Christine Skold - Vice President, Investor Relations Gregory Sandfort - President and Chief Executive Officer Anthony Crudele - Executive Vice President, Chief Financial Officer and Treasurer Steve Barbarick - Executive Vice President, Chief Merchandising Officer Lee Downing - Executive Vice President, Operations.

Peter Benedict - Robert W. Baird & Co.

Simeon Gutman - Morgan Stanley Aram Rubinson - Wolfe Research Christopher Horvers - JPMorgan Seth Sigman - Credit Suisse Michael Lasser - UBS Securities Stephen Knoll - Goldman Sachs Jessica Schoen Mace - Nomura Securities Dan Wewer - Raymond James Alan Rifkin - Barclays Capital Omair Asif - Wells Fargo Securities, LLC Chuck Cerankosky - Northcoast Research David Magee - SunTrust Robinson Humphrey John Lawrence - Stephens Inc.

Denise Chai - BofA Merrill Lynch Joe Feldman - Telsey Advisory Group Adam Sindler - Deutsche Bank Seth Basham - Wedbush Securities.

Good afternoon, ladies and gentlemen, and welcome to the Tractor Supply Company’s Conference Call to discuss First Quarter 2015 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. And as a reminder, this call is being recorded.

I would like to introduce your host for today’s call, 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 Chief Financial Officer; Steve Barbarick, our EVP Chief Merchandising and Marketing Officer; and Lee Downing, our EVP of Store Operations and Real Estate.

We’re very pleased with our performance in the first quarter of 2015 and the ongoing trends within our business. Our comparable store sales for the quarter increased 5.7% and our increase was once again driven by both traffic and ticket. Transaction counts increased 4.8%, while average ticket improved 80 basis points in the quarter.

This was our 22nd consecutive quarter of positive comp store sales and our 28th consecutive quarter of positive comp transaction counts. Sales were balanced across the store and throughout the quarter, with all of our major merchandise categories and geographic regions delivering positive solid comps.

Our merchandising and inventory management teams did an excellent job of managing assortments and flow of inventory to deliver strong sales for the quarter. We had the right products at the right time to meet customer demand in both seasonal and everyday products.

In seasonal, we made several strategic investments in heating, footwear and apparels that met strong demand in cold weather items in the northern tier of our stores. Similarly, we had the right assortment of spring merchandise when the weather began to turn more in our southern markets.

This allowed us to meet the initial demand and drive sales in a number of spring seasonal categories towards the latter part of the first quarter. Categories such as fencing and live goods, lawn and garden and outdoor power equipment all performed very well in the quarter.

We also saw very solid performance from many of our everyday staples and consumable, usable and edible products. We continue to experience sales momentum in the left-hand side of the store.

The planogram updates we executed in truck accessories and winches along with several other categories in hardlines this past year continued to resonate with our customers. And as we discussed on our last call, IT systems and our supply chain remain key areas of focus for 2015 and we continue to make solid progress against these initiatives.

The rollout of our new demand planning system is on target and we will continue adding categories throughout the year. Construction of a new distribution center in Casa Grande, Arizona is on schedule and this new facility is expected to be operational in the fourth quarter of 2015.

The two mixing centers in Texas are also under construction and are scheduled to open in the third quarter of this year. We opened 41 new stores in the quarter and we remain on track to open 110 to 115 new Tractor Supply stores this year.

Progress continues with the conversion of the Del’s stores to the Tractor format and we expect to close seven Del’s stores this year as we backfill the State of Washington with Tractor Supply formats.

And lastly, we are pleased with our ongoing efforts and progress to enhance our omni-channel platform, our customer relationship management platform and the broadening of our IT network security across our entire organization.

2015 is off to a solid start, and while it is still early in the year, we believe we are well positioned to benefit from a more normalized spring weather pattern as the momentum of our business has continued into April.

In closing, let me thank all of our dedicated team members out there in our stores [indiscernible] who go the country mile everyday for our customers who live this lifestyle. We appreciate your time today. I will now turn the call over to Tony for a more detailed commentary on our financials for the quarter.

Tony?.

Great, thanks, Greg, and good afternoon, everyone. For the quarter ended March 28, 2015, on a year-over-year basis, net sales increased 12.5% to $1.3 billion and net income grew 18.9% to $58 million or $0.42 per diluted share. Overall, we’re pleased with both our top line and bottom line performance for the quarter.

Comp store sales increased 5.7% in the first quarter compared to an increase of 2.2% in last year’s first quarter. We had a very strong winter selling season, specifically in February as cold weather drove our sales and assisted us in the clearance of winter products.

We did enter the quarter in a higher inventory position than in the prior year which benefited sales, but resulted in more clearance having a slightly negative impact on gross margin.

The sales momentum continued into March, although the average temperatures were still colder than normal, they were warmer than last year in the majority of our sales regions which spurred strong spring seasonal sales. This was particularly evident in the South and Southwest regions.

We are extremely pleased with the strong sales results for the quarter and the team should be commended as we accomplished this against several headwinds which included deflation, closed store days and logistics issues related to winter storms and challenges from the West Coast port congestion.

Comp transaction count increased for the 28th consecutive quarter, gaining 4.8% on top of a 4.4% increase last year. As Greg indicated, the strength in sales was very broad-based.

