Tractor Supply Company (NASDAQ:TSCO) Q1 2024 Earnings Call Transcript

Tractor Supply Company (NASDAQ:TSCO) Q1 2024 Earnings Call Transcript April 25, 2024

Tractor Supply Company beats earnings expectations. Reported EPS is $1.83, expectations were $1.7. Tractor Supply Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning ladies and gentlemen and welcome to Tractor Supply Company’s Conference Call to discuss First Quarter 2024 Results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded. I would now like to introduce your host for today’s call, Mrs. Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.

Mary Winn Pilkington: Thank you, Elisa and good morning everyone. Thanks for taking the time to join us today. On the call today are Hal Lawton, our CEO; and Kurt Barton, our CFO. After our prepared remarks, we’ll open the call up for your questions. Seth Estep, our EVP and Chief Merchandising Officer, will join us for the question-and-answer session. Please note that we’ve made a supplemental slide presentation 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 uncertainty, 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 from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements 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. Given the number of people who want to participate in the Q&A session, we respectfully ask that you limit yourself to one question. If you have additional questions, please feel free to get back in the queue. I appreciate your cooperation. We will be available after the call for follow-up. Thank you for your time and attention this morning. Now, I’ll turn the call over to Hal.

Hal Lawton: Thank you, Mary Winn and good morning everyone and thank you for joining us today. 2024 is off to a solid start with first quarter results in line with our expectations. I would like to thank the Tractor Supply team for their ongoing commitment to each other and our customers. As evidenced by our continuation of record high customer satisfaction scores, the team is always there for our customers as the dependable supplier for life out here. Before I get into our review of the first quarter’s results, I want to take a moment to share what we’re seeing in the macroeconomic environment and its impact on our business. In our view, the U.S. economy remains strong. Unemployment continues at a low level, wages are growing at a steady clip.

In spite of sticky inflation, consumer spending remains strong and mobility has slowed as a consequence of a challenging housing market, but that said, we continue to see outsized population growth in rural markets. As it relates to consumer spending, the shift of spending from goods to services continues to be a headwind for our business. In the first two months of the calendar year, consumer services spending growth was nearly 7%, whereas consumer spending on goods growth was less than 1%. As a result, the mix of goods as a share of PCE are now only 100 basis points above their pre-COVID average. This progressive shift is in line with our expectations as we enter the year. Also, as expected, inflation has remained sticky by outsized increases in shelter, food away-from-home, energy, and insurance.

As a consequence, consumers continue to be anxious about inflation, particularly the lower-income consumer. In the first quarter, our upper income consumer over-indexed in big ticket categories and recreational purchases compared to our lower income consumer, who is prioritizing their spend on needs. In our needs-based, consumable, usable and edible categories, we see very little difference in our performance by income cohort. Once again, our business is proving to be durable, stable, and very consistent. Broadly speaking, in our economy, goods continue to disinflate and are generally running low single-digits with some categories having moderate deflation. With the first quarter behind Tractor Supply, we have now successfully lapped our two most challenging compares due to the inflationary benefits that we had over the last 18 months that have substantially benefited our top line.

We do not see additional downward deflationary pressures in the current environment. The transition from an inflationary cycle to a disinflationary cycle is playing out as we anticipated. In spite of a very challenging housing market, we continue to see positive migration trends to our markets. While rural migration trends have moderated from the recent piece, rural America gained population in 2023. This marks the fourth consecutive year of growth in rural population. It is our view that the sensitive community found in our markets, and perhaps more importantly, the ability to secure a piece of property at a reasonable price has ensured the rural migration trend is one that’s here to stay for the time being. So, with that, let’s now turn to a review of the business for the first quarter.

We grew net sales by 2.9%, with comparable store sales up 1.1% and diluted earnings per share up 10.9% to $1.83. Our comparable store sales growth was driven by transaction growth of 1.3% offset by a small decline in average ticket of 0.2%. These results were very much in line with our expectations that we shared with you as we started the quarter and year. Overall, our customer base remains healthy and highly engaged. Total customer count grew mid-single-digits with growth in active, new, and reactivated customers as we invested in our Neighbor’s Club program and customer service. Neighbor’s Club continues to represent the majority of our sales. During the quarter, we significantly enhanced our Neighbor’s Club offering. As our points-based program enters its fourth year, it was appropriate for us to refresh our offering based on insights and customer feedback.

