Tractor Supply Company (NASDAQ:TSCO) Q4 2023 Earnings Call Transcript

Tractor Supply Company (NASDAQ:TSCO) Q4 2023 Earnings Call Transcript February 1, 2024

Tractor Supply Company beats earnings expectations. Reported EPS is $2.28, expectations were $2.22. 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 Fourth Quarter and Fiscal Year 2023 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. We ask that all participants limit themselves to one question and return to the queue for additional questions. 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. The host for today’s call is Mrs. Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Now, first up is a year-end video. [Video Presentation] I would now like to pass the call to our host, Mrs. Mary Winn Pilkington. Mary Winn, please go ahead.

Mary Winn Pilkington: Thank you, Alissa. Good morning, everyone. Thanks for taking the time to join us today, and I hope you enjoyed watching the video of Tractor Supply’s year-end review. On the call today are Hal Lawton, our CEO; and Kurt Barton, our CFO. After our prepared remarks, we will 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 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 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. We have extended the call to allow for more time for Q&A. Given the number of people who want to participate, we respectfully ask you to 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.

Hal Lawton: Thank you, Mary Winn, and thank you to everyone for joining our call this morning. In 2023, Tractor Supply celebrated our milestone 85th anniversary. Over 85 years, Tractor Supply has been a growth company with a clear purpose to help our customers live Life Out Here. Since 1938, we’ve operated in all types of economic conditions, embraced innovation and adapted to changing times. We’ve elevated the farm and ranch channel, bringing the sophistication of other retail categories to improve the shopping journey and ensure we have scalable platforms. Tractor Supply’s needs-based, demand-driven business model has stood the test of time. No doubt this past year has proved challenging, more top feature than we expected with the beginning of the year with unfavorable weather, rising interest rates and inflation impacting consumer spending habits, but we believe these headwinds are temporary.

We continue to invest for growth in 2023, and gain market share along the way, especially in companion animal and livestock feed. I think the opening video was a great recap of the highlights of the team’s significant accomplishments across Tractor Supply in the year and over the last few years. As I reflect on 2023, our Tractor Supply team has navigated so much together, working with commitment and resilience to serve our customers and our communities, and our team has proven their ability to be unrelenting and executing against the macro and other headwinds, while also building our future. I sincerely thank them for living our mission and values. In 2023, we faced the well-documented macro headwinds that weighed on consumer goods spending, particularly discretionary goods, as well as unfavorable weather impacts every quarter on our business.

While we’ve made progress over the years to deseasonalize our business, we will always be the reliable supplier for our customers for their seasonal needs like heating fuel and fertilizer. We estimate that adverse weather conditions negatively impacted our comp sales by approximately 200 basis points for the full year, including the lapping of the late December winter storm in 2022. Personal consumption expenditures saw strong mid single-digit growth in 2023. That said, spending on goods as a percent of PCE declined nearly a point as consumers continue to shift spending on services back to pre-COVID levels. In particular, this affected our big ticket business, which represents a little over 10% of our sales and had a negative 6% comp for the year.

Despite the headwinds we faced, we remain committed to our journey of transforming Tractor Supply. Since introducing our Life Out Here strategy in October of 2020, we have dramatically transformed Tractor Supply. Over this time, we’ve invested nearly $2.5 billion in capital spending with about 80% of that spend targeted for growth initiatives as part of our Life Out Here strategy. This includes new and remodeled stores new distribution centers, upgrading our technology infrastructure and several other strategic investments. We’ve also significantly improved our operating capabilities, including relaunching our Neighbor’s Club program, creating our field activity support team, expanding our mobile footprint and delivering on the increased volume of consumable, usable and edible products.

Additionally, our average store volume continues to far exceed pre-pandemic levels, going from $4.5 million to $6.5 million annually per store. Approximately 40% of our stores are in the Project Fusion layout, allowing us to drive improved space productivity. We continue to see a mid single-digit comp lift benefit in the first year from our Fusion remodel. We will enter the spring of 2024 with more than 450 garden centers that are also driving space productivity, while allowing us to enter into new categories that resonate with our customers’ hobbies for gardening and their needs for outdoor products. Stores with our garden centers are attracting new customers at a faster pace than the rest of the chain. Additionally, our garden center stores are providing a multiyear comp benefit.

Our distribution centers achieved a record year of productivity. The opening of our Novar [ph], Ohio DC in January 2023 allowed us to unlock savings across our network with the largest rebalancing of our stores ever. This provided us with substantial stem mile savings, while also allowing for significantly improved service to our stores. Also importantly, our supply chain team member attrition reduced materially as we implemented a new progressive wage scale. And no doubt, these investments are resonating with our customers, as we have achieved record high customer satisfaction scores throughout the year. As always, our store managers were critical to the success and importantly, we achieved a near all-time low of 12% attrition in this group.

Overall, our customer base remains healthy and highly engaged. Now let’s go through some of the specific highlights to the fourth quarter and the fiscal year. For the year, we achieved record sales of $14.6 billion. Our comp store sales were even with the prior year and diluted earnings per share were $10.09. This comes on top of record performance over the last three years. We continue to have solid market share gains across our major product categories. And our digital business reached another year of record sales, topping over $1 billion annually for the first time. Since launch, we have had over 7 million downloads of our mobile app and over 2 million in the year. For the fourth quarter, our comparable store sales declined 4.2%. Our fourth quarter diluted EPS was $2.28 with operating profit margin expansion of 16 basis points.

For the second consecutive year, we returned over $1 billion to our shareholders through the combination of a growing dividend and share repurchases. Strategically, the transformation of our real estate model enabled by a number of new capabilities that are designed to deliver material benefit to both revenue growth and operating margin reinforces our long-term guidance. In 2023, we raised our new store growth target. We now believe there’s a 3,000 store opportunity domestically for Tractor Supply. This is supported by our total addressable market of more than $180 billion, our robust growth and our ongoing market share gains. Our new target represents an increase of 200 stores from our previous target of 2,800. We also implemented new capabilities to enable own development of new store builds.