Few items such as the pet and heating consumables continued to perform well, but we also had strong sales in key winter categories such as insulated outerwear and rubber footwear as well as spring seasonal categories such as riding lawn mowers, fencing and lawn and garden.

Average comp ticket increased by 80 basis points versus last year’s 201% decline. We are very pleased with the composition of the comp ticket increase given deflation and effectively no impact from big ticket.

The increases were primarily from an increase in items per transaction, trade up in key categories such as animal and bird feed, and an increase in bulk transactions such as fencing. This increase was partially offset by deflation which we estimate at 87 basis points and was consistent with our expectations.

The deflation was driven principally by the livestock feed, bird feed, lubricant and propane categories. With respect to big ticket, we’re pleased with the kickoff to the spring selling season as we saw a nice lift in riding lawn mowers and trailers.

This increase in big ticket was partially offset by the continued decline in the gun fit category and thus big ticket did not contribute to the increase in the average ticket.

On a regional basis, comp sales were possible across all regions, as sales in the North benefited from colder weather in the first half of the quarter and the sales in the South benefited from favorable spring weather in March.

The Western region comp sales were above chain average as our newer Western stores continue to gain market awareness and share. With respect to gross margin, we anticipated that gross margin would be a tough comparison to last year, but it was only slightly down at 8 basis points to 33.4%.

If you recall, many winter related items sold out early in the quarter last year and gross margin benefited from limited clearance activity. This year we ended the quarter better in stock.

Although the favorable colder weather in January and February provided strong sell through of our seasonal winter product, we had more inventory in our clearance pipeline. This had a slight negative impact on margin, but benefited sales.

Additionally, we had less new store discounts in the quarter as Q1 gross margin last year benefited from several store openings late in 2013. Shrink was also slightly negative in the quarter as we cycle favorable results in the prior year. We did have several items that favorably impacted gross margin.

Sales was favorable by 5 basis point which was a direct result of the lower [indiscernible]. The favorable fuel price offset the increase in stem miles from our Western store expansion. Merchandise mix had a favorable impact as some higher margin categories increased as a percent of total sales.

Deflation had a positive impact on gross margin as we focused on maintaining margin dollars per unit. Import purchases in the quarter increased 5.2% and represented 11.5% of sales mix, also exclusive brand sales increased over 10.8% compared to last year’s Q1 and was approximately 32% of sales.

For the quarter, SG&A including depreciation and amortization was 26.4% of sales compared to 26.8% in the prior year’s quarter, an improvement of 40 basis points. We are pleased with our expense control in the quarter, which coupled with the strong comp sales, provided solid leverage.

We experienced favorable trends in medical, marketing, and various occupancy expense categories. We were able to leverage store personnel despite having made additional investment in store payrolls surrounding store initiatives.

Incentive compensation had a deleveraging impact of 26 basis points as incentive compensation increased year over year based on the strength of the quarter results. Our effective income tax rate decreased to 36.9% in Q1 compared to 37.6% last year, resulting from the availability of state tax incentives.

Turning to the balance sheet, at the end of Q1, we had cash balance of $57 million and borrowings of $60 million compared to a cash balance of $48 million and debt of $80 million last year. During the first quarter, under our stock repurchase program, we acquired approximately 596,000 shares for $47.9 million.

We estimate that the share repurchase program for the quarter did not have a material impact on EPS. Average inventory levels per store increased 2.7% compared to the prior year.

We are very comfortable with our inventory position as we made a strategic investment in certain spring merchandise and imports were timed a little earlier to work around the Chinese New Year. Annualized turns improved by 1 basis point for the quarter. Capital expenditures for the quarter were $48.8 million as compared to $41.9 million last year.

We opened 41 stores and closed one store in the first quarter compared to 32 new stores opened in the first quarter of 2014. The increase relates to the construction expenditures of our Southwest D.C., which were higher than expenditures on our store support center which was under construction last year.

With respect to our financial expectations for the full year 2015, as noted in today’s press release, we have reiterated our previous guidance. While our Q1 performance was very strong and Q2 is off to a good start, as we said in the past, it is best to evaluate a performance by the half as we see the spring season play out in full.

Therefore, we believe it’s prudent to revisit our guidance at the end of the second quarter.

As a reminder, we still expect full year sales range from $6.2 billion to $6.3 billion; we have forecasted comp sales to increase between 2.5% and 4%; we’re 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 still expect capital expenditures in 2015 to range between $240 million to $250 million.

We’ll continue to make purchases under our share repurchase program and estimate full year diluted shares outstanding to be between 136 million and 137 million.

We continue to be estimate deflation for the full year to average approximately 50 basis points and we anticipate the impact will be higher in the first half of the year and moderating downward in the second half of the year.

In terms of the cadence for gross margin percent improvement, we target slight year over year improvement in each of the upcoming quarters. That concludes our prepared remarks. Operator, we will now turn the call over for questions..

[Operator Instructions] And we’ll take our first question from Peter Benedict with Robert W. Baird..

First, maybe Greg, the current view of consumer shelf, your customer shelf, I mean obviously the numbers looks to be pretty good, but if you go below the high level numbers, any signs you are seeing positive or negative in terms of the behavior of your customer in any specific regions, whether it would be in the oil related markets or anything else that you would call out that’s maybe been changing over the last 3 to 6 months?.

