Christine Skold - Vice President, IR Greg Sandfort - President and CEO Tony Crudele - EVP, Chief Financial Officer Steve Barbarick - EVP and Chief Merchandising and Marketing Officer

Jon Berg - Piper Jaffray Peter Benedict - Robert Baird Cody Ross - Wolfe Research Simeon Gutman - Morgan Stanley Seth Sigman - Credit Suisse Adam Sindler - Deutsche Bank Michael Lasser - UBS Stephen Tanal - Goldman Sachs Mark Miller - William Blair Scot Ciccarelli - RBC Capital Markets Ben Bienvenu - Stephens Incorporated Eric Bosshard - Cleveland Research Company Matt Nemer - Wells Fargo Securities David Magee - SunTrust Denise Chai - Bank of America Joe Feldman - Telsey Advisory Group Jessica Mace - Nomura Securities

Thank you, operator. Good afternoon and thank you for joining us for Tractor Supply Company’s quarterly earnings conference call.

Before we begin, let me reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company.

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. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in the company 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.

And lastly, Tractor Supply Company undertakes no obligation to update any information discussed in the call. I’m now pleased to introduce Greg Sandfort, Tractor Supply Company’s President and Chief Executive Officer.

Greg, please go ahead.

Thank Christine. Good afternoon everyone.

Thank you for joining us. On the call with me today are Tony Crudele, our EVP, Chief Financial Officer; and Steve Barbarick, our EVP and Chief Merchandising and Marketing Officer.

Lee Downing will not be joining us today. He is out attending a trade show.

We had a solid second quarter and we are pleased with the continued sales trends in our business. Our merchandise planning, inventory and store teams did an excellent job of managing both product assortments and other things to deliver, both a strong sales and earnings performance for the quarter.

Comparable store sales increased 5.6% and the increase was distributed across all of our major merchandise categories and geographic regions. We also saw growth in both traffic and ticket.

Transaction counts increased 4.1% and average ticket improved 140 basis points in the quarter. And this was our 29th consecutive quarter of positive comp transaction counts.

Seasonal, big ticket and C.U.E. items all performed well in the quarter and benefitted from merchandised resets and planogram updates.

As we have discussed many times, we are a test and learn company and we are constantly evaluating and updating our product assortments to meet the needs of our customers. This year, we made some notable changes to several categories.

In pet food and feed, we upgraded and expanded our assortments of premium products in equine and livestock and we added showpiece. In outdoor power equipment, we revamped with new products from Cub Cadet and Bad Boy and we introduced for the first time higher end commercial grade products in outdoor power equipment in a number of select stores.

And in towing and trailer, we increased our assortment of heavy duty products and added new steel and aluminum trailers to a select number of stores. And finally in outdoor recreation, we expanded our assortment in utility and recreational vehicles.

These changes to our assortment products demonstrate our culture of continuous improvement as part of our ongoing merch strategy. We are always testing new products and upgrading our assortments across the store to strengthen our position as the most dependable supplier of everyday basic merchandise needs for the rural lifestyle consumer.

On the gross margin side of our business, strong execution of our price and inventory management strategies contributed to a healthy increase in overall product margins. Investments in new systems such as demand planning, inventory allocation and price optimization are enabling us to shorten the supply chain turnaround time and improve our global management of inventory.

In regards to stores, we continue to refine our payroll allocation which we believe is allowing us to better serve our customers at peak selling periods. And while some of this resulted in higher expenses in the quarter, we remain committed to investing in the people and systems necessary to drive profitable growth over the longer term.

Now, to update you on our omni-channel business. Last week, we launched a new and completely redesigned website.

The updated site offers many enhancements to improve our customers’ browsing and shopping experience. It is a responsive design that delivers the same shopping experience across all mobile devices and has improved our overall search and checkout capabilities as well as added more robust product descriptions, customer reviews and social media tie-ins.

In regards to our supply chain activity, construction of our new distribution center in Casa Grande, Arizona is on schedule and under budget and is expected to be operational late in the fourth quarter of this year. The two mixing centers in Texas are also scheduled to open in the third quarter of this year.

We opened 17 new stores in the second quarter and remain on track to open 110 to 115 new tractor supply stores in 2015. Our western expansion continues to be a key initiative and our stores that have opened in that area over the past few years continue to comp favorably against our chain average.

Looking ahead, we are pleased with our first-half performance and we feel positive about our positioning for the back half for the year. Along with some of the assortment changes I spoke to earlier, we continue to make strategic investments in key businesses that are important and relevant to our customers.

And as a result, we made the decision to take early receipt on several categories of products that we believe will benefit our late summer and early fall selling season. Now let me close by thanking all of our dedicated team members across the country and all our store locations and our facilities that go the country mile for our customers each and every day.

And for everyone else on the call today, we appreciate your time and interest in Tractor Supply. I will now turn the call over to Tony for a more detailed commentary on our second quarter financials.

Tony?

Thanks Greg and good afternoon everyone. For the quarter ended June 27, 2015 on a year-over-year basis, net sales increased 11.9% to $1.77 billion, net income grew 14.9% to $153 million and EPS increase 17.9% to $1.12 per diluted share.

Overall, we’re pleased with our sales performance and our gross margin management during our strongest selling season. Comp store sales increased 5.6% in the second quarter compared to an increase of 1.9% in last year’s second quarter.

