Gregory A. Sandfort - President and CEO Anthony F. Crudele - EVP, CFO and Treasurer Steve K. Barbarick - EVP, Merchandising and Marketing Lee J. Downing - EVP, Operations Christine Skold - VP, IR and Strategy.

Alan Rifkin - Barclays Capital Michael Lasser - UBS Securities Peter Benedict - Robert W. Baird & Co. John Lawrence - Stephens Inc.

David Magee - SunTrust Robinson Humphrey Christopher Horvers - JPMorgan Denise Chai - Bank of America Merrill Lynch Simeon Gutman - Morgan Stanley Adam Sindler - Deutsche Bank Jessica Schoen Mace - Nomura Securities Matt Nemer - Wells Fargo Securities Mark Miller - William Blair & Company Brian Nagel - Oppenheimer & Co. Inc.

Matthew Fassler - Goldman Sachs Chuck Cerankosky - Northcoast Research Aram Rubinson - Wolfe Research Seth Basham - Wedbush Securities Eric Bosshard - Cleveland Research Joseph Feldman - Telsey Advisory Group.

Good afternoon, ladies and gentlemen, and welcome to the Tractor Supply Company’s Conference Call to discuss Fourth Quarter and Full Year 2014 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.

Please note that each participant will be permitted to ask one question with one follow-up. Please be advised that reproduction of this call, in whole or in part, is not permitted without written authorization of Tractor Supply Company. As a reminder, this call is being recorded. I would now like to introduce your host for today’s call, Ms.

Christine Skold of Tractor Supply Company. Christine, please go ahead..

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’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. Lastly, Tractor Supply Company undertakes no obligation to update any information discussed in this call. I’m now pleased to introduce Greg Sandfort, Tractor Supply Company’s President and Chief Executive Officer. Greg, please go ahead..

Good afternoon, everyone, and thank you for joining us. On the call with me today are Tony Crudele, our EVP and CFO; Steve Barbarick, our EVP of Merchandising and Marketing; and Lee Downing, our EVP of Store Operations and Real Estate. We are pleased with our performance in the fourth quarter and our full year results.

Comp store sales for the quarter increased 5.3% versus an increase of 3.5% in last year’s fourth quarter. The comp increase was driven by increases in both traffic and ticket, and we continued to see strength across all our major merchandize categories and geographic regions.

The fourth quarter was our 21st consecutive quarter of positive comp store sales and our 27th consecutive quarter of positive comp transaction counts.

For the fourth quarter, we made early strategic investments in a number of key categories such as heating, cold weather apparel and footwear and outdoor power equipment anticipating that the customer would purchase earlier than the year before.

These investments positioned us well to capitalize on early consumer buying trends, driven by colder weather early in the quarter. We also strengthened our commitment to seasonal C.U.E. items and achieved a solid performance within this group of products, which also added to our comparable sales for the quarter.

In the quarter, we started the rollout of our new demand planning system to the first few departments, and as we methodically rolled the system out across all our merchandize categories, this system will more accurately forecast the sales and seasonality of products that we carry within our assortments.

During the fourth quarter, we also opened our first Tractor Supply store in Utah, which was the 49th state for Tractor Supply. We also converted our first Del’s store over to the Tractor Supply format and nameplate in the state of Washington.

We are excited about the opportunity to grow our market share in Washington as we continue to convert the remaining Del’s stores to new TSC stores in that market. We continue to develop our omni-channel with improvements to content and product availability online as well as additions to our drop ship vendor ecommerce programs.

We’ve seen double-digit growth in visits to our Web site now that we’ve added our mobile site capability, and although online sales are not material at this point, we have seen a significant increase in the store locator feature and believe our online and mobile sites are driving footsteps into our stores. Now regarding our supply chain.

We purchased land and have started construction on our new distribution center in Casa Grande, Arizona. This distribution center is an important part of our Western expansion strategy. Not only will it support our continued growth in those markets, it should lower our transportation costs and improve delivery times to our stores in that region.

The new facility is expected to be operational in the fourth quarter of 2015 and will have the potential to ultimately serve in upwards of 250 stores in the Southwest region. In 2015, we also plan to open two mixing centers in our Texas region.

These are smaller cross-docking style distribution facilities that handle many of our palletized products and faster turning C.U.E. items such as [feed] [ph], shavings and wood pellets.

With our vendors delivering products directly to these mixing centers, which are located closer to our stores, we can shorten our supply chain stem miles and reduce in-store inventory levels through more frequent store deliveries.

As we move into 2015, we will continue to invest in the analytic tools and supply chain assets necessary to strategically drive our growth. Our priorities in 2015 include opening approximately 110 to 115 new Tractor Supply stores, opening our new Southwest distribution center and Northeast D.C.

expansion, the addition of two mixing centers in our Texas region, continued growth in the state of Washington through our Del’s conversion to Tractor Supply stores, system enhancements to increase scalability and analytic capability for inventory allocation, omni-channel engagement and CRM, and continued system security enhancements.

As we all know, the cold harsh start to the year and the late spring selling season required us to carefully manage seasonal inventory investments and monitor our product sell-throughs. We had to react swiftly and we’re successful in meeting the seasonal and everyday needs of our customers in both the first and second halves of the year.

Throughout the year, the team did an excellent job of managing product flow and adjusting merchandize assortments and depth of inventory to capitalize on seasonal demands in the markets that we serve. We believe this continues to be a core competency and strategic advantage for Tractor Supply Company.

In my closing comments, I’d just like to say thank you to all of our hardworking and dedicated team members who serve our customers each and every day out there. We are pleased with our fourth quarter performance and our finish to the year.

While it is difficult to predict the timing of seasonal demand trends, we know our customers do depend on us for everyday basic items and we continue to stay focused on being the most dependable supplier of their lifestyle. Our business is more than just transactional.

It is building long-term trusted relationships with our customers and having what they need, when they need no matter what the season or weather. We appreciate your time today and I will now turn the call over to Tony for a more detailed commentary on the financials and our initial look for 2015.

