Tractor Supply - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was mixed: net sales grew 2.1% to $3.47B, but comps fell 0.9% and diluted EPS declined 8% to $0.34; management attributed the shortfall primarily to a ~3-week delayed spring and softness in big-ticket categories.
• Gross margin expanded 25 bps to 36.2% on product cost discipline and everyday-low-price execution, while SG&A deleveraged 81 bps given planned growth investments and lower comps.
• Guidance was widened for FY25 (sales +4% to +8%, comps flat to +4%) and Q2 2025 was introduced (sales +3–4%, comps flat to +1%, EPS $0.79–$0.81), reflecting tariff uncertainty and cautious macro assumptions.
• Consensus context: Q1 missed S&P Global estimates on EPS ($0.34 vs $0.368*) and revenue ($3.47B vs $3.53B*); management highlighted weather as the key driver, not broader macro.
• Near-term catalysts: clarity on import tariffs (assumed for next 90-day receipts), normalization of spring demand, and traction from Allivet and Tractor Supply Rx launch.

What Went Well and What Went Wrong

What Went Well

• Gross margin expanded 25 bps to 36.2% on disciplined product cost management and everyday low price strategy.
• CUE (consumable, usable, edible) and winter categories showed robust unit growth; heating fuel was up north of 20%, and poultry/equine/livestock feed grew despite modest declines in animal counts, indicating share gains.
• Management emphasized resilient customer health: strong transaction growth (+2.1%), positive new customer counts, and record retention of existing customers, reinforcing market share gains.

Selected quotes:

• “We had robust transaction growth…record retention of existing customers…we continue to gain market share.” — CEO Hal Lawton.
• “Our gross margin rate of 36.2% increased 25 basis points…disciplined product cost management and everyday low price strategy.” — CFO Kurt Barton.

What Went Wrong

• Comparable store sales fell 0.9% as spring seasonal/big-ticket categories underperformed; riding lawn mowers down ~25%, lawn & garden declined low double digits.
• SG&A rate rose 81 bps to 29.0% due to planned investments (depreciation, 10th DC operations) and fixed-cost deleverage on lower comps.
• Weather was the “key swing factor”: spring delayed by ~3 weeks, especially in the South, where spring categories were down ~30%; Easter timing (~$20M comp headwind) further pressured March.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss first quarter 2025 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 note that the queue for our question-and-answer session did not open until the start of this call.

Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.

Mary Winn Pilkington (SVP of Investor Relations and Public Relations)

Thank you, Alyssa. Good morning, everyone. We appreciate your time and participation in today's call. On the call today are Hal Lawton, our CEO, and Kurt Barton, our CFO. Following our prepared remarks, we'll open the floor for questions. Please note that a supplemental slide presentation has been made 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 risk 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. As we move into the Q&A session, please limit yourself to one question to ensure everyone has the opportunity to participate.

If you have additional questions, please feel free to rejoin the queue. We appreciate your understanding and cooperation. We will also be available after the call for further discussions. Thank you for your time and attention this morning. It's my pleasure to turn the call over to Hal. Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. As always, I'd like to begin by thanking the Tractor Supply team for all they do and for their dedication to our purpose of serving life out here. Despite a softer-than-expected start to the year, given the delayed spring selling season, we're proud to report another quarter of strong execution by the Tractor Supply team.

In the face of volatile weather and a shifting operating landscape, our team remained focused on what we could control, investing with purpose, managing costs with discipline, and most importantly, serving our customers. On the customer front, the underlying health of our business remains strong and healthy. I'll highlight four key indicators. One, we had robust transaction growth. Two, we also had strong unit growth in our consumable, usable, and edible categories. Three, we had positive new customer counts.

We had record retention of existing customers. These customer indicators reinforce our belief that our customer base remains both healthy and engaged and that we continue to gain market share. Now, I want to take a moment to address the updated guidance we issued today. Since we shared our initial outlook for 2025, the macro environment has clearly become more uncertain. Drawing on some of the scenario planning we used during the early days of COVID, today, in addition to an updated fiscal year outlook, we're providing second quarter guidance.

The updated fiscal year outlook is reflective of three primary considerations. One, it flows through the seasonal spring softness we've experienced to date. Two, it assumes that pressure on big ticket categories will persist for the remainder of the first half.

It reflects a range of scenarios related to tariff costs that our vendor base and we are incurring in the second quarter. In other words, we have considered the implications of tariffs through the 90-day pause that began on April 9. While not our standard practice, given current conditions, as I mentioned, we are also providing second quarter guidance, as we believe offering near-term visibility is important for our investors at this time. As always, our goal is to be transparent, and we remain committed to updating our outlook as we gain greater visibility. I'll now turn the call over to Kurt to walk you through the financials.

Kurt Barton (EVP, CFO and, Treasurer)

Thank you, Hal, and good morning, everyone. In the first quarter, our total sales were a record $3.47 billion, an increase of 2.1%. Comparable store sales declined 0.9%. This performance was driven by strong transaction growth of 2.1%, offset by a decline in average ticket of 2.9%. Diluted earnings per share was $0.34. These results were below our expectations, and we believe that weather was the key swing factor on our results in the quarter.

As we analyze our performance across the weeks of the quarter, geographical regions, or product categories, the results point to the delay in spring seasonal shift as the key factor weighing on our results. We also recognize the evolving macroeconomic environment and are closely monitoring ongoing discussions around a potential economic slowdown and its impact on consumer spending.

