Good morning and welcome everyone to Tractor Supply’s Fourth Quarter 2021 Enhanced Earnings Event. The video we just shared, I hope, has you in a Tractor Supply state of mind. Thank you for taking the time to join us today. We look forward to the time we can host this event in person. We have a packed agenda today. Our executive team is excited to bring you many updates of where we’ve been since our last event in October 2020 and where we are headed in 2022 and beyond. To do that, we will lead off our meeting with Hal Lawton, our CEO and Kurt Barton, our CFO. They will review our operational and financial highlights for the fourth quarter and 2021. Kurt will also provide more details on our 2022 financial outlook. Then Hal will provide an update of our multiyear Life Out Here strategy. It continues to be our north star in our day-to-day operations and mindset. Our Senior Vice President of Marketing, Christi Korzekwa, will join us to discuss important insights we have learned about our core customer as well as the new customers that we have gained. Then John Ordus, our EVP and Chief Stores Officer, will illustrate how Tractor Supply is a relationship retailer and share our approach to continue to deliver and elevate our legendary customer service. At this point, we will have a quick break at around 10:15 Central. After the break, Rob Mills, our EVP and Chief Technology, Digital Commerce and Strategy Officer, will share new capabilities we are introducing as we continue to enhance our customers’ digital experience. If you followed Tractor Supply over the last 20 months, you’ve heard us speak about our exciting changes in store layout with Project Fusion, along with our Side Lot remodels. Our EVP and…

Good morning, everyone. Thank you for joining us today. We are here in cold Nashville. We are excited to update you in greater detail on our Life Out Here strategy that we first shared with you back in October 2020. As our Year Review video highlighted, we are just getting started. At Tractor Supply, we are very early on our journey to build on the momentum in our business and capture the tremendous growth opportunities that we see ahead of us. As we operated early through the early days of the pandemic back in 2020, we set our sights on ensuring that our business would emerge stronger than before. Today, our business has never been stronger. We have significant momentum, our team is executing at a high level and our results demonstrate that our multiyear Life Out Here strategy is working. We are operating from a position of strength. We have a lot of exciting news and progress we want to share with you today. Kurt and I will take you through our fourth quarter and fiscal year 2021 results and review our outlook for 2022 before the team provides an update on our strategic priorities. Retail is ever evolving, that our most important strategic asset remains constant in our team members. They nurture our relationship with our customers and they make us who we are and what we stand for as a company. As a purpose-driven company, our team members create a sense of community in our stores and with each other. Our 46,000 team members are passionate about Life Out Here. Over the last 22 months of the pandemic, they have lived our mission and values to ensure that Tractor Supply is the dependable supplier that our customers count on. This team has worked diligently with grit and…

Thanks, Hal and hello everyone. Thank you for joining us. We really appreciate your time and attention today to hear more about our substantial progress and our very bright future. As Hal covered a good bit about our top line results and impressive customer trends, I will pickup with our gross margin performance. Our fourth quarter gross margin rate was 33.8%, a decrease of 83 basis points versus last year. This was generally in line with our expectation as we expected inflationary pressures to continue in both product and transportation costs. As has been very well documented, the cost environment remains elevated across imports and domestic freight, commodities and labor wages. Hal shared with you our approach to managing through the current environment. I commend our team for the great job they are doing in the current environment. The Tractor Supply team effectively offset a significant portion through our retail price management program. The fourth quarter comparable ticket growth included the benefit of approximately 850 basis points of inflation. For fiscal 2021, inflation benefited comp sales by approximately 550 basis points. Across the network, we have been nimble to navigate the unprecedented supply chain environment and macro issues, including inflationary pressures. Additionally, we continue to see favorability in the frequency and depth of promotions. This is due to our commitment to our everyday low pricing strategy and a continued strong demand for our product categories. Turning to SG&A, our fourth quarter adjusted SG&A expense ratio, including depreciation and amortization, improved by 68 basis points versus last year to 24.9%. This improvement as a percent of net sales was primarily attributable to good leverage in occupancy and other fixed costs from the increase in our comparable store sales, along with lower COVID-19 pandemic response costs and decreased incentive compensation. This leverage…

Thanks, Kurt. Wow, what again outstanding 2021 on top of a record 2020. Yes, the team did a great job, they did, just fantastic. Alright. Let’s transition out of a typical earnings dialogue and look to the future. We have a very bright past with more than 83 years of serving Life Out Here. We are coming off a record 2 years of performance. But from our point of view, we are just getting started. We believe Tractor Supply is well-positioned for a bright future. We are in the early stages of the next transformation of Tractor Supply. This transformation should allow us to both grow our top line and earnings sustainably over a long period of time, while operating at a higher margin profile. Given the robust growth of our stores and online that have experienced, we have had a step function change in our business that is evident in our market share gains, sales growth and profitability. We are dedicated to investing and to continue strengthening our position in the marketplace and separate ourselves from our competition. We are committed to creating sustainable value creation for all of shareholders, for our team members, our customers, for the communities we call home, for our supply chain and vendor partners and ultimately, our shareholders. The roots of our long history of growth were established in 1938 when C.E. Schmidt founded a mail order catalog for tractor parts. We opened our first store in Minot, North Dakota, the following year. We serve Life Out Here. We are focused on the needs of recreational farmers, ranchers and all those who enjoy living the rural lifestyle. As I mentioned earlier, in December, we celebrated our 2,000th store opening in White House, Tennessee. This is a testament to all of our team members who…

Thank you, Hal. Building on Hal’s outlook on the positive momentum of our Life Out Here strategy is Senior Vice President of Marketing, Christi Korzekwa. Christi will share insight on our potential to capitalize on consumer behavior trends that emerged during the pandemic and several exciting initiatives to forge a deeper connection with our growing customer base. Christi?

Thank you, Mary Winn, and good morning. As you’ve already heard from Hal and Kurt, our future at Tractor Supply is extremely bright and promising, that’s why I’m excited to take a few minutes and give you an update on our customers, provide some insights into what we know about our ever-expanding marketplace and how we are using our industry-leading Neighbor’s Club program to drive our growth. Most importantly, we continue to see significant growth in the farm and ranch market which, as previously mentioned, we estimate to be more than $180 billion. And the pandemic continues to reshape and rewrite customer behavior. And it’s why we see such a large migration of customers from urban centers to rural and suburban areas moving into Tractor Supply’s neighborhoods. We also have seen customers’ homes become their sanctuaries during the pandemic, inspiring more home, outdoor living and land projects. And we only see that continuing as hybrid workforces are the new norm. We’ve also seen more pets become family members with record adoptions across the U.S. And with the pandemic’s disruptions to daily life and the broader supply chain, we’re recognizing a growing interest in self-reliance, sustainability and the desire to consolidate shopping trips. And this migration into a more rural, self-reliant lifestyle, or what we call Life Out Here, we believe, is a continuing cycle with lasting tailwinds. And according to our analysis, we have the potential to capture the interest of more than 40 million additional customers in our trade areas who do not shop at Tractor Supply today. So let me share some insights into our current customers. We’re seeing significant expansion with increased participation from our core farm and ranch customers and a surge in new customers. Core farm and ranch customers increased the number of animals and…

I love hearing stories like that from our customers. I get a bunch of notes every week from our customers and our team members. I will share another one with you in just a few minutes. But I am excited to talk to you today about something I am very passionate about, taking care of our customers. I believe we have the best customers in retail. And our job is to always live up to their expectations at Tractor Supply enables them to live on their terms. I will walk you through how we are going to lead with legendary service in 2022 and beyond. We are going to talk about our mission, GURA and the Country Mile, our stores, team members and customers, leading with legendary service and our game plan for growth. Our mission is to work hard, have fun and make money by providing legendary service and great products at everyday low prices. Our store team members take the words legendary very serious. That means your visit will be the best at any given time in any one of our stores. Our team members are empowered to do whatever it takes to support our customers. Our mission to be legendary is not new to us though. Over my 24 years at Tractor Supply, we have had a dedication to be legendary. We have been on a journey to deliver on this promise to our customers for many years. Looking ahead, this is a significant step-up in our commitment to legendary customer service. We have strong foundational values and the culture, both in the field and at the store support center that puts the customer first in our decision-making. In 2019, we launched our Tractor Way operating model, which continuously optimizes the relationship between task time, customer time,…

Thank you, John. We will take a moment here for a quick break. When we return, Chief Technology, Digital Commerce and Strategy Officer, Rob Mills, will share details on consumer-facing digital initiatives; Executive Vice President and Chief Merchandising Officer, Seth Estep, will provide an update on remodeling efforts inside and outside of our stores; and our Chief Supply Chain Officer, Colin Yankee, will share our vigorous efforts to meet strong consumer demand in a challenging supply chain environment. We will see you back in a few minutes. [Video Presentation] Welcome back. A reminder that a Q&A session with members of our executive team is coming up after this round of executive presentations. So, please stay with us. Joining us now to share how investments in our digital platforms are providing better customer experiences is EVP, Chief Technology and Digital Officer, Rob Mills.

