Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's Conference Call to discuss Second Quarter 2024 Results. [Operator Instructions] Please be advised that reproduction of this call-in whole or in-part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded. I would now like to introduce your host for today's call, Ms. Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go-ahead.

Thank you, Victoria. Good morning, everyone. Thanks for taking the time to join us today. On the call today are Hal Lawton, our CEO; and Kurt Barton, our CFO. After our prepared remarks, we'll open the call up for your questions. Seth Estep, our EVP and Chief Merchandising Officer, will join us for the question-and-answer session. Please note that we have made a supplemental slide presentation available on our website to accompany today's earnings release. Now let me reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable it can give no assurance that such expectations, or any of its forward-looking statements will prove to be correct and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission. Information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. Given the number of people in the Q&A, we would like to ask that you please limit yourself to one question and please get back in the queue if you have any additional questions. I appreciate your cooperation. We will be available after the call for follow-ups. Now it's my pleasure to turn the call over to Hal.

Thank you, Mary Winn and good morning, everyone, and thanks for joining us. As always, I'd like to begin by expressing my thanks and appreciation to my fellow 50,000 plus Tractor Supply team members for their commitment to each other and our customers, and for their dedication to serving Life Out Here. And this quarter, I'd like to give a special shout out to our technology team, who did a tremendous job recovering our business from the CrowdStrike outage without a material impact. So let's start with the operating environment for our business before I discuss our second quarter results. Overall, the macroeconomic indicators that we all follow continue to be rather mixed for the consumer in the second quarter. While in-line with our expectations at the beginning of the year, I would characterize the health of the consumer as modestly more cautious than last quarter, but certainly still within the range of our forecast at the beginning of the year. Consumer spending on goods appears to be fatigue across income cohorts. While we've seen improvements in the consumer inflation rate, unemployment has ticked upwards to the highest rate since late 2021. Additionally, consumer sentiment and consumer confidence are both subdued and the consumer spending landscape continues to be rather choppy. Additionally, in the recent personal consumption expenditures report, we saw another soft month for goods. While in-line with our expectations, the ongoing shift in spending from goods to services continues to be a headwind for our business. The mix of goods as a share of PCE is still about 90 basis-points above the pre-COVID average. As it relates to retail sales for the second quarter, U.S. retail was flat to modestly positive with growth in non-durable categories, which was in-line with our performance as a company. And in the…

Thank you, Hal, and good morning to everyone on the call. In many ways, our second quarter topline results were consistent with our results in the first quarter, with solid seasonal growth and exceptional big ticket sales, while our year around discretionary categories remain pressured. As we expected, CUE performance was slightly below the chain average given the retail price deflation and moderating pet category trends the industry is experiencing. Retail price deflation, which was just over 1% was in line with our expectations. The vast majority of this deflation came from our CUE categories. As Hal mentioned, we are pleased with our unit movement in CUE as we successfully managed through the impact of deflation this quarter. Our comp sales growth was relatively consistent across all regions of the chain within a range of down 2% to up 2%. The strongest regional performance was in the Northeast and Commonwealth due to easier compares and better overall weather compared to last year. This strength was offset by pressure in the Far West and Texas, Oklahoma for the exact opposite reasons, as they had tougher compares and less than ideal weather conditions this quarter. As to the cadence of the quarter, all months were also in a relatively tight band of essentially plus or minus 1%. As Hal mentioned, we believe April was negatively impacted by the pull forward of Easter into the first quarter as well as a slow start to the spring season. Moving down our income statement, our gross margin increased 43 basis points to last year. We continue to be very pleased with these results, which were driven primarily by ongoing lower transportation costs along with disciplined product cost management and the continued execution of an everyday low price strategy. These improvements were partially offset by the…

Thanks, Kurt. Despite the temporary softness in our channel, structural elements remain very attractive for Tractor Supply. We have numerous tailwinds, including our Life Out Here strategic initiative, our market being a beneficiary of continued net world migration, high return new store growth opportunities and ongoing share gains. Tractor Supply is extremely well positioned as a leader in a large fragmented market. Before we go into Q&A session, I'd like to wrap-up with three comments. One, as we head into the back half of the year, I am very excited about our robust innovation pipeline, the compelling values we have in our market and our new brand launches. We just set our annual Deer event and Halloween Decor program and both are off to a strong start. In Pet, we have a number of upcoming activities, including our expanded Pet Appreciation Month, a new lineup for MuttNation by Miranda Lambert and an expansion of 4health, our exclusive brand premium dog food. Additionally, we have an exciting new endcap program as well as new center court and dry wall events that are focused on compelling value that are core to our lifestyle. The second comment I'd have is we continue to believe that as and when economic conditions become more neutral for us that we will return to our long term algorithm. As mentioned, there's really two economic conditions that are impacting us the most. The first is the transition from goods to services in the context of PCE spend and the second is deflation. We believe both of these are transitory. We don't need them to improve, but rather just to normalize for us to return to our long term algorithm. And the third comment is that the team is playing offence. And we're not only executing our existing initiative,…