The changes we made were all implemented with the goal to have customers receive rewards faster and to lower the spending required for tier qualifications. Our Neighbor’s Club members have responded positively to these changes. For example, the new rewards redemption at a $2 and $5 level down from $10 is working as we designed and is driving greater customer engagement and trips for this cohort. The initial response from our customers on the collective changes has been very positive, and we’re seeing increased spending across the board. In addition, we continue to improve relevancy to our members through more personalized offers and tailored incentives and experiences based on their interest and shopping patterns. With more than 34 million members, Neighbor’s Club should continue to build our customers’ loyalty and affinity for Tractor Supply as we go forward.

Our customer service scores continue to run at all-time highs. This is an area where we have strategically invested in training, compensation, benefits, tools and technology to help elevate our customer service. This has garnered the attention of our customers, and I believe, helps strengthen our scores. The strength of our portfolio of products and shopping missions was evident very much so in the first quarter. We had robust growth in our seasonal categories. Our consumable, usable, and edible products performed in line with our chain average. Our performance this quarter was on top of the robust growth we’ve experienced over the last four years as our key [ph] customer trends remain strong as we continue to gain market share. Our customers were certainly in the mindset to prepare for spring as we had strong big ticket growth in the mid-single-digits and strength in other early spring preparedness categories.

Categories that performed below our comp sales growth were more in our discretionary businesses such as clothing and gifts and truck tool and hardware. In our pet food and livestock categories, we continue to grow our market share. In pet food, we’ve seen growth moderate as the category disinflates and pet ownership moderates. Our customers’ shopping trip in this category is highly differentiated, so we offer a broad assortment from value to super premium across private and exclusive brands in a pet-friendly environment, which now includes about 900 Pet Wash locations. Additionally, pet owners benefit from the one-stop shop convenience of our lifestyle retail format, in particular, from the cross purchasing synergy with animal and livestock feed.

In animal and livestock feed, we offer exclusive brands like Do More Producer’s Pride, along with the national brands from Carina, Cargill, Triple Crown and more. We continue to innovate across our key categories of [indiscernible], cattle, and poultry in trends like organic and snack. And we bring a unique retail experience in these categories with events like our Annual Spring Chick Days. This year, the event is on track to have strong results. We continue to see growth from existing customers who are building out and adding to their flock. Organic feed and our assortment of premium breads continue to lead the category and growth. Tractor Supply is the destination for backyard poultry. Today, nearly two-thirds of our backyard chicken owners consider them to be pets, and our customers over-index the poultry ownership with nearly one in five customers having chickens.

Stepping back, we have a market share of about 20% in bagged livestock feed, and we continue to take share, and we are consistently outperforming the market across our two categories. After nearly two years of pressure on our big-ticket comps, we were pleased to see big ticket categories turn positive in the quarter. We experienced broad-based strength across seasonal categories, including zero return tractors, recreational vehicles and outdoor power equipment. Our digital sales returned to double-digit growth in the quarter with increases in visits and an improved conversion rate. Nearly 80% of our orders were they’re picked up in store or fulfilled by a store. Almost 20% of our sales came through our mobile app. The team made excellent feature update such as New Express Checkout feature and the addition of estimated delivery times, and these have helped increase our conversion rate.

This year, we’re opening our tenth and largest distribution center in Maumelle, Arkansas. The start-up of the distribution center is right on schedule as shipping will begin during June. Once again, we’ll be able to capitalize on the opportunity to realign the store servicing areas across the DC network to balance transportation costs and DC capacity while improving service levels to our stores. It is great for our DC network to have this new capacity to better position our inventory and better service our stores all the while allowing us to reduce our freight cost. Our supply chain investments over the last 4 years have provided us with material structural gross margin benefit from the reduction in stem miles. We opened 17 new Tractor Supply stores and four Petsense by Tractor Supply stores in the quarter.

As I shared last quarter, 2024 will be the year of the garden center. We’re leveraging the change of seasons across the store front as the year shifts to spring. The team has come out of the gate strong to ensure we have a differentiated assortment and availability in time for the planning season. We now have nearly 500 garden centers across the chain. Based on our early read of spring, our expectation is that with more broad than ever and a grower network to support our garden centers, we should see the customer respond positively this multiyear growth driver. At Tractor Supply, we’re grounded in our purpose as a company to serve life out here and our deep rooted commitment to our mission and values. We believe in finding meaningful ways to support our core mission.