Thank you, Mary Winn. I am very excited about being here today to talk about the activities that we will continue to grow our legendary customer experience. It’s great to be here. We have made significant opportunities to continue to grow and capture and build momentum on our digital business we have seen over the past few years. We have accelerated our digital journey, focused on creating a seamless experience regardless of how our customer shops anytime, anywhere, any way. When we introduced our Life Out Here strategy in 2020, this continued to be a focus for Tractor Supply, continuing to advance our ONETractor digital capabilities. Over the past 12 months, we have made significant progress on this journey. The team is living our values every day, driving change, taking initiative and being accountable to the expectations of our customers and our shareholders, introducing new capabilities to enhance our customer interactions, such as curbside pickup and our customer mobile app. We have taken a mobile-first approach in everything we do, using geofencing, which enables store efficiency and enables fast and convenient service for our customers. We have also worked to enrich the customer experience across browse, search and checkout. We are leveraging the rich data from our Neighbor’s Club loyalty program to serve personalized and relevant content to our customers. And we have expanded the ability to purchase from inventory beyond our stores, allowing our customers to buy items that are in transit from our DC to our stores, ensuring that they have access to the products they always need. As you heard Hal mentioned, we continue to grow our online presence, completing our 38th quarter of double-digit growth. Our customers continue to leverage the digital convenience of buy online, pick up in store and curbside pickup. We have seen…

Thanks, Rob. Good morning, everyone. Tractor Supply has been busy making headway with our Life Out Here strategy. In 2020, we outlined initiatives to grow space productivity as a major opportunity to deliver consistent comp store sales. This was a primary goal of our Operate the Tractor Way pillar. When we launched this strategy, we knew we had significant opportunity for improvement in sales per square foot compared to our hardline and specialty retail peers. Since then, we have been focused on our Project Fusion and the Side Lot transformation to drive convenience and to optimize our indoor and outdoor assortment. Importantly, we are making progress and we are driving significant productivity gains. Today, I want to walk you through a local store, updating you on the improvements and how we have continued to evolve our store layout with Fusion and Side Lot, highlighting some of the successes we are seeing as we rollout these strategic initiatives. Let’s get started. Welcome to one of our Tractor Supply stores, where we recently completed a combo Project Fusion and Side Lot Transformation remodel. For today’s tour, we are starting outside in our roughly 4,000 square foot garden center. When we first introduced our space productivity initiatives, we highlighted that our most significant opportunity to drive incremental sales, traffic and market share was through our Side Lot Transformation program. In this, we convert a space that’s traditionally been utilized for storage to a garden center that’s tailored to the lifestyle of our Out Here customers. We knew from customer research that the lawn and garden category, specifically live goods and bag products, was the number one hobby of our shopper where they did not look to Tractor Supply as their primary destination. And as the weather turns warmer and we enter spring 2022,…

I really appreciate that, Seth. Thank you so much. It’s great to be here with you to share the transformation that we are on across our supply chain. Tractor Supply is differentiated as the largest retailer for bagged animal feed in the country and the leader in meeting our customers’ needs for poultry, equine, dog and cat food, forge and other C.U.E. or consumable, usable and edible products that are core to living the Out Here lifestyle. Last year, we moved 8 billion pounds of C.U.E. through our supply chain. And as we have grown our sales and market share in C.U.E., our logistics network, our distribution centers and our stores have stepped up to handle that volume and meet the demand. In fact, compared to 2019, last year, the average Tractor Supply store moved 18% more units and 26% more cubic volume of C.U.E. product. And those volumes in total and per store are continuing to grow. We have seen a significant growth in C.U.E. customers because of our product portfolio with breadth across national, local and exclusive brands and products that cover the spectrum of species for all stages of life. We know C.U.E. products are traffic drivers, attracting new and younger customers. We know that customers who shop for C.U.E. at Tractor Supply are some of our most loyal customers, on average making 4x more transactions and shopping across a larger set of categories than a non-C.U.E. customer. And we know how important being in stock and a price leader are to customer satisfaction and retention. With the success of our Fusion and Side Lot remodels and the Neighbor’s Club loyalty program, the increased volume, velocity and variety of C.U.E. products moving through our supply chain and through our stores presents an opportunity to use our scale…

Thank you, Colin. Before Hal joins us to share his closing thoughts, EVP, Chief Financial Officer and Treasurer, Kurt Barton, rejoins us to deliver Tractor Supply’s strategy for robust shareholder returns.

Thank you, Mary Winn. It’s been 15 months since our October 2020 enhanced earnings event, and I am excited to talk to you again about Tractor Supply’s strategy, our new supporting strategic initiatives and our plan to continue to deliver strong and sustainable total shareholder return. At that time, we outlined our Life Out Here strategy and our focus on TSR. We are pleased with the strong progress that we have made against all elements of the Life Out Here strategy. We have continued to deliver on our highly differentiated proposition as the number one farm and ranch retailer. We have accelerated execution of all our strategic priorities and we have remained disciplined and focused on how we have allocated our capital. This team has worked hard to deliver outstanding financial results and are honored that our shareholders have benefited from the S&P 500 top decile TSR that we have delivered over the last 2 years. Despite our strong progress, we are not resting on our laurels. We continue to add important new strengths to reinforce our focus on delivering strong and sustainable TSR. Our top line revenue growth is compelling, not only in magnitude, but also in its quality and durability. The Life Out Here strategy continues to expand and we have added new strategic initiatives. As you heard from John, we plan to lead with legendary service and aim to achieve that number one position in customer experience. And as you heard from Rob, we are deeply focused on digital as part of our omni-channel approach and intend to dramatically lift our mobile engagement. And as you heard from Colin, we are investing in our supply chain to support the growth in key products that are core to living the Out Here lifestyle. We are proud that our…

Thanks, Kurt. We appreciate everyone in the audience spending the last couple of hours with us. As we transition to Q&A, I hope you found compelling the updates we shared with you today. Kind of a quick summary of the incremental news we discussed. One, we are capitalizing the many macro structural benefits such as rural revitalization, self-reliance, home steady and pet ownership and we are investing in our capabilities like digital and loyalty to continue to widen our moat with the competition. Two, we provided an update to our long-term financial outlook that includes raising our operating margin to 10.1% to 10.6%. Three, we operate in a large, attractive and fragmented growing market that we now estimate to be $180 billion. Four, with our growing total addressable market and the vibrancy of our trade areas, we now see the opportunity for an additional 200 Tractor Supply stores, bringing our total store opportunity to 2,700 locations. Five, we had the financial flexibility to invest in our Life Out Here strategy and return capital to shareholders through the combination of dividends and share repurchases. Today, we announced our Board’s approval to increase our quarterly dividend by 77% and an additional share repurchase authorization of $2 billion. We remain committed to maintaining a disciplined capital allocation strategy to create value for our shareholders. Tractor Supply has a deep history and a track record of success. We are coming off a record 2 years. We have compelling opportunities for continued growth and the team to execute. The future tomorrow is bright for Tractor Supply. Thank you. Now we’ll take a 5-minute break before we go to the Q&A segment. See you in a minute. [Video Presentation]

Welcome back to the Q&A session of Tractor Supply’s enhanced earnings event. We have assembled all of today’s presenters and they are ready to take your questions. A couple of housekeeping notes first. Please limit your question to one per call with a clarifying follow-up only if necessary. We have been very proactive in trying to show plenty – and allow plenty of time for this Q&A session, so you are welcome to get back in the queue to ask any additional questions if time allows. For anyone just tuning in, a quick introduction of our team, President and CEO, Hal Lawton; CFO, Kurt Barton; Christi Korzekwa, SVP of Marketing; John Ordus, Chief Stores Officer; Rob Mills, Chief Technology, Digital Commerce and Strategy Officer; Seth Estep, Chief Merchandising Officer; and Colin Yankee, Chief Supply Chain Officer. We have a line of folks already standing by. So, let’s take our first question. Our first question comes from the line of Kate McShane from Goldman Sachs. Good morning, Kate.