I would tell you that steadier she goes, the consumer that shops with us seems to be in a bit of a predictable pattern.

They are still buying needs based product, they’re still repairing and not doing probably as much replacements as they did in the past, although we have seen bit of an uptick in outdoor power equipment in the first part of the year, but that’s not to say that conditions can change. We are not seeing anything really different.

They’re still buying feed and food, they’re still keeping their properties because – our fencing business was great as we mentioned, and our feed and food businesses continue strong.

So I would tell you very stable, if anything probably as the economy could improve a bit maybe towards the latter part of this year and into next year, we may see little bit of an uptick, but nothing that would alarm us at all..

And then remind us about the cadence of spring life share, I remember you said it late, and you guys resorted to some incremental promotions, at what point did that set in in the second quarter last year? And then maybe how are you planning this season differently in some of these key categories, like OP and the riders, some of your live good product, because it obviously sounds like this spring is getting off to a better start..

First of all, last year we just had a major delay with Mother Nature and weather and until the weather broke we were managing inventories well and just we’re trying to understand how much business could be recapture as we got into latter part of the second quarter and into third.

And as far as adding promotions, all we did was just somewhat remind consumer we are still there for them and that we made them aware of some of the offers and such. So we spent a little money, but nothing major. We didn’t do anything crazy as far as pricing and such last year, we just stayed patient. No, this year very different.

We are having a more normalized spring season and we don’t plan at this point to anniversary any of those, I will call them, reminder type pieces that we did last year in the latter part of second and early into third quarter, if the trends continue as we see them.

So we are feeling more comfortable about current trends, but there is no additional plans to go back and anniversary some of those things that we did a year ago..

And we will take our next question from Simeon Gutman with Morgan Stanley..

One quick question on gross margin and then something strategic.

Just in terms of the clearance merchandise activity, could you just tell us in order of magnitude what that could held down gross margin? And if you can’t, maybe directionally, what roughly the percentage of items sold on clearance was and maybe in terms of magnitude of the markdown?.

I would tell you the magnitude is relatively insignificant. We did see, like Tony said, a bit of a sales gain, but as you come out of the season like that, the tail of those sales become smaller and smaller. And so the magnitude of the impact is pretty immaterial to the total business.

There may have been a slight impact, but it would be nothing that will be material..

And then the second question for Greg, just thinking about categories in a store and how it flows, and I know you have the new mock store, I don’t know what you call it, but the new planogram area at FHC, was that designed to just look at how you execute certain categories, are you thinking there is a bigger wholesale change in how you flow the store over time?.

I think this is a two-part question, Steve will answer as much as I can here, but the MIC, the merchandise innovation center is our ability to take a complete Tractor store and look at it from a standpoint of planogram sets, lower store, visual signage, just generally as you walk in to a store, we didn’t have that capability in the former space that we had in the old facility and we felt like if we couldn’t really do the same thing in this new facility because of the ceiling height and such, so we went outside and it’s been very productive.

I think I will let Steve take it from there..

One of the greatest benefits of it is the size is all the products that we have in a normal store and to be able to get the merchants out there, the marketers out there, even people internally that have to deal with stores on a day-in, day-out basis, we can walk those planograms, we can assess the profitability per square foot, we can try a lot of things out there and get a visual that all at one time rather than breaking in apart in little 4 and 8 foot sections.

So really it’s a matter of efficiencies, getting things handed to the stores more timely and really better execution..

And we’ll take our next question from Aram Rubinson with Wolfe Research..

One of the things that’s hard to just do is to have continued success without showing any signs of complacency. I think you have done that.

Just wondering what it is you are doing internally to kind of fight against that trend? It seems like you still have not invited in new competition, you are still one of the very few retailers that doesn’t have competitors.

So can you give us a little bit more color on what you are doing to try and sustain that, it seems pretty difficult to do?.

And I would tell you that’s cultural, that’s in the fabric of Tractor Supply Company.

When we talk about continuous improvement, TVS, processes, when you talk about relentless dissatisfaction, you everything from stores to operations to everyone else, we’re focused on making sure that we are running a little faster and jumping a little higher than we did the year before.

I would tell you that when we walk planograms there is no – this works. And we’re just going to leave it as it is. We will just talk about good as the enemy of great and how we are going to get better at each quarter and each year. So part of what we do and part of what you continually hear from this management team is taking it to the next level.

In terms of competition, we can’t necessarily impact people coming into the market place, but we’re focused on us in making our business better and really supporting the customers that live lifestyle that we support..

And I just got a follow up just to ask about your customer, as you get to learn more about him and hopefully her, can you help us dimensionalize to share your customer today and how you think what over time that might change?.

Today the mix of our consumer base is fairly equal male to female.

What I think we are finding is that their ability to use us for more things as they shop our stores is what we are starting to see and we are enjoying that, meaning that they may have started out shopping with us buying for their horses, let’s say, products for the horses, and then he noticed we are in the pet business, and the next thing they know they get their pet business, and then from there they may move to another category, whether it might be holding or could be something in the hardware department.

So what we’re starting to understand now is that this hobby lifestyler is more open to shop Tractor for more than just maybe the things than initially thought.