This capability is expected to generate significant construction cost savings and allow for lower rents in these applicable stores once we sell them post construction. Our real estate capabilities are a compelling addition to our Life Out Here strategy that will further solidify our growth for many years to come. In 2023, the cadence of new store openings returned to a more normalized rate. We opened 70 new Tractor Supply stores in 13 Petsense stores in 2023. The team has done a great job opening highly productive new stores as this remains a core strength and competency for Tractor Supply. During the year, we successfully converted the 81 Orscheln stores acquired in 2022 to the Tractor Supply brand, representing essentially a year’s worth of new store growth.

We’re very pleased with the opportunity to drive both top line and bottom line performance of these locations closer to our standard run rates over time. Total customer count increased 1%. As we had positive growth in active customers and new reactivated customers. Neighbor’s Club added more than 4 million new customers and represented 77% of our sales for the year, our highest mark to date. Neighbor’s Club is successfully helping us migrate customers to a higher threshold of spending with us. During the year, we reached a new record for the number of high-value customers. Overall, our best customers are shopping us more frequently, and spending more money per transaction. Last year’s re-branding a Petsense to Petsense by Tractor Supply, along with our expansion of our Neighbor’s Club program to Petsense, is also resonating with our customers.

This expansion is allowing us to deepen relationships with existing customers and help attract new Out Here pet customers to both banners. Our customers’ response to these initiatives is very encouraging with Neighbor’s Club membership already representing nearly 70% of sales at Petsense with continued momentum. The Petsense shopper is also cross shopping at Tractor Supply at an impressive rate of 47%. Petsense is also helping us gain share across pet specialty as we approach $225 million in sales and our 200 store milestone in the Petsense brand. For the year, our financial services offering of our private label credit card, together with our co-branded credit card outpaced our overall sales with strong growth. Our penetration increased from last year’s record level and is now in the high single digits in overall sales.

Our supply chain continues to be a competitive advantage for us. During the year, we opened up our ninth distribution center in Novar, Ohio and broke ground on our tenth distribution center in Mall mill, Arkansas. These were investments were to enable the higher volumes of our existing stores, the continued build-out of our new stores as well as the acquisition of Orscheln. These investments in our DC network are complemented by our 15 mixing centers that are there for high-velocity replenishment items. In 2023, we moved nearly £8.5 billion of consumable, usable and edible products through our supply chain as we are the largest seller of packed feeding food for livestock and companion animals in the United States. Our scale and reach provides us with the cost to serve that is lower than our farm and ranch competition and any other competitor in these markets.

As we executed the third year of our Life Out Here long-term strategy, 2023 was a year that we made significant progress. We plan to continue building on that progress in 2024. Most of what you’ll hear from us today, we’ll sell all that different from the playbook we’ve used for the last two to three years but that’s intentional as we continue to be pleased with the benefits and financial returns of our strategic investments. As I’ve shared many times, our biggest challenge is prioritizing the plethora of growth opportunities we have ahead of us. And we anticipate 2024 to be a continued story of ongoing share gains offset by macro headwinds. With this in mind, we’ve taken a cautious approach to our 2024 financial outlook with it being below our long-term target.

We remain confident in our long-term targets and expect to return to them when macro conditions return to neutral. Our underlying assumptions start with consumers continuing to be judicious and they’re spending on good. Additionally, we anticipate average ticket to be pressured as we lap inflation. We’re assuming market share gains that are supported by our strategic initiatives will continue. Housing, oil, agriculture and weather are anticipated to be neutral factors in our guidance. Collectively, all these factors are considered to help us provide the guidance range that Kurt will share with you more later on. Tractor Supply is a unique, highly differentiated retailer. We are the leader in a large, fragmented market. We’re a needs-based business that is tailored to our Out Here lifestyle.

Our customers have a passion for the Out Here lifestyle and over-index as homeowners, landowners, pet owners and animal owners. We live our mission and values and our culture defines our relationship with our customers. As we begin the year, we take great pride in our path and are equally excited about our future. And with that, I’ll now turn the call over to Kurt.

Kurt Barton: Thank you, Hal, and hello to everyone on the call. I want to start by reiterating Hal’s comments on 2023 and our confidence in the long-term opportunities for Tractor Supply. Over my 2.5 decades in this business, I’ve never seen a year where we’ve had many transitory headwinds as we did in 2023 that did not break positively at some point during the year. Before I get into my review of the quarter, I wanted to address two items. First, for comparability purposes, please keep in mind, 2022 had a 53rd fiscal week that provided a net sales benefit of $225 million to the prior year fourth quarter, representing about 5.6 percentage points of our net sales decline this quarter. On a full year basis, it negatively impacted net sales by 1.6 percentage points.

In addition, diluted EPS in 2022 benefited by $0.16 for the quarter and the year from the 53rd week. Second, overall, the unseasonably warm winter weighed on our results in the fourth quarter. We estimate the impact to be approximately 400 basis points of pressure on our comp sales performance. We knew this was going to be the most challenging quarter of the year, given our strong comp performance of 8.6% in the prior year as we were cycling the late December 2022 winter storm that provided a 200 basis point comp benefit to the fourth quarter of last year. The majority of the pressure was in transactions, given the needs-based nature of our business and it impacted our seasonal categories across Q and other winter goods. Our Q business in the fourth quarter has a higher mix of cold weather seasonal products such as wood pellets, bulk propane, bird feed and pine savings for bedding.

From the cadence of the quarter to our product categories, seasonal impacts always play into our performance. Coming into the fourth quarter, we anticipated it would work against us and the quarter played out much like we expected. Factoring in the seasonal impact from the weather, our fourth quarter performance was very much in line with our run rate from last quarter. Most of my remaining commentary of our comp sales performance is on a normalized basis, adjusting for the impact of weather. October and November were very similar in comp sales performance, with December seeing the biggest comp sales decline as we were lapping the winter storm from last year. On a normalized basis, all months performed relatively consistent with a slight decline in comp sales.

Turning to our product categories. We continue to see solid performance in Q with above chain average comps, essentially flat for the quarter. On a normalized basis, Q had a positive comparable sales as we continue to gain share. Discretionary categories performed in line with our expectations with a mid single-digit comp sales decline. Big ticket performance showed a continued improvement over the trends of the previous five quarters. Comparable big ticket sales ran slightly negative for the quarter and were positive in the low single digits on a normalized basis. Although our business is not primarily driven by holiday sales in Q4, we were encouraged by our performance during the holiday season, including recording our highest sales day of all time on the day after Thanksgiving and strong performance in the week leading up to Christmas.