Tony?.

Thanks, Greg, and good afternoon, everyone. For the quarter ended December 27, 2014 on a year-over-year basis, net sales increased 12% to 1.58 billion and net income grew 16.9% to 112.1 million or $0.81 per diluted share. Comp store sales increased 5.3% in the fourth quarter compared to an increase of 3.5% in last year’s fourth quarter.

Comp transaction count increased for the 27th consecutive quarter gaining 3% on top of a 5.1% increase last year. We are very pleased with our ability to continue driving increased foot traffic through our doors by meeting the everyday needs of our customers. Strong winter seasonal business and C.U.E. items were key traffic drivers in the quarter.

Average comp ticket increased by 2.3% versus last year’s 1.5% decrease. The increase was driven by the mix of goods and the strength of big ticket sales partially offset by deflation. A few key points about the quarter.

Sales were strongest in the first half of the quarter coming off a very cold winter last year and with the advent of the cool temperatures in October and November, our customer anticipated another cold winter and started buying winter seasonal items earlier.

We believe that this shifted much of the winter seasonal sales to earlier in the fourth quarter versus last year. Big ticket had a comp sales increase greater than the company average and positively impacted overall comp sales by an estimated 64 basis points.

Strength in our seasonal category such as heating and outdoor power equipment drove the big ticket comp sales increase and more than offset the continued headwind in the safe category. Solid comp sales were widespread and not limited to any particular region as both the north and the south did well.

Deflation was slightly less than we expected and we estimate that it was approximately 50 basis points in the quarter. Sales of direct import items increased 14% versus Q4 last year and represented 16% of the sales mix in the quarter.

Sales of exclusive branded products were also very strong in the quarter increasing 11.4% and represented 29.4% of total sales.

Turning now to gross margin, which increased approximately 16 basis points to 34%, our initial direct margin continues to improve as a result of our initiatives around price optimization, markdown management and strategic sourcing.

Favorable colder weather provided strong sell-through of our seasonal winter products resulting in favorable markdown management, accompanied with strong price management on some key winter seasonal products. Deflation also had a positive impact on gross margin.

Partially offsetting the benefits from our margin enhancing initiatives with freight, which increased approximately 20 basis points due to higher transportation costs primarily from the increase in stem miles to the new Western store base. This impact was much greater than the benefit we received from lower fuel costs in the quarter.

The overall product mix impact was not significant this quarter. For the quarter, SG&A including depreciation and amortization was 22.8% of sales compared to 23.5% in the prior year’s quarter. We are pleased with our expense control in the quarter, which coupled with strong comp sales, provided significant leverage.

Strong expense control of store payroll, occupancy and marketing netted almost half of the favorable leverage. Incentive compensation accounted for the other half of the leverage benefit in the quarter. Our effective income tax rate increased to 36.7% in Q4 compared to 35% last year.

The increase was due principally to the reversal of certain FIN 48 reserves last year. Turning to the balance sheet. We ended the year with 51.1 million in cash compared to 142.7 million last year with no debt in both years.

Our stock repurchase program was very effective in the early part of the fourth quarter as we acquired approximately 868,000 shares for 51.1 million or an average $62.35 per share price. Average inventory levels per store at year end increased approximately 4% compared to last year.

We ended last year very light in inventory as a result of the strong sell-through in the fourth quarter. We believe that we are in better inventory position this year to take advantage of the January and February winter business.

Inventory turns for the year improved 3 basis points to 3.32 times and we are pleased with the productivity of our inventory during the quarter and the full year. Capital expenditures for the year were 160.6 million as compared to 218.2 million last year.

We opened 22 stores and closed one store in the fourth quarter compared to 31 stores opened in the fourth quarter of 2013. For the year, we opened 107 stores and closed one. The decrease in capital expenditures relates to cycling expenditures for the construction of our Southeast distribution center last year.

We were significantly favorable to our CapEx forecast as our land cost and construction draws for the Southwest distribution facility were below our estimate, the Northeast distribution center expansion was deferred to Q1 2015 and certain IT initiatives were under budget or reprioritized. Now turning our attention to 2015.

As Greg mentioned, we will continue to fund our ongoing operational initiatives such as logistics, merchandizing systems and omni-channel to position the company for future growth and at the same time manage the business to deliver our target of mid-teens EPS growth. We expect full year sales to range from 6.2 billion to 6.3 billion.

We have forecasted comp sales to increase 2.5% to 4%. We are targeting EBIT margins to be flat to 10 basis points of improvement compared to 2014. We expect a modest improvement in gross margin and SG&A leverage will be dependent on the sales level achieved.

We anticipate net income to range from approximately 403 million to 417 million or $2.95 to $3.05 per diluted share. We expect to open 110 to 115 new stores with approximately 55% to 60% scheduled to open in the first half of the year.

As Greg mentioned, we will begin to transition Del’s stores to Tractor Supply markets and we expect to close seven Del’s stores as we backfill Washington State. We forecast that our effective tax rate will be approximately 37%, which is consistent with last year’s rate of 36.9%.

We are initially targeting 240 million to 250 million of capital expenditures in 2015 consistent with our four-year CapEx plan. The increase over last year results from the new store openings, the completion of our Southwest distribution center, our expansion plan for the Northeast distribution center and the execution of other key initiatives.

We plan to continue to make purchases under our share repurchase program as part of our long-term balanced approach to shareholder return. We have reduced our year-end targeted cash balance to 0 to 50 million. Consistent with this past year, we expect to have seasonal borrowings at the end of the first and third quarters.

For modeling purposes, we estimate that the diluted shares outstanding inclusive of option grant and share repurchase activity will be between 137 million and 136 million for the full year. So let me discuss some of the assumptions that help us form our projection for 2015.

Based on current consumer confidence polls and buoyed by lower gas prices, we believe that the consumer is more optimistic.

