Good afternoon ladies and gentlemen and welcome to the Tractor Supply conference call to discuss fourth quarter and full year results. At this time all participants are on a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) Please be advised that the reproduction of this call in whole or in part is not permitted without prior written authorization of Tractor Supply Company and as a reminder, ladies and gentlemen, this call is being recorded. I would now like to introduce your host for today’s conference call, Ms. Cara O’Brien of Financial Dynamics. Please go ahead. Cara O’Brien - Financial Dynamics: Thank you, Operator. Good afternoon everyone and thank you for joining us today. Before we begin, let me take a moment to reference the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995. This conference 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 that 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 SEC. The information contained in the call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a later time. Lastly, Tractor Supply Company undertakes no obligation to update any information discussed in this call. Now, I’m pleased to introduce Mr. Jim Wright, President and CEO. Jim, please go ahead.

Thank you, Cara. Good afternoon, everyone. I’m here today with Tony Crudele, our CEO, Stan Ruda, EVP of Store Operations and Greg Sandfort, our new EVP of Merchandising. First I’d like to turn briefly to our performance during the fourth quarter. Although the macro environment continued to pose challenges with our results for the quarter, we were able to grow traffic in our stores and better manage our inventory levels. As a result, total sales grew by 15% to $723 million while same-store sales grew at 3.8%. This top line growth drove our earnings per share 7% higher to $0.77 per share. I’m proud of the efforts from our store and store support teams in our important fourth quarter. Their hard work ensured that our stores were fully stocked, well displayed, and our customers were both greeted and served. Our sales increase for the fourth quarter was primarily driven by our core lifestyle merchandise, including animal health and pet supplies, as well as many of our winter-related merchandise categories including footwear, snow removal, heating, and related wood-burning and wood cutting products. In several categories, our sales and inventory forecasting matched demand very well. In others we implemented a markdown cadence and accelerated some promotions to hit our inventory targets. With this plan in place, we were able to achieve normalized inventory levels and to begin reversing the trend of average inventory per store. Tony will provide more color on that later in the call. During the review of the full year, we successfully anticipated a very dynamic retail environment and while the consumer was pressured and uneasy throughout the year, we achieved sales growth of 14% and comps of 3.4%. To provide more details behind the drivers of our success in 2007, I’ll go over some of the accomplishments for…

Thanks, Jim. Good afternoon, everyone. We don’t generally navigate through tough retail environment in the fourth quarter and we’re very pleased with our results. We achieved key goals of driving double digit sales growth through both increased transactions and average ticket while managing our inventory increase well below our sales increase. Sales for the fourth quarter ended December 29, 2007 increased 14.8% to $723.3 million compared to last year’s fourth quarter sales. The total comp sales for the period were 3.8%. Non-comp sales were approximately $84.3 million or 11.7% of sales. As we discussed in our Q3 conference call, sales were soft in October as a result of unseasonably warm weather. As the colder weather rolled in during November, we recouped the October sales shortfall and the month of November had the strongest comp increase within the quarter. Sales comp sales were below the company average as a result of warmer and wetter conditions in the northwest which negatively impacted seed and hay sales. We estimate that the cannibalization impact on comp sales was approximately 80 basis points which is consistent with our expectations. With respect to regional sales trends, comp sales were the strongest in the northern states, buoyed by the colder year-over-year trends as was consistent from east to the midwest. Sales were the weakest in the southeast where moisture levels remained low and were negatively impacted by the weak Florida economy. We continue to grow our customer traffic with comp transaction counts up 2.7% for the quarter. This is driven by the strength and continued growth of our core consumable business. Average ticket on a comp basis increased by approximately 100 basis points. Although we still see softness in spending on larger ticket items, it was a less significant decrease than previous quarters and the mix of…

Thanks, Tony. Looking to 2008 and beyond, we’ll be resolute in our efforts to continue growing our business. Although we are being prudent to ensure we manage our business appropriately given the current retail environment, we are confident that we have the right strategies in place to continue building a solid foundation for future growth and ensuring that we are the authority and the store choice for those living the “out here” lifestyle. Before discussing our priorities for this year, I’d like to remind you of our four stated long-term strategic objectives for growth. First we expect to grow sales by maintaining our commitment to our overall in-store experience. To support this, we’ll grow our units at 13% a year, improve our store performance by increasing traffic and tickets, and as to merchandise mix, focus on service and season advice and implement our multi channel strategy. Second, we’ll continue to grow our operating profit margin as a result of increasing our direct imports, our private and controlled brands through optimization and through SG&A leverage over time. Third, we expect to grow profit from our core households by increasing market share of our closely targeted households and developing our CRM capacity to provide for a single view of our customers across all channels. Lastly, we expect to grow our return on invested capital. This will be driven by improving our inventory turnover, our vendor inventory float, and improving our capital utilization. Those four initiatives best position Tractor Supply for a bright future, but more immediately we are focused on ensuring that our 2008 objectives complement our long term agenda and advance our growth. First there are opportunities to grow business by maintaining our store expansion program, by refining our merchandise selection, and building out our e-commerce offering. Our stores and their…