I will also tell you that we noticed in our parking lots it’s not always pickup trucks, you may see a BMW, you may see someone walk in in a suit and tie, because they happen their own property and they work in a city, an attorney or what have you.

So this crossover of consumer right now, we’re starting to track some things and starting to notice that we are not – there’s not a barrier to shop or store may be as it may have been in the past.

The name Tractor Supply sometimes shows people, but once they cross the threshold or they hear about us from someone else, a lot of this is word-of-mouth, they are delighted. We have a lot of families that shop our stores.

And if it starts with that age, maybe the grandfather to the son and then from there to the children, we are just kind of perpetuation of how the business can develop over the years. So I think we are in a great spot, we like what we see with our consumer base and we continue to see more transactions coming through the front door, footsteps as well.

So right now there is more for us to do to learn more about these consumers and talk to them in a more direct manner, but I think we are well on our way..

And we will take our next question from Chris Horvers with JPMorgan..

So I wanted to follow up on the weather question, would you describe the first quarter is relatively normal even in your northern tier stores through the end of March and how do you think it plays out over the next two quarters? The past two years had a pretty late start to spring in the North, back to back years, but you also had the seasonal business extend into August and September.

So just curious how you are thinking about the flow of the business over the next couple of quarters..

I would tell you that you could probably look at certain parts of the north and say that they may have had even delayed spring to normal, but I would tell you based on the prior two years it was earlier. And we were able to capitalize on that business both in terms of seasonal sales cold and spring related products.

We are going to continue to buy into the spring, knowing that there is demand out there. It’s just too early at this point for us to pull back for the South or for the north. So I don’t see anything that we would do outside of the way we are operating today and that is making sure those stores have the inventory they need.

I’m not sure I answered your question specifically..

I think that’s fair.

I guess the last part of the question is do you think that last past two years you had a shift into August and September on the seasonal business, does it more of normalized start result in sort of shorter season on the back end comparatively?.

I would tell you right now it’s just too early to predict the full year and even whether or not the selling season is going to be extended. Our guidance assumes a normalized spring selling season, that’s really the best I can tell you at this point at this time of the year..

And then on the margin front, Tony, so the fuel savings offset the freight – the stem mile pressures, is there anything one time in nature about that, feasibly one would think that may be through freight negotiations you would get more benefit in future quarters and provide some extra belief as you progress throughout the year?.

There was nothing unusual in the quarter. As we have talked in the past about our transportation costs, there is the cost themselves, there is the fuel component which is about 20% of the cost and then there is the stem mile issue that we talked about.

In this case, we’ve not seen any significant increase in the transportation cost and obviously fuel was decreased and that’s what offset the stem miles. As we move forward I remind you that we will be opening more stores out in the West, so that will add to the stem miles.

But as we move forward with the fuel prices, obviously that will be an ongoing benefit if the prices stay low and help to reduce the additional cost related to the stem miles..

On the incentive comp, was that basically just a timing shift and there will be a quarter may be later in the year in the back half with a stronger that incentive comp will end up being a benefit or was the incentive comp accrual maybe shifted out relative to your original plan?.

No, in this case the incentive comp is going to match up with the performance that was in the quarter itself and again we will look at both the quarter and the performance and we’ll also you look at our expectations for the full year.

But when you look on a quarter to quarter basis, Q1 this year to last year, this was a much stronger quarter and required us to book additional incentive compensation..

And we will take our next question from Seth Sigman with Credit Suisse..

Tony, I think you talked a little bit about trading up as one of the ticket offsets.

At analyst day, I think you’ve highlighted some plans across a number of different categories to maybe modify the assortment, fill the gap between good and best price points, just wondering and I think you highlighted power tools as may be an example that you are going to change over in the first quarter, just speak a little bit about some of the work you’re doing on that front and may be where there are other categories with opportunities for that?.

Let me start by saying that the inside of the box is in continued flux and change and that’s part of the whole relentless dissatisfaction talk that we had.

One of the resets that we’re doing in planogram work that we have got going on in the stores is to tap into missing price points and/or brands that we may not have today offering the customer value at the middle part of the equation or premium products.

I will give you just one example here, because I can probably go through a number of them, but in May, we’re going to be launching an extended line of livestock feeds for our consumers, a product that we did not have access to prior to this point in working with Parena and having the chequerboard product, we will have access to a super premium equivalent feed.

We’re going to bring in a new line of cattle feed and lastly we will have show feeds for those folks that do for H and FFA, which again we didn’t have access to previously. So that would be one example in a product category that this queue that we see will benefit the customer bought on the high end as well is in the middle tier..

And then just a follow up on a question earlier about the clearance impact in the quarter, late last year you guys implemented a clearance module to help mitigate the impact, did that help at all this quarter or is that something we should expect to build the road this year, anymore color there would be helpful?.

We implemented it in Q4 and it had – again we are rolling this out, so it only impacted a very small portion of our clearance inventory, but the results we saw where positive and give us some enthusiasm as we move forward with the program.

So at this point it wasn’t real material in the quarter, but I can tell you that we will continue to roll forward and I suspect sometime this year we will have fully implemented the clearance price optimization program..

And we will take our next question from Michael Lasser with UBS..