As a retailer that serves our customers everyday basic needs, we believe there is potential for upside but we also recognize that we tend to receive less of a tailwind in those retailers that are more dependent on discretionary purchases. Deflation was a top line headwind last year and averaged approximately 85 basis points.

This year, we expect deflation to continue to be a headwind and average approximately 50 basis points ranging between 10 to 100 basis points during the year. We anticipate the impact will be higher than the first half of the year and moderating downward in the second half of the year.

As we have previously discussed, it is our responsibility to manage through deflationary and inflationary periods and we believe we have demonstrated that ability in the past. There were some positive and negative weather events that impacted the timing of sales in 2014.

This was the second year in a row that we had a late spring and an extended spring/summer that progressed late into the third quarter and favorable cold trends in the fourth quarter. We believe it was a net neutral year from a weather perspective.

As we have stated in the past, we generally benefit from an early spring, therefore, if the weather pattern returns closer to normal, we would anticipate slightly stronger comp sales improvement in the first half of the year and in the back half of the year.

As we’ve emphasized in the past, we believe our business can be more accurately assessed by focusing on the halves not the quarters as weather patterns will change from year-to-year and shift the timing of sales between quarters.

Although the first quarter has gotten off to a solid start, let me remind you that March is the most impactful month in the quarter and is very dependent on spring weather.

We would expect improvements in gross margin rate to come from the execution of our key gross margin initiatives, continued strong markdown and inventory management and gross margin rate tailwind provided by the deflationary environment.

We believe these factors will offset approximately 10 to 15 basis point headwind from increased transportation costs and the mix of merchandize. Although, we have modeled a decrease in fuel cost, it does not offset the stem mile increase as a result of the significant number of stores we opened last year in the west and project to open this year.

In terms of cadence for gross margin percentage improvement, we target slight year-over-year improvement in each quarter expect for Q1 where we may experience a decrease as we cycle against limited markdowns as a result of last year’s strong sell-through and we may also experience a slight headwind from the mix of C.U.E. items.

And early spring would benefit Q2 margins as the spring mix of goods could have a positive impact. Inventory turns are expected to improve slightly. We would expect per store inventory to increase modestly consistent with the investments in key merchandizing categories.

With respect to SG&A, as we grow the business, we have been able to absorb many of our ongoing initiatives into our expense run rate. We will continue to grow our business and the infrastructure with a long-term perspective, and as we do so some of the expected benefits may come in future periods but with the goal of driving mid-teens EPS growth.

We continue to target maintaining SG&A growth in line with our sales growth. With this in mind, we expect to leverage SG&A into 3.5% to 4% comp sales range for 2015. With respect to SG&A by quarter, we believe that Q1 will be the most difficult quarter to leverage SG&A as it has a lower sales base and we will be executing our Northeast D.C. expansion.

We expect the Southwest distribution center to open in Q4. We will be incurring preopening expense in the quarter with no transportation benefits until Q1 of 2016. We expect to leverage SG&A slightly in Q3 as we will be cycling our move to our new store support center last year.

As in the past, we will provide more color regarding our expectations for the subsequent period at each quarterly conference call. That concludes our prepared remarks. Operator, we will now turn the call over for questions..

Thank you. [Operator Instructions]. We go first to Alan Rifkin with Barclays..

Thank you very much. I appreciate you taking my question. First question is with respect to demand planning system.

Can you maybe provide some color as to how you think that will help you improve your turns or how much you think it will help you improve your working capital? If you could just maybe provide a little bit of color on what we can expect to that? Thank you..

Alan, this is Greg. The system itself is designed to do really several things. It’s to help us understand that we’re probably not maximizing, I would say, individual SKUs within the assortment as they sell-through in the stores.

For example, if we got an item on a peg and we’re selling through three items by Wednesday or Thursday of the week but yet we still have Friday and Saturday of selling days before replenishment runs and pushes inventory back to the store, demand planning is looking at that and recalculating that throughout the week and saying, wait a minute, potential missed opportunity, let’s push more than three as a replenishment, let’s push for six depending upon how it’s pretty packed.

That’s the basic sales side of this and what that can mean we don’t know yet. We just turned on several categories. We do think it will give us some sales lift over time. But this is a new system, work with [SaaS] [ph] on it.

And the other thing it should do for us, it should enable us to push more inventory to the stores on a more ready-time basis, meaning that instead of us waiting for several weeks for things to get adjusted, this will start pushing inventory a little faster which should move it through the supply chain a little faster.

So what we may find is our turns may speed a little bit as we go through this, but I’m not going to give you any forecast or guarantees at this point because we’ve just turned it on in several departments.

We like what we’re seeing so far, but it’s more about maximizing that inventory that’s in the store today making sure that we’re not running out of inventory in certain periods of time for our customer..

Okay. Thank you, Greg. And one follow-up, if I may. With respect to converting the former Del’s stores, can you maybe provide a schedule either by half as to how many stores we can expect will be converted? And what are the dynamics of those conversions compared to an average store with respect to incremental revenue increases? Thank you..

Alan, the way we look at it, as we go through the year, we’ll try to update as to the schedule and how we’ll handle the Del’s stores.

But generally, we look at it more on a top level basis that as we opened the new stores that Del’s stores would represent about half of a TSC store and our general direction would be to count them basically as half a store net against the new store count..

Okay.

Is the comp ramp of those stores similar to the comp ramp of a new store, a new Tractor store?.

Yes. We’re modeling it as such. Potentially, it could be a little bit faster because we do have name recognition. So they may come out of the box a little bit stronger. But until we start to open them, we don’t have any data on how they will open..

Okay. Thank you. Congratulations on a solid year..

Thank you..

Thank you..

We’ll go now to Michael Lasser with UBS..

Good evening. Thanks a lot for taking my question. It’s on the guidance for the upcoming year. You’re looking for a flat to up 10 basis points on the operating margin. Your longer-term outlook calls for 25 basis points of annual improvement.

