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Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss Fourth Quarter and Fiscal Year 2024 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. [Operator Instructions] 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. And as a reminder, this call is being recorded. The host for today's call is Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Now, first up is a year-end video. [Video Presentation]

I would now like to pass the call to our host, Mary Winn Pilkington. Mary Winn, please go ahead.

Thank you, Alisa. 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. Seth Estep, our Chief Merchandising Officer, will also be available during the Q&A session. 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 Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct, and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at 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 any further discussions. Thank you for your time and attention this morning. And now it's my pleasure to turn the call over to Hal.

Good morning, and thank you to everyone for joining our call today. Before we begin, I would like to acknowledge the recent wildfires and winter storms. Our thoughts and prayers are with all those affected. I'd also like to express our deepest appreciation to the first responders who worked tirelessly to protect our communities during these challenging times. Our Tractor Supply team has and will continue to stand with our communities as they recover from these events. The opening video, I think, did an excellent job highlighting the key accomplishments of the Tractor Supply team in 2024. And my sincere appreciation and gratitude go out to the team the team for all they do. Over the year, our consistently executed with distinction and delivered solid results in a tepid retail environment. Additionally, the team made progress against our Life Out Here strategy, enabling continued market share gains and future growth. Now, let's go through some of our highlights specific to the fourth quarter and the fiscal year, starting with financials. In the fourth quarter, our net sales grew 3.1%, and comparable store sales increased 0.6%, driven by strong comp transaction growth of 2.3%. And our fourth quarter diluted EPS was $0.44. For the fiscal year, we achieved record financial results on both the top and bottom-line. Net sales were nearly $14.9 billion, growing 2.2% versus 2023 with a comp store sales increase of 0.2%. Diluted earnings per share were also a record $2.04 on a split-adjusted basis. And our digital business reached another year of record sales, topping over $1.1 billion. And I'll note, these results are on top of record performance over the last four years. In 2024, we also generated a record $1.4 billion in operating cash flow. And we use this cash flow to fund the business and attractive growth opportunities. In 2024, we opened 80 new Tractor Supply stores and 11 Petsense stores. The team has done a fantastic job opening highly productive new stores as this remains a core strength and competency of Tractor Supply. Other business investments we made in 2024 include a new distribution center in Maumelle, Arkansas, and more than 160 Fusion remodels. After funding our business in these initiatives, for the fourth consecutive year, we returned more than $1 billion to our shareholders through the combination of dividends and share repurchases. And 2024 marked the 15th consecutive year of dividend growth for Tractor Supply. And finally, at the conclusion of the year, we successfully acquired Allivet, and we look forward to integrating Allivet into our business and offering it to our millions of Neighbor's Club members who are pet owners. In addition to these financial results and even more importantly, perhaps, our team member and customer engagement has never been stronger. Frontline team member attrition is at a record low. Total active customer accounts are at record highs. High-value customer retention is at record levels. Customer service scores continue to hit all-time highs. In our Neighbor's Club, one of the largest loyalty programs in retail continues to attract record levels of new customers and we're exiting 2024 with all-time highs in both retention rates and retained customer counts. Neighbor's Club is truly a key differentiator for Tractor Supply, and we're committed to continued enhancements. For example, in 2024, our members benefited from more personalized offers, new tiers, and more meaningful rewards. Additionally, the expansion of Neighbor's Club to Petsense by Tractor Supply continues to drive strong customer engagement. This expansion is allowing us to deepen relationships with existing customers and help attract new pet customers to both banners. Neighbor's Club membership currently represents over 85% of sales at Petsense with continued momentum. The Petsense shopper is also cross shopping Tractor Supply at an impressive rate of 50%, an increase of nearly 3 points year-over-year. Overall, Neighbor's Club membership now exceeds 38 million, and as a percent of our sales reached a record 80%. With our Life out Strategy, we have built on Tractor Supply's long-standing commitment to invest in our powerful flywheel. We've substantially transformed our business and are operating from a higher level of performance. We've not given back any of the gains that we've made over the last five years, and we delivered against our strategy, and we're very excited about the future. As we planned for 2025, we're forecasting strong net sales growth of 5% to 7% and comp sales performance of 1% to 3%. We anticipate that the headwinds we've been facing will moderate as we move through the year and that we continue our share gains. We expect product deflation should be relatively neutral by mid-2025, and additionally, we see signs of stabilization in both personal consumption expenditure and the balance of goods versus services as well as in the pet food category. As it relates to the new presidential administration, while there are many unknowns that we acknowledge, for example, tariffs, we are confident in our ability to navigate these circumstances as they evolve. Additionally, I'll note that many of these unknowns are not Tractor Supply specific. And on most fronts, our business profile is attractive on a relative basis to other retailers and companies. As we shared at our recent investment community day in December, we remain confident in our long-term targets and expect to return to them when market conditions return to neutral. Tractor Supply is a unique and highly differentiated retailer. We have a history of executing with discipline on our strategy, delivering strong financial results and continue to expand our competitive moat. We continue to gain market share across our major product categories and our customer metrics remain incredibly healthy. We're excited about the continued evolution of our Life Out Here strategy that builds on our strengths, continues the momentum of our existing strategy and launches new initiatives that increase our total addressable market to $225 billion. We're entering the New Year with momentum and opportunity. And with that, I'll now turn the call over to Kurt.