Earlier this week, we issued our fifth annual Stewards of Life out here Tear Sheet that highlights our Stewardship priorities and progress. For all of us at Tractor Supply, we are highly committed to preserving life out here for future generations. We are proud to share our progress towards our ambitious goals. In summary, we’re relatively pleased with our start to the year. Customer trends are in line with our expectations. The team is executing very well. We’re controlling our controllables and making progress on our [indiscernible] strategy. With the majority of the year remaining, we are reiterating our guidance for fiscal 2024. And with that, I’ll turn the call over to Kurt.

Kurt Barton: Thank you, Hal and hello to everyone on the call. Let me start by building on to Hal’s comments about the quarter. Our first quarter performance was right down the middle when compared to our expectations on both the top line and the bottom-line. Regarding the cadence of comp sales for the quarter, we started out with a very strong January as the month features some spans of brutal cold. While February was warmer than normal and relatively soft, the best way to view the winter season performance is to look at weather categories across January and February combined. And overall, we were pleased with our cold weather category performance. We comped positive in March in spite of a limited arrival of spring across our markets.

Where this season had turned to spring, we were very pleased with how the business performed. All geographic regions performed in a tight band for the quarter. Average unit retail was impacted by modest product deflation of about 1% in line with our expectations. We’re encouraged by the trends we are seeing in unit growth and the underlying share gains in categories where deflation has had an outsized impact to AUR. Our gross margin rate of 36% increased 50 basis points to last year. We were very pleased with these results, which were driven primarily by ongoing lower transportation costs, disciplined product cost management and the continued execution of our everyday low price strategy. We were able to strategically provide great value for our customers while maintaining our gross margin.

We remain committed to being the everyday low-price leader in our markets. Our first quarter SG&A expense rate, including depreciation and amortization increased 16 basis points to 28.2%. This increase in SG&A as a percent of net sales was primarily attributable to our planned growth investments, which included higher depreciation and amortization as well as the modest deleverage of our fixed cost, given the level of comparable store sales growth. The leverage from our distribution center productivity gains did partially offset the loss of fixed cost leverage. Excluding depreciation and amortization, SG&A was essentially flat as a percent of sales. This was better performance than we anticipated entering the year as there were approximately $5 million of expenses that we had planned to occur in the first quarter that we now anticipate incurring in the second quarter.

From my perspective, the team did a great job controlling the controllables. Altogether, operating income increased 7%, with operating margin expansion of 34 basis points. Net income increased 8.2% and diluted EPS increased 10.9% to $1.83. During the quarter, we repurchased approximately 0.5 million shares and paid quarterly cash dividends totaling $118.8 million, returning $236.2 million of capital to shareholders. We also increased our dividend by 7%, marking our 15th consecutive year of growing our dividend. Turning now to our balance sheet. Merchandise inventories were $3.0 billion at the end of the first quarter, representing a modest decrease of about 4% in average inventory per store. Lower freight costs was a contributor to the decrease in inventory dollars.

Excluding freight and Orscheln, our comp inventory was up modestly in dollar value and units. We are pleased with how we exited the winter season and the quality of our inventory as of the end of the first quarter. In our commitment to be the dependable supplier for our customers’ lifestyle, we are at the highest in-stock levels since pre-COVID. With strong annualized cash flows and improved working capital, we continue to maintain a healthy balance sheet with a leverage ratio of around 2 times. As Hal mentioned, we are reiterating our guidance for 2024. We anticipate this year to be a continued story of ongoing share gains offset by macro headwinds. We continue to expect full year sales of $14.7 billion to $15.1 billion and project comparable store sales to be in the range of down 1% to a positive 1.5%.

As we manage through the first half of the year, we expect to see second quarter comp sales in line with our full year outlook. Given the trends in our comp sales, our outlook assumes that strength in big ticket and seasonal will continue. We are planning for a modest AUR pressure on Q with positive unit trends. Our expectation is that select discretionary categories will remain under pressure. For the second quarter, we expect gross margin expansion in line with the first quarter from continued supply chain efficiencies and benefits from effective cost management, partially offset by the mix impact of growth in big ticket, which runs below the chain average. We anticipate the gross margin expansion to be offset by SG&A deleverage from our planned investments including the incremental cost for the opening of our new distribution center.

