For the past several years, whenever Tractor Supply's CEO Jim Wright spoke about his company's earnings, he usually described a strong performance in a challenging environment — a 1,000-plus-store little engine that could.
Last month, his replacement, Greg Sandfort, picked up where Wright left off, pointing to a 10.8% fourth-quarter sales increase and a 24% increase in net income. In his first earnings call as CEO, Sandfort ran analysts through the Brentwood, Tenn.-based retailer's challenges and opportunities.
The conservative customer:
"We have seen very little change from recent quarters regarding our customers' purchasing behaviors. Our consumers are spending conservatively, and they are seeking out compelling values. Purchases are being driven by necessity and are taking place much closer to need."
The newness factor:
"In the first part of the year, we make most of our hard planogram changes. And we touch between 30% and 40% of the store. The second piece is what we do in the center corridor and on the outside of the store. Our team has done a wonderful job of bringing probably 50% to 60% of new product into those spaces year after year. You'll see that again this year as you walk into our stores."
"We are now in year two of our price optimization [initiative]. We don't just turn this system on and let it run. We test against control stores to make sure that we're getting the right results. As I see this developing, it's a much longer-term journey than I think I initially anticipated."
On smaller-format stores:
"We're really pleased with the performance, and the thing about these small stores is, it's really not a different concept. What we've done is modify some of the depth and breadth of assortment to match the market. The typical customer thinks this is the same Tractor Supply. It just is a smaller box."
On managing clearance:
"When we see products not selling to the degree that we'd like, we'll take those first initial markdowns understanding that the 20% markdown gets me 80 cents on the dollar today, versus if I wait until January or February, I get 20 cents on the dollar when I'm at 80% off. So we're fairly aggressive on moving through inventory when we see issues.
On the hot product of generators:
"I think what we're going to see in the Northeast is individuals wanting to put what I'll call standby generators in their homes. Not the portables, but standbys. This is the second year now that they've been without power."