Thanks Hal and hello to everyone on the call. Let's start with some key insights for the fourth quarter and full year. I'll spend the bulk of my time on our outlook for 2025. We had a solid performance given the overall conditions for the fourth quarter. Comparable store sales increased 0.6%, driven by strong comparable average transaction increase of 2.3%, partially offset by a comparable average ticket decrease of 1.7%. Of note, unit volumes were solid and the ticket pressure was principally from average unit retail. For the fourth quarter, we always believe that weather trumps the holiday. Typically, the winter weather has a much greater impact to the fourth quarter. And once again, that is how this year played out. In addition, we continue to face the ongoing headwind of deflation in key product categories. We estimate that deflation had approximately 100 basis point drag on our comp sales performance in the quarter. Most of the deflation pressure came from commodity-based products consistent with the recent trends. As we progressed through the quarter, we saw a positive impact from the early October hurricanes. While the warmer-than-usual temperatures in late October and November presented some challenges, December had a modest improvement in the weather and solid holiday performance, demonstrating our resilience and ability to adapt to varying conditions. Turning the category performance for the quarter. We had strong comps in our seasonal department as well as truck tool and hardware with both performing better than chain average. Our consumable, usable and edible products performed in line with chain average. Notably, we had mid-single-digit unit growth as we continue to believe we are gaining share in these categories overall. The strength of our unit growth in Q was offset by ongoing deflation. No doubt the warm weather in November and to a lesser extent, December weighed on our winter seasonal business. Overall, our spring and summer seasonal categories drove positive comp sales with