My first question is on the sales performance in the quarter, how would you characterize the performance relative to your expectation and what was better, was it the weather or was it share gains, was it the performance of some of your initiatives, because obviously performance was better than most, we are expecting – what I guess I’m trying to understand the sustainability of it?.

Let me go ahead and start, this is Steve and then we’ll have some follow ups potentially. I would tell you – in the opening remarks, we were really pleased with the firewall sales.

It didn’t come out of one specific area of sales, if you look across all of the buying teams and the categories we had, the vast majority of them had positive comp store sales. We saw good business both in all regions of the country as well as when you look at it it was pretty much well balanced across.

So from that perspective, I think we also feel very good about it. And a lot of it has to do with initiatives. A lot of it has to do with new products as well as weather. So I think it was a good quarter across the board..

And then when you think about the weather for the rest of the year, is the first quarter tend to be – first and the second quarter tend to mean most volatile, so if it stays warmer later in the year into fall, is that less punitive to your performance of your business that if it stays colder longer into the spring?.

I would tell you that actually each quarter has its own uniqueness to it. As we’ve said in the past and sort of mapped out a year, we like it to have a strong cold January and February, we like it to warm up in where it’s possible starting in March.

And then as we’ve experienced in the last couple of years, the cool weather has extended the spring summer season into the July, August timeframe and that tends to be beneficial. As we get into the later part of the year, we like to have called the weather relatively early in the fourth quarter to generate some of the winter good sales.

So that’s generally the way that we look at the year. As we go into this year, making year over year and our statement that it’s more normalized, we are looking at spring that’s coming in the standard period of late March and April, which we did not have in the last time.

And as we stated last year as we went through the weather, we felt that at times when you have that late spring you will miss some sales, you will pick them up later on, but you may not recapture all of the sales.

So as we move through the year, we’re very optimistic that with this earlier spring onslaught that we can continue to drive sales throughout the second quarter. And as we move into the third quarter, as Steve as indicated earlier, it’s just a little too early to call if the early spring will mean a shortened tail compared to last year.

But again we are relatively optimistic when we look at the weather patterns..

And then I want to circle back to the question that was asked earlier and I think there was so much detail provided on the performance of the stores in the energy producing areas, are you seeing any variability in those stores versus others?.

When we look at the total energy-related, so that includes oil down in the Southwest as well as some of the fracing territories, we compare those to sister stores and we do not see any significant reduction in the performance of those stores.

As we carve out a much smaller group of stores relative to more Midwest and Mid Central fracing areas, we see just a slight decline, but again we see overall positive comp store sales across the board relative to that portfolio of oil/fracing stores..

Just to clear, so if you take out the North Dakota, Pennsylvania and just look at Texas, that’s where you see a little bit weaker performance just in the Texas area, is that…?.

Actually the opposite. And the issue is when it comes to the fracing stores, obviously we had strong comps in those stores overall. And as we continue forward, we continue to see positive comp in those stores even on a two-year stack..

[Operator Instructions] We will take a next question from Stephen Knoll with Goldman Sachs..

I wanted to just follow up on the discussion around the impact of transport on gross margin, are really able to tell us if these were unchanged year-on-year what the impact would have been on grosses?.

Can you rephrase that, I’m not sure exactly..

Sure.

So you said transportation was 5 basis points favorable to gross margin driven by the decline in diesel fuel prices, but if we were to assume that diesel were flat year-on-year, would you have a sense for where you would be just driven by the stem miles in other words?.

We had anticipated that we would have a negative impact of somewhere between five and 15 basis points. So as we walk through it and looked at our transportation costs, I think they were extremely well-managed during the first quarter and we were able to benefit from the diesel fuel.

But I think where you’re trying to go is we’re trying to look at what’s the benefit over the next several quarters if diesel stays where it’s at and I think we will be able to have a benefit, but what you how to take into account is the additional stores that we will be adding and the stem miles that we will be incurring.

So I wouldn’t say that net-net you can add 10 to 15 basis points every single quarter..

And the five to 15 that you’re planning that assume diesel prices being flat year on year or that’s baked in some assumption for fuel price decline?.

It baked in some assumption of reduced fuel prices..

And then just last question here, you mentioned a new demand planning system, can you frame that a little bit, tell us what exactly is changing and what the impact may be?.

Let me tell you, in layman’s terms, what this do for us. The demand planning format will give us a much more accurate way of forecasting forward sales based not just only on current trends and future trends, but it’s reading the sales much more regularly than the other system. The other system that we got in play today is more static.

It takes a snapshot pretty much of the sales on a week to week basis and it can’t react as fast. So if we’ve got something that’s trending quickly, something is really selling well, we will see it in our sales, but it won’t be able to – our system today won’t be able to forecast that trend as it goes forward.

The new demand planning system can do that for us and help us. And you can imagine with 18,000 SKUs, many of these being seasonally driven in the spring and in the fall, it’s important to have some eyeballs that are on that from a system standpoint that can give us some more accurate forecasting.

So simply put, better forecasting forward, whether it be on promotion or whether it be on a regular price sales on both, what I could call, there will a queue products and our seasonal products..

And the timing of that?.

We are in the first phase of rollout, it will be at least another year before we are complete with all of the departments and they are being done by division by stages. So it will be the end of 2015, early 2016 before we are complete..

And we will take our next question from Jessica Mace with Nomura Securities..