We do believe that some of the softness in big ticket categories reflects a degree of caution in consumer sentiment amid the current environment. That said, based on our analysis of first quarter performance, we believe our underperformance was primarily driven by adverse weather conditions rather than broader macroeconomic trends.

Where our business had a normal transition to spring, we were pleased with the results. Unfortunately, that was not in the vast majority of the country, and we estimate the arrival of spring was delayed by about three weeks across most of our markets, especially in the Midwest and Northeast, where there was snow just last week. Looking at the cadence of comparable store sales over the quarter, we began with a strong January, successfully comping over last year's performance.

When evaluating January and February together, we were particularly pleased with the results in our cold weather categories, which performed well. However, the momentum slowed as we moved into mid-February and March. Typically, we begin to see early signs of spring in the South by mid-February, but this year that transition was delayed due to prolonged cold temperatures and winter storms, which extended into mid-March. As a result, demand for spring seasonal categories was significantly softer than anticipated.

In the first quarter, spring is much more important in the South than winter in the North. To give you some further perspective, our spring categories in the South were down about 30%. In total, we estimate that the delay in spring weather was a headwind of about 250 basis points.

Also, it's important to recall that we were lapping an early Easter in 2024, which we estimate was approximately a $20 million headwind to comp sales in the quarter, particularly considering that March represents about 40%-45% of the quarter. Turning to our geographic regional performance, it's helpful to view our markets through the lens of our northern and southern geographies.

As I mentioned earlier, our southern markets were impacted by a slower spring season, which weighed on our overall results. In contrast, the northern markets delivered reasonably solid performance, especially considering the lingering cold weather. However, given the concentration of our store base and the relative size of our spring business in the South, the strength in the North was not enough to offset the headwinds we experienced in the South during the quarter.

Simply put, when spring stalls in the South, it stalls the quarter, and that's exactly what we saw this time. Categories that had the strongest performance were our winter seasonal products, followed by year-round categories, including notable strength in our consumable, usable, and edible products.

Overall, our sales increased in the mid-single digits, with unit growth in the high single digits. Given the extended cold weather in the quarter, a leading growth category was heating fuel, which was up north of 20%. Propane, wood pellets, bedding, and pine shavings are great examples of the resiliency of our business model. Domestically sourced, needs-based products. Additionally, products such as bird feeding and poultry feed had robust growth, as did equine and livestock feed. We are only halfway through our Chick Days program, but we have been very pleased to date.

Broadly, we believe that we continue to gain market share in pet food and our feed categories, even as key indicators like pet ownership and cattle and horse counts continue to have modest declines. Categories that were a negative drag to our comp sales included our spring seasonal and related big ticket items like riding lawnmowers and outdoor power equipment, and our spring items in clothing and gifts and truck tool and hardware.

For perspective, our lawn and garden department declined low double digits, and riding lawnmowers were down about 25%. While certain seasonal categories weighed on our comparable sales, it's important to underscore the resilience and strength of our core business. In fact, our 2.1% increase in comp transactions highlights the underlying health of our model and the needs-based, demand-driven products our customers depend on us for day in and day out.

Transaction growth was offset by a lower average ticket, driven primarily by a negative product mix from fewer spring seasonal goods and modest pressure from lower average unit retail prices. Average unit retail was impacted by a low double-digit decline in big ticket items and strong growth in lower-priced heating fuel. Combined, about 75% of our AUR decline is explained by these two categories alone.

We also continue to experience modest product deflation of about 50 basis points in line with our expectations. This decline was partially mitigated by increased units per transactions. We are 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 36.2% increased 25 basis points to last year.

This increase was primarily attributable to our disciplined product cost management and the continued execution of our everyday low-price strategy. Our gross margin expansion was modestly below our expectations due to negative product mix given the softer spring sales, which carry a higher gross margin than our winter seasonal products. Our first quarter SG&A expense rate, including depreciation and amortization, increased 81 basis points to 29%. This increase in SG&A as a percent of its sales was primarily attributable to planned growth investments, which included higher depreciation and last year's opening of our10th distribution center.

We also had deleverage of our fixed costs given the level of comparable store sales decline. These factors were partially offset by continued productivity and cost control, as well as a modest benefit from our ongoing sale-leaseback strategy. Operating income decreased 5.3% to $249.1 million, and net income decreased 9.5% to $179.4 million.

During the quarter, we repurchased approximately 1.7 million shares and paid quarterly cash dividends totaling $122.4 million, returning $216.4 million of capital to shareholders. We also increased our dividend by 4.5%, marking our 16th consecutive year of growing our dividend. At the same time, we raised our share repurchase authorization by an incremental $1 billion.

Turning now to our balance sheet, merchandise inventories were $3.2 billion at the end of the first quarter, representing a modest 1.5% increase in average inventory per store. We are pleased with how we exited the winter season and the uality of our inventory at the end of the first quarter. The strength of our balance sheet remains a competitive advantage to position us well to navigate the dynamic macro environment. Turning now to our outlook for the balance of the year.

As Hal noted, the macroeconomic landscape has become more uncertain since the start of the year. In light of these evolving conditions, we are updating our full year outlook to be reflective of the comments Hal made in his opening remarks. We now expect net sales growth between 4% and 8%, and comparable store sales to range from flat to up 4%. We are forecasting an operating margin of 9.5%-9.9%, with net income between $1.07 billion and $1.17 billion. This translates to earnings per share in the range of $2-$2.18.

While the tariff environment adds incremental pressure to our cost base, we are actively managing these impacts through close coordination with our vendor and supply chain partners. With multiple scenarios in play, we're positioning the business towards the midpoint of these ranges.