Thank you, Jim. Good afternoon, everyone. I’m very pleased to be part of the Tractor Supply team. The company has done an outstanding job developing a strong culture driven by a focus on serving our unique customer. I have been thrilled to see firsthand in our stores how seamlessly Tractor Supply’s mission [inaudible] carried out throughout the entire organization every day and from the [storsis port] center back to our stores what is most evident to our customer. As the company has grown into a major national chain, it has truly preserved a local hometown feel and look. That being said, being part of TSC is an exciting opportunity for me and as we continue to be committed to being the leader in this niche market, I think that in order for us to meet the customers’ evolving needs, I’ve identified several key areas of focus that I expect to enhance our performance as we go into the near and the long term. Specifically as you’ve heard from Jim and Tony, I will be focused on several merchandising performance initiatives in the upcoming year. Number one, we believe there’s an opportunity to improve our pricing strategy by taking advantage of pricing optimization. In the next year we’ll be using a more holistic approach to establish optimal pricing throughout our product sales cycles. We will combine analysis of price elasticity and sound business practices to establish appropriate price points that resonate better with our customers. Going forward we expect this new price optimization strategy to benefit our same-store sales and gross margin results. We also expect better inventory management to contribute to the company’s overall margin improvement and capital efficiency efforts. We will accomplish this by refining our test strategy that will mitigate our risk on new products as we roll…

Thanks, Greg, and we’ll now open the call for questions.

Thank you. (Operator Instructions) Your first question is coming from Brad Thomas of Lehman Brothers. Please go ahead, sir.

I’ll just say congratulations on a solid quarter during a tough holiday season.

Thank you, Brad.

Brad, this is Jim. Our assumptions are that at this point in time that ’08 looks a lot like the second half of ’07. Beyond that we can’t guess but we do believe that we can manage it to these numbers if the current state is the normal state we’ve got going forward.

Okay, and then if we do see a more significant slow down in the sales trends, could you maybe talk about where there might be some opportunities to control costs? I know this year you did a good job of controlling the CapEx for example.

Brad, I won’t go into details, but we have already built our contingency plans. We’ve talked to the management committee which is the top 12 executives in the company. They understand their obligations and responsibilities and opportunities if sales fail to materialize.

Okay and then maybe just one last question. Last quarter, Jim, I know you mentioned that you were looking for your POS to enable some freed up time from the back room to allow for some more customer service. Do you know if that had much of a benefit on sales?

Stan Ruta here. Yes, we’ve picked up time in our back room because of the new back room functions we’ve ruled out. It’s allowing us to reallocate that labor to the sales floor to help us improve perpetual inventory accuracy and better service our customers.

Was there a meaningful increase in the level of customer service during the quarter?

Brad, this is Jim. It’s really hard to assess. There’s a couple of ways to look at it. One, when we report traffic, we’re reporting transactions, so we don’t measure rings and swings, so due to the fact that we had a transaction increase along with a ticket increase, we could certainly assume that our customers are being served at a higher level. A year from now we’ll have better data because we are now just launching a true customer satisfaction index initiative where we’ll be getting feedback from every store every quarter and be able to statistically evaluate the level of service we’re providing directly from the voice of our customers.

Okay, great. Thanks so much.

Your next question is coming from David Cumberland of Robert Baird. Please go ahead, sir. David Cumberland - Robert W. Baird & Co., Inc. : Thank you. Can you please comment on your expectations for the lawn equipment category in 2008?

The OP industry is saying it’s down 6% in units this year on top of a down ’07, down ’08. We believe that we can be flat in dollars so we’re anticipating probably down in units but probably flat in dollars and that is based upon a couple of initiatives. One, we were very successful with a premium brand that’s exclusive as a chain to Tractor Supply called Bad Boy back this year. We’ll be rolling out chain wide. It was in less than 40% of our stores last year. It’s a high dollar unit and uniquely positioned I think for our customers, a lot of grass to cut. We’re also launching a national brand called White Outdoor Power Equipment that will replace the high end of Husky. There’s some feature benefits to our consumers with White Outdoor. We’ve also, we are watching a very high end unique exclusive to Tractor Supply and Cub Cadet dealers front mounted zero turn unit that’s at the high end of our price point and I think also with that with regard to flat on dollars and maybe the increase in profitability is that we’ve been very, very rigorous on both our exit and our entry inventory positions in this category, planning for this category for ’08. David Cumberland - Robert W. Baird & Co., Inc. : On the left side of the store are you no longer planning to reset the left side in 100 more stores in Q3?