Thanks, Kurt. As we shared in December at our Investment Community Day, we're embarking on the next leg of growth for Tractor Supply with our Life Out Here 2030 strategy. This strategy is designed to continue invest in what's working as well as begin investments in several new opportunities, creating horizons of growth that we expect to last through the end of the decade. Key initiatives in our Life Out Here strategy will continue to be our Project Fusion and Garden Center rollouts. Both of these projects are working well and delivering compelling returns through improved space productivity. In 2025, these initiatives will be complemented with enhanced localization capabilities. Specifically, the team has developed data-driven archetypes that tailor approximately 25% of store space to better reflect customer need and further optimize the incremental sales opportunity of each unique site. Going forward, all new stores and our Fusion remodels will have localized space allocation and assortment based on their respective architypes. Turning to our Neighbor's Club. We have significant plans in place to continue to capitalize on this unique, strategic asset. A significant focus for us this year will be to bring our members PetRx through our recent Allivet acquisition. The acquisition of Allivet expands our total addressable market by $15 billion to $225 billion. Allivet has a proven platform to make pet ownership easier by providing convenient access to brand-name medications, expert pharmacy advice and convenient reordering with its AutoShip program. Our efforts in Q1 are focused on integrating Allivet's catalog onto tractorsupply.com and updating a member's Neighbor's Club profile to include their prescription and veterinarian information. We look forward to providing our 38 million Neighbor's Club members with a value-added pet and animal prescription service and introducing Tractor Supply to Allivet's customers. As Kurt mentioned, we're investing in this year in several new key strategic initiatives, especially direct sales and Final Mile. It is critical to get them off to a strong start, and the team is keenly focused on our multiyear journey to capture the significant opportunity with these initiatives. In direct sales, our efforts in the first half are focused on building a scalable field sales model and launching Version 1 of our business-to-business selling platform. In Final Mile, our efforts in the first half are focused on hardening our existing delivery hubs, activating inventory across more locations and bringing bulk online orders in-house for delivery. While our long-term strategy sets the foundation for sustained growth, our 2025 operating plans are designed to deliver measurable results today, ensuring we continue to meet our evolving customers' needs and build momentum towards achieving our long-term goals. As mentioned, the year has started solid, and our teams have been busy supporting our customers for all their winter needs as the dependable supplier of the Out Here Lifestyle. From heating fuel and heating pellets to insulated winter clothing to livestock feed, we are highly engaged in ensuring our customers have what they need to deal with the recent winter storms and recovery. As the calendar will soon turn to spring, we've already transitioned over 600 of our stores to our spring sets and the remainder will do over the next couple of months. Our merchant teams have done an excellent job bringing value and innovation to our lineups for spring. Examples include expanding Weber grilling to all stores and launching exclusive zero-turn mowers from Cub Cadet and the second year of the Toro Havoc as well as introducing new national live goods programs. And we have so much more, and I look forward to sharing more details on spring in our Q1 earnings call. As always, we are laser-focused on our C.U.E categories. In our Companion Animal segment, we're pleased to launch new products, both in-store and online. We recently launched 4health shreds. We expanded our temptations assortment in cat, and we introduced new freeze-dried and shelf-stable treats. In the market now, we have our annual Pet Appreciation days with a month of targeted savings offers and in-store events to drive excitement. Additionally, we will continue to leverage our over 1,000 pet wash locations. And last year, we conducted over 1.8 million pet washes, including a record-breaking 500,000 plus in Q4. Our pet aisle is more robust than ever, featuring familiar favorites as well as new unique offerings that deliver the quality our customers expect at incredible value. In our Animal segment, spring at Tractor Supply means it's time for our annual spring Chick Days. The arrival of chicks at our stores is a sure sign of spring and creates strong retail theater in our stores. Backyard poultry continues to see significant engagement with our customers, highlighting a shift towards sustainable and self-reliance living. Whether as pets or as a source of eggs, chicks are both a practical and enjoyable hobby for many and are often referred to as the third pet. We have more shopping trends and insights than ever on our poultry customers and are able to build out more targeted campaigns based on where they are in their journey. As our customers build and maintain their flocks, we have everything they need for feed, treats, toys and an exciting lineup of new chicken coops. Our retail philosophy is that Chick Days is a great gateway for our customers to deepen their relationship with Tractor Supply, and that enables Tractor Supply then to be viewed as a resource for all things related to homesteading beyond the poultry category. Earlier this week, we announced a multiyear strategic licensing partnership with Field & Stream. Beginning in June, Tractor Supply customers could shop a variety of hunting and outdoor Field & Stream branded products. We're excited about the opportunity this partnership presents and look forward to providing more details in future earnings calls. As the season turns to spring, I hope you get a chance to visit our stores and see the actions and initiatives coming to life. Our future remains exceptionally bright and exciting. Our upcoming initiatives, scale and capabilities demonstrate our ability to meet the evolving needs of our customers. We're excited about the future and look forward to continuing our journey of growth and innovation in the channel. I'd like to close where I started, by extending my gratitude to our team members for their unwavering dedication to each other and to serving our customers. I'd also like to thank our customers for choosing us as their trusted supply for Life Out Here, and also call -- plus communities for embracing us as an integral part of our hometowns. With that, operator, we'd now like to open the line for questions.

Thank you. We will now begin the question-and-answer portion of today’s call. [Operator Instructions] The first question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Good morning, everyone. I wanted to focus my one question on comp transactions, which were positive and a good sign of health. Can you talk about transaction breadth in two ways, geographically and then if you can look at it across immature and mature stores, how balanced is it?