Looking to the second quarter, our guidance calls for net sales growth of approximately 3%-4%, comparable store sales between flat and up 1%, and earnings per diluted share of $0.79-$0.81. As those of you that have followed us for some time know, we continue to believe the best way to look at our business is to view our performance on the halves. It's the way we manage our business and continues to be the best way to judge our performance.

We are being prudent in our guidance to give the most realistic view based on what we know today. We are controlling our controllables, and making progress on our Life Out Here strategy. 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.

We will be disciplined in our capital investments and in our cost structure. With more than two and a half decades of experience with Tractor Supply, I have seen the company navigate through multiple business cycles. We know the playbook and are committed to our results standing tall in retail.

We are closely monitoring consumer demand indicators and forward-looking signals, including shifts in consumer sentiment. Tractor Supply's long-standing track record of resilience and success positions us as a leader in the retail sector, ready to seize the market share opportunities ahead and continue to deliver shareholder value. With that, I will turn the call back to Hal.

Hal Lawton (President and CEO)

Thank you, Kurt. For the remainder of our prepared remarks, I would like to address the key questions and themes we have heard from many of you in the recent weeks. In this time of uncertainty, we want to make sure we're giving you a real-time view into how we're thinking about the business and the current dynamic environment. Let's start with the top question on everyone's mind. How is Tractor Supply managing through tariffs and corresponding price strategies? First, it's important to recognize this management team has a strong track record of navigating complexity with discipline and clarity.

We've been through many other battles together. Whether it was during the prior rounds of tariffs, inflationary spikes, or supply chain disruption, we know how to operate in these environments, and we're applying those same playbooks now. We're fine with even better data and sharper execution, building on our learnings from these past rounds. We begin from a position of strength on tariffs. This is not an existential crisis for Tractor Supply.

Over 60% of our business is from products that are manufactured, bagged, assembled, or grown in the United States, and only 12% of our business is direct imports. On our direct imports, over the last several years, we've reduced the share from China from north of 90% to currently below 70%, and we're on track to be closer to 50% by year-end.

When it comes to the recent tariff announcements, we're taking a proactive but measured approach. Like many, we stood up a task force, and our merchant, sourcing, inventory, and supply chain teams have been working 24/7 since. Despite our relatively advantaged retail business model, the increased costs are substantial for many of our manufacturing partners and us. One of the competitive advantages of Tractor Supply is our agile supply chain and deep vendor relationships.

We are working hard through vendor negotiations, diversified sourcing, and smarter inventory planning to mitigate the cost pressures and ensure a strong inventory position in the second half. We have already had some good early wins, and I expect we will continue to find ways to offset a portion of the cost and ensure key programs are available to our customers this fall and winter.

On pricing, our top priority is always to be an advocate of value for our customers. They rely on us to maintain their daily lives, regardless of economic conditions, and we take that obligation very seriously. That said, we are already seeing reuests for price increases from select vendors in areas of the market, and I fully expect that we will see more in the coming weeks and months.

Where we take price, we will be surgical, category by category, SKU by SKU, leveraging our portfolio strategy, always with the top priority being a focus on value perception, but also always with an understanding of margin sustainability. A bit on price elasticity. It's worth underscoring the needs-based nature of our core categories.

Categories like pet food, animal feed, lubricants, wood pellets, shavings, and many others are basically consumer staples. Repair categories like mower parts, trailer accessories, and fencing are destination categories for us and ones that our customers count on us to extend the useful lives of their assets. The needs-based nature of our business gives us a level of resilience and pricing flexibility that many discretionary businesses don't have. Ultimately, our goal isn't just to offset cost, but it's to protect long-term trust with our customers.

Our customer loyalty remains strong, and we feel confident in our ability to navigate this moment while continuing to grow profitably. That leads to another question that's freuently asked, and that's around the health of our consumer and what trends we're seeing in consumer spending, including any indications of trade-down activity or shifts in discretionary demand.

I will start by saying the health of our customer remains very stable, as I said at the outset, and engagement remains high through but understandably cautious. As I get into this question, I will start with the facts from Q1. Foot traffic in the quarter and transactions in the quarter both ran above last year, and we're not seeing discernible trade-down in categories like feed and food. As Kurt mentioned, big ticket was pressured.

That said, when the sun was out, seasonal big ticket was solid, and getting a read on these categories in the quarter was difficult. The follow-up question that's often asked is, did you see any shifts late in the quarter, and how has this shifted in Q2, given the recent drop in the stock market, headlines about potential recessions, noise on tariffs, and also a continued delayed spring?

I'll start again in this quarter by saying that traffic and transactions continue to run positive, and customer engagement remains strong. I've been in the stores throughout the country the past few weeks, and our customers are pursuing life out here with the same passion as previous years, and I think much of the noise we see in the news has had little effect on them yet to date. Our categories are performing well.

They continue to positively comp, and in fact, we've seen a modest step up in our pet run rate. We've continued, however, to see pressure in our big ticket categories early in Q2. With Easter shifting and spring running roughly three weeks behind, as Kurt mentioned, it's still difficult to parse whether consumer demand is delayed or fundamentally different this year. We'll continue to watch this closely, especially with three months of spring selling still ahead and a wide range of spending outcomes being forecasted by economists across our country.

It's also important to keep in perspective, though, that big ticket only represents less than 15% of our business. To sum it up, reflecting back on our customers, they're resilient and they're passionate about their lifestyle. While our business certainly isn't inelastic, our needs-based, demand-driven profile is very attractive and a long-term strength.