That’s correct, yes. The test that we did on left end side, as I mentioned we had some winners, we had some question marks that we need more time, and we had some disappointments so what we’ll be doing is in the 41 stores we’re placing the disappointments with other additional tests to the chain we will take the best skews, the winners, but we’ll be able to do that without going through the cost, the labor cost and the capital cost, of the extensive reset that you saw last year either at our store or at the manager’s meeting. David Cumberland - Robert W. Baird & Co., Inc. : My last question on the e-commerce business. At the start of ’07 you talked about $0.03 per share of incremental spending with minimal offsetting benefit. Was the impact roughly in line with that and then would you expect this to be neutral or possibly even accretive in ’08?

David, this is Tony. Last year it met our expectations and we were very consistent with the guidance that we provided. We expect obviously this year to start to ramp the sales. We do expect that it will generate a loss and the impact will be very similar in a similar range to last year’s so as a percentage it will be less impactful but from a cents per share basis it should be in about the same range. David Cumberland - Robert W. Baird & Co., Inc. : When would you expect this to be accretive?

We are looking at 2009 for it to be accretive. David Cumberland - Robert W. Baird & Co., Inc. : Thank you.

Thank you. Your next question is coming from Mitch Kaiser of Piper Jaffray. Please go ahead, sir.

Afternoon. I was hoping you could comment to your expectations for the southeast. I know the drought impacted you pretty significantly down there last year. What are you forecasting for that particular region especially given the water restrictions that I think continue in that area?

We see some moderation, frankly Kentucky, Tennessee, North Georgia. The latest forecast we got shows some moderation, some drought relief. Florida, actually South Florida’s going to get worse is the current expectation. I guess overall I would say slightly favorable this year over last year in outdoor power equipment in the southeast.

Okay. So South Florida you think is economic, it’s not weather related.

It is certainly economic but in addition tot hat there is going to be forecast right now the lower two-thirds of Florida will be more droughty in ’08 than in ’07.

Okay and then Tony, you mentioned margin pressure in the first quarter. Is that gross margin pressure or do you think that’s SG&A pressure particularly as you go against your most difficult comp of the year. Could you clarify that a little bit in more detail?

Yes. I was talking more specifically about gross margin, product margin and it generally comes from a couple pieces. One, last year the merchandise that we were selling through particularly in March when the weather was more spring-like. We had better seasonal toward margin and less pressure there whereas we forecast March to be a little bit colder. Then we’re also taking some action on slow-moving inventory as we’re moving into this quarter and we also had very similar sell through of toys and gifts in the fourth quarter so it was comparable to last year but as we moved into this quarter we are much more aggressive than marking that down and clearing it through, so those are some of the items that we see causing some margin pressure in the first quarter.

Okay, I’m not sure that I’m exactly following. I thought you had about 60 basis points of gross margin erosion last year and I thought you took some pretty aggressive markdowns in the first quarter last year.

Again one of the keys is cycling March and by having seasonally fresh goods in March last year with the spring-like weather we don’t expect to have that opportunity.

Okay. But inventories are pretty clean going into the end of the quarter, though, only up 7% on I think a year-over-year basis, right? Anthony F. Crudele Going into the quarter we were generally very pleased with our inventory position.

Okay and then on the fourth quarter you said some clearance items. Would you be willing to characterize what that was when the gross margin hit to blow out some inventory?

We generally don’t get that granular.

Okay, thanks guys. Good luck.

Thank you. Your next question is coming from David Magee of SunTrust Robinson Humphrey. Please go ahead, sir.

Hello, this is Chris Rapple on the call for David today. I had a question about some of the gift items that you featured in the holiday and how you felt they performed relative to expectations and what that may lead you to do next holiday.

Good question. On the overall with gifts we were pleased. We had very good sell through. The only surprise we had was that with all the news on lead paint, we saw some consumer slow down with regard to the metal die cast toys. Not a significant issue for us but there was some shift away from normally what is a pretty good demand item for us in metal toys. Beyond that we had some learning, every year when you go into gift you test the new things and price points. Some of those worked, some of those did not, but on balance we actually had a very good gift season.

Okay, thanks very much.

Thank you. Your next question is coming from Jack Murphy from William Blair. Please go ahead.

Good afternoon. A couple of questions. First, Tony could you talk a little bit more about the incremental or potential incremental $20 million in CapEx? I think you said something about new site acquisition opportunities, something like that. Could you just flesh that out a little bit?

Over the past couple quarters we talked a little bit about acquiring sites and we’ve looked at basically the cap rate versus the developers reselling of the sites and we felt that economically it would make more sense for us to work up front with the developers doing some self development and/or acquiring some of those sites. So we’ve set up a contingency in our CapEx projection that we would utilize to do some site acquisitions or assistance with the developers in developing those sites.