My first question is about some of the new stores, when you increased your long-term store target at the analyst day, you mentioned that you found we could put some stores closer together.

And I was wondering if you have any results you can share with us from some of those stores opened in higher density areas or closer proximity?.

I don’t know there was anything specific for you, I will tell you that our new store performance this year has been in line with what we had planned and those stores that are open closer to others are performing in line with our other new stores. So we are very confident and happy in the results that we are having from those stores.

So I would say that they are in line with our other new store performance..

And then my other question, just wondering if you could give us an update on where you are in the process of regionalization, maybe this has a little bit to do with the demand planning, but it seems like you had a great example of having the right product in the right place for the tune of the difference and the tune of spring in the North and South.

Any other opportunities that you can share with us?.

I will tell you that what we call localization will be an ongoing process or probably in eternity will never be right because things change and customers’ demand change.

Earlier in Q4, to give you one example, we recognized a need for western line of apparel in a lot of our southern stores and we added the brand Cinch for example and we put those in a number of stores thus far.

We recognized that the productivity of that brand is incremental to what we had previously and that would just be one example of many that I could probably go through and talk about. So the team is focused on localization and see that as one of our four key sales drivers..

And we will take our next question from Dan Wewer with Raymond James..

In the prepared comments you talked about the West Coast stores achieving comp sales growth above the chain average.

Does that reflect the fact that those stores are younger and therefore had the inherent sales ramp in the early years or does it just reflect that there is less direct competition in that market and there is big demand out West?.

I would tell you it’s both of those things, they are performing as our new stores often do which is better than chain average and the western stores, as we said a few times, they typically run above the average of the chain. So I would say both of those things are giving us benefit..

And given the higher cost out West, when you look at the returns, I know it’s early, but when you look at the returns in those western stores, are they generating sufficiently higher revenues to offset the higher cost structure?.

It’s very similar to the way we model them out and they hit their pro forma numbers and they give us the expected returns based on a higher sales level and higher cost structure..

And then Tony I had also a follow up question for you relating to the share buyback program, given the stock is up another 15% year to date, use the outperforming the market as a whole, when you look at your metrics in buying back shares, what does your model say about how active you should be or not be at current levels?.

As we go into each quarter, we will adjust the model accordingly and then we will set the metrics in 10B5 plan. So as we adjust and obviously as we continue to have the sales increases and bottom line increases, it drives our calculation of the intrinsic stock value. So it will generally keep us in the marketplace throughout.

And what the metrics really does is as the stock moves up and down between the metrics, we will adjust the number of shares that we purchase.

So philosophically, we like to be in the marketplace, we like to support the stock and we believe that we’re out saying that it’s the time to buy the stock, we want to be in the marketplace along with our investors..

And we will take our next question from Alan Rifkin with Barclays..

Greg, in the past you’ve talked about the very small proportion of your customer base that uses [indiscernible] likely less than 10% of revenues and one would certainly infer that these are perhaps the small portion of your business that are commercial customers.

We now have very significant deflation for six quarters and counting, how is this small segment of your customer profile performing lately?.

To be honest, Alan, what we track it’s not much different. We look at those customers closely than we do the rest of our portfolio, because we have more information on them. Remember, they are primarily still hobby farmers, we can’t identify that they are production people, but they are in our store more regularly.

So they truly are the core lifestylers. But we have not seen any drop off, as a matter of fact we talk to them on a more regular basis and we find that the more we do talk to them, the more we can bring them back into the store and their spending habits increase. So very steady. Deflation really hasn’t had much of an impact either way..

So no change at all on discretionary versus core products with this small group of your base?.

Nothing we’ve seen, no. I know it sounds too good to be true maybe, but it’s true, that’s how it’s working for us. These customers have not changed, they are very steady..

Obviously the numbers support that.

And one last question if I may, obviously in this quarter it appears that you traded off a higher propensity to clearance in driving the comp, as you think about the dichotomy between those two variables going forward, are you more or less willing in the future to possibly trade margin for comp?.

Let me clarify something. I think the comment about clearance is maybe being taken a little bit out of context. We had a more normal clearance cadence this year than we had in last year. We came out of 2014 very, very clean – or in 2013 into 2014 and this year I would say it was a more normalized clearance cycle.

So it really didn’t – it aided some in the comp, but it wasn’t a major driver of comp. What drove the comp, as Steve had said earlier, was product across the store in many categories and it was how we had our inventories positioned north to south that really helped us drive the business.

We are now a national chain, so the assortments in the Northeast can’t look like the assortments in Florida. And we have done a fine job with our inventory management group in planning people to our sort that differently.

So clearance had a very insignificant impact and overall probably a little bit a drain on margin, because the year prior we were so clean and we were actually chasing business. So we’re not going to buy comps to drive to buying into clearance sales, that’s not how we operate..

And we’ll take our next question from Matt Nemer with Wells Fargo Securities..

This is Omair Asif on for Matt.

It sounds like Western stores have performed well, but as you think about continued expansion in the West and the severe drought in California and some of the other markets, does it change the return metrics of new stores at all or is it more of a function of shifting the product mix in these markets?.

I will start with the answer here. I would tell you that we have shifted product mix, we bought into categories we know that are going to be more related to those customers that are living out there, but I would tell you this drought didn’t just happen yesterday. It’s been going on now for, looking at our numbers, a couple of years now.