So maybe you could walk us through what’s going to be unique about this year that is resulting in a little less operating margin expansion than you expect?.

Michael, this is Tony. When we look at the EBIT and our overall guidance, obviously over the years there will be some ebb and flow relative to our long-term targets. However, when we look at the numbers, we believe that our initiatives will continue to drive the gross margin improvement.

We do anticipate obviously that headwind when it comes to freight and transportation costs as we’ve opened up all the stores out west, so that does provide an additional headwind. And then relative to SG&A, we think that there is some more potential upside as depending on where we fall on the sales target.

But as we have that incremental deflation that’s in our forecast, that sort of dampens the sales forecast, so that limits some of the upside when it comes to the potential SG&A leverage.

And then lastly, as we open up the Southwest distribution center in the latter part of the year, we don’t anticipate having benefits from that until we move into 2016. So that’s just a snapshot of the year..

Would you say collectively the amount of spending on the initiatives this year is going to be less than it was last year?.

It all depends how you define the investment. A lot of people look at investment as capital. So as we move into 2015, it does appear that our capital will be much higher because we just came off of a much lower year than I had anticipated.

But when you look at investment as far as - also the related expenses, for example, if it’s demand planning and additional headcount that we have to incur there, if it’s opening up mixing centers and some of the startup costs related to a particular center, there’s several things that are included in our forecast that are part of the expense structure as well that I would consider to be investing in the future and driving some of our key initiatives.

So, when we look at investment, we look at both the capital side and the expense structure. And clearly as a growth company, we will continue to incur those and I believe that we have a significant portion of those already in our run rate and that’s why we are focused on still delivering mid-teens EPS growth..

Okay. And a quick follow-up. You have just over 10% of our store base in Texas and North Dakota. Obviously, those economies could be in a little bit of slowdown given what’s happened in the price of oil.

How impactful would that be to your total business and your comp given that those stores have probably been above average for the last couple of years?.

Hi, Michael. It’s Steve Barbarick here. We do have a number of oil drilling stores that we track and monitor and we went through an analysis over the last three or four months and right now those stores are tracking in line with our comp store sales. So, we don’t see any major changes or material impact at this point in those stores..

Okay.

And do you think there could be an offset – if there were a slowdown, there would be an offset from the 90% of your stores that are not in oil levered areas given that your typical customer drives at a greater distance to your store than the average consumer to a store?.

No. I would tell you at this point when it comes to those oil drilling stores, I mean if the comps are in line with the existing store base that trend will likely continue and we’re watching it closely. And the next time we get together, if that question comes up, we’ll give you more information on it. .

But to answer your question, as I said in the prepared remarks, we believe that there is potential and we’re optimistic as to consumer behavior and the additional funds available because of lower gas cost for our consumer, but again we’re a basic needs company and less susceptible to the sort of discretionary expense..

We’ll go now to Peter Benedict with Robert Baird..

Hi, guys. Thanks. A quick follow up on that one.

So, Steve, when you did the analysis on the oil markets, I mean how many stores would you guys consider to be kind of I guess really exposed to kind of the fracing activity and things like that?.

Yes, looking at the numbers, we think right now it’s about 10% of our store base, but again that ebbs and flows depending upon new rigs and what we’re doing out there, but that’s what we see right now..

Okay. Thank you. And then just on the average ticket strength that you’ve see despite the deflation – we’ve now have a couple of quarters in a row, do you think we’re turning the corner on some of the big ticket stuff or what do you need to see on that front in order to kind of maybe play a little more aggressively on those items? Thank you..

Peter, I would tell you that this last year was a good year in big ticket for us [indiscernible] but I don’t think anyone here is ready to declare victory when it comes to big ticket. We’re watching the POS data very closely and we’re making tweaks to replenishment if we see any changes in consumers spending patterns.

But right now I think we’ve got a good plan laid out and we’re just watching the trend line. So, again, we’re being cautiously optimistic when it comes to big ticket..

Okay, great. Thanks very much..

We now go to John Lawrence with Stephens..

Good afternoon, guys..

Hi, John..

Just real quick. I know Steve you mentioned some, on the last quarterly call about some of the resets and how successful that was with product being in line and across all departments.

Did that momentum continue into the fourth?.

John, you heard Greg talk a little bit about the balance of our sales in Q4 and I would tell you, we talk a lot internally about making sure that the four walls of the box are working. And we came out of Q4 feeling pretty good about the fact that we’re getting customers all the way around the building.

A lot of that is a byproduct to the resets that we’ve done. I would tell you we talked a little bit about the west side resets in the last call and we continue to see some nice sales momentum out of the work that we did back in '14..

Great. Thanks. Tony, can you give any insight on that gross margin; freight was up 20.

What was the offset related to lower fuel?.

The offset, it was just in the direct margin on our products. And again, Steve and the team did a great job in driving gross margin through our initiatives and in particular we really drove our price management, especially on some key seasonal product and that helped drive the initial margin on the product..

All right, thanks. Last one, is it too early to give us any kind of sense, the new Southwest D.C.

reduction in stem miles or cost savings for that facility?.

John, it’s Greg. The only thing I can tell you is when I’m having to move freight to those stores in the far west over 1,000 miles, you can imagine the savings when I can say I can now get it within a 300 mile radius.

We’ve got some numbers that we’ve run against it and I’m not going to share the specifics yet because that building really won’t come online until late next year. We’re only going to see the benefit in '16, but it will be considerable, yes..

Thank you. As a reminder, please limit yourself to one question with one follow up. We now go to David Magee with SunTrust..

Hi. Good afternoon. Congrats on a good quarter..

Thank you..

Could you help us quantify the big ticket opportunity? Knock on wood, it continues to be more robust for you over the next couple of years, maybe indicate what percent of the mix it was back in its peak before and where we are now or just anything you can say to help us get our arms around that would be helpful?.

