We also modified our tier structure a bit to allow people to earn more dollars sooner. And the entire goal of that was to drive that opening tier and that behavior to get them more engaged as we talked about on these calls over the last two or three years, the best performance we’ve seen has been in our preferred plus tier. Second best performance had been in our preferred tier. And our basic Neighbor’s Club tier was really where we wanted to re-galvanized that group, reenergize that group. And the changes we made, we saw a significant response to and we’re very pleased. And we’ve got a number of things on the horizon that will continue to help us grow that program. As we called out at the beginning of the year, we’ve got a Heroes program that we’ll be rolling out towards the end of the second quarter or beginning of the third quarter, right around July 4th timeframe.
We’ll share more about those details on our next call, but that’s a lot — that’s going to allow us to embrace another set of customers that we have, provide them incremental value, and we’re excited about that. We’ve gotten great feedback from the customers that we’ve tested that with. And we’re also in the process of implementing a customer data platform that’s going to allow us to significantly improve our personalization and that’s time for implementation in the back end — back half of the year. And that’s going to allow us to just take our personalization capabilities and our targeting capabilities to the next level, in which we already do an excellent job. I’d say market-leading job on that, but this just keeps the improvement there.
So, great performance in Neighbor’s Club in the quarter, new features being launched already that are going to keep driving that. And then we’ve got a number of new things on the horizon. And as I said, this is a distinct part of [indiscernible] competitive advantage for us.
Steven Forbes: Great to hear. Thank you.
Operator: Thank you. The next question comes from the line of Steven Zaccone with Citigroup. Your line is now open.
Steven Zaccone: Hey good morning. Thanks very much for taking my question. I wanted to ask on gross margin. So, given the guidance for the second quarter that it should be similar in terms of expansion. Can you just talk through the back half of the year because you start to face some tougher comparisons? Just talk through some of the expectations in the back half? Thank you.
Kurt Barton: Yes, Steven, this is Kurt. The gross margin drivers are very similar throughout the year, but yet, as I mentioned in some of my remarks, it has a bit of a difference in impact by quarter. So, our biggest opportunity and biggest growth driver in gross margin will be throughout the year, our transportation and freight. And in transportation, freight, it’s both transitory or rate related, where we are coming off of those higher costs, particularly in the ocean freight, but also the more sustainable is the structural where the new improvements in the supply chain, the distribution centers are driving down our stem miles. And even as we open up our tenth distribution center, we’ll reoptimize the lanes and reduce stem miles, be able to optimize by finding the lowest better rates, and that happened with our Novara, Ohio DC last year.
So, those — that will be the biggest driver. We’ll start to lap in Q3 and heavily in Q4, some of the rate-related benefits. So it will begin to moderate on that aspect. But then on the other aspect of that is our cost management on our products. And there’s really been a very disciplined strategic approach towards that, that began last year, but really, we started to see the benefit modestly in Q4. And our merchants and our vendors really partner together to drive down some of that cost. And we’re actually even creating some of that AUR deflation so that in our key categories, our key drivers, we’re able to offer the best value and even better gross margin rate. And that’s some of what the pressure that I mentioned on AUR is that we feel very confident that we’re bringing the best prices in our categories regardless of competition, and that’s what’s helping to really gain the market share.
So, for the back half of the year, transportation, cost management and lower cost drivers will contribute. And then in the second half, the third item that will begin will be the supply chain benefits from the new distribution center. As the transportation costs are the highest one, that’s why we’ve said the second half may be a slightly lower gross margin growth in the first half as we start to cycle it. But it’s really been the main three things. that will benefit throughout the year, but just beginning to less of a benefit on the transportation side in the second half.
Steven Zaccone: Okay. Thanks for the detail.
Operator: Thank you. The next question comes from the line of Michael Lasser with UBS. Michael, please go ahead.
Michael Lasser: Good morning. Thank you so much for taking my question. Hal, can you give us a sense for how the pet food category has been performing as of late? Have you been surprised that there’s been general softness in these trends? And how has Tractor Supply’s market share compared this quarter to the last couple of quarters, especially as it seems like the company has been taking more aggressive steps whether it’s price investments came through the loyalty program. And then finally, there’s been a lot of parsing of your words on quarter-to-date trends. Can you give us an explicit indication of what’s been happening quarter-to-date, so we can understand if you have to see an acceleration from here in order to get to that down the fairway commentary about the second quarter? Thank you very much.
Hal Lawton: Hey Michael, I’ll comment first on pet. First off, I’ll just step back on pet and say it’s an incredibly attractive market. It’s one that outperformed kind of the broader retail market for decades. It’s been a long-term source of growth for us. And I think that the slowdown in the — in that industry this year has been well documented, with that slowdown being driven really by two macro drivers. The first is moderation in pet ownership. And the second is kind of stagnant pricing, right? That’s — it’s an industry that’s historically been able to claw 2 or 3 points of price increase every year, given the substantial price increases that have occurred in that category over the last two years, basically, that category is flat in pricing for the year.
. So, you’ve got some moderation in the category just for this year. We have an incredibly distinct value proposition in that category. Our value proposition includes, I think, importantly, the co-mingling of purchases with animal feed. 88% of our customers have animals and pets. The vast majority has both. So, they appreciate being able to shop for both their animal and pet food at the same time. We complement that key kind of portfolio advantage obviously, with customer service with a pet-friendly environment now having over 900 pet washes, which by the way, we see nearly 50,000 pets a week in our stores with pet washes, pet clinics, et cetera. And that’s true just animals in our store. So, we have a very distinct value proposition. We had all — kind of publicly available brands, the international brands, but we also have two very leading private label brands.
We cover the range of assortments. So, incredible value proposition there, one that’s distinct and I think in particular one that really holds up well in this market given the various competitive dynamics that are going on — and as I said, but I want to reinforce, we are absolutely still taking share in that category, albeit at a lower growth rate because of the moderation in the category, but we are absolutely still taking share in that category, and we’re only doing things to reinvest and lean in further to continue to capture that share. And as we look forward, we fully expect that pet will continue to be a long-term growth category for us and a driver of our overall growth. As it relates to Q2, as I said, we expect it to be another just straight down the fairway quarter for us.