[Operator Instructions] Our first question comes from the line of Scot Ciccarelli with Truist. Your line is now open.

Good morning, guys, Scot Ciccarelli. Historically, when we've had a pretty wet spring, which I think is pretty fair to assume across most of the country, you guys have had a very extended selling season. So do you expect that to be the case for the balance of the year? And then secondly, you mentioned that you're expecting roughly flat, let's call it, comps in the third quarter. Are you currently tracking in line with that or is that just kind of the bogey for the end-of-the quarter? Thanks.

Hi, Scot, good morning. To your first question on the wet spring, it was a -- in the normally west spring, particularly in the South -- in the Southwest, Texas, in particular was wet almost the entire quarter. We had hoped that might lead to an elongated spring, particularly in the month of June and into July, it actually be favorable for us given comparison to last year. That's not how it played out. As we all know, the month of June was one of the hottest, if not the hottest month on record ever. And so we went from pretty much a wet -- wet spring to an immediately hot summer. And we did not see, as we called out ag fencing as an example, that's a big category, for us in general and in particularly in Texas. And as an example, we did not see that category recover in June like we had some aspirations for. That said, it's a wet week this week and we are hopeful that, that can pay some dividends as we turn the corner into August and into the fall. And as it relates to Q3, yes, it's basically kind of right down the middle of fairway for us in terms of our guidance range and kind of consistent with the comments Kurt gave at this point. And the one thing I would call out is July is our toughest compares of the three months. It's -- we get sequentially -- sequentially easier and compares to the tune of like a point or two points each of the next two months. So anyway, thanks, Scott, for the question.

Great. Thanks.

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

Good morning. Good morning. Thank you so much for taking my question.

Hi, Michael.

Number one - Hi, Hal. Hi, can you walk us through the thought process on just the changes you've made recently. Do you see any customer impact from some of the social media chatter and how did it impact your same store sales? Thank you so much.

Yes. Hi, Michael, and thanks for the question. I'd start out by saying, obviously, it was a difficult situation that played out in a public arena, that's unfortunately is becoming increasingly common in business and the divisive sentiment that we have in our country. And we've got over 50,000 team members and 30-plus million customers and we certainly heard a range of feedback. We learned from others who had gone before us on this and moved fast to try to remove the perceived political and social agendas from our policies. And all that said, we have no evidence that it had a measurable impact on our business. And we continue to look to monitor the situation and look at a variety of datasets, but we do have no evidence at this point that it's had a measurable impact on our business and our results. And if I just step-back, we have a very special culture at Tractor Supply. It's firmly grounded in our well-established mission and values. And while we did withdraw our carbon emissions goals and retired our D&I goals, we did not retire our commitment to treating people fairly with respect, to inclusion, to being a good corporate citizen and certainly not to be stewards of -- and certainly did not retire -- are committed to being stewards of Life Out Here. And Tractor Supply, again, credible culture. We never lose sight of our obligations to be great stewards of our business over the long term. Thanks. Thanks, Michael, for the question.

Thank you very much.

Thank you for your question. Our next question comes from the line of Steven Zaccone with Citigroup. Your line is now open.

Great. Good morning. Thanks, -- great. Good morning. Thanks very much for taking my question. I wanted to go back to the same-store sales trend. And I was curious if we could talk through the guidance adjustment a bit more. I guess, specifically on the second half because you leave open the option that you could still have negative same-store sales in the back half, even though the compares look a little bit easier. So has anything really changed from a ticket perspective, maybe deflation lasting a little bit longer than you expected? And then from a transaction perspective, do you have the view that the pet food landscape is just softening a little bit more than you expected? So maybe that side of the business is also coming a little bit weaker? Thanks very much.