Okay, I just want to make sure that was the same issue that you talked about and then also I’m going to circle back to the comment I think Jim you made that the environment, you anticipate the environment being one in which you could pass on pricing or it be a difficult environment for consumers to accept pricing. Is there any particular areas that you’re seeing concerns there that kind of prompt that comment? If you could just give us a sense on that.

Actually where we’re seeing the inflationary categories, those categories that are a significant portion of cost of goods is petroleum based or corn or soy based, actually we’ve seen the industry move and the consumer accept and we’ve seen unit movement continue to run. Our comment was more broad based, recognizing that the consumer is in some cases staying home a little bit more, certainly being more conservative of their dollars. It’s more of a broad feeling that we have that this is not the time that we’ll be able to gain a tremendous amount of traction through a price increases. That said, however, we do believe that we have opportunity to strategically raise prices due to the fact that we have a number of price zones where we have perhaps the more competitive than we need to be. We are also a few months now into a more rigorous price elasticity study and we’re going to move from an opinion based pricing strategy where we believe an item or category is highly visible to our consumers to a scenario where we begin testing a zone or two with marginally higher prices and we measure elasticity against a control group.

Okay great, and then just one last question. Given this context, are the guidance parameters that you’ve given here, could you just give us a level of comp, obviously it’s outside of the guidance, at which you think that you’d be able to get leverage for full year 2008?

We’ve stated in the past that we really need a 4% to 4.5% comp to leverage while we’re in the 13% store growth mode.

So even with the occupancy drag, you still feel that would be the case?

Yes, specifically for 2008. Now that might lessen as we move into 2009 but generally that’s what we’re seeing. As we stated in the call, there’s obviously a non-cash drag when it comes to the stock option plan as well, so really those are the two key ingredients for SG&A to leveraging.

Thanks.

Your next question is coming from Peter Benedict of Wachovia. Please go ahead.

Hey guys, thanks. I just wanted to get a better understanding our your approach on the share buy back. It sounds like from the guidance you’re not really assuming much but you were pretty aggressive in the last quarter at prices that were a lot higher than where we’re at right now in terms of the stock. Is it in unwillingness to dip into the revolver on the credit line in this environment or are you just trying to be conservative on the outlook and have buyback be upside to the numbers?

Peter, this is Tony. What we’re saying is that in our guidance we have no projection for or no forecasting for the share buy back. So we anticipate that we will buy back shares, however, it is not included in the forecasted numbers.

All right, good, that helps and then I just was hoping you could maybe elaborate a little bit further on the price optimization tests that you guys were doing. It sounds like you got some initial traction on that. Is that something you’re going to try to push forward with in ‘08 and are there any new zones that you’re going to try to test that in or just kind of keep doing it in the ones you’ve been doing it in?

We will, as the year unfolds we will begin rolling out and testing different categories and different zones, watching the elasticity and then rolling forward where it makes sense for us to optimize. We have another initiative that we are going to be pursuing. If you look at our pricing today, we have a lot of odd penny pricing and we have the opportunity to move that up to logical retail price points and there is some opportunity for margin expansion there provided that we do not have a unit decline in that product and that is frankly yet to be determined.

Tony just one more thing on the first quarter. It sounds like gross margin is expected to be down year over year, certainly with the tough sales comparison you probably have comps down as well. You did say, I just want to make sure, that you thought you’d get a normal get ready quarter earnings environment, earnings per share? I mean historically you guys have done kind of flat to maybe plus $0.05 or so in the first quarter if you exclude last year. Is that the type of range we should be thinking about?

When we talk about get ready, we expect very limited earnings in the first quarter. So it should be consistent with past trends other than the 2007.

Your next question comes from Brian Nagel - UBS.

First off, with respect to the competitive environment, the holiday was much more challenging for many of the retailers. You guys performed well. With that as a backdrop, have you seen any more aggressive price promotions or just promotional activity out of some of the retailers you compete with in the various categories?

Nothing that has impacted us. There’s a tremendous amount of off-price activity; well, not tremendous. There is more off-price activity going on, more couponing and so forth, but in product categories that are most important to us in the fourth quarter, that noise had very little impact on our business. We were really not compelled to match anyone’s promotional effort. The one thing that is kind of structurally in our industry today on big ticket is the 12-month no interest, no pay, and that obviously comes with a cost. We did have a little more activity there to match our competitors on some big ticket products in Q4. But having said that, a couple points. One, we are fortunate in that we have a core business that is somewhat non-discretionary and businesses in which we are truly the destination store. Those businesses performed very, very well without increased promotional activity in Q4 and we anticipate that they will continue to grow and continue to perform well as we go forward. The next thing is that with the frequency of our core customers visiting our stores, it would have to be a significant offer to disrupt the shopping patterns. Finally, I think it’s an error for us and others may think differently, to get on to the heavy promotional during this tough time in retail because at some point in time as we come through this slow period, they’re going to have to get back off that or stick with a high-low strategy which I think is counter to what today’s consumer wants to shop. They want to shop at their time and their convenience and know they’re getting a value, not wait for a promotional event.