As I mentioned earlier, there’s approximately $5 million shifting to the second quarter that we had initially anticipated in the first quarter, including staffing and training costs associated with the opening of the DC. As a result, we expect second quarter operating profit margin to be down slightly compared to prior year. As I shared when we initially provided guidance in February, there are a few factors that will impact operating margin in certain quarters. We anticipate the tailwinds of lower transportation costs to continue to benefit our results in the second quarter and begin to flatten year-over-year starting in Q3. In regards to SG&A, the second and third quarters will be pressured from the start-up costs for the new distribution center, while the supply chain benefits will not begin to be realized in gross margin until late in the third quarter.

To sum it up, for the full year, we continue to guide toward net income of $1.06 billion to $1.13 billion and diluted earnings per share of $9.85 to $10.50. With the majority of the year still ahead of us, we believe these expectations are still appropriate. We continue to believe that the best way to look at our business is not by the quarters, but by the halves of the year. In this environment, what sets Tractor Supply apart is our ability to effectively manage the top line and bottom-line, while investing in our Life Out Here strategic growth drivers. And with that, I will turn the call back to Hal for some final remarks.

Hal Lawton: Thanks Kurt. Tractor Supply has a proven business model that has been resilient over many business cycles. As a company, we have numerous levers to continue to gain market share and numerous levers to effectively control expenses. Our Life Out Here strategic priorities are on track and delivering on our expectations. We continue to see fantastic opportunities for growth ahead. In store and online, we’re ready for the spring and summer season. Customers are responding positively to our new product assortments from Weber, Toro, YETI and more. We have several product test and learn initiatives in store and online, like Martha Stewart and Eddie Bauer. Across companion animal, we’re adding to our assortment with new brands like ACANA, Real Mesa, and Native Pet and expanding our offerings across brands like Carina Pro plants, Sports Mix, and Hill’s Science Diet.

Our garden centers are set to help our customers prepare for their hobbies of gardening, especially with a focus on vegetables and fruit trees and just simply enjoying their property. Across the seasons, we have new product offerings specific to the garden center. We’re currently showcasing our roses plant of the month. and are prepared with hanging baskets for Mother’s Day. As we move into the second half of the year, we will shift to fall harvest and Halloween and then to Christmas with live goods and decor. Overall, this is a great way for us to track new customers and soften the front of our store. Across the store, we have a tremendous amount of newness for our customers’ passions and lifestyles. We also continue to invest in customer service at our stores.

In addition to our [indiscernible] service our store team members provide to our customers, we are leveraging AI in our stores and garden centers through our Tractor vision, which uses cameras and computer vision technology to provide data to deploy alerts that help our team members efficiently and effectively staff the store. One scenario where this is incredibly beneficial is when customer traffic is building up at our registers, Tractor Vision will alert team members through their ERP that another team member needs to come up to open another register. We’re also leveraging Tractor Vision to monitor our front apron of the store for dwell time. This allows for a team member to better serve our customers particularly in categories like outdoor riding lawn mowers.

These are the types of investments and capabilities that separate us from our farm and ranch competition and really make us a leader in retail. It’s an exciting time at Tractor Supply. My thanks and appreciation go out to the team for their dedication to delivering our mission and values every day. And now we’d like to open up the call for questions.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Seth Sigman with Barclays. Seth, please go ahead.

Seth Sigman: Hey good morning everyone. Thanks for taking the question. I wanted to talk about the big ticket improvement. Obviously, that’s a nice change from what we’ve seen. If I recall, when you talk about big ticket, you’re looking at transactions over a certain size. Can you try to separate for us the difference between sales from high price point products? So, you mentioned writing lawn mowers. Have you actually seen comps in those specific high-ticket categories go positive? Or is it more basket building, you’re seeing the benefit from more units per transaction as part of the spring activity? Thank you.