As we have experienced all year, we saw a continued slowdown in retail price inflation throughout the year, with Q4 experiencing a slight net deflation. We have successfully managed through deflation in various commodities throughout 2023, and believe we are nearing the trough now. In 2023, raw material inputs rolled over as evidenced by the 35% decline in corn from its most recent high in 2022 and currently running about 15% above the historical average. As we exit 2023, these types of feedstock declines are already reflected in our retail prices. Structural inflationary factors such as higher wage rates, transportation costs and other overhead items are all still supporting higher product costs. Moving on to gross margin. For the fourth quarter, our trend of strong gross margin performance continued with a year-over-year improvement of 129 basis points to 35.3% of sales.

Our gross margin expansion was led by improvements in the supply chain from lower transportation rates and efficiencies in our network, including opening a new DC. We continue to benefit from our commitment to everyday low prices, and disciplined product cost management. While our promotional activity was modestly greater than the prior year, we were able to strategically provide great value for our customers while maintaining our gross margin. These favorable drivers were partially offset by an unfavorable product mix shift due to a higher mix of Q and a lower mix of high-margin seasonal categories. As a percent of that sales, SG&A expenses, including depreciation and amortization, increased 113 basis points year-over-year to 26.2%. This increase was primarily attributable to our planned growth investments, which included higher depreciation and amortization and the onboarding of our new DC, along with some lost fixed cost leverage due to the decline in comparable store sales.

Additionally, higher medical claims also contributed to the increase in SG&A, although to a lesser extent than last quarter. The SG&A deleverage was partially offset by a decrease in incentive compensation and the benefits of the sale-leaseback program initiated last quarter. In Q4, we sold five Tractor Supply stores, which contributed a 40 basis point benefit to SG&A. Operating margin improved 16 basis points for the quarter to 9.1%. Excluding the cycling of the 53rd week, diluted EPS of $2.28 was essentially flat with the prior year. Our new store pipeline continues to be strong. Our new store sales and profitability numbers continue to outperform historical averages. Given the addition of the Orscheln stores to our non-comp sales numbers, the new store productivity metric for the organic new Tractor Supply stores is cloudy in our external reporting.

By our calculations, TSC new store productivity in 2023 was about 67% of our mature store average. Average sales in year one of a new store have increased more than 40% compared to 2019, in line with the performance of the chain. Our stores continue to be profitable in year one, cash flow positive at about the same point and have a payback in two to three years. Our new store economics unlock sustainable growth and solidify our lead in the channel. Strong new store economics are a hallmark of Tractor Supply. As I reflect back on 2023, I continue to be encouraged by the resiliency of our business and the structural nature of it. Now let’s move to our outlook for 2024. Hal shared how we are thinking about the macro backdrop for the coming year.

We are anticipating a gradual slowdown with the lingering question of do we have a soft landing or if the risk of a harder recession remains. With this in mind, we have taken a cautious approach to our 2024 financial outlook and have forecasted our comparable sales performance below our long-term algorithm. Navigating economic cycles is in our DNA. We have successfully managed through diverse market conditions, including periods of inflation to disinflation and even deflation. Our deep understanding of these dynamics allows us to proactively adapt to the market conditions. We expect average unit retails to be neutral to a modest headwind for the near term, as we anticipate stickiness to input costs such as labor wage rates and other items to mitigate any further reversion in commodity pricing.

For fiscal 2024, we are forecasting net sales of $14.7 billion to $15.1 billion. Comparable store sales are anticipated to be in the range of down a modest 1% to an increase of 1.5%. We are cautiously optimistic that big ticket trends will revert to positive for the full year as we are cycling 18 months of declines. We expect gross margin expansion of about 40 to 60 basis points from continued supply chain efficiencies, benefits from effective cost management and a moderation of the mix impact of Q. We anticipate the gross margin expansion to be offset by SG&A deleverage due to a couple of primary factors. First, depreciation and amortization is anticipated to increase in the mid-teens. While this is an improvement from recent underlying growth as our investments in our strategic growth initiatives moderate, we will deleverage as D&A grows faster than sales.

Second, we plan to open our tenth distribution center in the second quarter. As a reminder, the operating cost for the new DC are reflected in SG&A, while the supply chain benefits are reflected in gross margin. Our DC network is expected to pressure SG&A by approximately 10 to 15 basis points. The benefit in gross margin will not completely offset this pressure since it takes time for the new facility to fully ramp to maturity and realize the supply chain benefits. As a result, we expect modest pressure on our operating margin from the opening of this new DC. These two primary factors are partially offset by the lapping of some higher-than-normal medical benefits in 2023. We do not expect those to reoccur due to our proactive changes to our benefit programs.

In 2024, we will continue our planned strategic sale-leaseback program to sell some of our existing owned stores. We anticipate these sales will occur in the second half of the year on a similar cadence to 2023 and with a similar EPS contribution. We continue to forecast these strategic sale leasebacks to be ongoing for the next 7 to 10 years. For the year, we forecast an operating margin of 9.7% to 10.1%. We are forecasting interest expense of approximately $50 million to $55 million. We plan to maintain a healthy leverage ratio of approximately two times, and we expect our effective tax rate to be in the range of 22.7% to 23.0%. Diluted EPS is forecast in a range of $9.85 to $10.50. Net capital expenditures are forecast to be $625 million to $700 million or about 4% to 4.5% of sales.

This net amount reflects the anticipated proceeds for the sale of existing and newly developed Tractor Supply stores. Gross capital expenditures are forecast to be in the range of $850 million to $925 million. Our capital plans reflect a ramp in our new store openings to approximately 80 Tractor Supply stores. We anticipate opening 10 to 15 Petsense by Tractor Supply stores in 2024. Our new store pipeline continues to be solid, and we expect store opening cadence B in line with 2024. We remain committed to returning cash to shareholders through the combination of a growing dividend and share repurchases. For 2024, we anticipate share repurchases in a range of $575 million to $625 million which is estimated to have a benefit of a net reduction in weighted average shares outstanding of approximately 2%.