Hi, good morning. Nice to see everyone. Our question is centered around the operating margin opportunity. So I guess this question is for Kurt. We wondered about the cadence of the operating margin expansion over the next 5 years. Is it fairly even each year? And what is the biggest difference in this outlook versus what you gave us in October when it was a 9% to 9.5% range? I am just thinking that since the last time we spoke with you, transportation and labor is higher, while the top line outlook is staying the same?

Yes, hey, good morning Kate and thank you for the questions. On operating margin, as you think about the long-term targets, one, we are extremely pleased with the performance of the business. And the last 15 months have really shown in regards to is it structural, is it transitory in regards to the performance of the company, a lot more visibility and confidence in the structural nature of our business. And really that was one of the key factors when you look back to our enhanced earnings event 15 months ago. So, what we have seen first from the top line is that the belief in the structural nature of that really gives us the confidence on the SG&A that you have got that leverage. In regards to your question about how the cadence and what are some of the factors? I’ll break it down between gross margin and SG&A and over time. So with gross margin, certainly, we recognize right now we are in unprecedented inflationary times, managing that really well. We expect that inflation, as I mentioned, our 2022 guidance, to persist in over the next few years we expect a general inflationary environment, but more typical modest inflation and we believe we can manage that through our scale and through our retail price management. Transportation and the supply chain disruptions, we believe those maybe a little bit longer in nature and it might take a few more years to be able to actually normalize on it. But in the back end of that timeframe some of that transportation easing and normalization. In addition to that, on the SG&A side, we look at it in our investments right now we are hitting some of the peak investments. We understand that those investments put pressure on the SG&A and it’s the right thing for the long-term, along with investment in wages. So, the next couple of years have a stronger pressure in operating margin, but when you take the easing on the gross margin pressures of inflation, when you think about us beginning to have traction on the investments and our ability to drive efficiencies. I’ll even mention really proud about our profit improvement, our operating efficiency programs that we’ve got. We believe those are key drivers along with leverage from scale that allows us to be able to invest for the long-term, grow the top line. And during this time of investment, where you heard from Seth, really transforming many of our stores that we can do that while maintaining and potentially even grow our operating margin in the next 5 years. So it again, will be a little bit of easing into that. And maybe perhaps in the back end of it is more the upside of it, but we like that algorithm and the excitement that having an operating margin above 10% with phenomenal growth.

Thank you. All right and our next question will come from Peter Benedict with Baird. Good afternoon. I guess, your time Peter. Nice to see you think morning.

Hi, Mary Winn, yes, nice to see you all. Congratulations. Great event today. I guess maybe I just wanted to ask one about the cadence around Fusion and Side Lot, the rollouts there. Maybe you can talk a little bit more about how you see that over the next few years, how you gave some guidance on ‘22. Maybe something on the cost and the time to complete there is Side Lot tougher to get done here with some of the supply chain issues out there. And then maybe just an updated view on your Lawn and Garden TAM, what are you really going after here with Side Lot, and what type of share do you think you guys can get within those incremental categories over the next few years? Thank you.

Hey, Peter, and thanks for joining us today. I appreciate your question. If we look backwards last year, I just can’t say enough about the fortitude and grit determination of the team to get 80 new stores open, to have 300-plus Fusion stores and over 150 Side Lot stores. And as you mentioned, given all the disruption from COVID is related permitting and construction crews and the availability of things like fixtures and other materials. To be able to still achieve our goals from the beginning of the year, it’s just a real tribute to that team. In light of those issues, which we expect to persist for all of this year, we kind of kept our cadence for this year, similar to last year, as we talked about a couple of hundred Fusion stores, around 150 side lot stores and again, another 80 new store. And then if you kind of – all of our new stores also will be done with Fusion and many of our new stores also have garden centers. And then if you kind of take the balance, it will be really equally spread over the remaining 4 years as we lead to 2026, and that does assume a slight step-up in annual cadence from ‘23 and beyond. On the returns, we are very – continue to be very pleased with the returns of both Fusion and Side Lot. As we shared on our last earnings call, the Fusion-only stores are running in that kind of mid-single-digit comp once they get kind of the 12-month kind of cycle, maturity cycle. And then our combo stores are right at that kind of high single-digit comp. We’re very excited that we’ve got about 150 stores in our Side Lot combos that will be hitting that 12-month mark…

That’s super helpful. Thanks so much, guys.

And our next question comes from Zach Fadem with Wells Fargo. Hey, Zach.

Hey, thanks for taking the question. And thanks for all the great data today. So following up on the last question, you noted that combo stores with Fusion and Side Lot are seeing high single-digit lift in year 1, which alone looks like about a 100 to 200 basis point comp lift per year through 2026. So first of all, it sounds like the early 2021 cohorts performed closer to a double-digit lift. So I just wanted to confirm that. And then curious if you have any thoughts on what those stores could in year 2 and beyond and whether they will continue to outcomp the fleet or fall back more in line with the broader company average.

Hey. Zach, and I appreciate your question, and thanks for joining us today. I’d say two things. First off, kind of to clarify, high single-digit I think is kind of what we’re on the record right now, around the 12-month mark for the combo stores. As it relates to the impact on comp, I think that’s around – that’s roughly right. You take, call it, 9%, 10% lift on kind of 10% of the store base annually. And do the math, and that’s about what the contribution should be. That’s certainly baked guidance. And as Kurt said, it’s the thing that really gives us confidence in our guidance. And the last time we did an investor enhanced earnings call was in October 2020, we’re roughly 35%, 40% bigger in revenue, right, larger revenues from that date. And yet we’re still holding to our 4% to 5% long-term comp growth and 6% to 7% revenue growth. And it is because of the investments we’re making in the Side Lot and in Fusion and there are other areas that we’re confident they are really going to go after that growth and drive those sales and that we can do that mid-single-digit comp on top of revenue growth of over 50% in the last 2 years. And as we said, again, we’re very excited about having well over 150 Side Lot stores business here in the spring season, and we’re getting even a better read on the impact that it can have on our business.

Thanks so much. Really appreciate the time today.

Thanks, Zach.

And our next question comes from Peter Keith with Piper Sandler. Hi, Peter.

Hi, thanks, everyone. Good to see you and a terrific presentation today. I wanted to dig into some of the gross margin discussion. I think in thinking about the forward gross margin drivers, product mix was mentioned as a positive driver. That kind of goes counter to what we seen historically with the business, with the growth in C.U.E. I would think that product mix could also be hindered by the garden center expansion. So maybe you could unpack that a little bit on how you feel about product mix and what categories do you think can drive that positive shift? And then furthermore, just thinking about the other positive drivers to gross margin, pricing and promotions, there might be some skepticism on lower promotions, because there hasn’t been lot of promotions in the last 2 years? So maybe you could unpack how you’re thinking about delivering margin expansion on those, too?

Hey, thanks, Peter, this is Seth. Great question. Good to see you today. And when we look at gross margin as we manage forward, I would say if you look where we were historically, when we’ve talked about C.U.E. outpacing the fleet now potentially could put a little bit of pressure on the company. What I would say today is that the balance of the four walls is really performing. So while C.U.E. is outpacing, we’re continuing to premiumize even our C.U.E., we’re pushing people, call it, into that premium segment. But outside of that, we’re also seeing the apparel segment do really well for us today, right? We’re seeing our truck and toy area is doing really well for us today. I could go around the four walls of the store, and we look at our sales forecast and we look at particularly, this upcoming year, we’re anticipating all four walls continue to contribute to that sales number and that estimate that we have out there. So while C.U.E. is continuing to outperform, we’re looking to continue to drive that C.U.E., drive those footsteps, coupled with the balance of the store, along with our pricing technology that we have today, which is much more sophisticated than we continue to have in the past. We feel confident in the ability to be able to look at the pressures that are coming in the business, manage the mix of the product and be able to deliver those gross margin targets that we have out there.