Hal Lawton: Yes, hey Seth, good morning and thanks for the question. We were very pleased with our big-ticket performance in Q1. I’ll highlight two trends and then provide some examples in the context of each of those. The first one I’ll highlight was in January, where we had the nice cold weather come through the country. And as a consequence of that, had some nice big ticket sales that go along with that as we often do, whether that’s things like snow throwers or log splitters. And to your point, the cutoff that we use for big ticket is $350 price point. But then the other comment I’ll make is in the month of March, particularly the last couple of weeks where we start to see that spring ramp occur, we saw a nice lift in big ticket over those weeks.

And we did highlight in the prepared remarks in categories like riding lawn mowers, outdoor power, we saw strong positive comps in those categories in those weeks. As we highlighted in the prepared remarks, we saw an over penetration in those purchases of higher-income consumers versus lower-income consumers. As we talked about, just kind of buying a bit more towards need for the lower-income consumers. The last thing I’ll add is that the trend on big ticket that we saw in March for spring sales has continued into Q2.

Seth Sigman: Okay. Thank you, Hal.

Operator: Thank you. The next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Simeon Gutman: Hi good morning everyone. My question is also on big ticket and Hal maybe I can put it in this way. If you look at it relative to 2019, and I think we’re trying to assess whether there’s like a bottoming and a turn that’s happening versus seasonal. I think your comments around the March volume sounds like there may be a turn. But if we compare it to 2019 or 2020 granted it’s hard to understand what baseline is normal versus not. But looking at it that perspective, and then — and if there’s anything about these big ticket trends that informs you about the cadence of the year. It doesn’t sound like it, and it sounds like the cadence has always been pretty static across the quarters, but anything that you think about maybe big ticket strength continuing into the second half that maybe you didn’t plan for?

Hal Lawton: Hey Simeon. I’ll reiterate a couple of the comments that I have on the previous question, just to tee up the discussion. So, on big ticket as it relates to spring, we saw nice big ticket ramp in absolute dollars and comps as we exited Q1 and those trends have continued into Q2, and we’re very pleased with our big-ticket spring sales. As we look at a multiyear history on that, — if you recall, last year, we commented that our big ticket categories were back to 2019 levels. So, I would articulate the growth that we’re seeing now is kind of consistent and growth that would be on top of a normal — go back to 2019 trend. So, we feel like it’s a healthy growth, compounding growth and very much in the kind of stable on top of 2019 levels.

The final thing I’ll add is we called out numerous times, the drought conditions and the heat conditions that occurred in a number of our key markets the last two years, whether that’s the Midwest or Texas, given the cooler weather that we’ve had and the nice precipitation we’ve had, grass is green across the country right now. And we all just returned from our executive walks across the whole country last week, and we all came back and kind of talked about the same thing. You’ve got really green grass, and it’s growing well and the temperatures are staying cool. So, the conditions are right for big ticket sales as well for us. But we’re very pleased with the big ticket activity, strong exit in Q1 and continuing that pace into Q2, healthy on top of 2019 and the conditions are favorable for it as well this year.

Simeon Gutman: Thank you. Good luck.

Operator: Thank you. The next question comes from the line of Seth Basham with Wedbush. Seth, please go ahead.

Seth Basham: Thanks a lot and good morning. I’m just trying to understand your inflation and deflation now look a little bit more as we see a rise in oil prices here, do you think that could lead to any material inflation as we move through the year?

Hal Lawton: Hey Seth, good morning. As it relates to inflation, the probably the most important point to take away from us is that we’ve lapped our two most difficult quarters as it relates to comping on top of inflation. As we remarked at the end of our Q4 call, we were lapping 11% inflation from Q3 of 2022. And then we’re lapping substantial inflation from last year in Q1 of 2023. So as we look ahead, we have significantly less lapping issues. And in particular, as it relates to things like animal feed, as we get towards the end of Q2, we really start to get back to a more normalized environment. And by the way, by the time we get to mid-Q3, we’re in — we basically lapped it all. So, I feel really good as we look forward that we’re kind of getting close to hitting the bottom on disinflation and starting to be back as we get towards the end of the year towards a more normal outlook.