In fact, we've only posted one negative comp year in the last three decades. Our customers are always looking for value, and we're confident that we will be well-positioned if they choose to be more selective and stretch their budgets. Now, shifting to a fun topic that's got a lot of headlines recently, and it's a question often asked is, how has your Chick Days performance been so far, and what's the continued outlook for the category this year?

This year's event is on pace to deliver record-breaking results, and it's a great reflection of Tractor Supply's uniue position as the go-to destination for backyard poultry. We're seeing continued momentum from our core customers who are expanding their flock alongside strong engagement this year from new customers in the category, many of whom are responding to the elevated egg prices and looking to take more control of their food supply.

Now, as you know, we're working with live animals, and that comes with lead times. Our demand forecast was set with hatcheries back in June of last year, which means our ability to flex up inventory in season is somewhat limited, but we still think this will be a record bird count this year. That said, the strong sell-through that we're also seeing speaks to the relevance of our assortments and expertise in this space, and certainly drives our average unit retail up in the category.

There's no question this trend has generated terrific earned media for Tractor Supply, reinforcing our leadership in the backyard poultry space. In addition, our Chick Days event continues to be a standout example of retail theater at its best.

It brings our Life brand to life in a way that's highly engaged for customers, creates meaningful traffic in our stores, and further strengthens our position as a destination for all things rural lifestyle. Also, our assortment of premium breeds continues to lead the category in growth, and today our customers over-index to poultry.

As we've mentioned before, ownership of poultry is nearly one in five customers having chickens. Chick Days is like an annuity for Tractor Supply as birds typically live five to seven years, and the reoccurring feed and supplies drives trips back to Tractor Supply. A fun fact is that one chicken can eat over 75 pounds of feed a year, which keeps our customers coming back again and again.

We're also seeing strong comps in coops, chick toys, and treats, which is a clear sign that innovation and newness continue to resonate this year with our customers. What's especially notable is the strength in big ticket coops, with some models approaching $1,000. It's a great example of customers investing in the out-here lifestyle when they see innovation and value, as I mentioned.

This year, as I said, is shaping up to be the most successful Chick Days event ever. Shifting to another topic, as we've discussed several times on our earnings call, we've been dealing with, since late 2023, the deflationary environment in many of our categories. We get asked consistently about inflationary signals, and specifically at what point do we think we'll see deflation turn to inflation? On this point, I'll reinforce the guidance that we gave last quarter.

Putting aside the recent tariffs, we expect average unit retails benefiting from inflation in our categories by the middle of the year. We believe that pet category has passed its trough and is on the way to returning to historical trends. Additionally, one of the most important input commodities to our livestock feed, corn, has been well above the low watermarks of last year.

As discussed in our view, it is likely that the new tariffs will lead to some level of inflationary pressures, with that amount being determined. Net net, we believe we're on the cusp of turning from deflation to inflation in our business. Finally, we've heard the broader question about our willingness to continue to invest in our Life Out Here 2030 strategic initiatives if the economy were to be in a slowdown.

I'll start on this question by reinforcing the multitude of compelling nutritive growth opportunities Tractor Supply is targeting.We shared these as part of our Life Out Here 2030 strategy on our investor day in December, and we're even more excited about them now. Many of these multi-year investments are being implemented in an asset-light manner, especially the sales-driving initiatives like localization, direct sales, and PetRx, and afford us the ability to push investment into 2026 if appropriate to do so.

We have not made a decision to do so at this point, but we'll continue to evaluate business conditions and make these decisions as appropriate. Now, a uick update on a few of the initiatives. Tractor Supply PetRx, we launched that earlier this week, and it's a great opportunity for us to scale on our acquisition of Allivet.

The team moved with speed and agility to integrate Allivet with the Tractor Supply website. This quarter, we reached a milestone of 40 million Neighbor's Club members, as I said, the majority of whom have a pet or animal, and we have an opportunity to offer an easy and affordable solution for their Rx needs. Great first quarter progress on this acquisition. We've also made strong progress on our direct sales initiative. The first batch of sales teams have now launched in select markets, and they're building on the foundation we're laying with the rollout of our final mile delivery hubs in concert.

At the same time, we've also begun the first phase of localizing our stores, and each customer archetype has now been executed out in the market. Stepping back in a slowing growth environment, our prioritization is to always balance growth and margins.

We're keenly focused on managing risk. This is a cycle-tested management team that successfully managed through the prior round of tariffs, and we were very successful during the pandemic and all the supply chain disruptions that followed as well. We'll be prudent and nimble with our investments to balance the short term with the significant long-term opportunities we see ahead.

To wrap it up, if you take just one thing from our call today, let it be this: Tractor Supply is built for resilience. Tariffs, weather, deflation to inflation, none of it changes our focus or belief in the strength of our durable business model.Our flywheel has stood the test of time. We operate in needs-based categories. We know our customers well, and we continue to invest in capabilities that will continue to build on our competitive advantages. Our team is focused.

Our balance sheet is strong, and our long-term strategy is working. We're confident in our ability to navigate through the current environment and emerge even stronger on the other side. My deepest gratitude and heartfelt thanks again goes out to our Tractor Supply team for their unwavering dedication to embodying our mission and values each and every day. This commitment is the driving force behind our continued success.

Operator, we'd now like to open up the call for questions, and I'll also add that today, in addition to Seth, we also have Rob Mills, John Ordus, and Colin Yankee in the room. Thank you.