Comp store sales were strong across all three months of the quarter, with April and May benefitting from favorable seasonal weather and easier comparison. June also posted a solid comp, but faced tougher comparison given the back-end weighted promotional cadence of last year’s second quarter.

Sales were strong across all regions, with the strongest regions being the South Central and the West. Wet spring season in Texas area benefitted comps in the South Central region.

Our new stores in the Western region continue to produce above chain average comp sales as they gain market awareness and share. Comp transaction count increased for the 29th consecutive quarter, gaining 4.2% on top of the 2.3% increase last year.

Sales growth continue to be broad based as spring and year-round categories performed well. Two items such as pet food and lubricants continue to post solid comps.

Key spring seasonal categories such as riding lawn mowers, trailers, and lawn and garden, and other the year-round categories such as outdoor recreation and rubber footwear performed very well. Average comp ticket increased by 130 basis points compared to last year’s 30 basis-point decrease.

Big ticket was the principal driver of the average ticket increase. Comparable sales of the big ticket items were well above the company’s average for the quarter as big ticket items such as riding lawn mowers, trailers and utility vehicles all performed well.

This increase was partially offset by deflation which we estimate at 20 basis points and was less than our expectation. The deflation was driven principally by livestock feed.

Now turning to gross margin which increased approximately 50 basis points to 35.3% compared to flat last year. Although we had an easier comparison, our direct product margin was bolstered by strong price and markdown management which was facilitated by the strong sales throughout the quarter.

Price management tools helped us optimize our retail pricing while negotiating lower cost in some of the deflationary categories. We believe that our gross margin and system initiatives are providing our team with better tools to drive gross margin enhancement and benefitted the quarter.

Freight was favorable to 20 basis points, which was a direct result of the lower vehicle prices. The very favorable fuel price more than offset the 10 miles increase from our Western store expansion.

We estimate that deflation had a slightly favorable impact on gross margin, this is much less impactful than the previous quarters as deflation has begun to moderate. Our gross margin improvement was even more notable as we overcame a negative mix variance of approximately 20 basis points.

Strength in big ticket items which tend to carry below average gross margin was a primary driver of the negative mix impact Import purchases in the quarter increased 18.5% and represent 11.4% of sales mix. Also exclusive brand sales increased 9.8% compared to last year’s Q2 and was approximately 30% of sales.

For the quarter, SG&A including depreciation and amortization as a percent of sales was essentially flat compared to the prior year’s quarter. SG&A growth was impacted by several factors.

Incentive compensation had a deleveraging impact of 20 basis points as incentive compensation increased year-over-year based on the strong results of the quarter. We did allocate more payroll hours to our stores in our order to capitalize on the selling season and therefore we did not obtain the leverage we normally would receive with such a strong comp sales increase.

We also experienced slightly higher payroll and rent deleveraging from new stores as they ran to maturity. This was more notable in the Western store base as we have opened over 50 stores in the past year and they generally open with a higher rent to sales ratio.

The expansion of our Hagerstown DC in Q1 added incremental expense to SG&A, but we realized the cost benefits of lowers stem mile in gross margin. Our effective income tax rate increased 37.2% in Q2 compared to 36.7% last year, resulting from the availability of state tax incentives related to the construction of our store support center last year.

Now turning to the balance sheet, at the end of Q2, this year and last year, we had a cash balance of $56 million and no outstanding debt. During the second quarter under effective purchase program, we acquired approximately 876,000 shares for $76.6 million.

We estimate that the share repurchase program for the quarter did not have a material impact on EPS. Average inventory levels for store increased 4.1% compared to a 3.4% decrease in last year’s second quarter and inventory turns were flat compared to last year.

As Greg mentioned, we made some strategic investment in key categories and took early delivery on some products to better position ourselves for the late summer and early fall season. We are comfortable with our seasonal inventory as we move into the third quarter and we expect a normal seasonal markdown cadence.

Capital expenditures for the quarter were $48.2 million compared to $40.2 million last year. We opened 17 stores and closed one Del store in the second quarter compared to 23 new stores opened in the second quarter of 2014.

The CapEx increase relates to the construction expenditures of our Southwest distribution center which were higher than the expenditures on our store to support center which was under construction last year at this time. Now looking ahead, as a result of our strong performance in the first half and as noted in today’s press release, we have revised our financial expectations for the full year 2015.

We now expect full year sales to range from $6.25 billion to $6.33 billion. Correspondingly, comp sales are forecasted to increase between 3.5% and 4.5%.

We have increased our EBIT margin target and are forecasting 15 to 20 basis-point improvement compared to 2014. We now anticipate net income to range from approximately $412 million to $422 million, or $3 to $3.08 per diluted share.

We have decreased our capital expenditure forecast for full year 2015 to a range of $220 million to $230 million. Additionally, we still anticipate that the full year tax rate will be approximately 37%.

We will continue to make purchases under our share repurchase program and currently project full year diluted shares outstanding to be approximately $137 million to $137.5 million. With respect to sales, we had anticipated that the first half of the year would have stronger comps than the back half as we’re cycling stronger comp sales in the back half of the year.