Good morning Simeon, and thanks for the question. We were pleased with our comp transaction growth in Q4. And the breadth was widespread across both categories and geographies. What I would say is where we had weather activity, we saw stronger comp transactions as one would imagine. But our comp transaction growth was strong, particularly as it relates to average ticket growth across all regions of the country and across our categories as well. I'll note the numerous call outs I made on customers, customer counts and customer activity and customer retention as well. But we were very pleased with the comp transaction growth and expect comp transactions to continue to be strong force in 2025. And really, as you know, comp transactions have been one, a key component of our growth over the last five years, around half of our total growth over the last five years has been driven by comp transactions. And I think it's a hallmark and a differentiator for us as it relates to the rest of retail. On the new store front, new stores continue to perform right in line with our expectations. New store openings are in that 4.2, 4.3 range on a first-year basis, very much in line with our expectations. The IRRs are performing in line, the operating profit margin rates are performing in line and that's if you look at our 2021, 2022, 2023 and 2024 classes across the Board, the 2021 far outperformed given the moment of time we were in, but 2022, 2023 and 2024 have all been very consistent. And, of course, that is the vast majority of the customers that shop our new stores are new and drive a number of incremental transactions. Of course, that wouldn't be in our comp transaction number that would be a non-comp. But very pleased with the transactions and new customer counts coming along with our new stores and their kind of their opening profile.

Thanks, I mean for the question. Thanks for the question. Good luck.

Yes.

Thank you. The next question is from the line of Steven Forbes with Guggenheim. Your line is now open.

Good morning, Hal, Kurt, Seth. Kurt, you mentioned localization initiatives and the Field & Stream partnership as well. So I was hoping maybe if you can walk us back to the Analyst Day where you explored the customer segmentation work that you guys executed upon. Any way to sort of reframe up the opportunity as you think about localization and sort of what drove the strategic partnership with Field & Stream. How do we sort of contextualize the product category opportunities, the potential lift in sales per square foot that you see in the back of localization? Just any sort of color for us that helps us think about what it means for comp transactions and new store productivity as well as the maturation curve of the stores themselves.

Hey, Steven, this is Seth. Thanks for the question. I would separate both of those kind of individually, and I'll spend a little bit on both. First and foremost, just kind of going back to the localization commentary. I would say it remains really consistent with what we said at ICD and what we said in prepared remarks. Relative to just knowing the amount of opportunity we have to adjust particularly our macro space floor planning when we go out to our Fusion and our new stores to just maximize that space productivity. And like we shared at ICD, anticipate that we'll continue to deliver likely an incremental low single digits lift as we go to implement those as we adjust, call it, 25% of the floor plans as we start to roll those out. We're always looking at ways that we can localize our assortments. And if we were to go back to 2019 and to where we are today, one of the things that we continue to see is that the wildlife and hunting categories for us in recreation have been among the fastest growing, and it's where a lot of our consumers are continuing to respond with us. So, we were looking for ways in which we could continue to drive some meaningful assortments, meaningful partnerships, specifically in that space because it's been very strong growth, but we know that we have a tremendous amount of growth opportunity in front of us. So, we're very excited about the Field & Stream partnership that we announced yesterday and Hal mentioned prepared remarks. It really will be a multiyear journey for us starting midyear this year, specifically tailored more towards that wildlife category. And then as we roll into late this year and then into next year, it will start to be expanded into like an exclusive line of apparel and other things that the brand really resonates with our shoppers. And then also, there's some very unique marketing opportunities where our collective brands can come together across all the channels. So, I do think the partnership is reflective of how we're looking at both localization and our category assortments in general, but very excited about both those opportunities. Thanks for the question.

Thank you.

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

Hey. Thanks, guys. You mentioned the poultry category, and I'm wondering, one of my favorite topics with backyard chickens, if the rising egg prices here is starting to drive some acceleration in that category. And as we think about egg prices potentially continuing to go up this year, maybe reflect back on what you saw in 2023 when there also seem to be meaningful chicken demand. And what did you see in your results in terms of like customer acquisition and traffic.

Yes. This is Seth, Peter. Thanks for the question. Backyard poultry, Backyard Flock, like as you mentioned, it's one of your favorite topics you said, it's also one of ours, its core to our customers, as we mentioned. About one in five of our current shoppers participate in the hobby. It's well above the national average. We are very excited about this year's Chick Days. It's a chance for not only for our current shoppers as we continue to dive in with personalization to grow their flocks with all the unique guidance and expanded items that Hal talked about here at the end of the prepared remarks. But one thing that we also saw like back in 2023 was also a great entry point into the hobby when we saw egg prices continue to elevate at the same time. So, as we look at this year's event, we're very excited about our current customers continue to expand, the flock continue to engage with us, to be their primary destination, but also are excited about the potential opportunity to continue to engage new shoppers in the category which then that we see over time, it just continues to deepen that relationship with them, so more to come. Look forward to discussing the results of Chick Days as it continues to roll out over the next few weeks, and it will be in stores here shortly.