Operator (participant)

Thank you. We will now begin the question and answer session. If you would like to ask a question, you may do so by dialing star one on your telephone keypad. To remove your question, you may press star two. For those using a speakerphone, please remember to pick up your handset before asking your question. As a reminder, we ask that you ask one question, then return to the queue. Once again, star one to ask a question. Our first question comes from the line of Peter Benedict with Baird. Please go ahead.

Peter Benedict (Senior Research Analyst)

Oh, hey, good morning, everybody. Thanks for all those comments out at the end. Super helpful. Could you maybe clarify the tariff environment that you're assuming in the second quarter? Even more importantly, for the second half of the year, it was a little unclear to me. You mentioned something about the 90-day stuff. Are you guys thinking 145 for China and 10% rest of the world? Is that what you're baking in for this quarter, for the full year? I guess maybe some more clarity around that. It wasn't clear to me from your comments. Thank you.

Hal Lawton (President and CEO)

Good morning. Thanks, Peter, for the question. Absolutely. The way we've approached this is basically to think about tariffs over the next in the context of the Q2 90-day receipts. To your point, we are making the assumption that the current 10% in kind of non-China and the 145% in China, in addition to the other tariffs that have been introduced, such as the steel tariff, steel and aluminum tariff as well, we're assuming that those will be in place for the fullness of Q2.

All the receipts that are being kind of occurring in our value system during the Q2 timeframe, we're assuming that cost is going to make its way into our value system in some way, whether that's in our manufacturers' profit, whether that's us finding efficiencies, or whether that makes its way over into the consumer. We've kind of limited our guidance for today to the exposure that we see over the next 90 days.

Stepping back, we're optimists. We're hopeful that much of the global trade policy that's out there today will kind of moderate, and there'll be some cooling off, and cooler heads will prevail. We think that kind of as we're all watching the news, we'll see how that evolves. For the sake of being prudent and just kind of thoughtful and snapping the chalk line, what we've snapped the chalk line around is the second quarter receipts that are occurring in our supply chain system.

Peter Benedict (Senior Research Analyst)

Very helpful. Thank you very much.

Operator (participant)

Thank you. The next question is from the line of Chris Horvers with JPMorgan. Please go ahead.

Bharath Rowan (Analyst)

Thanks. Good morning. It's Bharath Rowan for Chris. On the Q2 guide, Hal, I think you mentioned expectation for continued big ticket pressure, but curious as to what's being baked in the guide in terms of any sort of seuential improvement in the category and from the Easter shift. On the full year, with the top line range being raised at the high end, just curious as to what's baked into there as to what would help you come in ahead of the original guide and hit that 4% comp. Thank you.

Hal Lawton (President and CEO)

Good morning. On second quarter, we took a very prudent and kind of conservative approach to the quarter. As I mentioned, we flowed through in our full year the guidance in our performance in the seasonal business through the current year to date. We also assumed that there would not be a returning pickup in big ticket through the balance of the quarter. We did assume that our categories would continue to perform as they are. As I mentioned, we're seeing strength there and modest pickup, actually, in several of those businesses.

In addition, we are also assuming that our core categories and the less big ticket seasonal businesses continue to perform as well. Those performed reasonably well in the month of March and have performed reasonably well in the month of April, and we expect that to continue as well. We kind of flowed through our current run rates as we're seeing it in the March and April timeframe through the balance of the quarter.

That said, spring is really just beginning in the country. We are ready and very excited about it. We got great products. We've got great setup ready to go. We certainly are hopeful that our prudent outlook and we overperform. We basically took our current run rates and flowed it through. We thought that was the most prudent thing to do at this time.

Operator (participant)

Thank you. The next question is from the line of Scott Ciccarelli with Truist. Please go ahead.

Josh Young (Equity Research Senior Associate)

Hey, good morning. This is Josh Young on for Scott. You mentioned you're seeing reuests for price increases from vendors at this point. Can you just give us some more color on how widespread that is across your SKUs? Have you started to pass through much price at this point?

Hal Lawton (President and CEO)

Good morning. As it relates to price increases, we are not taking price increases at this time. We've been very clear on that in the system. There's too much uncertainty. Once there's greater certainty, we look forward to having very productive conversations with our vendor partners and the rest of our supply chain network to talk about how to best manage and navigate things going forward.

That said, our vendors still have to ship out of China for many of their products where they're single source there. They are incurring that tariff as we speak of 145%. That tariff is making its way on the balance sheet of our vendors. It will eventually make its way into their cost of goods. They will be looking for ways to manage that through their P&L and also through the rest of the value chain. We would expect those sorts of conversations to begin over the next few weeks and into the following months. That is the kind of pressure, that is kind of what I'd say we're seeing right now. Again, we're not taking cost increases at this moment.

Josh Young (Equity Research Senior Associate)

Okay. That's helpful. Thank you.

Operator (participant)

Thank you. The next question is from the line of Michael Lasser with UBS. Please go ahead.

Michael Lasser (Equity Research Analyst)

Good morning.Thank you so much for taking my question. Hal, can you clear up a little confusion that we're hearing from some of the folks on the call, which is you have only embedded the tariffs for the next 90 days. To get to the midpoint of the full year guide, you have to assume around a 4% comp increase, which inevitably would embed some degree of price increase because it's hard to see the degree of traffic increasing that range given all the uncertainty today.

A, can you reconcile those two factors? Will you be taking some price? B, how much price have you embedded into the midpoint of the guide in the second half? How much inflation? What are you expecting as far as the elastic response? Thank you so much. Absolutely.