Yes, Hi, Steven. Let's start out by saying the first half played out very much in-line kind of right down the middle of our kind of base-case center point of our guidance. I would say most things in the first half were very much in-line with our expectations. I mean, maybe big ticket was a little stronger, and maybe some of the things like ag fencing and dog containment and such were a little bit weaker. But everything else, I would say, animal feed, pet food, our CUE products in general, seasonal. Even the discretionary business, we expected them to be reasonably negative. All those played out very much in line with what we expected. I kind of think about it as a down the middle of fairway based on our expectations first half. As it relates to the second half, we have a similar thesis to the second half right down the middle of fairway. I think Kurt tried to call that out in the prepared remarks. Q3, I think would be much of the continuation of the first half of the year with Q4 being really where there's a higher rate -- a broader range of outcomes. I think Kurt tried to really bring that to life in his prepared remarks to say there's one version of Q4 that could be -- could be strong and start that trend back towards our long term algorithm and there's a some favorable compares there and -- which create a nice setup and we've got a number of activities also going into that -- into the market during that time. On the flip side, there is a kind of a kind of more unfavorable potential outcome in Q4, where if we didn't see some good winter weather and the federal election created a lot of distraction and you've got a shorter holiday season that could lead to a lesser performance in Q4. So really tried to lay out the range of those two, and that's really what drives the Q4 variation, is really what drives the -- really the range of our comp guidance for the balance of the year with a pretty tight range of outcome forecast in Q3. But I would say from the start of the year, the business is really right in the middle of what we expected it could be. And to your kind of kind of question at the end, there's really sitting at this point in time, nothing that we see in the back half that's much different than what we saw at the beginning of the year. It's a pretty, pretty straightforward at this point in terms of our outlook.

Okay. Thanks for the detail.

Thank you for your question. Our next question comes from the line of Peter Benedict with Baird. Your line is now open.

Yes, good morning, guys. Thanks for taking the question. Kurt, I know you addressed inventory briefly during the prepared remarks that you felt comfortable. Can you maybe give us a little more color on the build that you saw in the second quarter and maybe where you would have us expecting inventories to kind of level out over the balance of the year, and why you don't think there's -- you don't have too much? Thank you.

Yes, I'll actually let Seth -- Peter give you more of the details on that, and I'll make one reference. We are cycling last year. In Q2, we called out that we were down 1.7% in inventory last year. We knew we needed and wanted more inventory in CUE and even some of the big ticket rec. And so we're very pleased with where we're at. And I think, Seth, why don't you explain further some of where the--

Yes.

--increase is at and the position on inventory for today and even the back half.

Hi, Peter, Seth. Thanks, Kurt. Yes, as Kurt mentioned, we were down last year about 1.7%. When we think about this year's inventory position, we have purposely invested in where we're continuing to see growth. So when you look right now, we're continuing to invest in areas like grills, mini bikes, rec vehicles, even like riders where we're continuing to see some strong momentum in various parts across our store base. But we're also in the best in-stock position we've been since pre-pandemic. We're investing in in-stocks. We're up around 400 basis points in in-stocks when you compare to where we are this year versus last. And when you look at our clearance inventory, while we don't give specific numbers, our clearance and aged inventory is actually down versus last year. And I would say both those in-stock positions and you look at our clearance and aged inventory, are both really good indicators of the quality that we have. And I would just say as we look ahead to the back-half, we're committed to making sure we're investing in the categories that are working. We're investing in being a dependable supplier and making sure that we have our key core CUE products on shelf. And I feel really good about the innovation pipeline we're investing and being in a position to drive sales. So quality of inventory remains strong. We're in a great in-stock position and feel good about the inventory position.

Great. Thanks so much.

Thank you for your question. Our next question comes from the line of Chuck Grom with Gordon Haskett Research Advisors. Your line is now open.

Hi, thanks. Good morning. Thanks a lot. Hope you guys are well. Just get back to the comp discussion, how -- the past few quarters, comps have been running close to flat. You've got a long term guide of about 4% to 5%. Clearly, the macro has not been your friend, but can you help us think about the building blocks to get back to that level and maybe a potential timeline you see to get there as well? Thank you.