With high moister levels and mild summer temperatures, we are optimistic that the seasonal demand pattern for the third quarter will be consistent with the past two years and we will see an extended spring and summer selling season. Despite a difficult comparison to last year, comp sales through the first three weeks of July have been positive and are in line with our expectations.

We continue to expect deflation in the back half but it has moderated more than we originally expected. We expect it to range between 30 basis points and flat, moderating as we progress through the back half of the year.

We will continue to use our price management tools to drive both sales and margin while remaining focused on our goal of growing market share. As we look at the back half of the year, we expect a flat to slight improvement in EBIT margin driven by improved gross margin in both quarters.

Our gross margin initiatives continue to drive improvement in merchandise margin and lower diesel prices should benefit freight transportation, more than our original assumption. We expect SG&A will run slightly higher than our original forecast and will offset the majority of the gross margin benefit in the back half.

We expect SG&A to run approximately 10% to 10.5% increase over last year’s back half. The key elements driving the incremental increase in our SG&A run rate include expenditures on system enhancement such as inventory allocation omni-channel, CRM and system security, additional store payroll hours consistent with the allocation we saw in the first half, rental leveraging resulting from the increased mix of new Western stores which have a higher rent to sales ratio as they ramp to maturity, and preopening expenses for our Southwest D.C.

as well as the two mixing centers we plan to open in the second half. We’re off to a strong start to the year and the team has done a great job of capitalizing on the spring season.

We believe we are well-positioned to continue growing the chain while delivering mid teens EPS increases over the long-term. So that concludes our prepared remarks.

Operator, we will now turn the call over for questions.

This is actually Jon Berg on for Peter and congrats on the nice quarter. Just on the first question on the sustainability around the big ticket, I think you guys say comp ticket was up 1.3% which is I think five consecutive quarters now of positive comp growth.

So, I guess under this context, does it seem that big ticket items are making a comeback such that there might be some sustainability as we look out to 2016 even with the tougher compares?

This is Steve Barbarick. Couple of comments on big ticket, where we made changes and I think Greg noted mowers, trailers and a couple other categories like ETBs.

We saw a nice impact in our business because our customers are looking for value. And when we change things we see a pretty good return.

We did have categories however that fall into the big ticket I guess area that didn’t perform quite as well. So while we saw a benefit in Q2, I would say that we’re still cautiously optimistic and we’re not going to declare victory at this point but we like what we’re seeing.

And then, as far as the impact of clearance optimization, with your gross margin up like 50 basis points and I think you cited markdown management as the driver. Are you beginning to see the early benefits of your clearance optimization software and if that is the case, are there any examples you can provide on how that clearance activity was better managed in the second quarter?

The optimization on clearance is only in a select number of departments today, so it’s not across all buying divisions yet. But in some areas particularly in seasonal and some of the lawn and garden, the systems have helped us enormously I would say to look at the sales trends, act appropriately and there is always, my belief that the first markdown is always the least expensive and the customer can brought to the side counter and make a purchase, typically if you’re seeing some slowness in the category.

So I think that the systems absolutely did help us this spring but again they’re only -- it’s only rolled out in certain divisions, we still have the rest of the company roll out to the year.

First question, there seems to be a lot of concern around the seasonal out there in the market right now. And you guys obviously did very well in seasonal businesses, both the small ticket lawn and garden but also the larger ticket OPE.

And it sounds like it was pretty consistent across the months; you said June was a little softer because you’d done some promoting last year. So, I guess, I don’t know, Steve, was this just a solid seasonal quarter?

And do you think you guys just were taking a lot of share or do you think it -- because there was some concern about like tax with the heavy rains et cetera. So, maybe a little more color on just the seasonal business would be great.

Thank you.

We did go into the season really prepared and we’re using inventory as a strategic lever to drive sales and take share. In terms of some of the changes we made, we worked with our vendor partners and we upgraded the specifications in a lot of the lines and using OPE as an example.

With MTD for example, we upgraded the design frames and the engines and our customers voted for a lot of the categories where we made those changes. So, we were really pleased there.

In terms of live goods, we’re getting better at what we’re doing today out in the marketplace and being more regionalized and localized. So, I would tell you, we talked about Tractor Supply and our ability to be nimble, and I think this was a really good case study in how we’re able to manage through the season.

And then my next question would just be around the level of investment expense that you’re kind of stomaching right now on some of these systems. In 2Q, I think Tony called it out as one of the pressure points in SG&A.

Can you give us a sense for maybe how much larger the expense hits were maybe this quarter versus a year ago around the system? And then just maybe map out a little bit of the payback cadence from some of the larger more meaningful systems you’ve got coming, the demand planning omni-channel taking some of the D.C.

stuff, that’s what comes to mind.

When we look at the investment that we’re making, again we’re doing our best to be methodical in how we allocate our capital. And so there was definitely a slight uptick but overall, it was really several items that impacted the expense structure in the quarter.

As we mentioned, we talked a little bit about the payroll, the stores coming on board. So when it comes to the pure investment piece as we improve our systems, as we’ve noted in the past, we have that investment; it’s somewhat in the run rate, there was a slight uptick in the quarter but not overly significant.

As we look in the back half of the year, we do have some additional investments coming forward. But again, we believe that it’s something that we can absorb in the run rate as we move forward.

This is Cody Ross on for Am Rubinson today. How are you?