Hal Lawton (President and CEO)

If I would start just by talking about the second half and thinking about how we thought about the second half in our outlook. The first thing I'd say is we feel very good about our business. It continues to perform well, and it is higher penetration in the second half, so that will naturally take things up. The second is our transactions continue to be very strong, and we would expect that to continue into the second half of the year. The third thing that we've been very consistent on, and I referenced in my prepared remarks, is we do expect AUR to begin to turn positive in the middle of this year, and that will support average ticket as we get into the back half of the year.

I'd also make a few other comments is that we did have a very—we had a drought summer last year, and we also had a very limited winter last year. We do expect that our categories and some of our business will be stronger next year, I mean, in the back half of the year. Net net, we feel very good about a mid—as we've talked about our kind of original guidance, we talked about a step up into the second half, and that would be kind of our normal in a normal operating environment.

On the high side at the 4%, that is reflective of what could potentially make its way in the system based just on Q2 tariffs that are being incurred in our value system. It assumes a partial pass-through of that. There's a variety of scenarios around that.

On the bottom side, it would assume that there's a little bit of consumer pullback in the second half that would flow through. We feel very good, and we're managing and navigating towards that mid-based case with many of the kind of natural accelerants that we've talked about occurring in the second half.

Kurt Barton (EVP, CFO and, Treasurer)

Michael, this is Kurt. I'll add one thing that may help on that.

Hal Lawton (President and CEO)

Thank you very much. Good luck.

Michael Lasser (Equity Research Analyst)

All right, Kurt.

Kurt Barton (EVP, CFO and, Treasurer)

Yeah. One more thing just to add to Hal's comments, if it helps in understanding this. The cost that Hal is talking about incurring is being incurred on the balance sheets for the indirect by our vendors during the second quarter. Our 12% of imports, of course, those are costs that will hit our balance sheet during the second quarter.

The imports that hit in the second quarter typically flow through in the second half. As you think about the cost that he's referring to on the 90 days, how we share that across the value stream on vendors or within Tractor Supply, and if there's any that need to be passed through on retail prices, those types of actions are more likely to occur in the second half, which is why you see our guide for the second quarter as it is with the potential of multiple scenarios, one of those being some upside to the second half on the AUR.

Michael Lasser (Equity Research Analyst)

Thank you very much. Good luck.

Operator (participant)

Thank you. The next question is from the line of Chuck Grom with Gordon Haskett Research Advisors. Please go ahead.

Chuck Grom (Managing Director)

Hey, thanks very much. Good morning. On the cadence of the business in the first quarter, you gave a lot of color, but I was wondering if you could just maybe double-click on each month for us. Within the month of April, are you guys tracking within the guide, I guess at this point in time, I imagine that $20 million recapture of Easter you have seen at this point? Just dropping out, when you think about trade down, I guess, Hal, historically, what parts of the business would you begin to see at first? It sounds like you are not seeing it yet. What areas would you see it? Thank you.

Hal Lawton (President and CEO)

Good morning. Just to elaborate on the color commentary that Kurt provided, January was a very strong month for us. We were coming right off of that month in our earnings call, and we shared some of that, some of that shared the news about some of that strength, really predicated based on strong cold weather across the country, but also very dominantly in the kind of North and Midwest, allowing us to comp the strong winter from the previous year.

As we got into February, I'd call out two things. One, obviously, there was kind of a broader discussion about the economy as we got into mid-February. You started to hear other retailers, and even yesterday, some food service providers kind of commenting on the same thing. In addition, for us, that's when the winter storm hit the South.

As Kurt talked about, in mid-February, that's really when we start to see the lift in our southern businesses, kind of $5 million-$10 million a week in lift week over week. We just did not see that. In fact, we saw a pullback in a few of those weeks because the customers really were not making it out of their homes.

As we got into March, the cooler, wetter weather continued to persist in the southern markets. In the winter markets, that was a good thing, but it was not anywhere enough to offset the winter impact in the south and the cooler, wetter impact in the south. Some of that weather has persisted into April. What I will say, April is running right along with what we expected in our forecasting.

We commented, and we have given guidance for Q2, and we feel very confident in that guidance. You can look, we have three months ahead for spring. We are excited about spring. We have great products in spring. When the sun is out, our customers are shopping spring. We look forward to executing against our spring game plan over the next three months.

Operator (participant)

Thank you. The next question is from the line of Steven Forbes with Guggenheim. Please go ahead.

Steven Forbes (Senior Managing Director Equity Research)

Good morning, Hal. Good morning, everyone. Hal, maybe just following up on Tractor Supply Rx, curious if we can maybe talk about the intent and willingness of your member base, given all the segmentation and survey work you guys do, to transition their spend over to your platform. Then how should we think about the margin profile of Rx in the face of maybe some customer acquisition-related spend as that program matures over time here? Hey, good morning.

Hal Lawton (President and CEO)

As I mentioned earlier, Rob Mills is in the room, and Rob is driving our integration and also, as you know, leads all of our digital efforts. I will turn it over to him to answer the question. Thanks for the question.

Rob Mills (EVP, Chief Technology and, Digital and Corporate Strategy Officer)

Good morning, Steve. Great to hear from you. First thing, I will kind of start off saying, as Hal shared in his opening comments, we are really pleased where we are at with the integration of Allivet. I will kind of break it down into three buckets. First, the team. I have spent uite a bit of time with the team, not just through the due diligence, but also through Q1.

I'm extremely impressed with their culture, the knowledge, the team integration, and just the two organizations coming together with a common goal around how do we deliver that value and ease around Rx products into Tractor Supply. The second one is really focusing initially right out of the gate with the integration.