Yes, hi, Chuck, and thanks for the question. As I mentioned in the prepared remarks, we still feel very confident in our long term guidance and there's really two main factors that we see as -- that are macro factors that are impacting us right now for performing at that long term guidance rate, namely the shift in consumer spend from goods to services and the second being deflation, inflation. And so now if you hit both of those, if you think about our average ticket for the first half of the year, which is roughly flat, historically, we would have at a minimum kind of a 1.5%-ish maybe average ticket growth, could be 2%, 2.5%. So even if we just had some favorability in average ticket, all of a sudden, that walks you up to nearly a 1.5 or 2 point comp right there. And then if you think about PCE, year-to-date, services are up 6%, 7%, whereas goods are up 1%. If you were to see that normalize, even if goods underperformed services, say, goods are 2.5% or 3% and maybe services are 3%, 3.5%, you get that extra point to 2 points on the goods kind of rising tide, and all of a sudden, you're walking back to a 4%, 4.5% comp right there. And so we really do see it as cleanly as that, is that at some -- kind of in the future, it certainly have confidence that deflation will moderate and we'll get back to a consistent kind of inflation rate in this country and in our business. And then similarly, expect that the good services shift will moderate. I mean, I think that's probably the bigger question. We probably have a better lens as to when the deflation will moderate, because we see that in our business. But on the goods and services, I think that's kind of the open question. It is only 90 basis points away from its pre-COVID levels. So it doesn't have a significantly further to go. But is that six months, is that nine months? Is that three months? I think time will tell there. Thanks, Chuck, for the question.

Great. Thanks, Hal.

Thank you for your question. Our next question comes from the line of Kate McShane with Goldman Sachs. Your line is now open.

Hi, good morning. Thanks for taking our question. We wanted to talk about the big ticket strength. We know this is something that you saw in the first quarter. Can you remind us how much of sales this represents? And how does big ticket needs change in the second half? What falls into that category for the cooler and winter months versus what you saw in the first half of the year?

Yes. Hi, Kate, good morning. This is Kurt. On big-ticket, I'll share a few specifics on that. As we mentioned, we've been continually pleased this year to see the rebound on big ticket after a couple of years of softness in big ticket. First quarter ran positive high-single-digit big ticket and the ever important Q2 ran a low double-digit growth rate in big ticket. So if -- you hear the commentary from us on our investment in that area of the business, how we're driving the sales through innovation. So very pleased with the results on big ticket. Q2 tends to have the largest portion of our sales on big ticket in the low teens. It averages in the high single-digit as a percentage of our sales for the year. So in the second half of the year, it does become a lesser of an impact. But on a year-over-year basis, we really do see that there's opportunity in the back half of the year in areas that we're winning in that, Seth just mentioned, whether it be recreational vehicles or even riders. And then in the back fourth quarter, really some of the winter-related heating, log splitters, those type, snow blowers, we can continue to win in innovation and our ability to drive great value in big ticket. So it's certainly one of the tailwinds for us. The team has done an excellent job bringing new product to our customers and driving value even through areas like deferred financing as a great value for big ticket. So while not as much of a swing factor in the second half, we do believe that's one of the tailwinds on our comps for the second half of the year.

Thank you.

Thank you for your question. Our next question comes from the line of Brian Nagel with Oppenheimer. Your line is now open.

Good morning. Hi, good morning. Thanks for taking my question. So my question, I just want to follow-up a bit on inventory. And I know you discussed this already, but just to be clear, so inventories gets us on face value where you did see coming out of the quarter higher than usual. So is it your expectation then that, over the next, whatever, couple of quarters, your inventory levels will moderate kind of naturally or is there some type of more aggressive action you have to take to get inventories back in line with sales?

Hi, Brian. I'll start by saying, we are very comfortable with our inventory levels right now and the quality of our inventory. And we don't see any actions required on the quality of our inventory as we move forward. Just to be very clear on that. There's two main drivers of our inventory increases, really three main drivers of our inventory increases year-over-year. The first I would call out, as Kurt did, which was easier -- the kind of net -- the lapping of comparison last year. We were down, I think, negative 1.7% on inventory last year. The second is our investment in big ticket. Obviously, those are higher average unit retail items. So that's going to disproportionately drive our inventory dollars up. But we saw the strength in riders, in UTVs, in things like grills and other big ticket categories, we invested into that. And we'll continue to do that into Q3 as well. As an example, we typically have about 800 stores that are kind of go long stores and riders that have an extended season. This year, we've increased that to 1,150 stores. We are seeing the strength in big ticket continue into Q3. So that is a -- that investment is -- is paying-off and we expect it to continue to. The third thing I would call out is just a reiteration of what Kurt and Seth said, which is our investment in in-stock rates. We are 4 points higher year-over-year in in-stock rates. It's our highest in-stock rate since the pandemic. And that is really on the shelves inside of our stores. And as you all know, I spent a lot of time in our stores, been in five different markets in the last five weeks. We have never looked healthier and better since my time at the company in areas like dog treats, in areas like leashes, in hardware, in hand tools, in areas like lubricants and batteries. As Seth called out, our clearance levels are lower than last year at this time and in incredibly good shape. As you all know, our clearance levels have been running at historic lows since the pandemic and continue to do so. The team is doing an excellent job navigating inventory. So anyway, to step back, we feel incredibly good about the quality of our inventory, have no concerns about it in the second half and in fact, feel great about the investments we've made, which are driving in-stock rates and kind of a bit of a go longer strategy in big ticket. Thanks, Brian, for the question.