Okay, thanks so much, guys. Good luck.

And our next question comes from Steve Forbes at Guggenheim.

Good afternoon, everybody.

Hi, Steve.

I wanted to focus on e-commerce and digital growth. So Hal or Rob, you mentioned 15% penetration by 2026, which is a, I think, about a mid ‘20 CAGR in the next couple of years. So can you comment on how the average customer engages with this channel? The profitability of this channel, how that’s evolved? And whether your initiatives behind this channel has increased the average numbers of transactions that you’re seeing within all customer cohorts?

Yes. Absolutely, Steve. Thanks for your question. And I’ll pass it over to Rob to address that. I appreciate it.

Good morning, Steve. Great to see you, and thank you for the question. So in regards to the customer and the customer interaction, they are definitely engaging with from a digital perspective. And as you heard through my presentation, the focus around mobility first is very key as well as leveraging the power of the data that we have with Neighbor’s Club. We have seen tremendous growth. We are extremely confident with that penetration rate. And we’re holding in to really drive a personalized experience with that customer, telling what they need for the product, their services and just really simply, how do you remove any of the friction and really driving that convenience. From ability perspective, we’re profitable. We deliver contributions back to Tractor Supply. We have a profitable online business. We will continue, of course, to look at profitability, ways to improve the profitability, leveraging all the great work that’s being driven through either the analytics and understanding of our business through the product assortment mix as well as the work that’s being done and can’t see him. We look at the store as our primary hub, how do we fulfill from this store? Same day delivery, delivering from the store capability as well as buy online pickup as well as curbside pickup, which has been a tremendous growth opportunity. Lastly, I shared some core capabilities that we’re focusing on. And going back to the mobile piece, it is around how we’re putting mobile first. We’re using the power of the Neighbor’s Club and that analytics and knowing that customer to ensure that we’re always connected with that customer at all times. When they are researching items so you are leveraging as the expert, so all the way through the ordering process, when you’re actually fulfilling that customer order and how do you drive that connection back to the store, the store hub and being connected back to that team member. So we’re providing that knowledge, that trust and the authority that our customer trusted. And so I guess I’ll leave you with that. We have a clear road map, a strategy to move forward, both how we’re engaging to the customer. We listen to the customer. We leverage the data and we’re as well as we will continue to focus on the profitability, but we’re strong and we’re ready.

Thank you.

Thanks, Steve. And our next question will come from Scot Ciccarelli at Truist. Hey, Scot. Nice to see you.

Thanks a lot, Mary Winn, good to see you as well. So my question has to do with the new customers. Obviously, new customers have been a significant source of growth for the last 2 years. And I think we can kind of all get our heads around kind of 2020 patterns, people moved away from urban centers. But I guess my question is, when you look at your cohort – the new customer cohort from ‘21, is it the same kind of cause and effect? Or is this a new customer acquired because some of the changes that Tractor Supply has been able to institute over the last few years?

Yes, hey, Scott. Thanks so much for the question today. I appreciate you joining us for the event. And I’ll toss it over to Christi to talk about our new customers and the customer insights for seeing.

Hi, Scott, thanks for the question. I’m looking forward to talking to you about our new customers. You’re right. I mean, we’ve had record growth in 2020 during the pandemic of new customers, but that really didn’t wane during 2021. We saw a very similar, if not even a larger pre-pandemic number in 2021. So those customers are coming back to us, are coming to us even in 2021. We see that, that has a lot to do with those structural changes that are happening in – with the pandemic relative to rural revitalization and more millennials moving in from urban to suburban, ex-urban and rural areas. And what we’re finding is that 30% of our sales are coming from these new customers. So we feel incredibly positive about growth of the new customer, and it will continue. A lot of that given to the structural nature of our business, need space. They are moving into our trade areas, our Tractor Supply neighborhoods. They are buying homes there. They are starting garden, they are starting flocks, pet adoptions at record highs. So, just incredibly optimistic that our runway is still far from at an end and certainly, we identified 40 million customers that we can still talk to that should be shopping us that are within our trade areas, so just lot of momentum and a lot of power behind those new customers just excited about it.

So just to clarify, if I might, so this isn’t because you guys have expanded garden and live goods, this is just the customer migration towards kind of your areas and regions, which is what’s driven it?

I would say it’s a combination of many things. I would say it is certainly the fact that we have a lot of customers moving into our trade areas. It’s because we have our individuals maturing into the lifestyle. I would say it’s because of our merchandising mix, I would say it’s because of the trends and the work from home. So there is many factors that are attributing to the growth, certainly glad that we have a lot of runway with the 40 million customers that – or should be shopping us in our trade areas that we are going to be attracting over the next years to come.

Thank you very much.

Thank you.

Our next question comes from Simeon Gutman with Morgan Stanley. Hi, Simeon. Nice to see you.

How are you doing? I look funny on camera. I wanted to go at Kurt, a follow-up to the question that Kate asked you about operating margin. If you look at your business in 2021 versus 2019, your sales per store were up just over 40% and your SG&A per store were up about 39%. So you spent into all of your growth, and that’s about the tightest spreads you get across all of the companies we follow. So if your business continues to grow at 4% to 5% comps and new compound going forward, and your investment cycle is going to peak. Unless your SG&A continues for your gross margin comes down, it would seem like there is a lot of upward pressure on your EBIT margin way past the numbers you guided today. So what’s wrong with that logic?

Simeon, yes, thank you for the question. I think it’s a great one. And this team is basically focused on managing our operating margin overall. Here’s a couple of the things that in regards to over the next 3 to 5 years. You pointed out the investments that we’re making on the business. When we look at our operating margin, we look at what we’re doing to invest from a position of strength and for the future. We’re making key investments in the SG&A, and we’re making investments in our supply chain. And those investments in the supply chain will help drive the market share and the sales that will help drive gross margin. We’re making investments field activity support team. We’re making investments in our IT technology. So we’re making the right investments, and yes, that puts some pressure on the SG&A, but our focus on driving market share for the long-term and the ability to be able to enhance that gross margin, it’s going to differ between the years. But we’re going to be really focused on top line being competitive and getting a good price to our customer and maintaining a good operating margin and keeping that even balanced. I’ve mentioned in my presentation, I put in that slide that we recognize there is some uncertainties in the financial algorithm today, unprecedented inflation. We’re seeing wage inflation and make sure that we’re positioned again to invest in our stores, in our technology by doing all of those things along with just having COVID expenses still in the business like most of retail. All of those costs we have some expectations continue to play into the financial algorithm, and there is opportunity. We want to be careful. We want to be prudent in our operating margin. And we feel like some of those factors turn positive in the long-term, that does give us the opportunity for that while we’re being pretty prudent in that approach and making sure that we’re doing the right thing for the business and real steady throughout these 5 years.

Thank you, everyone.

Thanks, Simeon.

Thanks, Simeon. Our next question comes from Michael Lasser of UBS. Hey, Michael.

Good morning. Thanks for taking my question. Your guidance for this year assumes that you’re going to get 400 basis points of an inflation contribution. You also mentioned you expect traffic to be up. So let’s assume that’s going to be up 50 basis you the high end of your comp range. You also mentioned that you expect big ticket to be under pressure this year. Presumably, your core customer also saw an extraordinary amount of government support from stimulus, enhanced unemployment and child tax payments last year. How have you factored that into your guidance for this year? And as a follow-up, and a quick clarifying, after we get through fiscal supply chain disruption, what’s the prospect for some potential deflation in your categories?