As you heard and saw, we did launch the integration of Rx into Tractor Supply, as well as our mobile app late last week going into this week. The adoption, the early read has been extremely strong. We've taken a lot of time to understand what is our customer expecting, both in the way of value and ease around speed, delivery, and how do we make it just a simple process to move their current script over to tractorsupply.com. We're in early days, but we feel great about it.

The third area that we're going to be doubling down now is what's at store integration, anywhere from signage, how we're leveraging our PetIQ partnership, as well as training and driving knowledge within the store with our team members and the expertise of those customers coming in. Lastly, it is all about Neighbor's Club integration with our 40 million customers and that majority of them owning a pet. I'll just kind of sum it up by saying we're early in the game. We feel great about the opportunities. We've had no surprises. We're off to a straight and a strong start from an integration perspective. You're going to see a lot more going into Q2.

Steven Forbes (Senior Managing Director Equity Research)

Thank you, Rob.

Operator (participant)

Thank you. The next question is from the line of Seth Sigman with Barclays. Please go ahead.

Seth Sigman (Managing Director and Senior Equity Research Analyst)

Hey, great. Good morning, everyone.I think there's a lot of confusion on the guidance, and I know there's a lot of moving pieces here, but I think it would be helpful to maybe just the actual sales impact, the actual EPS impact that you've embedded here from tariffs, or at least give us some sort of range because you're raising the high end of comps by 100 basis points for the full year, but you're lowering your earnings. I think we're just trying to understand what's embedded here.

As you think about this 90-day pause, looking beyond that, what have you actually assumed for tariffs? Because it seemed like the messaging was suggesting that you're not assuming that's the go-forward rate. Maybe just help us understand that piece as well. Thank you so much.

Kurt Barton (EVP, CFO and, Treasurer)

Yes, Seth, hey, this is Kurt. Let me start in maybe reverse order on how you brought some of those questions on it. On the second half, in regards to receipts, rather than try to parse out portions of these tariffs, we've just said we've embedded into our assumptions only tariffs over the next 90 days. Whether that be the 10 or the 145, we will evaluate over this second quarter and be extremely transparent on any changes based on a very fast-moving and volatile environment at this point.

We feel that's the right and prudent thing to do. Also, in this environment, as I mentioned, we are managing through, as most retailers, I'm sure are, a multitude of scenarios. There is vast type of options and scenarios as these costs go through the value chain, what type of sharing, etc. Our focus will be on maintaining market share.

We want to keep our prices low. We will be negotiating and partnering with our vendors. The range was widened to represent a multitude of scenarios. Just to give you a perspective, in one scenario, we may see a scenario where there is limited demand or there is cost that needs to be passed on that impacts the amount of units but has a benefit on AUR. That could put us closer to the mid or low end of the guidance range.

You have other scenarios where there may be higher volumes, higher AUR, could impact your margins more, much like inflation does. The best I can tell you is there is not a specific number that we factored in. We are just managing through a number of scenarios. As I mentioned, really guiding the business to just manage the guardrails and manage it to the midpoint of that.

We've given you our previous guidance. You can look at what we've added on. I think we've given you enough to understand the impact of that. Again, multiple scenarios. We've dealt with this before. I'm confident the team can manage us. We've given you our best guidance and how we view the business in this environment.

Seth Sigman (Managing Director and Senior Equity Research Analyst)

Okay. Thank you for that.

Operator (participant)

Thank you. The next question is from the line of Karen Short with Melius Research. Please go ahead.

Karen Short (Managing Director)

Hi. Thanks very much. You should have been in D.C. this week to explain all the myriads of issues that you're dealing with. My main question is, when you look at the full-year operating margin rate guide, can you just give a little color on the split or how to think about the cadence of gross margin versus SG&A?

I think we've beaten the tariff comment to death, or tariff thoughts to death, but gross margin original guidance was up 20-40 basis points, I believe. Just how to think about that throughout the year, assuming we're status quo as of what we know today.

Kurt Barton (EVP, CFO and, Treasurer)

Yeah, Karen this is Kurt, the primary drivers on both gross margin and SG&A, for the most part, hold in the new updated guidance fairly consistent with the original guidance. That said, I'll just continue to mention there are multiple scenarios. We anticipate, as we said in our original guidance, that gross margin for the year could expand 20-40 basis points, higher in the first half than the second half. Some of that is mostly about compares to last year. SG&A, deleveraging in the guide, about 50 basis points for the year.

Actually, the deleverage a little bit higher in the first half. As you think through the scenarios, as I mentioned, we could see where in a more inflationary environment, that inflation more related to any level of tariff costs puts pressure on margin rate but benefits your SG&A. There could be some movement in the geographies on the P&L. As we model it, I would encourage you to be fairly consistent with what we gave back in January with the original guide.

Karen Short (Managing Director)

Okay. Thank you.

Operator (participant)

Thank you. The next question is from the line of Chuck Cerankosky with Northcoast Research. Please go ahead.

Chuck Cerankosky (Managing Director and Research Analyst)

Good morning, everyone. Can you perhaps discuss the concept of moving production around to avoid tariffs or adjust to tariffs, especially in imported apparel lines? How practical is it? How easy is it? Do you end up just picking up additional costs from the new venue? Thank you.

Seth Estep (EVP and Chief Merchandising Officer)

Hey, Chuck. This is Seth. Thanks for the question. As Hal mentioned in his prepared remarks, a couple of uick things here. Number one, we have been actively working on resourcing around not only Southeast Asia, but in other areas of the globe over the course, really over the last three years, pretty aggressively, and have a lot of plans in place that will get us even closer to that kind of 50% or even less point by the end of this year out of China.