David, this is Tony. It really is very difficult to quantify. I would tell you what we classify as big ticket is a really, really, really small percentage of the sales. And you can imagine those items over $350 compared to an average ticket of $46 to $48. But just a swing in that number of a few basis points can have a nice impact on the average ticket.

So, as we looked at the year or in the quarter, in particular, items that are needs based, it could be a log splitter or a snow blower do particularly well and those are the items that generally are some of the drivers when it comes to big ticket.

We do have some items that are more discretionary such as all-terrain vehicles and/or utility vehicles that we have that are very high priced as well. So, there’s several things that will drive that, but again our customer is much more needs based and it’s around that versus their discretionary spend..

Thank you, Tony.

And just as a follow up, can you tell us what percent of the ecommerce volume is being picked up in the stores? And is that a number that would surprise you?.

I don’t know if it’s surprising. I think it’s in line with a lot that others see. It could potentially be a little bit higher for us because the many things that we have are very large and bulky and the transportation is high, so they find it much more efficient to come to the store to pick it up.

But we ship about 30% of our products go to the store, which again we think is great because it will take our customer to the store and could lead to potential increase in sales at the store level..

Got you. Thank you..

Thank you..

We now go to Chris Horvers with JPMorgan..

Thanks. Good morning, guys. So, you mentioned aback to back late spring and this past year didn’t break until seemingly late in May.

Are you planning for an earlier spring sort of like how you planned for an early cold and you saw a great sell-through there? And are there any notable assortment changes in the seasonal category whether it’s live goods or other consumable tests like you did with mulch and other tests that you ran this past year?.

We learned over the course of our careers in retail that trying to guess the weather you’re never right. So you’re always better going into a season with your carts loaded and your assortments out there for customers to see, because if you miss that first window, a lot of times you don’t get that customer back.

So we’ve made some strategic inventory investments no different than we did in the fall. You heard Tony talk a little bit about that. So many of our outside products whether it be the fencing category, something we’re doing with the outdoor power equipment, a little more careful with live goods because you got to be careful with the weather there.

But we’ll be ready for the season should we get an earlier season than we had the one last two years. We do plan for a normal spring. I will mention that as well. And a normal spring typically comes earlier than what we’ve seen in the last two years..

Okay. And then as a follow-up question, Tony, what was the drag from saves – or whomever, what was the drag from saves in the fourth quarter? And does that flatten out as we look forward now that you’re lapped down year-over-year comparisons? And then on depreciation and amortization dollars, how are you expecting those in 2015? Thanks..

All right. Chris, when it comes to the saves, we haven’t provided that information as to what the percentage is and to what the drag was. As we’ve worked through the year 2014, we were lapping some very strong numbers, so we would expect over 2015 that that headwind will moderate to a certain extent.

So as we move into 2015, it should be less of a headwind. When it comes to depreciation, we’re really looking at it and again we don’t give quarter guidance, but overall we’re looking at it sort of similar proration relative to 2014. We don’t see anything unique about 2015 when it comes to depreciation and how you model it..

But what was the dollar share your modeling for the entire year?.

We usually let you guys try to figure that one out. But generally, we’re going to see around – a little bit over 10% increase when it comes to depreciation..

Okay, very helpful. Thanks very much..

We’ll go now to Denise Chai with Bank of America Merrill Lynch..

Hi. Thanks for taking my question and congratulations on a strong quarter..

Thank you..

Just wanted to get some more color on comps in the pet category and also could you give us a bit of an update on hometown pets? Are you planning to expand the tests at all? How do categories that you’re seeing – categories in customers there differ from your core stores? And have you found in your learnings yet that you’re already being able to transfer to your core stores?.

Okay. I’m going to start with this one. In terms of the pet business in Tractor Supply, we’ve talked a lot about C.U.E. as an organization and this fits into that area. We talked about the strength of the four walls. The pet business for us continues to perform well and it’s had continued momentum for a number of years now.

We continue to modify assortments and bring in new and different things for our customers and it really suits our lifestyle.

In terms of hometown pet, Lee?.

Denise, this is Lee. Hometown pet is still – that’s probably too early to call. We are very pleased with the progress and the learning that we have, but after only three months of being opened with the two locations, I don’t believe that it’s time for us to make any solid decisions on what we’re going to do going forward.

Right now it’s a test and we’re going to continue to learn and see how it applies to Tractor Supply..

Okay, understood.

And just as a follow-up, in terms of your new stores this year, should we see those weighted more towards newer markets like the west as compared to fill-ins? And how would the mix of markets compare to 2014?.

I think this is a year where we’ll continue to see a balanced approach throughout the country. I think we really like the west and we like the performance, but I think this year we went across a number of stores, probably a third, a third, a third if you look at it west center and east, so I don’t feel it will be anything different this year..

Okay, great. Thank you..

We’ll go now to Simeon Gutman with Morgan Stanley..

Thanks. Good afternoon.

Tony, a follow-up question on the gasoline, I guess more of the cost of goods side, the stem miles, because I guess if you have 1,300 or so stores or almost 1,400 now, the savings that you get in the existing store and existing stem miles I guess conceptually would seem like they should start to offset some of the higher cost you’re getting from the new Western markets.

And I realize you’re not going to give us what stem miles is, but maybe percentage wise just order of magnitude, what is that not enough to offset what’s happening for the greater mileage out west?.

A couple of things. One, we absolutely did include a projection as far as some of the fuel prices through the year. And again, it’s difficult because fuel is extremely low right now. We’re not sure how that will hold up throughout the course of the year.

When it comes to the stem miles it is significant because it’s not necessarily just the west stores, but as we open up and backfill in the east, a main store or a Massachusetts store could be very far from our Hagerstown DC. So we incur some additional stem miles as well with some of the backfill stores.

So, I know you don’t have a lot of details and we really don’t provide it, but the stem miles, the additional cost exceeds the benefit of the lower diesel price. In addition to that, obviously we continue to increase our imports and so we have rising costs relative to imports.