Greg, you mentioned in your prepared remarks you talked about the direct sourcing. Remind us where we are as far as what share of your sales and your products now are direct source? I was just over in China looking at some of these sourcing operations, what impact if any would the higher costs we’re seeing out of some of these emerging markets, could that have upon your direct sourcing efforts?

Let’s first, Brian, break it down. We’re about 7% direct source from China to TSC. That number we plan to grow. I think you have heard us talk about before, we’d like to grow that number to the 13% to 15% range over time. The pricing compression that is occurring right now with China, it’s kind of twofold really. One is raw material costs are definitely going up. Steel-type products, we have seen some pricing issues there, but we have addressed those at the retail side here. The consumer I think expects that some of that product is going to cost more as they enter our store. We are just really beginning to look at how we can direct source more product, and we’re kind of throwing a little broader net than maybe we did in the past. There is more for me probably to discuss here than we have time today, but I can assure you that we’re looking to do more on a direct basis. We have already put together some plans and will finalize those with our EC and the board in the next probably six to eight weeks about how we will progress forward. But at this point in time, except for a few minor categories, it’s pretty much what we expected, and we’ve been passing the cost increases at the retail level, so we haven’t seen any real pull back by the consumer yet.

Your next question comes from Matt Nemer - Thomas Wiesel Partners.

My question is regarding traffic trends, which were quite a bit stronger than what we have seen from other retailers. Is there any one thing that may be driving that? Are there any changes in the advertising mix or the amount of advertising during the fourth quarter, or if it’s just more a function of the easier comp from last year?

Actually our advertising spend as a percent of sales was level or slightly down in Q4 year over year. The ads really weren’t a whole lot hotter than they were last year. What’s interesting when you look at our business is that our traffic was a result of the amount of business we did in consumables. In pet and animal consumables we continue to grow those businesses as we have for the last four or five years at a rate well above the overall chain growth. Once one of our consumers begins to feed their pet animal on our feed, there is a natural every two weeks, every three weeks, once a month repurchase cycle and we saw those categories perform really quite well as I mentioned I think in the press release and the comments.

Is that a mix shift to smaller bags that’s driving shorter cycle times, or is it share that is maybe coming from another part of the market?

I think it’s share gain. We have actually looked at bag size and average ticket size within those categories and we do not see our consumers trading down to lower price product to any great degree, and they’re not trading down to bag size.

Tony mentioned that the ‘07 store class outperformed the prior two years, and I’m wondering on what basis and can you provide any granularity on the performance relative to the profits of those stores after occupancy expense?

Generally, Matt, we wouldn’t disclose in detail. I would tell you that on a sales level, the ‘07 stores performed similarly to the ‘06 stores, but just on an operating profit basis. The profit that they generated far exceeded that of the 2006 and the 2005 stores. It’s just an observation and a lot of times we receive questions on the performance of the new stores, but we’re very pleased with the stores that we have brought on board really over the last three years and we expect as we move out of this difficult retail environment that these stores really will be very profitable going forward.

You’re ramping your new store growth for Dell’s. Can you give us a sense of what you’re planning to do there, what sort of locations or markets or new markets will you be putting, will you be placing Dell’s stores in?

The chain as we bought it was located pretty much up and down I-5 in Western Washington, and most of the new growth is going to be Eastern Washington, Oregon. The reason we’re doing that is we’re viewing ‘08 for Dell’s as another year of learning where we will continue to refine the how we go to market with regard to advertising, how we assort the stores, and the principal learning that needs to occur is to find out how well these stores perform, how fast they ramp to profitability, how fast they take market share in areas where the Dell’s name is not known and in areas where locally grown hay is not available or is available. In the Pacific Northwest and coastal Northwest, all of the hay is imported in for horse owners, and the hay is a significant part of Dell’s business. Recognizing that that’s a unique market for us to determine the multi-state viability of Dell’s, we’ve got to take the plunge and get outside of that environment. So our growth will be principally in those types of markets in ‘08.

You mentioned that some IT projects were pushed out from ‘07 to ‘08. Is that the environment or is it specific to vendors or products or something else?

It’s a combination of cost and just prioritization. Currently we’ve reprioritized bringing Dell’s onto our systems, and reprioritized that and moved a few others. Some involved security because obviously there’s been a lot of discussion about security and we’re taking a much greater focus on security, and so we will grapple with those as we move into 2008, but a lot of it really was based on reprioritization.

Your next question comes from John Lawrence - Morgan Keegan.