Yes. Hey, Michael, and tanks for the question. I mean I think the math you provided is really kind of the math that our guidance reflect is about four points of inflation in the year that will drive ticket up, kind of a give back on ticket of a couple of points because of stimulus due to last year’s kind of surge in big ticket, kind of netting to a couple of points. And then the balance of our comp range made up of comp transactions to kind of get there, so in kind of that 1% to 2% range on the comp transactions. And we feel very good about that formula. And we’re committed to unit growth, and we’re committed to comp transaction growth this year. And we gained substantial share over the past years we talked about. We think there is a big opportunity to continue to do that. And then on deflation, I think there is a likely – there is – that’s always out there. I think it’s really unlikely for the foreseeable future for a variety of reasons. Dominantly that the majority of the inflation we’ve seen is, I think, structural in terms of the new levels that we’re at, whether that’s wages, many of the cost of goods, freight, imports. I think we’re going to see a kind of a structural holding of a lot of those costs. I don’t know they will continue to see inflation, but I don’t know we’re going to see significant deflation on that certainly in the next 18, 24 months or so. And the other thing I’d say is our past cycle on inflation, it’s been really kind of the core commodities that drove it. And here, it’s really across the board. I mean, we’re seeing cost of goods increases due to wages, cost of goods due to steel, cost of goods due at other raw materials and our manufacturers’ wages. So I think it’s more structural in nature. The final thing I would leave is we lot more sophistication around our pricing tools and our competitive pricing engines that we had before. And so we’re just a lot more sophisticated in the way we can navigate through that. But regardless of how the environment evolves, I think we’ve shown our ability to be flexible, agile, deliberate performance, stay priced in the market, continue to gain share and deliver results, and that’s our commitment, whether it’s an inflationary environment or a deflationary environment.

Thank you and good luck.

Thanks, Michael. Our next question is going to come from Chris Horvers at JPMorgan. Hey, Chris, how are you?

Thanks. Good afternoon, thank you for the presentation. So a bit of a follow-up question to Michael. So as you think about elasticity and inflation, you saw some headwinds to gross margin rate from product cost inflation. Is that simply you managing the business from a gross profit dollar perspective versus not a gross margin rate perspective? And then similarly, on the macro side, as you think about your potential sensitivity to wealth effect and higher rates in housing, have you taken any of that into account considering your expectation for continued ruralization?

Yes. Hey, Chris and good to speak with you today. And I’d say, first off, on pricing. I think the team has done a fantastic job navigating the cost environment, finding offsets to many of the inflation factors and productivity and efficiency. Also being that advocate for the customer on price and making sure we’re staying price right every single day. And then where we have found it necessary and needed to, we have passed through price. I mean, to the tune of 7% price inflation in Q3 and 8.5% price inflation in Q4. I think our guidance as we talked about a 4% inflation for 2022 reflects kind of the higher single-digit price inflation through the first half starting to cycle that and settle back into low single digits in the second half. If you look at all the puts and takes, I think there is more risk to the upside on our inflation assumption than there is to the downside. But the team will continue to navigate, navigate through that as we go forward. And remind me, Chris, the second part of the question?

So as you think about – clearly, you’ve had a strong wealth effect for the consumer low rates, house price increases, stock market benefit. Surely, that’s had some impact to your consumer and the sort of ruralization that you’ve seen as people sort of spend more time in rural homes. So have you taken any potential headwinds into account from rates moving up and decelerating the housing and wealth engine?

Yes. It’s something we certainly watch closely. Christi and the team have a number of ways that they monitor the health of our customer, whether it’s quantitative and qualitative. I’d say, right now, the home market is really strong, right? There is less than 1 million homes that are available on the market around, I think, 900,000 last month, 1.6 million, 1.7 million new homes being built right now on an annualized basis. existing home sales, well above $6 million. I think that’s going to continue for really the next couple of years at a minimum, even in spite of interest rates and even likely in spite of – within reason, home prices. You just got a millennial generation that’s now wanting to purchase homes. And I think in general, that’s good for us. When people buy homes or transact around homes, it creates projects. It’s a big project starter, and we see that in our business. And I think it’s going to continue on. The consumer still has over $2 trillion of pent-up savings. I think the last month or 2, if you look at the data, they have started to tap into that a little bit. But there is runway certainly for the balance of this year as they draw down, so to speak, on those pent-up savings to drive the GDP growth that I think is being forecasted really across the country. And I think rural customers have navigated this environment better than the average kind of a consumer out there. And I think we’re in a very favorable market as we head into 2022. Thanks so much, Chris for your questions.

Thanks, Chris. And up next is Scott Mushkin with R5. Hey, Scott, how are you, today?

Hi, Mary Winn. How are you guys doing? Thanks for having me on and thanks for conducting. This is great. So I wanted to actually attack the revenue side of things, your revenue growth algorithm. It seems to me if you look over the next several years. And I think you guys said it right, like you kind of only just begun to make these changes. I mean, clearly, Lawn and Garden is an adjacent category, but there is a lot more where as you guys transition into the more kind of lifestyle superstore. It seems like there is a lot of other categories you could get into become bigger and some are available online. So I wanted to ask you about that. I also wanted to ask about the making store more experiential. We have the check based and stuff like that, but it’s obviously more you can do that way. And then finally on services, again, another enormous opportunity for the company to layer in additional services and so there is a lot here. And do you guys have a speed to attack all this, and it seems like revenue growth could actually come in significantly higher?

Hey, Scott, thanks so much of the question. And I think we’re going to break that up into two parts with Seth, can you maybe talk a little bit about the assortment and how we’re evolving and much of that he shared in the video and kind of recap some of that. And then maybe John can talk a little bit about the experiences in our stores, whether it’s chip days, pet watches, clinics and many of the other things, the 4-H and FFA type stuff that we do. But Seth, you want to hit the assortment expansion first?

Yes, absolutely. Hey, Scott, great to see you. Thanks for the question. I’m incredibly excited about exactly what you’re talking about and how I outlined earlier our expansion of our total addressable market. And from a merchandising perspective, that’s what really, really excites us because we know we have opportunities across our business as we’re seeing both our core shopper and these new shoppers that are finding Tractor Supply as we’re introducing them to this lifestyle. They are finding the buying and where we know we have that considerable market share opportunity. Our merchants are continuing to attack that with partnerships, exclusivity, going after differentiation, driving experiences in the store that John will talk both inside the box, but also looking at outside the box. Obviously, with what we’re looking garden centers, our front aprons could go on and on. And so we’re looking at this year. Again, I mean, you talk about things like apparel and the trends that we’re seeing like in Carhartt, Ariat as well as our own exclusive brands, whether it be like in Ridgecut and expanding into women’s, those are the things that we’re really looking to attack. As well as like in pet, constant, constant newness that the team is going after, whether it be like the introduction of brands like Victor and Tractor Supply as well as doubling down on brands that we’re really seeing growth for like that would be considered specialty for the rural marketplace like science diet, Proplan, etcetera. And I can go around the store. And if you think about things like where we have big opportunities, we’re approaching spring. And you mentioned Chick Days, we’ve talked about live goods. But we’ve also got things like the electrification of these new shoppers that are in – or the OPE market, these new shoppers per coming in. We announced this past week, our partnership that I’m really excited about with Greenworks and Greenworks Pro. We know shoppers have been trending towards the battery market, but we’ve been really waiting on a product that we believe that would stand up to the demands of consumer. And that’s what we really went after and have created this partnership with them. That’s just like one area and one category that we continue to talk to. But we’re really not playing in today, but we’re going after, and we’re going to continue to go after that with market share and play in the future. So absolutely agree that I can talk about product all day long and within our store and not just in the store, but also online with Rob and team with the product expansion there. So John, I’ll turn it over to talk about experiences.

Yes. Hey, Scott. Good to see you, again.

Hey, John. Good to see you.

So I’m going to break it down in a couple different parts. So one is we hire our customers. So our team members love talking about everything that we have inside of our stores. So you brought up chick days, it’s an event side of our store, where we have chick captains in there. They know the chicks. They work with the chicks when customers come in here, there is a good conversation that goes back and forth between that customer and that team member. The other things we do is stuff for our Greenworks, like we love theater inside of the side of the store. So some events we’re doing this year, like try before you buy, we have an even a weekend where our team members are all going to be outside, and we’re going to be test driving the Greenworks and using the blowers and using the weed whipper and different things and using our different power equipment materials. The other thing is we love to be able to have the community involvement. So we bring in things like 4-H, FFA. We do things like hot dogs outside. We’ve come in, our customers do donations for them, but we have it where they can talk to each other, do chicken swaps and different things out front. So we kind of break up into many different parts, but we look to be part of those individual communities.