We also have – we anticipate having some driver cost increase to the transportation and then obviously there’s always EPA and other government regulations that tend to drive the cost as well. So we do model some additional cost outside of the stem miles..

Okay. That’s helpful. And then my follow up on also gross margin but more on the product side.

Can you remind us what the product margin advantage is for exclusive brands over national? And then I don’t know if you’ve said it about the same thing for direct import over non-imported? And then how that spread is? Is it static or is it getting better for you over time?.

I’ll answer that, Simeon. When it comes to the private label or exclusive brands, generally we’ll see somewhere between 400 and 600 basis points. On a pure import, we’re probably going to see somewhere between 600 and 1,000 basis point improvement.

Now when I say a pure import, what I’m talking about is when we’re taking what is normally being sourced domestically and we move it over and bring it in generally from the Far East, there are times where our domestic distributor is also bringing in the product from the Far East and we insert ourselves into the process to reduce some of the transportation costs.

In those cases, we will not experience 600 to 1,000 basis point improvement. It will be much lower. But generally our guidance is about 400 to 600 on the exclusive brands and around 800 ballpark for the imports..

Okay. Thank you. Nice results..

Thank you..

We go now to Adam Sindler with Deutsche Bank..

Just to follow up on that and the fuel cost, but I mean clearly with stem miles being such a big issue and with fuel cost much lower, the headwind from stem miles should be lower in 2015 versus 2014.

Is that correct?.

Yes, that is correct..

Okay, great.

And then just on the mixing centers, any reason why you chose Texas as the market to test that?.

Yes, simply put that’s where we have the largest concentration of our feed business and highest velocity of that business, so there’s no better place to test it than there..

Got it, very good. Thanks, guys. Great results. Appreciate it..

Thank you..

We’ll go now to Jessica Mace with Nomura Securities.

Hi. Good afternoon..

Hi, Jessica..

The first question I had was a follow up on the demand planning. You mentioned that you just this quarter began to turn it on in a few categories.

What’s your timeline and expectation for how that will progress over 2015?.

This is Greg. Let me give you a little bit of some insights about how this really works. Demand planning is being layered on top of our replenishment system. So it’s going to make that system work a little harder, a little smarter.

And we tested it initially, had good results, but this is no different than when we turned on Revionics and pricing optimization.

You want to make sure that as you start to layer these systems on, they’re doing what you expect and each category will act a little differently; different in hardware than it will probably be over in, let’s say, pet toys and things of that nature.

So, we’re going to be very careful that we don’t jump the gun on this and make sure that we know the type of results we expect to get. So, it’s going to be a [indiscernible]. It’s probably going to be sometime in '16, maybe over '16 before it’s complete..

Great, understood. And then my second question is on ecommerce.

Even though it’s still a small part of the business, are there any overall categories that translate best online where you’ve seen a lot more volume in the merchandize mix?.

Well, I think you can easily understand that some of the very, very large ticket items can be challenging because they have to go LTL delivery, they can’t be pulled out of a distribution center as easily and dropped into a box and shipped to the customer.

So things like apparel, footwear, things that are smaller in size are easier picks for us, but it’s interesting though. We have had a nice LTL business. It’s a safe business in some other large categories.

So for us you have to think about why the customer would chose to shop online versus coming to the store and it’s primarily they have the time to be able to take the receipt of the product. They don’t have an urgent need to have it today. Many of our customers come in and I need it now. So online would not serve that.

But they’re looking at it from a standpoint of convenience and ease of shopping with us and that’s what we’re going to look at our business as more of an omni-channel business today where we’re trying to give the customer the ability to shop with us anytime, anyplace, anywhere..

So would you say customers are finding that as a good solution for the C.U.E.

business or more so the other ones you mentioned, like apparel and --?.

I would say less for C.U.E. probably and more for the other things that are more unique; it could be a tractor part, it could be a pair of shoes and it could be something that they see in seasonal. But I think for the heavy, heavy high velocity, C.U.E. items at this point it doesn’t seem to be that desirable for the customer just yet..

Great. Thank you so much for taking the questions..

We now go to Matt Nemer with Wells Fargo Securities..

Hi. Good afternoon. Just two quick ones. First, how many stores will pull from the new Arizona, D.C. when it launches in the fourth quarter? And then secondly, could you give us a little bit of insight into any product resets or updated planograms that you’re planning in the first half of this year? Thanks..

When the D.C. and the Southwest opens, it will be servicing less than 100 stores initially. And as far as new planograms sets and such, I’ll let Steve take that one..

Yes, I mean we rarely get into the specifics around planograms and resets, but I can tell you one of the focus areas for us as an organization is going to be around newness. And in terms of newness you’re going to see it through resets, you’re going to see it through testing and you’re going to see it through localization.

The team is highly focused in those areas as well as on the C.U.E. side of our business. We’re looking at broadening assortments, managing the inventory, so we’ll make sure that we’re a dependable supplier and making sure we’re priced right in the market.

So generally speaking, we’re not going to give specifics about the resets but I can tell you there’s a lot of work being done behind the scenes..

Can you expect any significant changes to the outside of the store, the outside area of the store?.

Here’s what I can tell you. We have talked about this on several calls and we tested a number of things in 2014 that were unique and different and we just didn’t gain a whole lot of traction relative to those initiatives. I can tell you that the sales on the outside of the building are better than they’ve been.

We continue to see comp store sales pretty strong in a couple of key areas out there, but there’s still more work to be done and we will be doing more testing in '15. We just haven’t figured out how to get more traffic into that side yard..

Okay, very helpful. Thanks so much..

We now go to Mark Miller with William Blair..

Hi, everyone. I think in Tony your prepared remarks in the headwind column for gross margins, you mentioned the mix of merchandize. So, can you elaborate on that? Are you highlighting to simply the effects of continued growth in C.U.E. and possibly big ticket? And then I have a question on private label.

You had nice growth there over the years, but I think in the back half it was pretty flattish or maybe down a little bit as a percent of sales.