So those stores are still performing, that’s why we continue to see more opportunities upside at West. So again, I would tell you that it’s just a matter of managing the mix and managing the productivity of the stores..

And then just a follow-up, somewhat unrelated here.

Can you talk broadly to some of the early responses to both the personalized marketing campaign and then the loyalty program test?.

I will go ahead and start with the loyalty test. At this point, we’ve got our requirements together, our crack team and IT is working through the process of putting it all together for us and we anticipate doing a test in the second half of this year.

So we are up and running, I think we are excited about seeing our customers’ response to the program, but again it will be limited to a number of stores and we will test and learn and from there we will go forward if we think it’s something that’s viable. In terms of personalization, there is a number of activities going on.

One of such is email, we had a much better response in Q1 this year with our targeted campaign versus the year prior. And we will continue to do more of that as well as personalization is one of the organization’s key strategic initiatives and we’ve got a team of people working on how we become more connected to our customer base..

And we will take our next question from Chuck Cerankosky with Northcoast Research..

Couple of things. Could you just give us a little detail on the timing of the new store vendor support payments that you mentioned in the press release? And then I have a second question..

New store discount, when we open up a store, we have a program we work with the vendors as far as merchandise goes and what it is, it’s really part of the inventory. So when we receive it, we capitalize it and it’s earned over a period of time. So as we have stores open in the latter part of the quarter, it will benefit the following few months.

So as we fine-tuned our store opening program last year, we had very limited stores opened in November and December timeframe, whereas the year before we had several stores opened in the late November timeframe. So some of those discounts get amortized into income in the subsequent quarter. So we saw that have a slight impact in Q1 this year..

So very simple, it's a promotional payment that you don't get until you earn it, is another way to look at it, I guess.

In looking at your full range of merchandise that you're moving, can you talk about, a little more specifically about trading up in categories? Do you see evidence when somebody is buying a tractor or a riding mower that they're buying a little more horsepower or a little more Helly Hansen product in the stores where that's sold or a little more Carhartt? Is any of that going on?.

Very good on the Helly Hansen, yes. So I would tell you that there is some of that that’s taking place and you can see across different categories. I would tell you that in one case particularly, this year we are testing for example a commercial zero turn rider and it retails for nearly $6,000.

And as our customers continue to see interest in stepping up, we will continue to test different products to try to accommodate their needs. So that will be just one example, but I could give you numerous examples of where we’re trying to tap into that demand..

And we’ll take our next question from David Magee with SunTrust Robinson Humphrey..

I just had a question on the traffic number being so strong. I'm curious if you're seeing, or first of all, who do you think you're taking share from? It seems like the first quarter has been particularly opportunistic with regard to traffic.

Who are you taking share from? And also are you seeing any sort of response that you haven't seen in the past?.

I would say that number one we focus more on being better season to season, year to year in the offering to the customer.

And we do that through a lot of initiatives that you’ve heard about already in the call, whether it’s localization or its timing of flow of product north to south because of weather and so on and so forth, I think we do that far better to do with our logistics sophistication than those who we compete with at the local to regional level.

There is some very good competitors out there in the farm store business, don’t think there aren’t. But they don’t have some of the capabilities that we now have as a company. So I think that’s first and foremost.

I don’t believe that it is about who we are taking it from, I think what’s happening is the consumer is deciding that we are probably a better place to shop. And I don’t know specifically any particular competitor like to talk to, but we sell a number of products in that store and there is a number of other people who sell a number of those products.

So I think the key to buy in Tractor and grow is we make it easier for the customer because we can consolidate that shopping trip under one roof in one store, we’re priced right every day, we are in stock, we have great customer service, we are convenient and you can get in and get out of our stores quickly.

I think there’s a lot of variables out there that are playing to our favor. And we said earlier, we’re relentlessly dissatisfied to keep improving and improving our business and our customer interface and that’s what’s driving our business..

And we’ll take our next question from John Lawrence with Stephens..

Steve, would you comment a little bit on the May rollout of Purina and just compare and contrast number of SKUs, et cetera.

Several years ago that extension of Purina was pretty positive and is the intention the same?.

It’s a little different this time, John, and that the first time we went forward with it, it was a completely new brand to the organization and to our customer base.

In this case, you are looking at probably somewhere 10 SKUs or so that are meaningful to the customer lifestyle, but a lot of those customers may still be shopping us already, because we do carry the brand. So I wouldn’t expect the impact to be what we saw when we originally launched back and I believe it was 2009.

I will tell you though that we are very excited and one of the biggest request we get from our store managers all the time are this brand and the extension of this brand. So if our team members and our customers are telling us, you know what, this could be okay and we’re pretty excited about the launch..

any update on the mixing center project?.

Mixing centers are go live, as I said, early third quarter. The test that we ran year and a half ago proved positive that we will be testing these two facilities in Texas, more to talk about once we are up and running, John..

We will take our next question Denise Chai with Bank of America..

So just a big picture question to start with, how are you thinking about wage increases both in terms of the health of your customer and also from a cost perspective?.

We always want to be out there as far as paying a competitive wage and we think as we analyze it that we’re very competitive in the marketplace. Additionally, we pay all our team members a monthly sales bonus and we think that that is an added incentive and benefit.