Yes. Thanks so much, Scott, for the question. And as you were mentioning, just in wrap up here, we are literally pushing every corner of the store really into kind of a more modern, contemporary assortment, right? A Seth shared, shared expansion of power tools into kind of a legitimate tool chorale, expansion of pet into full fledge pet offering, deepening our commitment around animal feed, expanding into live goods, bringing in services like pet wash. John has over 250 stores now doing delivery with our own trucks. So just so many things that we’re pushing the envelope, so to speak, on every inch of the store, all around just sweating our assets more, getting more productivity out of those stores and delivering those mid-single-digit comps. Our goal is to gain market share every single year to grow above GDP, to grow above retail and to grow above growth rates. And we think we’ve got an exciting plan to do that.

Thanks, guys.

Thanks, Scott.

Thanks so much, Scott. Up next is Joe Feldman with TAG. Hi, Joe. Please go ahead with your question.

Hi, guys. Thanks for taking the question. I wanted to ask, given everything you just said about all the opportunities that you do have in front of you. You’ve mentioned tuck-in acquisitions a few times. And I’m just wondering what you’re thinking there. Is that more to acquire small competitors? Is it getting into new product lines or categories or even just for infrastructure to run the business better? I just wanted you to share some thoughts on that.

Yes, Kurt, do you want to share our capital allocation strategy and then talk about tuck-in acquisitions after that?

Yes, definitely. Just to – I’ll start with reiterating the capital allocation. Certainly, our number one priority is investing in our stores, and we see still significant opportunity, as I mentioned, nearly a decade of growth in the runway of new stores. The investments we’re making to sweat those assets and put more productivity in the stores that already have the occupancy and the rent there. So Joe, to your point, first, we’ve got so much opportunity in the growth of the business and grab the total addressable market and grab market share there. Then of course, after that, we feel with the tremendous step-up in growth and the consistent operating cash flow will return to with the opportunity, both dividend and share repurchases, thrilled to be able to announce the Board’s approval of a 77% increase in dividends. As far as the tuck-in acquisitions then, where there are opportunities. We’ve not been highly acquisitive. We feel there is so much opportunity in our core. But where there are opportunities, Tractor Supply is sometimes that an exit strategy in our niche industry, where there is area that we are not in. I mean we’re open to that opportunity. If we look at it and say, hey, there is opportunity to grab the real estate we’re not in or to complement. And so if there is a acquisition, if there is a capability that builds on one of the strategic initiatives that you hear from us as part of Life Out Here strategy to buy versus build, we will look at that opportunity. But it’s certainly more of that opportunistic things on our radar and really excited about what we’ve got right in front of us, and there may be complementary opportunities.

Thank you.

Thanks, Joe. Our next question comes from Brian Nagel at Oppenheimer. Hi, Brian, how are you?

Good. How are you doing? Good morning. Great presentation, thank you. So my question – I know it’s a bit of a follow-up to some of the prior questions. But I mean clearly one of the big themes in today’s meet in all the comments is just the rebasing higher sales. And as I think about that dynamic, clearly, there is now – there is more people sort of say there is a large portion of population living a lifestyle that wins to Tractor Supply. But at the same time, you have – you’ve taken market share gains. There is always been this market share opportunity for Tractor Supply, and we talked about that for years. But I guess as you look – maybe more color on what you’re actually seeing with market share? I mean through the academic where there are more permanent changes in your competitive set that lend to these sustainability some market share gains? Or – and on the other side, are you seeing – is this is happening? Are you starting to see some competitors that maybe seeded share starting to fight back more now?

Hey, Brian, thanks for the question. I’ll break it into three buckets. First off, we talked about over the last few years, our market grew at about 25% in aggregate over those 2 years. And I think that does say to all the trends that we’ve outlined and you implied in your question. The second two things I’ll highlight are really around investment. We’ve got substantial structural advantages in our digital business, in our Neighbor’s Club, in our supply chain, in our store base and the way we train our team members, the technology we use inside of our stores for our team members like our Theatro headsets and our Honeywell handheld devices. And so – and those are things that we have historically invested in and there are things we invested in over the last 2 years. It was mentioned earlier about our operating margins come up in the context of our sales, perhaps not grown as much as some others out there. And the reason is because we put a lot of that expense back into the business, we kept our stores heavily staffed, we paid the appropriate wages, we invested in marketing, we invested in digital. And I think as we talked we gained – our sales grew over 50% over the last few years. And it’s really – the reason we been able to double the market growth rate is because we had the inventory in our stores. We had the people to service them. We had buy online, pick up in store when others didn’t. We had a Neighbor’s Club program talk those customers and bringing them back into the stores. We had a supply chain that partnerships that allow product to flow in a way that others couldn’t. And once people over 2 years change their shopping behaviors, it’s really quite infrequent for them to slip back unless we let them down. The third thing is all the structural all the incremental investments we’ve made in our Life Out Here strategy, the Fusion stores, the garden center stores, all the incremental technology investments we made. Last year, we talked about mid-single digits on Fusion, doubled – high single digits on the Side Lot combo stores. And that was only on 300 and 150 stores. So we are starting to see kind of the initial impact of those in our comps, and we’re excited about those continuing to drive our business in the future, plus it’s holding on to those customers and having a higher sales base. But I kind of break it into those three buckets, structural trends driving the overall market, us being committed to operating with excellence in the midst of the last 2 years and then investing on top of that with that momentum to gain even more share.

Thanks, Hal. That’s really helpful. Congrats.

Thanks, Brian.

Thanks, Brian. Next question comes from Karen Short with Barclays. Hi, Karen. How are you today?

Hi. Thanks very much everyone. Yes, a couple of questions. Just actually following up on that, when you think about your top line growth versus your unit growth within the context of your algorithm, how should we think about that relationship? Because depending on the scenarios, I guess growing a little bit at rate and sales on the algorithm. And then the second question I had is on your increased unit potential, I was wondering if you could just talk about that analysis in more detail, given the 40 million incremental potential customers, I actually would have thought that your unit potential is higher?

Yes. So, I will take the unit potential question then turn it back to Kurt to talk about operating margin leverage. On the unit potential, what we have is John and the team have been very sophisticated kind of map of our country, kind of ZIP code by ZIP code. We know what the demand potential is. We know where our stores are, we know where competitive stores are. And we look at those void spaces that are in that map. We then take those void spaces and bounce them up against the financial model and say, does it create value if we put a store there? And historically, that analysis has led us to 2,500 stores. Now with the growth in our market, that creates one, some new void spaces, but also it makes some void spaces that were not previously financially attractive, more financially attractive now. As I mentioned, our new stores over the last 3 years have significantly outperformed their business case. Our new stores are profitable in the first year. And so the combination of those factors led us to take our new store target up from 2,500 to 2,700. And we feel very confident in that number. And hopefully, in a couple of years, there is more on top of that, but we feel very good about that number. And Kurt can talk about our operating margin leverage.

Yes. Hey Karen, good to see you. Let me ask for clarification because you broke up a it on the question on EBIT. So, I know it was an EBIT margin question and also referencing sales growth, but maybe just clarify that.

Well, no, it was thinking about the EBIT growth percent relative to the sales growth, right? So, we don’t know what you have done historically, but within your guidance, I think that to a decent rainwear site to range where the growth grows in line with sales growth or it grows slightly at a greater rate. So, just wondering how you think about that within the context of the algorithm?

Yes, great. From an operating standpoint, I mean the – again, I will just reference the key – if the question is regarding our long-term outlook, and we think about the EBIT margin in there is that we see an important opportunity right now to make investments, and a lot of that investment will be in the stores technology and in our supply chain. And so as we make the investments and those investment pressures are on SG&A, we also see great leverage through our operating efficiencies, the leverage from the growth in the sales. And so we have – over the next 3 years to 5 years, we see definite inflation and pressure from investments that we can offset with the leverage and with the operating efficiencies. On the gross margin side, we also see over time that we have got the opportunity from those investments able to grow our gross margin. So, there is some good opportunity in here with our scale and with the work that Colin and Seth are doing to be able to grow some of that gross margin at a faster rate and really see that opportunity there. So, from the algorithm, our assumption is that these investments are growing the top line, but also giving our gross margin an opportunity to grow. And there is likely to be more growth in the operating margin over that 5-year period in our assumption from the gross margin side as we balance out our efficiencies, our investments in the SG&A side.

Okay. Thank you very much.