What’s the outlook for that and key initiatives if you think you can grow that in 2015?.

Sure, Mark. This is Tony. I’ll let Steve handle the private label, but just very briefly you’re correct. The main driver when it comes to mix merchandize and the potential headwind is really around C.U.E. and our continued increasing C.U.E. as part of the mix..

In terms of exclusive brands for private label, what we saw really in the back half had a lot to do with the inflation. A lot of our exclusive brands are around some of the C.U.E. items and they just weren’t as high a percent of sales..

Okay. And then a separate question on incentive comp in your '15 plan. Are you assuming that incentive comp is a similar percent of sales, is it back to normal, how is that changing? Thanks..

Generally, we’ll look at it in 2015 as a similar percentage relative to 2014..

All right, great. Thanks..

We’ll go now to Brian Nagel with Oppenheimer..

Hi. Good afternoon. Congrats on a nice quarter..

Thank you..

A couple of follow up – quick follow ups here.

With all the talk about stem miles and gas prices, just remind us, due to any type of hedging with respect to fuel cost, are there any type of contracts that could delay a benefit of lower prices on new distribution?.

Brian, no. We currently have not hedged nor have we in the past. It is something that we would evaluate but there’s nothing that would prevent us from capturing fuel cost in the current environment..

Okay. Tony, you commented in your prepared remarks that this year we saw may be a stronger sales of winter product early in the season as people stocked up.

Does that pose any type of potential risk to comps to sales in the first quarter as maybe as demand [indiscernible] is that largely washed out through the course of fourth quarter?.

Yes. I was trying to give a little bit of color as to the quarter and how it shaped up, but as we moved into 2015 I had also indicated that we really felt that we were in a great inventory position to be in a better shape than we were last year to take advantage of the cold weather in January and February timeframe.

And we feel very good about the replenishment cycle and our ability to get goods into the store as we move through the fourth quarter and into 2015..

Okay. Thanks. I’ll keep it quick. Thank you..

Thank you..

We go now to Matthew Fassler with Goldman Sachs..

Thanks a lot. Good afternoon..

Hi, Matt..

My first question guys relates to deflation. It moderated a bit in the fourth quarter versus the third. As I look at the inputs, you often talk about – obviously fuel is down substantially, the metal piece is down as well. Grains look like they’re a little bit less of a drag. Was it that grains piece impacting deflation in C.U.E.

products or were there other factors there? And kind of in tandem with that question, Tony, during your run through of the quarter, you talked about price management in seasonal products.

Just wanted to understand what that meant and how that might have factored in?.

Sure. Matt, on deflation, again, you hit the nail on the head. It was really the corn prices and the feed. They tend to cycle through a little bit quicker. As much as we did have the benefit on the oil and steel, they take awhile for that to sort of cycle through. So really the corn was the main driver..

And so – sorry, go ahead..

I was going to move then to the price management..

Yes. When we came into the season, I think we had strong retail price points. We got the early season sales which certainly benefited us, so we didn’t get on the back half of the season. And we also saw a lot of strong demand on certain categories and some shortages in some areas.

So rather than bringing prices down, we’re able to maintain and we saw a lift in margins as a result..

Any particular categories where that played out?.

Seasonal, mainly in the heating categories..

Got it. And then just finally to go back to your initial answer as you modeled deflation, it sounds like probably deepening a little bit again, a couple tenths perhaps from Q4 to the first part of the year.

Is there anything that you’ve seen in grains, which I guess remain under some pressure here or is there more the flow through of petrol and metals, et cetera, any impact that that will have on some of the slower cycle businesses?.

Again, to start off the season we expect a tick up in the deflation more related to the corn prices and cycling against last year. The oil and steel, a little bit more of a wildcard. As we move through the year, we will have a much better feel for that and how those prices adjust and how that can flow through our inventory comps..

Got it, guys. Thank you so much. I appreciate it..

Thank you..

Now we go to Chuck Cerankosky with Northcoast Research..

Good afternoon, everyone, and great quarter.

Guys, when you’re looking at the big ticket merchandize, can you sort of spill out for us what’s driving that? Was is the pickup in demand by a more confident consumer as some of their stuff wearing out, so they need it now or was the certain aspects of the weather helping that?.

I would say that it’s probably a little bit of all that, but weather certainly did help. We talked earlier about a lot of the seasonal businesses taking off early, things like log splitters and some heating products, snow blowers and the like. So, we saw the benefit of that in the back half.

But like we said, this has been a trend and we finished the year with a big ticket increase. We tend to be cautiously optimistic as we go into next year and we’re looking at assortments. And if the customer is willing to vote up, we’re willing to bring him the product to service their lifestyle..

Excellent.

And how about the strong dollar and cost of imported product, what’s that doing to margin? What do you expect it to do to margins?.

At this point, we haven’t seen a material impact one way or the other. We’re watching it very closely. The team’s just gotten back from overseas right now putting together a spring program for the following year and we’re watching it very closely. But I don’t see that having a material impact on the business..

All right, thank you..

We now go to Aram Rubinson with Wolfe Research..

[Indiscernible] good job on the quarter and thanks for taking my question. I think, Tony, you mentioned that you thought the consumer was feeling more optimistic. And I know your results were terrific.

It didn’t really show necessary acceleration from prior quarters, so I’m just wondering what it is may be underneath that you’re seeing whether it’s particular customer types or just small nuances in the business to get us get confident in that trend?.

Again, relative to the comments, the prepared remarks, we were sort of looking at 2015 and the consumer and what we keep hearing about the consumer.

When we look at our business, I think Steve’s talked about it a little bit, we’ll step up to the plate when it comes to need-based purchase and we’ve seen them move to some higher price point and larger ticket items. So we see that in our consumer. We see a little bit of an increase in items per transaction.

So they’re coming in and they’re putting a little bit more in their basket.

So there are some minor trends, but again as much as we’re optimistic that the consumer is more confident coming into 2015, we do realize that we are more of a needs based retailer and may not get the uptick that other retailers that are more focused on discretionary benefits..

