Tractor Supply Co Barclays 19th Annual Global Consumer Conference

Yeah. Good morning, everyone, and thanks for joining us today, and thanks, Seth, for the question and thanks for having us here. As Seth mentioned, we start at the high level. Tractor Supply participates in a large market. We estimate our market to be $225 billion in size. We're the largest player in our market at around 7%-8% market share. If you just kind of look at it over multi-decades, it's a very attractive market, so it's fragmented, significant opportunity for scale and aggregation, profitable from a Tractor perspective there, and it's one where we think from a competitive perspective, we're uniquely positioned to continue to grow and expand and take share. That said, over the last, call it six months to a year, our market has been stressed. That's kind of implied in Seth's question, and we've been talking a good bit about that.

We do see kind of some light at the end of the rainbow here, and we're excited about as we start to lap some of these pressures, kind of getting back on top of them. I'll talk about those pressures and what we've been seeing for the last six to 12 months. Our end market, $225 billion, as I said, our total addressable market. There's kind of three major end markets that I'd like to talk about today that are kind of stressed. About 40% of our TAM, our total addressable market, is kind of our core farm and ranch segment. So think about these as kind of your core hobby farmer, your core backyard enthusiast folks that are raising animals, raising pets, three to five acres of land in this kind of core farm and ranch segment.

With fuel prices being where they are, with the ag economy being where it is, that part of our set market has been stressed for really the better part of 6 to 9 months, started in Q4 of last year. If you look at Placer.ai data, YipitData, look at that whole competitive set, it has really been a flat to negative market for the last 9 months, and that is about 40% of our market segment. The second set of our market segment is pet. We are a large player in pet, around the fifth largest player in the pet industry. That industry, kind of well-documented for the last couple of years, has struggled on the dog population side. You have seen pullback in consumables as a consequence of that.

You have also had not a lot of new dogs entering the market, so you have had a pullback on hard lines and other early dog kind of categories. As a consequence, that category, collectively inclusive of service, has been flat to modestly positive. Then if you look at our third end market, about 20%, that is kind of home maintenance, home improvement, property repair. That one, as you all have been following, really from the home improvement sector side, has been kind of a flat market now for 4 or 5 years. We are seeing that kind of moderated as well. So when you take farm and ranch, kind of flat to negative one-ish, you take pet, kind of flat to maybe positive one-ish, and you take home improvement, kind of flat-ish as well.

Those are kind of 80% of our $225 billion total addressable market, all kind of stressed. Now, as we look ahead, we see ourselves starting to lap on top of the farm and ranch pressure beginning in Q4. There are a lot of pundits around pet, but there does seem to be some stabilization occurring in that business. So we feel good about our end markets kind of evolving over the next 6 to 12 months. Of course, we are taking a number of actions to respond in the moment, as well as to set ourselves up more strategically as we enter 2027 as well, which we can talk about, Seth.

Yeah. A couple of things on the backdrop. One, it's understandable that tariff refunds is a broad transitory issue for all of retail. You're hearing more about that through all the earnings calls, etc. Tractor Supply is much smaller in regards to our direct import exposure. When tariffs began to be, those costs began to become part of the cost structure in 2025, we've said we are about 10% or 12% of our sales is tariff related. I think with those two backdrop items, the way we're managing and the way we view tariff refunds for 2026 is that this is broad. It's somewhat unique to 2026. Every year it seems like of late there's new uniqueness, and tariff refunds are a bit unique.

As we said on our second quarter earnings call, we viewed in this environment, at this time, the best strategic move is to reinvest our tariff refunds to drive and create value for our customer. We did that and are doing that in two ways. First, and the most significant reinvestment of the tariff refunds are to offset historical record high fuel costs, diesel costs even today hitting some of the historical highs. The combination of fuel costs being higher and then the overall transportation business, principally domestic, but both domestic and import are certainly showing with new regulations, et cetera, there's inflation in transportation costs. The biggest inflation environment right now for our consumer is the overall supply chain costs driving inflation.

We're utilizing that to offset that, rather than try in an environment that the consumers are a bit stressed to be able to try to push through cost increases or price increases, we're reinvesting it to be able to offset that. To a lesser extent, secondly, we think it's a great opportunity, and we've invested on a few key core traffic-driving items where our tariff refunds may be coming in specific to certain merchandise categories. We're reinvesting that in the topmost visible traffic-driving consumable items that bring the customer into Tractor Supply. It's a great opportunity for us to be. We use this as our Unbeatable Price on those to make sure the visibility is that Tractor Supply is driving value in an inflationary stressed environment. That's how we're reinvesting it.

I think the other thing that's important is we've said the timing of tariff is going to be a little bit choppy. A majority of it, we estimate, occurred in second quarter, but there's still some tariff refunds in the second half of the year. We saw an outsized benefit in Q2, but we're managing and reinvesting this for the full year. Ultimately, our guidance says, with high commodity cost inflation, transportation cost increases, those typically put a lot of pressure on gross margin. Our guide for the year puts gross margin not too far off of our original plan, albeit we get there differently. We'll be managing throughout the year, which we've said for the second half of the year, the gross margin performance will not be consistent with Q2, but kind of view it on a full year basis.