That work is already actively underway. Specifically to apparel, we on a direct import side for specifically our private brands, we have fully moved out of China on apparel products already before these tariffs were announced. We have been proactively planning this for some time.

Relative to other categories, I tell you, he mentioned we stood up a task force. First, I'd just like to thank that team for all the work they've been doing 24/7 over the course of the last three weeks. That task force, obviously, has been assessing every program we have, where we have the opportunities to move, alternative sources of supply, and also domestic product that we're leaning into at the same time, being that we are a needs-based business and we have a significant portion of our portfolio that is from the States and assembled and produced here in the States at the same time.

I feel very good about the work that's been going on. Obviously, it does take some time to move sources of supply, but this has been in process for us over the course of the last few years. That momentum has really picked up and is very strong with a lot of movement already looking to occur in the back half this year.

Chuck Cerankosky (Managing Director and Research Analyst)

Thank you.

Operator (participant)

Thank you. The next question is from the line of Zach Fadem with Wells Fargo. Please go ahead.

Zach Fadem (Managing Director and Senior Equity Analyst)

Good morning. I'm going to resist the urge to ask a tariff question. Two uick ones. First, on sale-leaseback, what was the benefit in Q2 or Q1 and any update on annual cadence? On new store productivity, it's been pretty wonky. With Allivet this time around, any color that you can provide on what you're seeing and what we should expect? Thanks.

Kurt Barton (EVP, CFO and, Treasurer)

Zach, hey, this is Kurt. On the sale-leaseback, as we said, we would be pretty consistent on an annual basis with the difference being a couple new stores, additional stores added to the amount to be able to offset some of the one-time investments to start up these strategic initiatives. You'll see on the cash flow statement a $17 million gain, and that flows through SG&A. There's no benefit in the corresponding Q1 last year, but there'll be a little bit of noise between the quarters.

We anticipate incurring modest amounts more in 2025. Like I said, about two additional stores, about $6 or $7 million year-over-year. It will play out relatively consistent. I would expect over the future quarters, there's really not much noise from a sale-leaseback year-over-year. New store productivity continues to be strong.

I understand and recognize with some of the square footage change and timing, it may be difficult from the data that you get to run that. Our new store productivity, we always target to be around the mid-60s. It is historical average. New store productivity on a 12-month rolling basis, 62%. As a reminder, new stores have some, at times, have the same headwinds that comp stores do during a quarter like first quarter. All normalized right exactly where we expected. Allivet is contributing exactly what we had forecasted. We like the growth trajectory even in Q1. Excited about, as Rob said, our ability quarterly to grow through our Neighbor's Club.

Zach Fadem (Managing Director and Senior Equity Analyst)

Allivet about a point?

Kurt Barton (EVP, CFO and, Treasurer)

For the year, it would be less than a point. Just modestly below a point. Got it. Thanks so much for the time. Thanks, Kurt.

Operator (participant)

Thank you. The next question is from the line of Peter Keith with Piper Sandler. Please go ahead.

Peter Keith (Managing Director and Senior Research Analyst)

Oh, hey. Thank you very much. Thanks for all the great comments in a difficult environment. I was wondering how you feel about your current rate of market share capture so far year to date. What are just some of the competitive advantages that you're thinking about flexing as we get into kind of this maybe a tariff price hike environment in the back half of the year?

Hal Lawton (President and CEO)

Hey, Peter. Thanks so much for the question. Good to talk with you today. On the rate of the market share capture, we continue to gain market share in a substantial way. It's been very consistent over the last three years, and in particular in our business. We called this out in our prepared remarks.

We are seeing high single-digit unit growth across our feed categories. Some even higher than that. We referenced poultry feed numerous times. I would call that one out as one even higher than that. If you look at cattle count, you look at horse count, just think about just generically speaking across kind of the animal count, we are substantially gaining share there. On pet, as I mentioned in my prepared remarks, we do think we've passed the trough on pet. We're seeing a modest step up in the category. Accordingly, we continue to gain share on top of that modest step up and feel very good about how we're moving forward in pet.

As I think about the second half and if there was some consumer pullback, first off, our scale is going to provide meaningful advantage to us in our cost base, in our vendor negotiations, and our ability to navigate. The second thing is we are very much the leader in the market. In many ways, we're able to lead the market as it needs to be led. I'd call that out as well.

Third thing is our brand and our team members and all that we go to market to drive that business. You look at our positive comp transactions that we've consistently had in the business over the last five years, over the last decade, and beyond. We know that will be a strength for us as we head into the second half of the year.

We feel excellent about the share gains we're taking across, whether it's in a tepid environment like we're seeing now, whether it was in a high-growth environment like we saw in 2020 and 2021, and regardless of how that environment will play out in the back half of this year.

Mary Winn Pilkington (SVP of Investor Relations and Public Relations)

Operator, we've hit the top of the hour.

Hal Lawton (President and CEO)

Very good. Thanks so much.

Mary Winn Pilkington (SVP of Investor Relations and Public Relations)

Operator, we've hit the top of the hour. I think we'll wrap up the call out of respect to others on the call and other companies reporting. With that, thank you all very much for your time and attention this morning. I'm around if there are any follow-ups. We look forward to speaking to you with our second quarter earnings in July. Thank you very much.

Operator (participant)

Thank you. This concludes today's conference call. Thank you all once again for your participation. You may now disconnect your lines.