No, thanks, I appreciate all the color.

Thank you for your question. Our next question comes from the line of Steven Forbes with Guggenheim Partners. Your line is now open.

Good morning. How -- it's probably imperfect, but it looks like it's been about a year now where sales per member trends are down significantly. So curious if there's anything notable in terms of learning from the trends within the customer cohorts as we think about explaining away the spread between comp trends or CUE trends versus member trends? And maybe in that -- in that regard, as you think about potential, like how would you speak to the opportunity ahead given where the member base and the member share sits today?

Yes, so maybe I'll talk a little bit about our Neighbor's Club in that -- in that context. First off, I would say we continue to be very pleased, and in fact, it's kind of performing better than what we would expect to gain here in terms of number of members signing-up for Neighbor's Club, as I called out, now at 36 million. The second thing I'd call out is we continue to see retention rates of our Neighbor's Club remain at kind of historic rates. So as you're growing your member base and you're growing retention, I mean, that's a kind of a strong kind of balance there, right, and add -- and multiple -- increasingly added it together. I'd say what we saw was on are higher income cohorts that are our strength, stronger retention, modest moderation by I mostly in kind of the -- as we -- and when we looked at it, a lot of it, we really do core that they are the ones that over indexed on services and on travel and on vacations here in the second quarter. But again, modest moderation there. The group that we continue to focus on, and we called this out last quarter as well is that entry cohort into our Neighbor's Club and we lowered the tier threshold and we increased the type of rewards you could redeem at the last -- in -- in our last quarter and saw nice improvement there. We're continuing to focus on that through the second quarter. As we look towards the back half, we're very excited about the implementation of our customer data platform, how that's going to further accelerate our ability to personalize with customers and our communications and help continue to stimulate all groups, but in particular that kind of entry level group. In addition, we launched this quarter our Hometown Heroes program. It's off to an excellent start in terms of member sign-up. And as we called out, while I don't expect these trends to continue, the early sign-ups have been a significant piece of it is new to Tractor Supply and new to our Neighbor's Club program. So we have -- I think it's one of the best membership programs, loyalty programs -- loyalty programs, excuse me, in the market out there. The team continues to iterate and make it better and better. Our customers continue to give us very favorable marks on it. And we do see Neighbor's Club as instrumental to our success as we move forward.

Thank you.

Thanks, Steven.

Thank you for your question. Our next question comes from the line of Oliver Wintermantel with Evercore. Your line is now open.

Yes, thanks guys. With the variability of the outcomes in the range for the third quarter and the fourth quarter, maybe it would be helpful if you could walk us through comp ticket and comp traffic expectations for those two quarters. And maybe on the ticket side, maybe you can't break it out in AUR or inflation? Thank you.

Hi, Oliver, how are you today? Thanks for the question. I would -- the main driver of the variation for the second half in the range of outcomes for our comp is really what the driver of our range for the first-half was, is transactions. As we've been, I think pretty transparent, we have great insight to average ticket, great insight into our average unit retail. Pending some mix we know exactly what our pricing for our seasonal products are already going to be for the year. We know what our CUE trends are. We obviously have a perspective on how we're going to be pricing CUE into the back half of the year. So we have very good forward-looking view as to our average unit retail. And so I feel like there's probably less variability in ticket and expect that to be reasonably flat throughout the year, although there's some modestly easier compares on average unit retail as you get into the fourth quarter. So a little bit of upside there. But the main driver of our range of outcomes is going to be transactions. And particularly in the fourth quarter and really we think it's all around consumer sentiment and also drivers of need. And if there's some weather events, that will drive need. And depending on the federal election and the shortened holiday season, I think that will drive sentiment. Those two things will come together to drive our transactions. And so anyway, back to your point, I think the variability for the back half of the year is really primarily transactions with maybe a very modest range of outcomes on AUR.