Now I’d like to walk through a few items to consider for the calendarization of our expectations. As always, we believe the best way to look at our business is in halves and not quarters due to the nature of our business. We expect comp sales for each of the quarters to be in a relatively tight range, consistent with our overall 2024 guidance. We are planning for positive comp transactions for the year. As to earnings, we expect our EPS growth to be slightly more favorable in the first half as opposed to the second half. There are a few factors that will impact operating margins in certain quarters. We anticipate the tailwinds of lower transportation costs to benefit our results through the second quarter and begin to flatten year-over-year starting in Q3.

As a result, gross margin expansion for the first half of the year is anticipated to be near the high end of our annual guidance range, while the second half may be near the low end of the range. 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. Please keep in mind, we will be lapping an $0.08 per share benefit from the depreciation change in the third quarter of last year. Considering each of these factors, the third quarter will be our toughest earnings comparison as we anticipate a decline in operating margin and EPS due to the combination of these factors.

As a reminder, the Orscheln stores will be added to the comp store calculation beginning in the second quarter with a tiered approach as we cycle the timing of moving these stores to our point-of-sale systems and rebranding of stores to Tractor Supply. Specific to the first quarter, we had a challenging first quarter last year as it was abnormally warm in January and February and relatively cold March. We were also benefiting from retail price inflation in the high single-digits. Given the recent Arctic cold temperatures across most of the regions, we are seeing good momentum as we start the first quarter. Overall, we are anticipating positive comp sales for the first quarter. To wrap up, we have clearly defined strategic priorities and are investing to capture the long-term opportunities in our market.

We are committed to driving productivity and making appropriate trade-offs to fuel our investments while we protect our operating profit margins and earnings. We intend to maintain this focused approach through 2024. We are committed to continuously striving for stronger results. With that, I will turn the call back over to Hal.

Hal Lawton: Thank you, Kurt. Now I’d like to update you on our progress on our Life Out Here strategy and share more about the exciting plans we have in place for the spring season. Tractor Supply continues to build on our competitive advantages. And arguably, the company is as strong as it’s ever been. This is backed up by several proof points. We continue to gain market share across our major product categories and our customer metrics remain incredibly healthy with strong spending and retention with our best customers. Our strategic priorities are clearly resonating with our customers. We continue to see strength in our brand equity metrics, continue to grow our brand consideration and our unaided awareness. These strong customer trends are attributed to the team.

The team is executing at a high level and is extremely engaged. In 2023, our turnover improved at every level across the company as we’re committed to being an employer of choice in rural America. With customer satisfaction scores at an all-time high, the team is passionate about their work, and we’re energized to capitalize on our growth investments to provide our customers with legendary service. Our strong culture has always been a part of our secret sauce. The team has dialed in and determined to build on our long track record of success. Our Life Out Here strategy is on point. Our strategic initiatives in Project Fusion, Garden Centers, Neighbor’s Club and Digital are working and they are driving results. In 2024, we anticipate that our Project Fusion layout will be in about 50% of our store base by year-end.

This layout is clearly driving improved comp sales force as we’re leveraging category insights to determine space allocation and drive productivity. For instance, in the companion animal categories, we’re seeing that the Fusion layouts are contributing to strong growth. We’re able to have an expanded SKU offering and larger stack out. This layout is also seeing the highest quartile of customer satisfaction scores and attracting new customers at a faster rate. 2024 will be the year of the Garden Center for us. We will leverage the change of seasons across the storefront as the year shifts to spring. We will continue to build out about 150 garden centers across both new stores and sidelight transformations this year. As we look to leverage our learnings from our garden centers, we will implement a new live goods center prototype in many of these locations.

This new prototype requires about half of the capital investment of a traditional garden center that we’ve been building over the last few years and allows us to maximize the value creation of a sideline in lower volume stores and in markets where the season is less extensive and thus allowing us to achieve the ROIs that we target. Additionally, the new prototype in many ways, makes it easier for our stores to operate from a staffing standpoint and the maintenance costs are lower. With more broadly than ever and a grower network to support our garden centers, we’re excited about the benefit of these initiatives in 2024 and the continued opportunity to serve our customers. Now turning to our Neighbor’s Club. We have significant plans in place to capitalize on this strategic asset.

Our loyalty program has the scale and scope to continue to drive meaningful results. As we enter the third year since the move to a point-based rewards program, our members can expect more personalized offers, new tiers and more meaningful rewards. These compelling enhancements are designed to drive transactions and engagement, all while migrating customers upwards. Moving on to our digital business. We continue to capitalize on opportunities to accelerate our growth, between our website and our mobile app, we have more visitors online now than we do in our stores. These digital assets are essentially the front door to Tractor Supply. We’ll be focused this year on improving our digital customer experience and capability as we look to accelerate conversion rate.

Just as the trip to a Tractor Supply store is highly differentiated, we’ll be doubling down to ensure the shopping experience on our website and our mobile app has that same level of differentiation as we shop across our destination categories. We are looking to mirror our in-store legendary service and the digital experience through personalized and conversational commerce. We will leverage AI technologies to improve search, redesign our checkout, introduce a new refreshed homepage focusing on personalization that leverages our robust Neighbor’s Club data. As our customer base continues to skew younger, these improvements will be key to unlocking future growth. Our strategic priorities are resonating with our customers and driving strong returns.

As the calendar shifts now and we start to turn to spring, it’s an exciting time to be in our stores and online. In 2024, our merchant teams will be as diligent as ever to be our customers’ purchasing agent with a sharp focus on value and innovation. We’re committed to everyday low price, and we simply will not be beyond value. Our customers can trust Tractor Supply to be the dependable supplier for their lifestyle. Our merchandising strategies are focused to drive profitable sales and market share. Across product categories, we will have more innovation this year that I believe we will have seen collectively over the last three years. We have a number of new and exclusive product launches, including the introduction of the Toro HAVOC Zero-Turn Mower, the expansion of YETI and Solo Stove to more stores, and a test of Martha Stewart and Eddie Bauer, a limited rollout of Priefert cattle fencing, and a limited rollout of Weber Grill, a relaunch of MuttNation from Miranda Lambert, and the addition of Triumph Equine Feed, and that’s just to name a few of the new innovations that we’re bringing to our customers, and they’ll be able to find in-store and online.