Jim, could you comment quickly fourth quarter on the performance now that you have had C.E. Schmidt for three seasons or so? The difference between that and the name brand, what did you see in the performance of that private label?

We had a relatively good year in heavyweight outerwear. Both categories, both the Carhartt branded and the C.E. Schmidt performed really quite well for us in November and December. October, as Tony mentioned, was abnormally warm so we kind of missed that first burst at the fullest possible margin but overall, we’re pleased with it. C.E. Schmidt continues to gain share marginally, but we continue to be really very pleased with our Carhartt business. This was the first full fall season with the C.E. Schmidt line leather footwear, and frankly we were delighted with the result of that. It is a high quality boot. It’s priced at the low end, work boots are priced from 60 to $120, and we brought C.E. Schmidt in at around high 60s and a tremendous value proposition. We direct imported it, and we are frankly delighted with that, John.

Just a couple merchandising questions, if you will. Going back to the outdoor power equipment, if you talk about the initiatives, another private label, at the end of the day will the SKU mix go to a lower price point or you’re moving the price points up with just better margin?

You answered your own question, John. We’re moving the price points up with better margin. That’s the strategy.

So the point that you’re vacating is that competitive low end?

I wouldn’t say vacate. What I would say is not trying to grow that piece of the business.

Lastly, could we talk just one more a little bit about the 41 store test? A lot of that product was expanded lines without the return for that test is just not to reset but just get the benefit from those incremental wins?

At this point, John, that is correct. As you recall, John, a few years ago we significantly expanded our pet department, changed the fixture height, created a boutique. We also did not go forward with that program, that complete reset, but we did go forward with a couple other SKUs that proved out to be very solid winners for us.

Right, so we’ll just see a continuation of that on that side of the store?

That’s correct. For now. I’m not saying we’ll never reset that side of the store, but what we have seen is the major benefit is really in the product and additionally we have not been a great retail company with regard to use of end caps on that side of the store and we believe that we can make some wonderful product presentations through better use and better merchandising of our end caps throughout both right and left hand sides of the store.

Your next question comes from Dan Wewer - Raymond James.

To make sure I understand the components of the ‘08 guidance, and looking at the midpoint would imply EPS growth of around 7%. That assumes same-store sales at a midpoint of 2% which is not bad. It sounds like gross margin rate will increase, which is good. Further, the leverage from occupancy will be about half in ‘08 of what it was in ’07. In trying to think about what is left that’s weighing against the earnings growth, is it just primarily the incentive compensation either through options and the cash compensation, is that the right way to think about the ‘08 model?

I would agree with that. Those were the two components that were left, was the incentive piece and if you tie that together with the options those together is the difference that you’re looking at. We had mentioned that we have slight deleveraging from our store personnel side when it comes to adding the new stores as well, but it’s not as significant as the impact on the occupancy.

Tony, earlier you were estimating that 4% same store sales growth is needed to maintain a flat expense rate. Do you think it’s actually higher than that in 2008 given that 1% to 3% forecast results in significant deleverage so that extra percentage point of same store sales growth looks like it may not be enough to achieve a flat expense rate?

Yeah, I definitely would lean to the higher side. The 4.5% is closer to that and depending on the environment 5% might be reasonable. Our general guidance has been the 4% to 4.5% range, and that can be achievable. Relative to 2008, I think you’re probably close there. I think you’ll see the stock option expense start to moderate in 2009 as some of the prior years start to roll off.

Greg, you had outlined a number of initiatives. When you think about these, which ones do you think would pay off the soonest and when that may occur and which ones will take longer to achieve?

Well, the number one focus for me is really the management of our inventory and we are really spending a lot of time right now with much more rigor around that entire piece of the company. Number two I would say that probably the price optimization component just from the standpoint of early wins and things that we’ve recognized and identified. Those are probably the two things I would tell you, and then the direct sourcing piece takes time. We want to make sure that we move ahead two or three steps and not drop back two or three steps as we do this, so it’s more of getting the platform right first before we really start to move fast there, but that’s how I would align the three.

The inventory management, we already saw the benefits of that in the fourth quarter, so we’re already there, right?

Well, I wouldn’t say that we’re already there. I would say we’re just beginning.

That’s going to be achieved, it sounds like by taking clearance markdowns maybe a little bit sooner during the season?

Well, that’s one aspect of it, but I will tell you that there is a very rigorous look now on a month-to-month basis with some forward looking into our open to buys and where the business is headed and so on and so forth, so I would tell you that it’s my number one focus, making that inventory much more productive, really evaluating where we’re spending our dollars and where we are getting a return on those dollars. We’re just beginning.

Finally just on pricing optimization, fourth quarter of ‘08, is it possible you can begin to see some benefits by then, or should we be thinking about optimization being an ‘09 payback?