Additionally, we hire customers and so our team members really enjoy living the lifestyle, they enjoy working with other folks and engaging with them and talking about what they are doing around their farms or out in the field. So we think that we have a significant advantage when it comes to working with our teams.

They are very small teams, most stores at 12 to 15 folks, and we do a tremendous job in making sure that they work the expected hours. So again, I think we have significant advantage when it comes to the competitive wages that we pay our team members..

And just going back to the new Purina feed lines, who do you compete with on this? Where are your customers currently going to get these?.

Purina uses their independent dealers for the most part to get distribution out to the customers. And so it’s been somewhat of a dealer brand up to this point and there may be a few regional and independent farm stores that carry it, but for the most part this is incremental to Tractor Supply..

And just last one, your new store opening this year looks somewhat front loaded.

So can you give us a sense of the cadence for the remainder of the year?.

Yes, when it comes to Q1, it is little bit frontloaded, it will slow down a little bit in Q2. So we anticipate that we will be in somewhat of a normalized cadence relative to last year where we will be about 50% to 55% of the stores will open in the first half which is similar to last year.

We’ll take our next question from Joe Feldman with Telsey Advisory Group..

Just a couple quick ones. With regard to shrink, I know you said that it was down a little bit because of the comparison was very difficult from last year.

But I was curious, is there anything in particular within that that drove the shrink? And also what should we expect as the year progresses? Will it ease a little bit? If you could just remind us of that, that flow..

Joe, as you mentioned, in the prepared remarks we talked about it being a relative to last year and so it’s really more of a cycle against last year’s number. It is not something that’s structural and it was related more to the distribution centers.

So as we move forward in the year, we do not expect it to have a significant impact on the gross margin..

And then just one kind of minor one, but I know you'd kind of touched on the West Coast port a little bit.

Can you remind me, I may have missed it, but can you quantify how much that you think the impact was from the West Coast port delays and have we fully cycled it at this point?.

I would tell you that based on some reporting that we’ve done, it’s relatively insignificant. The team did a really nice job. As we talked about earlier, we bought some product in early because of the Chinese New Year, we rerouted some of the containers along the water to other ports to get some of the access to some of that product.

So we think that the impact from the sales line and the profitability line was very minimal..

And it sounds like the inventory that you managed pretty well and the complexion of it seems to be in pretty good shape.

Is it in the right areas, the right spots?.

At this point we’ve pretty much gotten through all of it, we’ve been able to get us to the distribution network and out to the stores and we’re locked and loaded for the demand..

We’ll take our next question from Adam Sindler with Deutsche Bank..

Wondering though if you've had potentially your correction of error meeting that you do after each quarter, just given everything that went right this season potentially maybe one or two examples of something that you think you potentially could have done even better..

I would tell you we break our correction of error meeting into specific areas of the business and we get the owners of those business to talk to the opportunities.

There is plenty of opportunities, we look forward for perfect, I would tell you in some cases we ran low or out of product where we could have been better in stock and we disappointed some customers. We know what those categories are and we got a plan to fix that for next year.

And I would tell you that across the board there is plenty of opportunities, that’s how I would put it..

And then just quickly, I did notice a pretty nice increase in payables this quarter relative to some of the past quarters. Anything different there, just maybe potentially with the timing of the new store vendor support payments or….

You shouldn’t see any significant difference as we move forward through the course of the year..

And we will take our next question from Seth Basham with Wedbush Securities..

My question is around your comp average ticket trends. They seem to have slowed a little bit sequentially in terms of year-over-year growth. Just trying to get a sense of whether there's something specific behind that that you can pinpoint and your outlook for comp average ticket growth for the balance of the year..

Seth, as we talked about in various different quarters, the comp ticket can be affected significantly by the big ticket purchases. Additionally, things that we mentioned just in this quarter where we had some bulk purchases in the fencing category, so there can be several different factors that will impact the average ticket.

And this quarter in particular, the increase – we really were very pleased with the increase, because we like to see it coming from items per transaction versus just the ticket. But in this quarter in particular, big ticket did not have an impact at all on the average ticket.

And we are also dealing as we have over the last couple of quarters with deflation. So between big ticket not having an impact and the deflation coming with a 80 basis point increase in the average ticket, we are extremely pleased..

And as it relates to big ticket specifically, understand the headwinds from safes and some strength in lawn mowers, but when will that safe headwind dissipate and how do you expect big ticket to benefit or not going forward?.

Let me just respond to that, because I get that question all the time internally as well. I would go as far as to say that we are still continuing to cycle some decreases from a year ago.

The team is looking at where the lines from across on safes, we’ve got renewed energy and are playing around that, but I don’t – it will continue to diminish as a headwind. I will say that way. Thus far, we are still very cautiously optimistic as we go into the second quarter about big ticket.

Some of that may be seasonal, some of that may be discretionary, but we are cautiously optimistic as we move into this quarter based on some of the early learnings in April..

This does conclude today’s question-and-answer session. I’ll now pass the call back to Greg Sandfort with any additional or closing remarks. .

Thank you, operator. And thank you all for your interest and support of Tractor Supply. We look forward to speaking to you again in July regarding our second quarter performance..

This does conclude the presentation. Thank you for your participation..