Sounds great. Thank you very much.

Thank you. The next question is from the line of Seth Sigman with Barclays. Your line is now open.

Hey guys, good morning. So, you discussed macro headwinds potentially moderating through 2025, and it seems like that's what's reflected in the comp guidance for the year. Can you just elaborate on what that means specifically for Tractor Supply? Because in a lot of ways, your business has been much more stable this year than a lot of other cyclical businesses. So, what categories have really under-punched, any signs that maybe that's starting to improve? And then if you could also speak to big ticket, perhaps in that context, big ticket has been a nice outlier for you this year, low double-digit growth, although it did moderate in the fourth quarter. So, if you could just speak to that and remind us on how you're thinking about some of categories. Thanks so much.

Good morning, Seth, and thanks for the question. I reference back to my prepared remarks and kind of highlight three factors that really have weighed on our business over the last 18 to 24 months and then comment on our outlook for those in 2025. Those three factors that I'd highlight would be the in PCE, the reversion from goods to services spend, the second would be underlying deflation in our commodity-related items. And then the third would be stabilization of the pet category. All 3 of those, as you know, are headwinds that we've been facing. And we've been very kind of transparent on the impact those have had on our business on things like average ticket, et cetera. As we look into 2025, we do see modernization, neutralization, stabilization, kind of pick your word as more so as it goes through the year. So, if you look at goods and services, it's basically reached its pre-COVID levels now. It's mid-68 versus mid-31. That's very much back in line, maybe 0.5 point to go there. On pet, the kind of stabilization or neutral nature of that industry over the last 12 months has been well documented. We do see that business recovering to low single-digit growth this year and our business accordingly growing alongside of that as we are a share gainer in that category. And then as it relates to deflation, we are -- we see light at the end of the tunnel on that. If we just take our average unit cost, our average unit retails across our commodity-related items, we hit the -- we start comping over top of all that between April and May of this coming year. And then I'd also just point out on that at steady state point in time. If you look at the commodity markets right now, if anything, they're kind of surging up. If you look at, say, like corn prices, which we've talked about is the commodity that we're most correlated with corn is trading now in kind of that high-400s, 490 range, really at like a 15-month high now. We aren't seeing that make its way into pricing yet. But if anything, I'd say that is a potential tailwind. So, as we look out, we do see kind of light at the end of the tunnel on these macro factors that have been headwinds for us. And we think as we get into the year, those forces will become less and less of a headwind. That's reflected in our guidance for the year, which is a comp of 1% to 3%. And we said that we expect kind of sequential improvement from our comps from the first half to the second half as well. And the final thing I'll call out is we have had a solid start to the year, which gives us more confidence in our guidance. Of course, we've got 11 months still to go, but it's been nice to have the cold winter weather in the first month of the year to particular help us lap last year's cold weather and start out with a relatively solid start to the year. So thanks, Seth. I appreciate the question.

Hal, I'll just mention his -- Seth's last question on big ticket, which I think is a great topic as well. So, Seth, this is Kurt. As we've talked about through all of 2024, I mean, the merchants did an excellent job coming off of two years of declining big ticket sales with newness, innovation competitive pricing, great financing. And so we recognize in our guidance that we're cycling strong big-ticket comps in 2025. But a lot of 2024 was a comeback of some of the lack of newness and the customers responded. And we see that big ticket as more at its new stabilized platform, and we look at 2025 as we're bringing together all the reasons, the newness, the competitive pricing, love our opportunities in 2025. Big ticket is expected to run positively more in line with chain average in 2025. But what we're bringing in zero-turns, trailers and a number of areas that you'll start to see this year is we've got good reason to be optimistic on our ability to continue to comp, the comp on big ticket in 2025.

Very helpful. Thank you both.

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

Hi. Good morning. Thanks for taking our question. We wondered if we could focus our question on the operating margin guide. I think the lower end of it maybe seems a little bit lower than what you were talking to in December, which we thought was around flat. First, is that right? And if so, what's driving the change? And then can you talk to the range? Is that range concurrent with what you expect to do on the top line in 2025? Or are there other things that we should consider driving that range of outcomes?