Let me share a few more highlights that you can see in our stores as you get out there. Tractor Supply has long been a destination for zero-turn mowers with a Cub Kid ad and Bad Boy brand. The Toro Havoc addition will continue to reinforce that positioning. Outside of Toro’s dealer network Toro HAVOC is exclusive to Tractor Supply with a sharp price point. This is a unique and differentiated platform in just in time for the spring season. In big ticket, our entire trail assortment over the $1,000 price point is unique and exclusive to Tractor Supply. Across specifications and features, our trailer offerings are designed to support our customers’ lifestyle. Across our categories, we have a long history of test and learn, and we’re excited about the expansion of several recent programs.

After a very successful rollout to our Project Fusion stores, YETI will be expanded to nearly half of the chain by Q2 and rolled out to the balance of the chain by year-end. Another great example is Solo Stove, a high-quality outdoor wood burning fire pit that is a perfect fit for the outdoor enthusiasts in our customers. Given our customers’ response to this product, we’ll be expanding the top-selling SKUs of Solo Stove to more than 1,500 stores with the complete offering available online. Weber Grills is another leading brand that we’re excited to pilot in 2024 after growing significantly our grills business over the last three years. The introduction of Weber positions us to expand our Grill lineup and continue to grow our market share in this rapidly growing category.

Weber has long been one of America’s leading barbecue grill brands and their products are highly complementary to our existing offering of Pit Box, Even Ambers and Blackstone Griddle. We’re also excited about the newness being introduced in companion animal in the first quarter. First up is the relaunch of our MuttNation partnership with Miranda Lambert. Tractor Supply is the pet wellness destination out here, and we’re introducing market-leading new brands like Native Pet and expanding our 4health exclusive brand supplement assortment, and our continued pursuit of taking market share, we’re introducing new national brands also across cat food. We have new brands like Triumph, Equine feed and a continued focus on organic feeds across our large animal and poultry categories.

And we’re also expanding our deer wildlife sets to support our customers’ hobby of cultivating feeding and watching their deer. We will continue to leverage our strong portfolio of exclusive brands to grow market share and offer great value. For instance, we’re launching Groundwork’s Bag Garden and Potting Soil at compelling price points to the leading national brands, and we’ll be introducing Blue Mountain Tech with performance fabrication to appeal to our millennial customers. These are just two examples of the strong pipeline we have for newness in our exclusive brands, which represent nearly 30% of our sales. And finally, it wouldn’t be spring at Tractor Supply without the launch of our annual Chick Days. The arrival of Chicks at our stores is a sure sign of spring and creates strong retail theater in our stores.

Our Chick Days event is shaping up to be the largest ever for. Poultry now rivals livestock and equine in size of our business. Recent trends have supported growth from existing customers, coupled with robust growth from new customers in the category and this is driving both trips and ticket to our stores. One exciting aspect of the new customers of the poultry category is that they’re gravitating to our new unique offering of premium breeds and organic feed products for their chicks. We’re introducing impeccable a new exclusive brand at Chick Day with a poultry starter kit, poultry treats and even chick toys. Chick Days is a great gateway for our new customers to explore Tractor Supply and we use this as a resource for all things related to home setting beyond poultry to expand them to categories like gardening.

I hope you get a chance to experience the event in our stores. To wrap up, our customers continue to trust us for everything they need to care for their pets and animals, tend to their homes, farms and land, enjoy the great outdoors and generally just the live life out here. That purpose serving those who live life out here, drive meaning in what we do each day. Our future remains as bright as it ever has been. Thank you to our team members for your dedication at Tractor Supply and passion for serving our customers and to our customers for trusting us as your go-to supplier for life out here and to our 2,400 communities across Tractor Supply and Petsense for embracing us as part of the fabric of the communities we call home. Over time and over various cycles, I stand by the best three words to describe Tractor Supply are consistent, reliable and sustainable.

These attributes allow us to be an earnings growth compounder on both the top line and bottom line. Here’s to the next 85 years of serving life out here. And with that, operator, we would now like to open the lines for questions.

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Q&A Session

Operator: We will now begin the Q&A. [Operator Instructions] Our first question comes from the line of Zach Fadem with Wells Fargo. Your line is now open.

Zach Fadem: Hey, good morning. Starting with Q4, it sounds like October, November trends were a touch better than that down 4% comp. But December stepped down and January step back up. So just considering all the variability over the past couple of months, can you help us understand just the underlying run rate for the business, where you think it is today and what you think the path is back to the long-term growth algo. And then specifically, how are you thinking about the contribution of the internal drivers like lawn and garden and Neighbor’s Club in 2024?

Kurt Barton: Hey, Zach, this is Kurt. Good morning. In regards to the comp sales performance, I’ll point back to some of the things I mentioned on our prepared remarks. For the fourth quarter, the best way to look at it is start with the backdrop that when we look at the seasonal performance, the challenge is about an extremely mild fourth quarter going up against an Arctic storm of last year, there’s 400 basis points of pressure. October and November were unseasonably warm as well. So you’ve got negative low single-digits generally consistent when you normalize for the December storm across all of the months. And all of that principally in the weather-related categories that I pointed out on the call. So as I mentioned, the fourth quarter ran consistently with the trend rates of the third quarter.

Our consumable or needs-based business continues to be running solid, especially the year-round non-seasonal-related categories, the strength in all of our feed and food, the confidence that we have comes from examples such as livestock feed, equine feed, poultry feed, wildlife supplies, cat and dog running unit positive comps in the fourth quarter. Some of that up against the last year pantry filling that happens in the last week of the year against that storm. So you could see the traffic that we get from the consumables, the stability of the core of our business running really strong. So we still have that and care that confidence that our customers are shopping us just as consistent as they were before. We have growth in active customers, Neighbor’s Club contributing more.

All of those are the drivers of the consistency of the business.

Zach Fadem: Thanks for the time.

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

Chris Horvers: Thanks. Good morning, and thank you for taking my question. So I guess a two-parter. So first, as you think about not putting weather into 2024 is a potential benefit, can you talk through that? Is that because you look at it, the headwind in 2023 as more of a lap? Or is it just — you’re just trying to be prudent in your outlook? And a second follow-up is we get a lot of questions about the competitive encroachment from the big box guys. So could you talk about what you’re seeing in terms of where those competitors have rolled out and expanded farm and ranch assortment? Thank you.