We’re not seeing anything different in our margin expectations, pricing expectations, cost to good expectations that we saw at the beginning of the year. As we’ve mentioned, we worked closely with our vendor partners middle of last year to pull back on a lot of the cost increases we’ve seen. That’s been successful. You see that in our gross margin rate results. At the same time, we’re appropriate we’ve moderated on prices. Our pricing has never been sharper in the industry. We monitor that very closely, and we’ve got multi, multiyear trends on that, never been sharper than we had in Q1 and coming into Q2. And we don’t see anything on the horizon that would change kind of our retail price, cost of goods outlook. We did just complete all of our container kind of shipping negotiations.

Those are basically coming in kind of flat to last year. So, there’s not — we don’t see headwind in the future there. And I don’t think that there’s been a significant amount of oil fuel kind of cost type increases to impact certainly — first cost type at this point at all. And the freight market, given the status of the freight market and the overcapacity that there — we had to start to see prices come up to reflect fuel in that area as well. So, pretty stable, no real change to our outlook either on this call or versus our last call.

Kurt Barton: Yes. And Seth, this is Kurt. Just to tie that back to our guidance. As we entered 2024, I have said that we could see and are planning for 2024 from an inflation, deflation, relatively neutral, plus or minus 1 point. And we expect as we’re starting to lap some of those inflation quarters last year, Q2 may have a similar impact as we saw in Q1. But then if you were to play out the current environment today, it would really put us in an expectation for the year sort of that neutral standpoint. And we’ll know more on how the back half looks after Q2, but still pretty much playing right in line with our guidance.

Seth Basham: Thank you.

Operator: Thank you. The next question comes from the line of Chris Horvers with JPMorgan. Your line is now open. Please go ensure your line is unmuted.

Chris Horvers: Hi, thanks for the question. First time on the call. I wanted to expand on the big ticket commentary and focus on what’s happening with Spring. Can you contrast what you saw in March in markets where spring broke, — where did it break, where it hasn’t it broken? And how you’re thinking about what’s April telling you about the business so far in the quarter?

Hal Lawton: Yes. Hey Chris, we think where the sun has been out and conditions have been right, we’ve been very pleased with spring. Our big ticket sales are strong, our Live Goods are selling well. Our garden centers are performing, categories like grilling, other categories like fertilizer and grass feed, we’re seeing real strength across the board when the sun is — where the sun is out and conditions are right. Interestingly enough in the first half — in the first quarter, conditions were stronger, really more in the Northeast and the Midwest as there was a decent bit of cloudiness and precipitation through the Southeast and over into Texas throughout the back of the last couple of weeks of the quarter. And that’s interestingly kind of continue to bid into the second quarter.

But we feel very optimistic about the southern markets. They always turn in spring and beautiful in Nashville today. But very pleased with our spring performance as we’ve headed into Q2 here. And we see Q2 really very similar to Q1, just right down the middle of a fair way. We expect Q2 to be very similar to Q1. And with the one notable call that Kurt had around, we think it’s the bottom quarter for us on disinflation as it relates to queue. But otherwise, it’s kind of a streak in the middle, very similar quarter to Q1. And as I said, we’re very optimistic and pleased with our spring start.

Chris Horvers: Got it. Thanks very much.

Operator: Thank you. The next question comes from the line of Steven Forbes with Guggenheim Partners. Steven, please go ahead.

Steven Forbes: Good morning everyone. Hal, I think you noted 34 million members in the program, which is sort of surprised to the upside here a little bit, at least as per our expectations. So, I was wondering if you could maybe expand on the changes you made to the program. Is there anything sort of notable in terms of acquisition, maybe converting those non-Neighbor’s Club members into members or repeat or retention trends that changed how you’re thinking about that program membership evolving over time? And in any way to sort of size up what the true opportunity is for the 20% of sales that are coming from non-members today?

Hal Lawton: We’re very pleased with the continued progress we’re making in our Neighbor’s Club platform. And clearly, our customers are engaging in it and using it, finding value in it and it’s a key retention driver and behavior driver for our business. And it’s certainly become an integral part of how we go to market and a key area of competitive advantage for us. This quarter, we were pleased with the number of customers that we added to the Neighbor’s Club platform. I called out that we had new customer growth in the quarter. And that was new customers are a key driver to Neighbor’s Club program growth. We’re very pleased to have a positive new customer counts in the quarter. The second thing I’ll call out as to your point, we made adjustments to our membership program to allow for a lower dollar increments to be redeemed in terms of points, both $2 and $5.