Well we’ll see some in 2008 toward the latter part of third and forth quarter, yes.

Your next question comes from Jeff Wimmer – JP Morgan. Please go ahead. Jeff Wimmer – JP Morgan: You spoke about some of the changes in outdoor power equipment specifically on the high end, but I was wondering if you were changing your mix or SKUs towards the lower price point or making any adjustments in your lower-end offerings?

No, significantly not. The overall strategy is to grow the dollars and grow the profit, have profitable sales, maintain revenue on a flat comp, and put our emphasis at the larger units, the more branded units, and the units that are most applicable to our consumers who measure their yards in acres, not in front feet. Jeff Wimmer – JP Morgan: Last quarter you mentioned that if you had good weather you would probably see 150 to 170 bips benefit to this quarter’s comp. Looks like you probably got all of that and then some, so I was wondering if weather was neutral what your comp would have been? Do you have any sense?

You’re talking about Q4? Jeff Wimmer – JP Morgan: Yes.

My assessment of the quarter was that the weather was neutral. Weather was negative in October, better in November and December, but on the overall, I would say it turned to neutral after being negative last year.

Your next question comes from Vivian Ma - Oppenheimer.

First on the occupancy, I just want to get a bit more clarification. For the average rental rates for 2007, could you provide some more color on whether it was more or less stable or did it go up? What is the outlook for 2008? I’ve got one more question after that.

Yes, on the new stores the rate did increase, but what we do in how we report generally is we look at it more as a percent of sales, so we’re not seeing a significant escalation per se. They were above the 2006 level, but more importantly we look at them as a percent of sale and we’re trying to leverage that down. So we’ll see that going down in 2008 as we discussed and it will be at a much lower level as we move into 2009.

For ‘08 on the per square foot basis, do you think it’s up or down directionally?

It would definitely move down for 2008.

My next question is regarding your initiatives on the private brands and the direct sourcing, are there any new product categories that you would be making a bigger push in ‘08?

We did talk about the White Outdoor power brand being introduced. We did mention about Bad Boy and that’s just an expansion from a test a year ago. This is all in the OPE side of the business, but I think I would be reluctant to comment on any other things that we may be planning at this time.

Your next question comes from Jay McCanless - FTN Midwest.

First on the gross margins, still not understanding why we didn’t see better gross margins this quarter with higher traffic, higher ticket, and higher foreign sourced inventories. Could you expand on that a little bit?

I’ll go first, Jay. Some of that was mix. When we looked at the products we sold, again I mentioned we did very well with pet and animal feed and food. Those are below average margin categories. The categories where we had the biggest headwinds, I think we also mentioned this either in our notes in the release were on the tool and hardware sides. Those categories are very margin rich and they did not perform as well as our core animal-related business. So it really was mix more than anything else that drove our margins.

On the inventory side, glad to see that you are focusing again on maximizing the dollars from your inventory. Are there any targets you’d be willing to give on working capital improvements or do you still have the long-term turn target of I believe it was 3.3 to 3.4?

I have been stating that we have the ability to improve our turnover of 15 basis points a year and since I first started quoting that, I think we have gone backward 30. I remain resolute in our ability to improve our turnover about probably 10 next year or so and then 15 accelerating forward. I do believe possibly offset by direct import that we do have the opportunity to get north of 3 and approach 3.3 over term and at term it’s probably five years.

My last question is looking at gross margins for next year, commodity costs for grains, wheat, soy beans, corn, et cetera near I think 20 and 30 year highs, how much of an impact should we expect from these higher prices as we move into ‘08?

Thus far we have been able to pass those cost increases along to our consumer and most critically to this point, we have not seen our consumers trading down to lower priced products which in those commodities also carry a lower margin. So a kind of wild card, I’m pretty confident that we’ll be able to continue pricing at retail to reflect cost. The industry seems to be in sync with that. What I don’t fully understand is what the consumer behavior might be if that bag of feed that has already gone from $10 to $12, goes from $12 to $14.

Your next question comes from Wayne Hood - BMO Capital.

Greg as you’ve gotten to look at things as you have come in, do you think you’re going to have to rethink the company’s distribution network given the import strategy that you want to pursue? Just in not having enough facilities now to do a big import program in an cost efficient way. If you have to do that in a year from now or two years from now, Tony, does that mean there’s going to be a ramp up in capital spending or expenses associated with that that would come on at a time when the occupancy costs might start to moderate?

Let me take the first piece. We will do this very logically and very pragmatic as far as how we plan to grow the direct side. Today we have capacity in our DCs actually to handle some of these products. There is no short-term issue but I will tell you, once you put this into play and we start to look at the opportunities, there’s always a likelihood that we may need a facility on the West Coast. As we’re expanding our store base toward that direction, we’re hoping that the lines will cross at that point.