Hal Lawton: Hey, Chris, thanks for joining the call this morning. Yeah, on weather, I think as we reflect on last year, we had a lot of discussion on weather times felt like we’re playing meteorologists. And I think we just decided to be prudent as we look at this year, not look at whether it’s potential upside or downside as we called out, there’s a number of other factors that could also influence our sales as the year progresses whether that be the agriculture market, oil, housing, et cetera. And instead, we just chose to focus on for the purposes of our guidance and range of outcomes this year, really the factors that we think are going to have the most influence on our sales as we can see it right now, which are our continued market share gains, offsetting the shift still in consumer spending from goods to services, as well as disinflation, which is dominantly a first half issue.

And then as it relates to competitive encouragement, I’d say we really haven’t seen anything different in competitive activity for the foreseeable past. So it’s been really, for the last — since COVID, the competitive activity has been pretty stable, pretty rational. Our share gains continue to — we continue to take share in the market, and really haven’t seen anything out of the ordinary from a competitive perspective, whether that be in our farm and ranch — core farm and ranch competitors or the multitude of other national retailers that we compete against as well.

Operator: Thank you. The next question comes from the line of Kate McShane with Goldman Sachs. Your line is now open.

Kate McShane: Hi, good morning. Thanks for taking our question. Our question centered around SG&A. We just wondered if you could talk a little bit about how you’re thinking about wage growth in 2024, and how does incentive comp come into play in 2024? What happened regarding incentive comp in 2023, given the flat comp for the year? And how should we think about that.

Kurt Barton: Yeah. Hey, Kate, this is Kurt. I’ll take those. On wage rate growth, we are anticipating wage rate growth, slightly above the historical average is pre-pandemic. It varies across different areas of the business. But I’d center around a 3% to 4% range wage rate growth. We continue to see strong, solid workforce, unemployment continues to be low. Our culture, our teams continue to have all the success with hiring, but it’s appropriate to anticipate that you’d be at that level of wage rate growth. In regards to incentive compensation, we’re incentivized at all levels of the organization. In 2023, our performance from top and bottom line did underperform our original expectations. And so there was some modest leverage in 2023. So if you look at 2024, what’s factored into our guidance into our SG&A is some normalization of incentive comp gives a modest 10 or 15 basis point deleverage, but that’s all considered in the guidance that I gave.

Operator: Thank you. Our next question comes from the line of Jason Haas with Bank of America. Your line is now open.

Jason Haas: Hey, good morning, and thanks for taking my question. I’m curious, if you could comment on your expectation for new store productivity in 2024. And based on the math that we could do it, it looks like it’s maybe going to be like around 60% or so. I know sometimes the math can be fuzzy from our perspective. So can you just talk about what’s expected there? And if there’s any reason why the initial productivity would be lower in 2024? Thanks.

Kurt Barton: Yeah, Jason, this is Kurt. I’ll answer that question. On my prepared remarks, I was very specific on that on what is really driving our new store productivity. So I want to point everyone back to that. We continue to see the Tractor Supply consistent, strong new store productivity. 2023 ran at 67% new store productivity. The 80 stores that we plan for 2024 are expected to be coming out the gates very consistent in the same way and our new store maturation process of a four to five year 65% to 70% new store productivity is where we target and we expect 2024 with the strong pipeline that we’ve got, we believe an excited — just as we have in 2023 about what these new stores will produce.

Operator: Thank you. The next question comes from the line of Peter Benedict with Baird. Your line is now open.

Peter Benedict: Hi, guys. Good morning. I guess, Kurt, maybe a question for you. As we think about the EBIT margin and how it toggles within your guidance range, roughly speaking, about 15 basis points up or down per point of comp move. If you guys — if you think we see a scenario where your comps are either below the low end of your guide range or they come in above the high end of the range, any sense for how the incrementals or decrementals would look. Anything we should think about there is 15 basis points a good benchmark? Or just curious kind of your thoughts on that. Thank you.

Kurt Barton: Yes. I’ll give you a couple of points, Peter, on that. First, we’ve considered the micro strategic drivers, the macro favorable or unfavorable pressures for this year. We’ve given a guidance range, albeit slightly larger on the top and bottom line than we historically have that recognizes we’re in a time of uncertainty. And so we believe all of those scenarios, any plausible, reasonable scenarios have been factored into our guidance. So we don’t see likelihood outside of the downside of the guidance that we’ve given. That said, inside the guidance range, even outside of the guidance range, I’d point that the EBIT margin movement within sales range is not linear. And there’s a number of factors, certainly with the level of gross margin or what might be a factor that’s driving the low end of the range.

A deflationary environment, for example, gives us upside on margin rate. So I would not point to any linear and even outside of the range when you start considering incentive comp and other things, it’s not linear as well.

Operator: Thank you. Our next question comes from the line of Scot Ciccarelli with Truist. Your line is now open.

Scot Ciccarelli: Hi, guys. Scot Ciccarelli. Can you help quantify the comp lift that you’re baking into your model from your Garden Centers this year? I think you mentioned you have about 40% penetration now, and we know that the spring selling season was largely wiped out in 2023 and probably even 2022. And maybe any other color on the performance of the Garden Centers as that program matures? Thanks.

Kurt Barton: Yes, sure. Why don’t I start with that, Scot, on the comp, and then I’ll toss it to set a little bit on the performance of Garden Centers, some of the 2024 drivers, et cetera. Our expectation and how we’ve modeled in our long-term targets is still the same as our expectations for 2024. As we continue to add Garden Centers roughly 150 to 200 of those a year. And you get from Fusion and Garden Center mid-single-digit to high single-digit on combo lift as those mature in year one and then a lower benefit in like year two, but still a benefit over the chain, that roughly plays into our algorithm, and we would anticipate for this year to play similar to that the Fusion Garden Center initiative is driving — give or take some roughly one point of comp in our guidance range.

And Neighbor’s Club is another initiative that’s driving consumers to spend up the tiers, more transactions, getting more of their share of wallet is another driver. So just kind of pointing out the two biggest strategic initiative drivers, and then I’ll toss it over to Seth, maybe to talk a little bit about what’s driving the garden centers.

Seth Estep: Yes. Thanks, Kurt. Thanks, Scot, for the question. Scot, first, I’ll just start with as we think about our garden center initiative, just the size of the addressable market there is over $20 billion. And as we know, it’s a place where our customers participated, where they didn’t necessarily look at us as their first and primary destination for those categories, and we believe we have significant share opportunities as we look at the lawn and garden segment. Over the course of the last three years, as Kurt has mentioned, we have really been focused on driving scale to build out our grower base and then build to the 450-plus garden centers where we’ll be entering spring, which we really believe this is the year that the team is really going to be able to drive some sales.