Yes. Hey Kate, this is Kurt. Thanks for the question. On operating margin, as I mentioned in my remarks, we estimate and forecast that our 2025 operating margin would be more in line and center pointed around the 2024 operating margin. To your second part of your question, the operating margin range that we gave is more concurrent and proportional with the comp sales range of 1% to 3%. So, allowing for the appropriate flow-through under the low-end and high-end scenarios on the comp sales range, the 9.6% to 10% operating margin reflects that. We've got a significant opportunity for growth in this business as we've talked about the 2030 initiatives. So, we are purposely investing to be able to launch those programs. And we're self-funding those with gross margin expansion and efficiencies that we have achieved and continue to target on the SG&A side. So, we're excited about 2025. We're going to continue to strive to hit the high end of our targets. We believe we've got gross margin expansion that allows us in this year to be able to do both things, grow the business and be able to maintain the operating margin. And that's the key message on both the top and bottom-line.

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

Good morning. Thank you so much for taking my question. My question is on the outlook for this year, which you noted that the business has already started off with a solid beginning given some of the weather and you're guiding to an acceleration over the course of the year. And then on top of that, you outlined some positive drivers for -- that could impact the business. So, A, should we interpret the 1% to 3% comp outlook as conservative or what would stand in the way of potential upside from that? And B, if there is comp upside, how should that flow to the bottom-line? Meaning, would you choose to potentially proactively reinvest some of the upside back in further investments in your initiatives such that there may not be as much upside even if the comps outperformed? Thank you.

Hey Michael, thanks for the question. I'll answer in two parts the way you ask it. On our comp first, obviously, when we set our guidance, we try not to be impacted too much by the first three or four weeks of the year in terms of sales and try to look over a full 52-week period. With that as context, we certainly see the broader macro conditions like talked about with Simeon's question at the beginning, kind of more neutralizing and some of them, perhaps, even becoming positive in nature for us as we get through the year. And so I think that's what leads us to the kind of sequential improvement as the year goes on. And that's without any sort of consideration for the aberrations of weather and how they might impact one month here and there through the year. But we feel very good about our 1% to 3%. We think that's -- we're highly confident in it, and we think it's the right place to start here at the beginning of the year. What I -- as it relates to if we had comp upside, I think, obviously, there's a variety of scenarios that that we'll evaluate as we go through the year and would be a great scenario for us to be considering. What I would say is, I referenced kind of back way the way we've thought about it in the past, and we've had comp outperformance, we'll evaluate our current initiatives, how they're running, how their investments in those initiatives are going. If we were to lean more into these initiatives, what would be the result of that incremental investment, and/or what other needs do we have in the business. And then obviously, we would evaluate the flow-through as well. But as we've indicated long-term, when we see our comp growth rates in our long-term guidance range, in that 3%, 4%, 5% range, we do expect to leverage on operating margin rate and have that improve. And so I would also say that if you saw comp outperformance in the year, you would see operating margin flow towards the higher end of our guidance, and we would update you accordingly through the year on that. But again, just stepping back, we're very, very excited about the beginning of the year. We feel good about our plans for the year and have some good momentum as we head into 2025 here. We've got a lot of new initiatives to embark on top of some really, solid existing initiatives or creating real value for our shareholders and excited about the horizons for growth that we have over the next few years. Thanks, Michael, for the question.

Thank you very much. Good luck.

Thank year-over-year. The next question comes from line of Peter Benedict with Baird. Your line is now open.

Hi, guys. Good morning. Thanks for taking my question. Kurt, maybe just jumping around the Allivet. Is there any seasonality in that business that we should think about? And I know you said it's going to be accretive or slightly accretive to the earnings this year, just on how it maybe impacts the P&L. There's -- I would assume it's higher gross margin, but kind of curious your view there. And then if you can even frame maybe the magnitude of the earnings lift that you get here in year one from Allivet. Thank you.