Just a quick question regarding your supply chain. Once the West Coast D.C.

is up and running at the end of this year, can we expect GMs to expand faster than the 20-25 bps that you guys had forecasted out previously?

I would tell you that today we are seeing some deleveraging because of stem miles. As we open that facility, we will see some leverage from transportation, but you’ve got other expenses; now, I’ve got an overhead cost of a new building.

So to be honest with you, the way we planned it is to be somewhat of an offset for now and then we’ll learn, as time progresses I think we can have some average but it would be hard to forecast that today.

And then just a quick update. Can you guys update us on where you stand with your royalty program and some of the capabilities you expect to have and hope to have down the line.

In the back half of Q3, September, we’ll be piloting our program. And I think we’ve mentioned it will be in three markets.

What we’re looking at is a program that will have both soft and hard rewards and it will give us a chance to understand what our customers are looking at from Tractor Supply for rewards program. So, at this point, we are not really getting into a lot of the specifics.

We’re still working through some of the infrastructure needs that we’ve got. We’ll be training our team members that will be in those pilot stores here shortly and more of them likely in the next call will be able to give you all at least a little more insight as to how that program is working.

One follow-up on gross margin Tony; thanks for some of the color on the buckets. Can you tell us I guess looking back on the promotional side?

You said it was an easier comparison. How much I guess was it easier comparison cycling, either promotions or items that were sold I guess below at full margin a year ago, how much of that contributed 50 basis points?

If you remember last year when we talked about the second quarter, in June, we had some sort of in-store selling promotions. They were somewhat limited and the impact on gross margin really was only a few basis points, relative to this quarter.

And then my follow-up on traffic, the 4% which I think is among the best in our space maybe across retail. Can you tell us how that compares, is that pretty uniform across the chain, or are you seeing mature stores versus immature stores?

And then your customer frequency, are you seeing the same customer visit you more often or what is it or the other side of it is I guess, how are new customers or new customer acquisition trending?

Clearly as we’ve talked in the past, the newer stores will have a little bit higher transaction increase but we are seeing that there is a positive transaction increase across the chain in all maturity levels of the stores. So, as we move forward, we see that this is coming, both from increased number of visits from our current customers as well as new customers coming on board.

If I can just follow up on that though, if you think about a waterfall, immature stores should be counting better, the presumption is that they should be driving better traffic. Is that the case or you’re seeing some of the mature stores drive just as good traffic as some of the immature stores?

On an overall basis, the new stores definitely drive more transactions than the more mature stores. But we do see in different areas of the country as well as in stores that may have been renovated pr running certain tests, we’ll see an uptick in comps that may be very comparable to some of the newer stores.

I wanted to ask about the Purina expansion in the quarter; any early commentary there and any sense on how incremental the customer you’re getting into the store and how we should be thinking about the ramp in the second half of the year?

I’d tell you that the launch of the new Purina SKUs is really the way I look at and what I told my team is it’s really part of overall C.U.E strategy. What I can tell you is the SKUs that we added from Purina are C&D SKUs; we took the A&B SKUs originally when we launched in 2009.

So, these SKUs are having in the impact in the rounding out the assortment hence really building some I guess credibility with our customers. There is some incrementality to it but it’s not material to the top line.

And then just more broadly as you look at the second half comparisons, when you drill down last year you had a great second half from the ticket perspective. You talked little bit about big ticket and the potential for that continuing in the back half, but besides that anything else you can point to that should help to navigate the more difficult comparisons?

I know in the past you talked a little bit gun safes and the headwind there. Is that something that’s easing any other drivers there?

I will say that the safe business was a headwind, a pretty significant headwind this past year and we are starting to see that moderate a little bit. I think you’ve heard Tony talk a little bit about deflation and that moderating versus maybe what we’re up against some last year to some extent.

We are making some strategic inventory investments. And as we talked about before, we want to be a dependable supplier of basic maintenance need.

So, we will be putting inventory in the key categories to drive some sales and make sure we’re not going to disappoint our customers. So there is a variety of things that we’re doing.

We always talk about not having a silver bullet, a lot of BBs [ph] out there. And I will tell you the test and learn approach that we’ve used up to this point has been working and you will likely see some new things in the store if you go visit this next quarter.

A couple of questions if I could, first is on the payroll hours, if you could just talk. So, this is something I guess we really haven’t seen before but as we sort of think about how your test.

Is this a test, is this something that we’re rolling out, is this something that’s sort of one-time and then you will start to leverage it as we go through next year? But just maybe a little more color on what the increase in store labor was and then how you are thinking about that going forward?

Here is the difference. A year ago in the second quarter, we had talked about how business had been a bit sluggish.

And we were really watching cost and payroll and so and so forth. So we really turned it back a bit until the sales started to come late second into third quarter.

This year, we saw a more normalized second quarter and we felt as if it was prudent to go ahead and leave the payroll as we had planned and in some instances we added some payroll to take advantage of the sales trends and the customer transactions. So, that’s what the basic difference.

If you compare year-to-year, it’s kind of an odd comparison because the seasons were very, very different.

So, as we look at the third quarter then, with the third quarter having the extended selling season last year, should we look for a little bit more normalized labor in the third and fourth quarters?

Yes, I believe so. And I think it would be very comparable to a year ago.

And just as we think about the third quarter, can you just remind us about the cadence last year, sort of the July, August, September, how those months comps?