And then just a follow up as you’re looking at 2015.

I understand the composition of sales but can you tell us about kind of new merchandize adds, new brands, things that you’re kind of super excited about that we should be thinking about as accretive to the year?.

I would go back to the philosophy of continuous improvement and risk taking with that question. The merchant team and the organization is excited about a lot of the new things we’ll be bringing out this next year and it’s not in any specific area. And I would tell you it’s across the board.

Like I said earlier, we’re going to focus on newness when it comes to resets and things we’re doing in the center course of our stores. A lot of testing and localization is going to take place and the focus will continue to be on C.U.E. items. So we’re not going to get off track of what’s got us here. We’re just going to be better at what we’ve done..

Sounds like a good plan. Thanks for the taking the question..

You’re welcome..

[Operator Instructions]. We’ll go to Seth Basham with Wedbush Securities..

Thanks a lot and good evening..

Hi, Seth..

My question’s around fuel price as well, just trying to understand a little bit better, if I go back and look at what happened in 2009 where there were big declines in the fuel prices, diesel was down between 40% and 50% for most of the year. You guys are saving anywhere from 40 to 50 basis points in gross margin as a result.

Is there anything different about your business now? I would think that for result this time around it should be magnified in terms of the amount of savings per percentage point decline in fuel prices given the increased stem miles that you’re running?.

Well, history does have a tendency to repeat itself but again as we move into 2015, we’re looking at the trend in the business and we put together what we believe is a model that is very consistent with how we model in the years past..

Got you..

I think here some factors are different, a lot more stores in the west. There’s other conditions with just the availability of equipment and drivers. Now those things didn’t happen back in 2009. So we talked to the trucking industry people, they’ll give you some – a little bit of education on what is really different today versus back then..

Got you, okay. And then secondly, a different question, on C.U.E.

In terms of the margin headwind for 2015, would you expect it to be bigger or smaller relative to 2014?.

Relative to the merchandize mix headwind, it should moderate relative to 2014 and sort of similar to what we saw in the fourth quarter. It was a little bit more limited relative to what had transpired in the first three quarters of the year. So we expect it to moderate but we still anticipate it to be a headwind..

Got it. Thank you very much..

We’ll go now to Eric Bosshard with Cleveland Research Company..

Thank you.

A question for Steve, interested in the experience in 2014 specifically with the infill stores and the West Coast stores, anything that you’ve learned that you’re applying in '15 in terms of merchandizing to sustain productivity in those stores or enhanced productivity in those new stores?.

Well, out west, I’ll tell you, our model I would go as far as to say about 85% of our model or basic model will work most places geographically. There’s probably maybe another 15% that needs to be tweaked by area of the country. And when we went out west, I would say that you know what, our first effort was fair, it wasn’t right on.

We continue to tweak and modify those assortments. There are things that we’ll learn out there that probably will be applied back at this point, but I’m not prepared to go through looking at those items. But you know what, there’s a lot of tests that we do with the existing stores that I’m sure the West Coast stores will benefit from as well.

So in general, I would tell you there’s still a lot of learning to be done out west when it comes to assortments..

That’s helpful.

And then secondly within hometown pet, a similar type of question and I know it’s early days, but the experience and the outlook for learnings from that being applicable across the store base, what are your thoughts or experience to-date in that regard?.

Yes, I would say at this point it’s still so early in the game to take much from that. We’re watching it closely and as we learn from that, we will be applying it back to the model but it will be a test at the Tractor stores before all..

Okay. That’s helpful. Thank you..

We’ll go now to Joe Feldman with Telsey Advisory Group..

Hi, guys. Thanks for taking my question as well. I wanted to ask just a couple of quick follow-ups.

The couple of mixing centers that you’re going to open this year, can you remind us what the kind of long-term target for mixing centers are and what kind of impact it does have on the margins?.

Joe, this is Greg. Mixing centers as we have scoped them and this is an initial pass, probably 20 to 30 across the country. Again, placing these where we have a high – a large animal count and where we do a tremendous amount of, let’s say, feed type business.

There are some that we’ll place in the Northeast because of the wood pellet business and things of that nature. But remember, these are going to be used to push full palletized, high velocity product to the stores much faster in a way from putting it away in a normal distribution center and pulling it back.

So it’s going to really bring the stem mile usage way down on some of that kind of product..

Got it, that’s helpful. Thanks.

And I guess initially, have you seen any – like is it a significant margin benefit? I guess I trust the stem miles pretty significantly but --?.

It’s a little bit of a drag because there’s some SG&A you got to put into place initially and there is a benefit on the other side where the stem miles are cut and the turnaround time of holding an inventory is going to be sustainably less.

So if I can push inventory to a store four times a week versus having to do it in large quantities once a week or once every two weeks, there’s a lot of benefit to that..

Yes, that makes sense. And then just one other quick question.

How are you guys doing in terms of tailoring the store to the local markets? I know it’s kind of this ongoing evolution, but where do you think you are at this point and I know where you want to be, but where are we in that process?.

Yes, this is Steve. Every time I feel like we’re making progress, I realize that there’s a lot more work to do. I don’t know if you’ll ever be able to get it exactly right because there’s so much opportunity out there. And our merchant teams are tasked with travelling to different markets. We get a lot of feedback from the field.

That’s one of the great things about our organization. And we work as a team to make sure that we’re taking care of the customer and the right markets and serving the lifestyle. So, I couldn’t even give you an inning at this point. All I can tell you is there’s a lot more work that we can do..

Got it, that’s helpful. Thanks. Good luck with this quarter guys. Thank you..

Thank you..

There are no further questions at this time. I’ll turn the call back over to Mr. Greg Sandfort for any closing remarks..

Thank you, operator. Thank you all for your interest and support of our Tractor Supply Company and we look forward to speaking to you again in April as we will then review our first quarter performance..

This does conclude our conference. Thank you for your participation..