As we go into spring with those 450, I mean, obviously, we’re focused on winning those spring categories as well as building out both fall and our winter seasonal related areas to make sure that we can leverage and maximize that footprint. Not just in the spring season, but also in the 12 months of the year. So, very excited about the work that the team has been doing, very excited about the size of the prize there, and I think this is the year which really all going to come together. We built scale and how those programs are going to be hitting stores.

Operator: Thank you. The next question comes from the line of Chuck Grom with Gordon Haskett Research Advisors. Your line is now open.

Chuck Grom: Hey thanks very much. Happy New Year guys. Now that you’ve completed the Orscheln conversions, I guess I’m curious your outlook on sales productivity and margins of these locations. And I guess now that they’re in the set, how does that compare to the legacy Tractor Supply stores? And when we look at 2024 and ’25, how do we think about the sales maturation curve and the benefit to comps from those stores? Thanks.

Kurt Barton: Yes, Chuck, this is Kurt. The Orscheln conversion went very well. All stores converted, as we mentioned, to the Tractor Supply brand. The first six to nine months of — since the acquisition was a transition, a lot of noise through that. We now have them all branded Tractor Supply. The team is engaged. We’ve got the Tractor Supply products and services, our Tractor Supply, feed and food brands. And when we begin to cycle that in second quarter where we converted all over we do anticipate to see much like a new store maturation, perhaps we’ll learn it in a similar type maturation curve, but we anticipate and have baked into our guidance some new store maturation type comp benefit from those 81 stores as well. And how it compares?

We anticipate these markets from our real estate study that there is upside to the historical performance in those stores to be able to run in line with Tractor Supply averages. Albeit we’ve said it’s very much in line with like a Midwest tractor supply average, which is a bit below the overall tractor supply average store level. So there’s room to have these grow over time. And we’re excited about our ability to capture new customers, bring them into Tractor Supply in these stores. And so overall, for 2024, even into 2025, we believe much like a new store, there’s a benefit from the maturation.

Operator: Thank you. The next question comes from the line of Michael Lasser with UBS. Your line is now open.

Michael Lasser : Good morning. Thank you so much for taking my question. What if you assumed for input cost relief in 2024, especially key variables like transportation costs and commodity costs? And then how does that inform your view of the gross margin outlook for this year? Because it seems like the gross margin has been expanding significantly in part because of this relief? And is there a risk that at some point, Tractor Supply could invite more competition as its gross margin is about 150 basis points higher than it was in 2019? Thank you so much.

Hal Lawton: Hey, Michael, good morning. Two things I’ll hit on this. First is the long-term structural nature of our gross margin, and then I’ll speak to the assumptions implied in 2024. On the long-term structural nature, there’s two big shifts that I want to remind folks about that really have transferred rate out of gross margin and expense out of gross margin and into SG&A. The first one of those is our field activity support team. As we’ve mentioned, it’s nearly a 1,800-person team that where the expense falls in our SG&A, but the offsetting support provided by our vendors falls in gross margin. As we’ve talked about that several times in the past, that’s roughly in the neighborhood of 40 to 50 basis points of shift. Secondly, I would call out the continued transformation of our supply chain.

From 2018 to 2023, our stem miles have reduced by 20%. And that basically means a truck going from a DC to a store. And so the impact of that is reduced freight cost on a like-for-like volume and rate basis versus, say, 2018, but there’s obviously operating costs embedded in our G&A to run the two DCs we’ve opened since then and the 11 mixing centers that we’ve opened since then. That is a benefit of roughly 60 to 70 basis points of the delta there. So when you add the fast difference and you add the supply chain difference kind of, call it, 75% of the gross margin difference that you quoted that 150 basis points is structural in nature and really a shift from SG&A to gross margin rate. Now looking forward, I would say the balance that you see there in gross margin rate, I would attribute to our scale.

As we talked about, we’re almost double the size of the business that we were in 2018 when I quoted those stem miles. And that’s accorded us the ability to obviously manage and run the business more productively, whether that’s in freight and our negotiations with our freight providers or whether that’s getting credit for our scale with our primary COGS vendors. As it relates to this year, we do see continued benefit in the freight market, particularly in the first half of the year, and we’ve talked about that, particularly in the back half of last year and also in the first and second quarter some, but we do see continued freight benefit. Also, as we’ve talked about in Q3 and Q4, and we also mentioned in our prepared remarks, we have been working very closely with our vendors on cost and have been rolling that cost where we’ve seen commodity prices come down and other cost impacts moderate or reduce.

We started that work, as we mentioned in past earnings calls, really in the summer time and the impact of those cost reductions are forecasted in our margin rate assumptions that Kurt laid out in his prepared remarks. The last thing I’ll mention is just on competition. We are as priced strongly in the market right now as we’ve been ever. And we have a number of initiatives that we have in place to really make sure we stand for value in the marketplace on our key, kind of, value indicating SKUs out there and feel really good about our price position and don’t see any encroachment from competition just the same competitive intensity that we’ve seen over the last few years.

Operator: Thank you. The next question comes from the line of Seth Basham with Wedbush. Your line is now open.

Seth Basham: Good morning. My question is on the companion animal category. And if you could comment on the performance of that category in the fourth quarter were comps up or down. And then specific to cat and dog food, you mentioned positive unit comps. What about sales comps? And how are you seeing the consumer respond to inflation broadly in that category?

Seth Estep: Hi, Seth, this is Seth. Relative to our companion animal business, we remain very excited about the opportunity that we have in companion animal and we’ve continued over the years to manage through multiple cycles and have a track record of this. What I’d say like relative to comp, companion animal continues to be a comp driver for us in both units as well as top line. When you look at trends in the industry, approximately for our customers, approximately 75% of our customers own a pet, and about half of those that own more than one pet. And so just structural to our customer base in general, it’s an area that we are highly committed to. We believe you think about like our convenient locations, our team members, our omnichannel capabilities, our robust and differentiated assortments.

We see those as all competitive advantages in the pet space, and we continue to take market share there. And we believe we have substantial market share opportunities ahead, both in 2024 and beyond with our existing customer base, as well as the new customers that are out there. So companion animal in general for us, it remains a healthy business, and it’s something that we were confident in taking share in the years to come.