Sure, this is Tony. We generally don’t give specifics on the months but I will tell you that the months were very consistent relative to the overall comp for the quarter last year.

On your expectations for the back half of the year, may be you can -- the comp here [ph] is a little confusing, you mentioned flat. Maybe you can provide a little bit more -- clearer picture of how you are thinking about the breakdown between the third and the fourth quarter on a comp perspective?

As is our standard, we don’t provide quarterly guidance and we provide full year guidance. So, the overall comment is that we expect that the full year comp will be between 3.5% and 4.5%.

Obviously running a 5.5%, there is clearly a range for the back half that obviously -- it’s up to you guys and your modeling to determine. But we feel very comfortable within that 3.5% to 4.5% range on a full year basis.

And maybe you could just give us some of the puts takes on what sort of pushed you towards the higher end of the range and what sort of pushed you towards the lower end of the range. So, is it going to be heavily weather dependent or is the back half a little less influenced by the weather than the first half of the year?

Well generally, the back half is less influenced by weather than the first half of the year. I would say as we look out into the second half, sort of that extended spring summer consistent with last year will be critical to third quarter.

And as in the past, the earlier we have a nice cool seasonal winter coming on board that generally drives some of the heating product and some of the winter product and insulated outerwear and that tends to be the main driver in the fourth quarter as well.

And my last question is on the West Coast stores. In the past, you’ve mentioned that they’re higher volume but it sounds like they are also now faster growing.

So is that pretty consistent quarter in quarter out or you are seeing an acceleration at this point?

I would answer that it’s been relatively consistent. What we’ve seen is that we will have a slightly higher sales volume and the ramp will be generally consistent with a new store.

However we will have some acceleration because they tend to be a little bit of a higher volume store. What we’ve seen and the point we’re making in the comments was that generally in modeling the West stores, we will have a higher rent to sales relationship or ratio in the first couple of years of that store’s growth.

And then as we continue to ramp because they are a little bit higher in sales volume, then we will start to get the leverage that we expect out of the Western stores. So, slightly different ramp than the rest of the chain but for the most part, consistent with our new store performance.

I wanted to focus a little bit on gross margin and just sort of understand kind of what really contributed what. I mean the price management and markdown management, can you talk a little bit about those maybe independently, maybe not to the extent that they are related and kind of frame and relative to the overall increase year-on-year?

We tend not to give too much detail relative to each factor when it comes to gross margin because many of these factors interrelate and so it’s hard to call it out each one. We gave somewhat specifics on the fuel component which was a major driver.

So, we can carve that out pretty well, so it was around the 20 basis-point mark. Then when it comes to price management and deflation, again that’s very difficult to sort of parse those two pieces out.

Now, what we did see is that as we’ve had some cost decreases, we have been able to manage our retail prices very effectively. And so, a good portion of that increase in margin is really related to price management component.

So, if you wanted me to outline the two big drivers, I would say is the fuel component and the price management piece was the two principal drivers of the margin improvement.

I was sort of thinking about back half and what it could like, specifically clearance optimization is one thing I was thinking about and you noted the big benefit it’s had in seasonal and garden. And then I am wondering what are the categories are -- said another way, will all categories be kind of on that program by year-end; is that the right timing for this?

And maybe you could help us sort of think about kind of the relative impact in the quarter versus what’s still to come on that initiative?

I would tell you that we’re still rolling this program out and we’re still going through a season right now. So, a lot of the categories that we put in to our clearance price optimization tool are spring related categories.

And what we saw was the system said, we be better off taking some early marks in a number of these categories because we think we could see some benefit on the back side. But we haven’t yet got to the full season yet to see this all way through.

That’s the way the tool is designed. So rather than in the past where we were taking more global markdowns, these markdowns are taken as a site level based on sales rate and inventory levels.

So we do think that there’s going to be some nice benefit, but until we get to the season, that would be hard for us to put too much into this. We’ll be able to communicate better probably at the end of next quarter and share with you what we experienced here in spring.

One of the things that’s most impressive to me about Tractor Supply is the diversification of gross margin drivers and from semester to semester, it’s shifting and obviously the price and markdown optimization here. But I was hoping you can talk a little bit about what’s coming with the demand planning system, the timing of when we might begin to see those benefits kick-in and how we can dimensionalize the size of that potential opportunity?

Let me talk to this a little bit. Demand planning is a roll out over really the next year, year and a half and its basic component is to help us looking forward demand for product whether it would be at regular price selling or at promotional price selling.

And instead of us having kind of what I would call these peaks and valleys with inventory, it’s looking out forcing us -- and forcing the system to say, we -- it estimates x amount of demand is coming because it knows more, it’s -- the inputs that go into this are different than the inputs that go into E3 which is somewhat of a basic kind of a static replenishment system. This is much more sophisticated than anything we’ve had.

We are learning right now. We’ve had several departments that have been turned on.

So far we’re seeing fairly good results. We’re bringing inventory levels down and we’re seeing some positive comp sales in those categories over their comparison store groups.

So like-stores-to-like-stores we’re seeing improvement. But it is a -- it’s truly a test and learn process over the next 18 months but very encouraged with the initial reporting that’s coming from it.

So where the organization could see the biggest uplift it sounds like through next year, but really ‘17, ‘18 potentially?

