Slide 85: Reconciliation of GAAP to Non-GAAP Financial Measures
Reconciliation of GAAP to Non-GAAP Financial Measures The Company’s presentations may include certain non-GAAP financial measures such as free cash flow, leverage ratio, EBITDA and EBITDAR. This supplemental information should not be construed in isolation or as a substitute for related GAAP measure
Slide 86: Reconciliation of GAAP to Non-GAAP Financial Measures
Reconciliation of GAAP to Non-GAAP Financial Measures Fiscal Year ended 1 Year Period Ended 12/28/2019 9/26/2020 Net Income $ 562,354 $ 757,244 Add: Interest Expense, net of interest income 19,843 25,534 Depreciation and amortization 195,978 210,028 Income Taxes 161,023 220,123 EBITDA $ 939,198 $ 1,
Tractor Supply Company — Q3 2020 Earnings Presentation on 6ix