And Karen, the only thing I would say is like in a really simple way for me is you have got revenue growth of kind of 6% to 7%. And then you got the EPS growth, which Kurt took us through at 8% to 11%, and then you were buying a couple of percent of share back. So, if you take those out, we are kind of growing EPS kind of 6% to 9% organically, which means earnings are going to grow kind of with sales or slightly better on an annualized basis on average. And which means kind of particularly after this next year to cycle of investment, we will grow kind of operating margin about 0.1 point a year, and that kind of leads you up to that 10.6%.

That’s great clarification there Hal. Up next on the line is Chuck Grom from Gordon Haskett.

Hi. Thanks. Great presentation, everyone. A lot of great statistics today, but the one that really called my eye was the 40 million additional customers in your trade area. So, I was hoping, Christi could speak to the timeline for acquiring these new shoppers. And then as a follow-up for Hal on the gross margins, I believe you spoke to roughly flattish for 2022. How should we think about the cadence of gross margins throughout the year?

Yes. Hi Chuck. Thanks for the question. I love talking about our customers. And just thinking about our customers pre-pandemic or when the pandemic first started through 2020, we acquired 11 million new customers. We are still comping the pre-pandemic numbers in 2021. We have more new customers in 2021 than we did pre-pandemic. So, 10 million to 11 million a year is what we are attracting, and 50% of those are returning to us after they shop. So, we are attracting and retaining a lot of new customers. And with the new work with the TAM and the opportunity in Fusion and Side Lot, there is so much more opportunity for us to really begin to attract even more than those 10 million a year new customers. But we are on a trend line right now of 10 million to 11 million new customers every year, and I would see us just accelerating that over time.

Yes. And I would just speak, Christi and the team are just doing an outstanding job. I think raising the awareness of our business, going from 34 points 2 years ago to 55 points. Now, that 21-point awareness increase, I think has really helped kind of drive traffic into our stores. And then whether it’s through online and product assortment or John and the team at customer service, that conversion in the store and then holding those customers. And then I think just continues to build on top of itself as we continue to grow that awareness and have that fantastic experience in our store and online. As it relates to the kind of operating margin algorithm, I think the way we think about it is very similar to the way we have talked about the last couple of years, which is we would see us continuing to kind of that 10.1% to 10.6%. Last year, we did a 10.3%. The year before that, it was a 10.1%. And the bulk of that gain was really in gross margin rate as we held SG&A kind of roughly flat. As we think about the next few years, particularly once we get through this peak investment over this year and next year. I think gross margins will hold to maybe moderate some. And then the leverage is where that we will see will be in SG&A. And that’s what kind of gives us that range between 10.1% and 10.6% with us creeping towards the middle to higher end of the range as we get into the out years of the 5-year range. And Seth and the team are doing a fantastic job navigating all the cost inflations that are coming through, offsetting it in ways they can and then passing through some on price. And then importantly, maintaining little to no promotions and then also little to no clearance. And the great thing is we list on last year, we were asking whether or not the little to no promotions could remain kind of structural in nature or whether or not that would creep back in. And I think after a couple of years, really the behaviors in the market have evolved, particularly as we look at this year and continuing to be constrained still in supply chain. So, we feel really good about maintaining kind of little to no promotions as we look into future and kind of stay in core to our EDLP trip routes.

Alright. Thank you.

Thanks Chuck. And our next question comes from Oli Wintermantel with Evercore ISI. Hey Oli, how are you today.

Hi. I am good. Thanks. Thanks very much for the presentations today. I had a question regarding the longer term outlook on your transactions or traffic within the comps. If you think about what drives your traffic within the stores. And then on an inflation basis, if that normalizes over the next 5 years, how do you think about the mix between traffic and transactions?

Yes. Hey Oliver, I will take that. First, I will start by just talking about 2022 as a quick reminder, and then beyond that. So, for 2022, what we have said is we plan and are targeting positive comp transaction and positive comp ticket. And ticket likely to lead more than transaction in 2022. Beyond 2022, while every year could be a bit different, what we think about it is it’s really going to be pretty balanced. And if you refer back to some of the real drivers of our comps that we have talked about, you have got Fusion and Side Lot that are driving traffic into the store with new categories. They are also driving ticket, digital doing the same thing, the work that John and Colin talked about on delivering on legendary service. These types of things, we really see the strategic initiatives that we have got and the momentum in the business that in the 2023 to 2026 period of time is that we have got opportunity to be really balanced between both of those because these strategic initiatives are focused long-term on driving market share, which means traffic, which means footsteps into the stores and clicks on the website.

Okay. Thanks very much. Good luck.

Thanks so much. Our next question comes from Daniel Imbro at Stephens. Hi Daniel, how are you?

Hi, good morning. Thanks for all the info today and taking the question. I had a two-parter for Hal and Colin, just as we think about growth on your existing infrastructure, maybe how in the stores, as we think about store efficiency, are you seeing any throughput issues as the team is handling more volume? How is store turnover doing as the team members are being asked to handle more? And then Colin, you talked about the DC investments. But can you talk about any investments in existing DCs to improve efficiencies? And then maybe you can provide an update on turnover given the wage investments you made?

Yes. Hi Daniel. Thanks for joining us today and I appreciate the question. I would start by saying, we have seen some modest increases in our turnover this year, certainly relative to last year when turnovers were at all-time lows. But I think we fared much better than most companies. One, first and foremost, because of our culture and our commitment to mission and values and all the things that John talked about earlier around our commitment to the communities and hiring our customers. And then secondly, we have made substantial investments in wages and benefits and other benefits over the last couple of years, which have served us well in terms of retention. And then in terms of kind of flow through the business, our – we are up substantially on C.U.E. over the last couple of years. No one sells more animal feed and bag animal feed in the country than we do. We are one of the top retailers on pet food as well. And interestingly, on – particularly on the pet side, our customers skew larger on their pets, right. So, we sell more than anyone 50-pound bags of dog food and certainly the vast majority of our animal food are 50-pound bags, and that’s flow through, a lot of tonnage through. We are the lowest cost to serve all those in the market. We are committed to being the lowest cost to serve. We are committed to be able to be in stock on those. And that’s really a lot of what Colin’s presentation and focus is going to be on for the next couple of years and let him elaborate a bit on that.

Sure. Daniel, thanks for the question. As far as turnover, I think Hal answered that. But with investment in our existing distribution centers to drive throughput, I just can’t thank our team enough. They hit a record level throughput this last year. And I would say it’s more than just the distribution centers. It’s really tough to execute that we have a planning problem. So, it starts upstream with working with our vendors, with our replenishment allocation, with our transportation team to make sure we set the distribution centers are for success. So, the team is at phenomenally in 2020 and 2021, given all the different disruptions that we have well publicized across the supply chain. Within the four walls of our existing distribution centers, we are really reaping the benefits this last year and going into 2022 of investments we made in profit improvement over the previous years with bringing all of our systems up to the common execution platform across all distribution centers. Two, engineered labor standards within our facilities to drive throughput and efficiency to schedule flexibility and communication with our team members. And most importantly, to the quality of leadership that we have in developing our frontline leaders because we know our team members can go work at other distribution centers, and these distribution centers intense kind of geographical areas, but they choose to work at Tractor Supply because of our culture, because of our mission, because of the way they are treated in those facilities. And that’s an enduring strength that’s going to carry us through for the next foreseeable future.

Thank you. Good luck.

Thanks Daniel. Appreciate it.

And our next question comes from Steve Zaccone at Citi. Hi Steve.

Great. Hi Mary Winn. Thanks for taking my question. Thanks for the presentation today. I had a question on 2022 and then just a follow-up on like the longer term targets. So, we think about 2022 from an inflation perspective, could you talk about the level of inflation from maybe a category perspective relative to what you saw in 2021? It seems like it’s more broad-based than the nature. And the other question I had just on the longer term targets, the last time you met with us, you talked about a potential giveback year to cycling some of the strength. It doesn’t seem like this is factoring in a give-back year. What’s really driving the confidence that you don’t have that give-back here?