Well, it’s going to be a bit of a maturing process. So yes, I would say it’s a good year out before we’re really going to see a lot of the benefit.

And then on the exclusive products, you’ve had tremendous success there historically; it looks like its plateaued recently, but some of that is because you’re getting such strong sales elsewhere, so I mean big ticket and other. But what are the top priorities for exclusive products going forward?

Exclusive brands continue to be a focus for us. Part of what you’re seeing in the top-line numbers is a bit of a byproduct of deflation.

So, we’re still seeing nice growth there, but as our costs have come down in some of our key businesses, we’re not getting necessarily the benefit on the top-line and therefore the mix is changed. So, I would tell you the engine is still running.

And what you’re seeing in the margin line, some of that is a byproduct of full deflation and what we’re doing as far as bringing more products into the exclusive brand family.

Tony, it seems like you guys have accelerated your reset activity over the last certainly several quarters and it sounds like they’re generating very good results. Can you give us some additional color on the difference in sales performance between categories, in general I guess but between categories that have been reset or re-merchandised and those that may not have been touched quite as much?

What I can tell you is as I’ve been with the company, this is my I guess 17th, 18th year and we’ve always been a company that’s focused on resetting merchandise and bringing new things into the center core of our stores. I will say that we continue to put different levels of scrutiny on the reset activity we’re doing.

We’re using a tactics model going back to little bit of the data or science driven part of our business. Where we do resets they vary.

In some cases, we’ll do resets to bring new products in or we’ll try to keep our assortments fresh; other cases, it maybe to leverage cost because of multisource products out there. So, it’s really hard to say specifically when you do a reset that they all are going to give you 10% comp sales increases.

But what I can say, they vary dramatically. And generally speaking, we see a nice comp as a result of the activity that we do.

That’s why we keep doing it.

And you guys have certainly emphasized that in various categories this is what changed; this is why we re-merchandised, you got a nice flip from it. Is there any way to provide it and maybe there is and maybe there isn’t, maybe the results are just too bad?

Well, you have to understand, a large part of the store gets reset. And as a byproduct of that, it varies by category.

So we talk winches before and the winch line has performed really significantly well. We’ve recently looked at our power tool assortment and expanded a line in the vault and we think that our customers will respond favorably and the initial read looks that they will.

And I could go into the pet food line where we expanded premium categories such as Blue Buffalo and others. So, it’s really different by category but I can tell you, we’re putting more scrutiny into the work that goes into the reset and making sure that we’re trying to bring cost down while bringing good quality products and value to our consumers and they seem to be responding favorably that’s probably the best I can answer to that.

And then just a quick, hopefully it’s a quick question. We have heard about incremental sales challenges from a lot of retailers around energy intensive market, I don’t think you guys mentioned anything that on the call and obviously it didn’t seem to impact the total top line.

But I would think a bunch of your products would be susceptible to the slowdown in some of these oil and gas markets. Have you seen any of that kind of impact?

What I can tell you is, in those oil drilling store specifically and again you have to remember there just part of a much bigger chain of stores. And those subset of stores, there are some categories that you are seeing comp sales declines in.

We’ve seen them in truck boxes and fuel handling, we’ve got local assortments for these stores in fire retardant apparel and those are seeing some declines. But if you look at the total store, we’re a needs based retailer and we carry so many more products than those areas that just relate to oil that we’re seeing nice comp store sales in those stores themselves.

So, it’s not material to the top line at this point, you can see that in overall company numbers.

So just quickly on tickets, obviously big ticket sales was a key driver for the higher ticket in the quarter. But did you all -- I’ve been curious to know if you also saw a lift in items per transaction.

And if so, what do you think is the driver for this, is it better assortment, healthier customer, what could be factoring into that?

When we look at the ticket, obviously a substantial portion was driven by big ticket. But we also look on an items per transaction basis.

We did have a very nice lift there as well. And again, when you’re dealing with some small numbers and like 3.5 items per transaction, when you move to 3.6 that’s a nice move.

So, it’s still a very small number of items per transaction but we did have a nice lift. And I think as you commented, there is just several factors that go on, a lot of what Steve has been talking about as far as our enhanced assortment.

We’ve done a great job of making the store more shopable, picking up new products, the operations team get the credit about having items of the month and making sure that they drive that basket. So, I think it’s a combination of several factors and it is something that we continue to focus on.

Secondly, looking to Home Town Pet, are there any learnings there that you’ve seen that could be promising in the Tractor Supply store, anything jump out you there?

What I will tell you is that we have two stores up and running; we have been -- we’re about in our ninth month now of operation and we are seeing a little different mix of sales in those stores versus the Tractor, which means that it’s attracting in our opinion little different customer and there are some learnings. I’ll give you one and I won’t speak to too many but I’ll give you one.

We have services in these stores that we don’t have in a Tractor Supply and what I mean by that is the grooming salon. The grooming salon has taught us a number of things, one that if a great groomer, they can bring traffic to that store.

And unlike other grooming salons, we allow our groomers to step outside the salon, if they find that the animal that they’re grooming has a need for something whether it would be for their coach or they’ve got hot spots whatever, we allow our groomers to go out on the floor and actually suggest to sell to the customer, a product that could be a solution. So, it’s a little more intimate relationship in our store than you may find in other side operations.