Operator: Thank you. The next question comes from the line of Peter Keith with Piper Sandler. Your line is now open.

Peter Keith: Hey, thanks. Good morning, everyone. Just to touch base on deflation, Kurt, you said modest deflation. I’m wondering if you could actually just quantify that if we think if it’s like down 1% as comp headwind, and then bigger picture, there are some concerns that deflation will take you guys back to the back half of like 2015 to 2017 where comps were sluggish for a longer period of time. Do you see any key differences from the economic backdrop today versus several years ago when we last saw deflation?

Kurt Barton: Yeah. Peter, I’ll start with your first part of your question in regards to what our assumption is on a neutral deflation. Roughly neutral deflation for the year overall is what we see, give or take, I mean, give or take in our ranges, plus or minus one impact on retail AURs. As Hal mentioned, I think, in one of the other questions earlier, as we’ve rolled back off the peaks of 2022 throughout 2023 on a lot of the commodity deflation. A vast majority of that occurred throughout 2023 during these cycles. And these are fast turning SKUs in feed and food. So these — these prices are already in our retail prices. First half of the year may have some exposure as a year-over-year lap on that. As we had slight net deflation in Q4, there could be and assumed in our guidance, some slight in the first half of the year.

The second half of the year could be neutral or actually slightly positive. So we’ve considered each of those scenarios, but we really don’t see a wide range in there. And I demonstrated that in regards to like corn, where it’s 35% below the highs of 2022, and that happened throughout 2023. There’s 10 or 15 points of difference between the pre-pandemic levels. And so there’s really not much movement left in a commodity, and that commodity is a small percent ingredient in a small or a portion of our products that we offer. In comparison to 2015, it’s all about what’s structural. In 2015, we were coming off of years where oil prices, steel prices, grains were coming off of highs, and they completely flipped. In this case, the commodities hit the early peaks in 2021 and 2022 and all the structural nature, which is a bigger portion, such as wage rates, operating cost, et cetera, are really begin to get embedded in 2022 and 2023.

And this structural. So I think it’s a very different scenario. And there’s limited risk that we see, if anything, it’s a small level, and we believe adequately considered in our guidance.

Operator: Thank you. The next question comes from the line of Joe Feldman with Telsey Advisor Group. Your line is now open.

Joe Feldman: Hey, guys. Thanks for taking the question. I wanted to follow-up on something you said about big ticket. And you talked about you think big ticket should be positive in 2024. I was just curious, is that lapping in just the easier comparisons? Or is it more to do with your view that discretionary spending will pick up, consumer behavior will kind of shift towards that discretion bigger ticket category. Like what’s driving, I guess, that confidence in having said that. Thanks.

Kurt Barton: Joe, this is Kurt. I’ll quickly just affirm what our — was assumed in our guidance and then let Seth give you the answer about why we’re assuming that for 2024. But we do believe that big ticket should be in line with our overall guidance range for the year. That’s as you see that, that’s relatively flattish at the midpoint to slightly favorable. And we’re going up against two consecutive years of negative big ticket comps. So it has a lot to do about the compares. And in 2022, we were coming off of all of the stimulus spending in 2023. There’s a bit of a swing off of durable goods into services and some of the weather-related pressures. And in 2024, we’re cycling that and we’ve got some great offers, some new innovations that I know Seth can speak to.

Seth Estep: Yeah. Thanks, Kurt. Yeah, so as Hal mentioned in his prepared remarks, we’ve got a lot of newness and innovation coming, particularly in our big ticket categories, also as we lap some of the easier compares that Kurt just mentioned, whether it be the Toro havoc that’s going to be exclusive to us that Hal mentioned, a whole new grill lineup that we continue to expand basically an exclusive lineup of trailers to Tractor Supply, where we are definitely a destination, safe. As we look ahead, we believe can be a driver for us and then finally, I’d just say as the team and as we mentioned in prepared remarks, our private label credit card that we’ve been able to lean into to drive some volume as it comes to big ticket has also been strong.

Hal Lawton: Broad-based, I’d just say, retail, in general, is rebounding some of the big ticket, and we could definitely see that as we approach kind of November and December.

Mary Winn Pilkington: Allisa, we’ll take one more question. Time limit.

Operator: Certainly. Our final question comes from the line of Michael Baker with D.A. Davidson. Your line is now open.

Michael Baker: Okay. Thanks. Can you guys hear me?

Kurt Barton: Yes.

Michael Baker: Hello?

Kurt Barton: Yes, Michael.

Michael Baker: I hate to ask the last question on a real short-term thing. But I am curious about the first quarter. You said, you expect all quarters to be within your range or consistent with the range or something along those lines. So that would mean at the high-end. And you said positive for 1Q, but that would mean about 1%. Is that reflective of what you’re seeing in January? Or how much does that consider? I think the comparison gets a little bit harder in February, although I don’t think March was very good last year either. So with all the weather we’re all seeing in the country, I think a lot of people are assuming that January is a pretty strong month. I guess I’m just trying to gauge how strong relative to the implied guidance of maybe up 1%? Thanks.

Hal Lawton: Hey, Michael, it’s Hal. Thanks for the question. I’d just say it’s certainly, we saw some benefit from the weather in the first three weeks of January, really the second and third week, but January is our smallest month of the year, smallest month of the quarter. And the thing that the month that’s really going to determine our comps for Q1 is going to be March. We are, as I mentioned in my prepared remarks, very excited about our spring setup this year. We’ve got our most innovation in the last three or four years now that kind of the supply chain disruptions and all those things have been worked through. Our vendors have been able to really spend the last year getting their innovation pipeline restarted. Our in-stock rates and our spring sets are back to the expected 95% plus that we historically have set at, and we feel great about spring.

We’re optimistic about Q1, as Kurt said, we’re certainly expecting a positive comp. We’re off to a good start with the month of January behind us. But really, the most important thing that we’re focused on is having a win in March.

Mary Winn Pilkington: Great. Well, Alissa, thank you. That will conclude our Q&A session. And I’m the Randall Day [ph], for anybody, please reach out for follow-up, and we look forward to talking to you on our Q1 earnings call at the end of April. Thank you.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect your lines.