Hi Steve, this is Seth. Relative to inflation and what that outlook is this year versus this past year, what I would say is if you were to go back to 2021 in the beginning of that year, it really started with the commodity markets, right? And you think about grains, then we move more into steel, then other cost pressures continued on our supplier side, continue to roll to, call it, cost of goods pressure, whether that would be getting components from overseas to here, their labor rates, etcetera. And what I would say is we are – as we have entered into 2022 and where we are today, it is more broad-based. And so relative to last year, you are looking more broad-based across the four walls. What I would say about that, though, is when we think about our pricing sophistication, we know where the price is coming at us. And we know what’s in front of us and our – and the team has done a fantastic job from an analyst perspective, utilizing our tools to be able to go out and make sure that be priced right in the market, to drive market share, measure elasticities and at the same time, make sure that we can manage the P&L accordingly. So, as you look at last year, it did really started commodities, really went into steel. Now it is more broad-based and that’s where we see it heading in 2022.

Hi, Steven. I will take the question on the reference back to the last enhanced earnings call, where we had that give-back year. And your reference, I am assuming you go back to that line graph that many have referred back when they are talking with me about it. And really back then, the question was all about structural or transitory, and really how resilient is this step-up in growth. And 15 months ago, there was that legitimate question of how much of this growth is a temporary shift in behavior that’s in favor of Tractor Supply. But all the things that we have talked about and what Christi mentioned in regards to the permanent shifts in some of the customers, not only geographic locations, but what the hobbies are and people entering in our lifestyle, millennials buying homes, those types of things began to get answered over an 18-month period of time. I will reference back to, as an example, one of the slides I presented, I think is really powerful that over this period of time, what we saw that we had growth from new customers, 30% but then growth in existing new categories of the product as well into existing digital as well as in brick-and-mortar and the fact that our growth was from transactions and ticket. And when you look at transaction and basket, it was the biggest piece of it, so really broad, diverse growth in it and the fact that we have had consistency. Best way to give an example on the consistency. Last three quarters, 40% almost to a tee, each of those quarters, 2 years back on the comp. So, as we work through that, it really solidified that these are enduring customer relationships that are benefiting Tractor Supply. It’s really the difference between what our outlook was 15 months ago versus what we are presenting today, and really excited about that for the future.

Very helpful guys. Thanks very much.

Thanks Steven. Appreciate it.

And our next question comes from Liz Suzuki with Bank of America. Hi Liz.

Hey. Thanks so much for hosting this event. I just had a follow-up to Karen’s question about the store base. Is it correct to assume that essentially all of those 2,700 stores will ultimately have Fusion layout and that the vast majority will have Side Lot, or are there any alternative store formats that might be considered in that 2,700 number? And a related question about Petsense, and what you view as the long-term opportunity for that store base?

Yes. Hi Liz. Yes, that’s correct. All new stores are being built with the Fusion layouts. So – and that was the case in 2021 and will be the case moving forward. As it relates to the garden center, it’s really on a store-by-store basis, whether or not the store is built with a garden center, depends on what the market opportunity assessment tells us. What I would say is this year in 2022, the vast majority of our new stores will have the garden center, and that’s incremental to some of the guidance that we gave on our existing store base through the presentation. And then as it relates to Petsense, we haven’t had a chance to talk about that business today, but the business is doing very well. Matthew Rubin joined us last year about this time to lead the business, done an excellent job of kind of driving the business. They had an excellent year, strong sales growth and profit growth, a number of new stores built. We have made several elements of integration that are customer facing like we now sell for health branded food inside of Petsense. We are in the process of doing some things in terms of integration later in the year on Neighbor’s Club and also some integration on branding. We are also taking our software now implemented that inside of Petsense. And we are also working on kind of a centralized inventory platform, whereas right now, the stores are done via kind of the individual store base. And so a lot of work is going on to leverage the breadth of Tractor Supply to make Petsense better. The team is doing a great job driving it. We have got a number of new stores that will be built for Petsense this year, and we are excited about the future of that business.

Great. Thank you so much.

We have got time for two more questions. So, we will go up to two more questions. And up next is Bobby Griffin with Raymond James. Hi Bobby. Bobby, we are having a little bit of trouble hearing you.

Thank you, Mary Winn. Yes. Sorry about that. I guess I just want to quickly unpack the long-term growth targets. Is the rate – and what the embedded market rate is in those targets? Is the right way to think about it is the market grows, say, 3 to 4 Tractor that picks up a point of market growth share in comps, or is the market growth going to grow in line with comps and then the market share gains come from the new store growth?

Yes, it’s a great question. And I think we think about it the latter, that kind of long-term GDP, the country is kind of 2% to 3%. Our market typically maybe grows kind of 0.5-ish point above that, 2.5% to 3.5%, maybe ease up to 4% with our comp guidance of 4% and 5%. We are certainly taking share in the markets that we are already in. And then the building of new stores just allows us to take incremental share on top of that. So, it’s a bit of a blend of the two scenarios you mentioned, but it’s certainly taking share with our existing stores, growing our sales productivity. And then on top of that, also gaining it through both new store build-outs as well as digital.

Thank you. Best of luck.

Thanks Bobby. And our last question will come from John Lawrence with Benchmark. John, please go ahead with your question.

Great. Thanks for doing this today, that’s great and congrats on the year. Can you talk a little bit about the pet business. And you mentioned the pet washes and the wellness clinics. Can you talk a little bit what happens when you add one of those into the business? Does that customer go around and shop? Just so how much does he pull from other categories? I think you mentioned you had over 40. How big could that business be? And what are you seeing with the availability of veterinarians in this environment?

Yes. Hi. Thanks for the questions. First off, I would start off by saying our pet business is incredibly strong. We talked about our C.U.E. and its performance over the last handful of quarters, out-comping our overall store. And then we mentioned that pet particularly dry dog food is outperforming even our C.U.E. business. So, our pet business is very strong, both in-store and online. And then we certainly want to make sure we are providing a full suite of services around that. And I will let John talk a little bit about the dynamics and we have a pet wash or a pet clinic or a mobile clinic and how that plays out in our stores.

Yes. Thanks John for the question. So, our pet washes – so as soon as a customer uses the pet wash, they continue to come back and back and back. They love using the pet wash. They like to come back. We have pet washers where some stores will do over 100 a week in pet washes. So, the customer really likes it. They enjoy it, they love that feed and they like being able to take care of their pet. It doesn’t have to always be a dog though. Sometimes it’s something else. You asked about what they do after that. So, let’s go into the store and the number one thing they buy is the collar. Because the first thing you do if you wash your pet is you want to get something new for the pet, so you will get a collar. They will also pick up some other while they can’t get the rest of their shopping done. Out of the pet wellness clinics or the mobile clinics that come up to the front of our stores, we have lines out in front of our stores for these clinics. Customers use them. We advertise them out there, Christi and her team to get it out there. And then customers will come in, they will sign up and then they love getting their dogs taking care of out there. So, it’s something our customers really like. They love the fact that we do it for them, they love the convenience about it.

How many of those stores could you add over time or those projects?

Yes. So, pet wash is now kind of a core component set outline of our Fusion stores. Really, the only time it’s not going into a Fusion stores when there is a legit kind of a real space limitation. So, we see over time, the vast majority of our stores having a pet wash. The mobile clinics, the vast majority of our stores already have mobile clinics. At a minimum, it’s every two weeks, but there is a lot of our stores that had it twice a week. And then on the wellness clinics, that what I think is still a bit more in a testing mode for us. As Seth talked, we are in that kind of 50 store, 60 store range. We will add some more this year through Fusion, but we are really excited about the benefits and the performance of those, and we will look to do more as we see the performance over the next year or 2 years.

Alright. Thanks. Congratulations and good luck.

Thank you.

Alright. Well, that’s going to be our final question. As always, those were some great questions. So thank you, everybody, for your time today. We really appreciate you joining us virtually to learn more about what we think makes Tractor Supply such a special company. I also wanted to take a minute to thank Marianne Denenberg, and a multitude of others at the company who helped pull off today’s event to showcase Tractor Supply. An event of this scale takes a lot of partnership to all of those at Tractor Supply that supported Investor Relations program. Please accept my sincere appreciation and gratitude on behalf of the investment community. And thanks to all of you for taking time out of your day to join us virtually. We look forward to speaking to you again on our first quarter 2020 call in April. And Marianne and I will be around today to take any questions this afternoon. Take care, and please stay safe.