But that’s an example of something that we’re seeing and we’re looking and saying to ourselves, “hmm, is that something that is potentially an expansion point for Tractor someday?”

I was wondering if you could provide a little bit more color, you talked about the early receipt or strategic early receipt of some inventory to be better prepared, it sounds like for the late summer early fall. Just talk a little bit more about what you’re specifically doing there, why you haven’t done it in the past?

There’s something that enables you to do it now and what you think the payback from that can be?

A couple of things here. I think even I talked a while back about the fact that as an organization we’re going to start using inventory to really help propel sales and to really make us more of a dependable supplier of basic maintenance needs.

When we came out of Q2 last year, we were running a comp inventory decrease and this year that increase that you saw partly kind of built back up the hole that we have put ourselves in. But I can tell what we’re bringing in to make sure that we make the right commitment to our customers, will be heating; we’re going to be bringing that in to make sure that we locked and loaded for the season.

What we typically find is when there’s a cold winter the season before, customers tend to want to get out early because last year they got caught short and maybe weren’t able to get the goods that they needed. So, no different than we did last year but maybe at a little higher level, we’re going to make sure that we’re in the heating business and that includes fuel, making sure that we got our coordinates set when it comes to apparel and everything else laid out.

So, we did get some early receipts in, we will be setting our stores here shortly. And when customers come in they’re going to know that we’re ready for the season.

We’re going to be there to take care of their needs.

And then secondly and I know that you operate across a number of different categories and perhaps even industries, but in as much as you have a feel for market share or a feel for your customers, you feel like your share of wallet is growing at a similar pace to the past or if there’s a change taking place that you’re getting better penetration with your customers gaining market share, any sense on that?

Let me make a couple of statements real quick. Number one, the consumer continues to spend their hard earned dollars in the same way.

They’re looking for good value, our consumers are continuing to spend on need based products, less discretionary. I would say that with the kind of unit increases that we are experiencing in a number of categories both in C.U.E and in some other seasonal categories, I have to believe that there’s a market share that’s probably shifting to us.

But there are so many that it’s very difficult with all these categories to be able to pull some data. The data that we get is basically from our suppliers talking about of how much of their business is coming from Tractor Supply, so the answer there would be, I believe we are getting more share and I think our share of wallet is increasing.

I was just curious if we are seeing a more sustained shift to big ticket and you didn’t say that. But if that happens, does that drive payroll hours on a more sustained basis, is there more training and assembly and selling that takes place that would more permanently drive payroll hours?

Seasonally where we would incur the most hours would be in Q2 as we have the spring season. So, as we move forward, it’s less of an impact; big ticket has less of an impact on our payroll allocation.

And then I guess secondly and maybe this already came up but did you just explain the change in the CapEx guidance for the year.

No, I did not give the details. Generally, it relates to several factors across the board.

We are under budget as Greg has mentioned on our Southwest distribution centre that’s probably the largest piece of the decrease. Some of the IT initiatives are coming in on plan and on the budget as well as some initiatives we may not get to.

And so as usual at the beginning of the year, we have little bit greater appetite for some of the key projects but the majority is the result of being under budget on some of the key initiatives that we’ve executed so far this year.

I had a question regarding some of the resets in terms of the upgrades that you’re showing success with. I’m curious if you think you could have done this years ago or is this a reflection of the economy or the ability to manage with the systems more effectively?

I would tell you that it’s probably as much to do with relentlessly satisfaction. We’ve always done resets.

We haven’t really talked a whole lot about them on the call. For those of you who attend our IR conference, where we’ve got our sales meeting, you see a lot of the changes that take place with our vendors on the sales floor down there at the convention center.

So, I think that this has been an ongoing thing for Tractor Supply. And I think you go back and you look at our traffic count, you look at our comp store sales performance, you’ll see that in a lot of the numbers.

We’re just probably today giving more color around some of the changes we’re making. I will say however that when it comes to some maybe more of the commercial product, we are testing more there than we have in the past and it seems to be resonating pretty well with our customers.

The higher price points that we have out there right now and how we’re selling those price points, I think are real show of support from our customers and their trust in the Tractor Supply brand and also their trust with the team members that we have in our stores and relationships they’ve built. So, I think we are taking advantage quite frankly of a foundation that’s been built for years and we’ll continue to try and test new things.

I apologize for the background noise here. You talked about comp sales decrease [ph] the Western stores and the chain average.

Is that more a function of just store maturity or is it related to the competitive environment there?

Denise it really relates more to the maturation cycle of our new stores. We believe that in several of the areas it is very competitive out there.

And that’s why we’re extremely pleased with the ramp of the stores out West and sort of that accelerated comp that we’re experiencing with those Western stores.

And recently corn and soy have moved up quite a lot. I just wonder if these prices hold, when you would expect to see those come true in your kind of inflation or deflation numbers.

We’ll likely see, if these hold and as our costs pick up, we’ll see it start to moderate at the end of Q3 and end of Q4, but again we’re still watching that very closely and our teams are challenged to keep costs down. So we’ll see how good negotiators they are.

And just one more; you talked a lot about the new kind of commercial and professional level tools that you got in to store. Were those contributors to your strong ticket this quarter or is it just kind of too early to see their impact and ticket was more a function of big ticket items?