Yes, Peter, for the most part, Allivet is pretty consistent and stable. There's some seasonality. You might not be able to see it significantly with the size of Tractor Supply. But if you think about the spring summer, there is a bit of a peak on flea, tick and some of those type categories. But I -- we look at it as it's a pretty stable, consistent business. It's got a solid operating margin. Over the long-term, we expect that while it's accretive to earnings that we have the ability to grow their operating margins. And the long-term outlook is that that Allivet, when you look at level of business on the Rx side of it, over this five-year period of time, we can see Allivet equaling and even surpassing Tractor Supply level operating margins because it's that strong of business. Right now, when you think of 2025, our focus is on the top line and getting Neighbor's Club members onboarded onto Allivet that, their platform, their subscription model. And so there'll be -- while accretive, there'll be some investments in the onboarding and the transition year, and we'll be able to share more beyond 2025 as how we see that growing in the future, but great platform, a great team. We purchased, as Hal mentioned, the technology, the resources, license in all the states enable for us to be able to ramp quickly with them. So very excited about this opportunity, which is certainly, we believe, a one plus one is certainly more than two.

Sounds good. Thank you.

Thank you. The next question is from the line of Karen Short with Melius Research. Your line is now open.

Hi. Thanks very much. I wanted to just focus on comp in general. So can you give a sense of what the comp waterfall contribution is or the new store waterfall contribution is to the comp and how you think about that going forward? And then tie that in with how to think about new store productivity?

Yes, sure. Hi, Karen, on new stores hitting both comp and new store productivity, first, when we -- I'll hit new store productivity first. When we talk about new store productivity, profitability, we look at it on a net of cannibalization. That's how we view its impact. That's how we view its IRR. And we've continue to be consistent that our new stores, while there's a mix, some we drop into existing markets, some into brand-new markets, there's some cannibalization, and we continue to have net contribution to comp after cannibalization from new stores. It's a modest contributor. If I would say of all the contributors we talk about that build up to our comp sales from the strategic initiatives, it is a modest level. But we are net contribution to our comp sales. And so as we as we ramp up, we've planned in 2025 from like 80 to 90, and ramped up from 70 to 80, you're seeing the non-comp growth from new stores, continuing to increase. And that has, over time, in that five-year maturation, we view it while we're talking 5, 10, 15 type level basis points. But over the next five years, that's a comp contributor as our new stores ramp from 70 up to 100 over the next few years. And then Hal mentioned earlier, new store productivity, I can't reiterate more while I acknowledge in the last 18 months with Orscheln and refining some of the square footage, new store productivity has been extremely consistent and right in line from all of our targets over the last three or four years, and we are consistently performing at or above our markets and excited about the production and the performance of our new stores.

Great. Thank you.

Alice, I think we've got time for one more question, please.

Certainly. The next question is from the line of David Bellinger with Mizuho. Your line is now open.

Hi. Good morning. Thanks for the question. It's on the gross margins, which are down very slightly year-over-year this quarter. I think that was the first time since late 2022. We were just a little unclear on the drivers other than the difficult comparison in the prior year. Just any more detail you can help us with anything on the promo activity and the shorter holiday, how that played into it? And then just secondly, how should we think about the year-on-year gross margin progression throughout 2025. Any specific drivers you've got baked in, like retail media or some other factors?

Yes. Thanks David. On gross margin for the fourth quarter, as I mentioned, it came in very much in line with our expectations. The Q3 call, I forecasted that we were anticipating flat year-over-year gross margin, knowing that we were up against 129 basis point growth. There was probably 20 to 30 basis points back in the prior year that was very unique to that quarter -- in fourth quarter 2023. So we continue to have solid performance in gross margin. We were cycling that. There really wasn't much that was unique, and it wasn't promotional. While there was a step-up in promotional in fourth quarter year-over-year, for us, we had targeted promotions. We had vendors' partnership that helped to maintain the gross margin. So, there's a little bits and pieces here and there that shifted from flat to nine basis points. Part of that is mix in the quarter. And that's probably the only meaningful items I can mention. It gives us all the confidence on our gross margin plan. As you think about 2025, as I mentioned, gross margin in the first half, slightly more favorable than the back half. And what you'd see is, we're going to start lapping some of the last or most recent transportation efficiencies by about midyear. And we'll begin to see a little bit more benefit though in the back half from exclusive brands, which Seth has talked about launching, the retail media is a little more beneficial, but the net-net is, in our expectations for gross margin, you'll see a modest -- we forecast today a more modestly higher gross margin performance in the first half and in the second half.

Great. Thank you.

I think that -- thanks, David. Just to wrap our call up. So, I'm around all day and coming up next week as well if anybody needs anything. So, please don't hesitate to reach out and look forward to talking to you on our Q1 call in April. Thank you.