Relative to our growth, we had always earmarked that we would have some funds available, most likely in 2009 and now as it stands more stretched out in 2010 for a West Coast distribution center. Having capital in the budget next year to expand our Waco facility, I think you’d see the year-over-year capital infusion not be significant. Again it generally is part of our long-term plan, so if Greg were to come in and take a harder look and say that we needed to adjust our distribution network, we have the capital allocated in our long-term plan.

I wanted to come back to several questions that have come up, and that is the leverage in the model that when you look at the third quarter, you had a 3.8% comp or almost close to the 4% to 5% that you’re talking about to leverage expenses, so I was wondering if you could break out or tell us what the delta was when you strip out the new stores? In other words, if you look at the delta in the comparable store operating margin, was that flat, up, down, 70? I mean how can we think about that in trying to measure what the leverage is in the model on those existing stores stripping out the new ones?

We would not go into that type of detail. We do take a look at it, and we understand the components, and what is a challenge in answering the question of what does it take to leverage at a particular comp level is when you take that growth component out and the other pieces that are associated with it such as your pre-opening expense, your real estate teams, that’s where it becomes a question mark as to what are those allocated resources. So as much as we analyze it and we understand the components, I would not be willing to share the details because there’s just too many pieces.

Would it be fair though, Tony, to think that the operating margin probably was down in comparable stores – in the comparable stores on a 3.8 comp?

Not necessarily. I would not necessarily assume that.

Can you give us the absolute share count; not the weighted share count given the buyback at the end of the quarter, but what the absolute shares were?

We’ll have, let me have Randy get back to you on that one.

Thank you. We have time for one more question. We have already set a record for the call, but we’ll take one more question.

Your final question comes from Andrew Wolf - BB&T. Andrew Wolf - BB&T: I think Dan went over this, but I thought it was very important. The pricing optimization -- and I think Greg you mentioned your number one goal is going to be to increase the productivity of inventory -- starting there, when I think of that, my mind goes to a measured [jimroy]. Jim you kind of alluded to it, you want to get inventory turns up. As financial analysts, Greg or Jim, should we be looking at a [jimroy] number, and if we should, do you have a goal there too? Is that how from a financial accounting point of view we should be seeing how well you’re doing with inventory productivity?

That is a retail metric, and I’m not sure we can boil it down to a stated objective and aren’t likely to share that publicly, but certainly we look at [jimroy] on each of our 364 categories and have that calculated on a monthly basis. The key drivers are higher margins and lower inventories and it all works, and we recognize that we have a tremendous opportunity. Andrew Wolf - BB&T: Sometimes you hear the productivity of inventory and it’s a more basic thing. There’s a lot of dead inventory or you need to do a SKU rationalization. I mean, is there anything like that that you’re referring to?

No, there’s very little dead inventory. There is certainly the opportunity in some categories to rationalize SKUs, and we have some opportunities to rationalize SKUs across our various store volume groups and across different geography. Historically we have not been nearly as regionally specific in our plan-o-graming and inventory modeling nor have we been as volume specific as we have the opportunity to be with the systems we currently have in place. Andrew Wolf - BB&T: On the pricing side, Greg, I think you said it was more about elasticity and internal measures, but is this also about zone pricing and again geographic pricing? What is it replacing currently? Do you guys have a system or is it more of an ad hoc process at this point?

It’s a combination and I will tell you that it’s really a refinement of what we currently have, but it is probably refining it one or two more, peeling back the onion even further. We don’t believe that with the mix of business that we have that we need all the pricing zones that we may currently be supporting. Secondly as far as how we’re going about this, there’s some as we said holistic things that we can do. There are some systemic things that we’re looking at. So it’s a combination of both and we’ll test it first before we absolutely take the role, and my partner Stan and I have to work through this to make sure that it makes sense. If we see any unit slow down or drop at all, of course that’s a flag for us, but we believe it’s a very logical approach, and we’re very excited about it. Andrew Wolf - BB&T: Tony if you have the rent expense handy or an approximation of it, that might be useful.

Again, we don’t disclose that. We just talk to SG&A in total and give general guidance as to some of the components, what are the moving parts, but we don’t give specifics relative to rent.

In conclusion, I’m very pleased with our ability to navigate through the challenges of ‘07. Since the current macroenvironment may parallel the second half of ‘07, we are tempering our expectations appropriately. However we’re not going to let external factors prevent us from continuing to reach our long term strategic growth objectives. The lifestyle we serve will continue to grow. Our role as the authority for that lifestyle will continue to strengthen, our customers are resistant and resilient and our team is very committed. In short, we are and have been and remain a growth company. I’d like to thank all our shareholders, our team members, and our customers for their continued support of our business, and we look forward to another exciting year of growth and profitability here at Tractor Supply and look forward to speaking to all of you at the next call. Thank you.