I would say that the upgrades that we made when it comes to engines that are in the same size more but by changing the deck style and the frame as well as upgrading the engines, if you want to call that commercial, I guess you could but our customers tend to like things of high quality when they can see value and that’s where we’ll continue to focus on. I’ll use one other quick example and that is as we added 59 99 [ph] commercial zero turnover into a handful of stores and at the beginning of the season we saw it performing really well and we expanded it out to even in more stores and we were delighted with the sales.

And to be able to sale $6,000 riding mower in a Tractor Supply Company store something that I wouldn’t have thought we could have done years ago. So there is a need and I think we’re feeling that need in that gap really well.

I wanted to just ask again another update on the online business. And I know it’s still small and emerging, but are you seeing any deference in customer or what people are purchasing, or how far people are shipping from the store or if there is a demand for pick at store; buy online, pick up the store that kind of thing?

We’re seeing a lot of positive signs. So the comp ramp there is far greater than we’ll have in our four wall stores, because it’s still a very immature business, but no question with the new website launch.

The reason we did that was to give customers more options. As far as the way to acquire the product, our goal is to do 24/7 Tractor.

So in order to do that we had to do the upgrades and give ourselves the ability to have a platform that can handle that. We are adding more and more drop ship vendors as we speak daily.

We are seeing very good customer response to those additions and more of our business is coming from that element today than probably I would say direct fulfillment; it’s coming greater than what we’ve seen in just normal replenishment from the Franklin D.C. which is kind of the replenishment point for the online business.

So, we are encouraged with that because that’s a direct connection between us and the drop ship from the vendors, so lowest cost for us, little faster delivery for them. But in general, our conversion rates are moving upward, the amount of people that are hitting the website is increasing.

We are looking at adding new extensions of products. So, you are going to see this thing develop over the next several years and it’s something that I think can be much more meaningful.

However I will caution you, there are a lot of things that we saw at Tractor Supply that would be very difficult to sell online and deliver to customer because of their cost of transportation. So, there will be a point when there is going to be some things it could be somewhat prohibitive but all indications, all signs right now are that this thing is moving ahead well and we are very pleased with our performance.

And just a quick follow-up on where orders are originating, like are you seeing a big increase in mobile? Obviously you said you guys revamps on the mobile side and…

Mobile is growing very rapidly, Joe. And the consumer who is buying from us is still somewhat within a proximity of our store base.

So when I am seeing someone in some distant place and let’s say Alaska trying to buy product on tractorsupply.com that has not been prevalent; it’s been customer that are looking at that as a convenient factor, they can buy at 3:00 in the morning and then they buy at 6:00 o’clock in the evening that’s what we’re saying. So, it’s really still somewhat based around the current consumer base, the distance of our stores that’s what the base of business is coming from.

And if I could sneak one more quick one, As far as new stores and real estate the outlook, are you finding any differences in procuring new sites or cost of rent or the new sites going up at all or anything to note on the real estate front?

Well one thing we have noticed and I mentioned it in the write ups, Tony commented it too that it’s a little more expensive to do business in the West, no question that occupancy costs are higher but our retails are different out there and the volume of those stores will be considerably different. So, we are finding plenty of sites, it doesn’t seem to be any concern for finding quality sites.

But one thing I should mention is when we open stores, we don’t look at as just opening the all A locations. We will open stores across the spectrum of small, medium and large in volume and in size so that we can continue to see productive store opening improvements over the next decade or so of store growth.

So we’re not looking at just A stores, we’re looking at A, Bs and Cs. We are looking at different markets, some larger, some smaller.

The mix of stores is just as important as finding a location of that store.

My question was on new customer acquisition. You mentioned some of the learnings from the HomeTown Pet format.

And I was just wondering about the process of applying those learnings for the Tractor Supply format as well as any other opportunities you see for increasing business with new customers?

Jessica, let me just comment on HTP and I’ll let Steve take it from the other side. In HTP, we can attribute generally all of our customers that are coming through from a purchasing standpoint because it’s a different format; it’s very intimate, they are willing to give us their information so on so forth, little different in Tractor however.

Yes, Jessica, what I would tell you is that acquisition of customers is critically important. We talk a lot about the who are non-shopper and we talk a lot about how difficult sometimes it is to get people in our stores that just look at the name Tractor Supply.

We have done a lot with our assortments over time. We have done some different things with our marketing and how we target different areas.

So, I would tell you that we’re making good strides. I would tell you by the top transaction growth we are continuing to see that in our numbers.

And so while there’s more work to be done here, I am pretty pleased with the degree of support that we are getting from our marketing team and bringing new folks in.

And then just a quick follow up on the performance of the exclusive brands. You mentioned deflation as one of the dynamics that was causing some of the difference in the performance of the exclusive brands versus the remainder of the offering.

Is there anything else to think about or may be expectations for the back half?

I would tell you deflations had the biggest impact. So whether it would be in our brands like Royal Wing or Bird Seed or some of what you are saying on the livestock feed side of our business, we are selling some good units.

We continue to think that we are gaining share. Units are a focus for us but it is difficult when you’re paddling uphill here because the deflation on the top-line.

So, it’s still a focus for us as an organization and that’s what I can tell you at this point.

Thank you for your interest everyone and your support of Tractor Supply. We look forward to speaking to you again in October regarding our third quarter performance.