Got it. Thanks very much. Good luck.

Yes. Thanks, Oliver.

Thank you for your question. Our next question comes from the line of Zach Fadem with Wells Fargo. Your line is now open.

Hi, good morning. Kurt, you mentioned the election as a potential second half headwind. So first, are there performance callouts during prior elections? And then second, is there any evidence to suggest that your business may perform differently based on the outcome of the election?

Yes. Hi, Zach. In regards to elections, in my history, as we've -- as we've looked at that and we have been through cycles, there is no real meaningful performance change based on the year of a federal election or the outcome of a federal election. Now we have seen, and I think it's well-understood that this is a very intense environment today with this election. What that does to the consumer sentiment is certainly one that we are being conscious of. And I think the election will take a lot of attention and could impact the consumer spending habits, et cetera. But really, over the years, how we've seen the performance of the consumer has really proven to have no strong indication that we should plan for or change our outlook in any particular way. It's just viewed as one that could be a variable in the ranges of outcome. And so we're conscious of that. But we've been able to pivot in either one of these environments. And the one last thing I would just point to is that for us, which I think is different is that it doesn't tend to have much of a change because it's a needs-based business where regardless of the outcome, the lifestyle and the needs that we serve, don't really change that much. So we watch and we're creating strategies under scenarios, but we don't see a specific outcome that we are planning for.

Got it. Thanks for the time.

Thank you for your question. Our next question comes from the line of Christopher Horvers with JPMorgan. Your line is now open.

Thank you. I'm French now. So Mike, my question is on the commodity side. So corn has come down a lot since the start of the year and even where it was at the end of the first quarter. Historically, you've talked about corn being one of the biggest commodities to watch. So I guess to what extent have you thought about that in terms of affecting your sequential reflation expectations? And does that quickly turn into the sort of the feed category? And then on the pet food side, are you seeing price investment from the big pet food brands? And what are the early reads on that being enough to turn those -- the pet food category, enough elasticity to get that growing more quickly?

Sure. Hi, Chris, this is Kurt. And I'll take the first part of the question on the commodities and then I'll let Seth address your question on pet food. On commodities, just some key points that I think is helpful to reference. Corn, which is the largest commodity impact item. But additionally, when you think of corn, soybean, cotton, steel, they all are commodities that play into our pricing. They have all been at year-to-date or year-over-year in the low teens deflationary point compared to June of 2023. All of them are generally back to 2019 levels. And they are 30% or nearly 40% off of their '22 -- 2022 year highs. So we've been going through a two year cycle of that. And all indications are we are at the 2019 levels. We're at what we believe is the trough. Most of these costs have already been embedded into it. The only other variability that -- and I indicated to that is, you would look at Q4 and see that to be a neutral or potentially even beginning to see an inflationary turn and the way commodities shift, will I think will really derive whether or not Q4 even the Q1 is a shift into some slight inflation or keeps us at a plateau. The corns and soybeans tend to move within about a 60 to 90 day timeframe through our systems. And so they move pretty quickly and impact the cost of goods sold in a really timely basis. I'll turn it over to Seth on the follow-up question on pet food.

Yes, hi, Chris, Seth. Hi, just as the simplest answer, I would just say when you look at the back-half, we're not seeing any signaling that you're going to see like AUR compression when it comes to pet food, when we look out. Right now, AURs continue to be somewhat flat year-over-year and that's kind of what we see going forward. Relative both feed and pet food, I would say, like as you think about the current environment we're in, and if you continue to see commodities stay where they are, you'll start to see things like you've traditionally seen in the industry where more value packs, more bonus packs, things of that nature will continue to hit the market. So at this point, we see pet food pricing remaining basically stable.

Thanks very much.

Victoria we will take one more question quickly, and then we'll wrap the call after that.

Of course. Our final question comes from the line of Peter Keith with Piper Sandler. Your line is now open.

Thank you very much everyone for squeezing me in. So Hal you mentioned in the script that the channel was down negative mid-single. I guess I would agree with that based on our survey work. So it does suggest that Tractor Supply share gains accelerated in Q2 versus prior quarters. And I'm wondering, was there something specific to the quarter or do you think there's more kind of structural benefits based on your initiatives that could keep the share gains elevated in the quarters to come? Thanks.

Yes, hi, Peter. Thanks for the question. I'd really point to -- to two things. One, I think structurally, we play a little bit more in big-ticket than a lot of the other farm and ranch competitors on the margins, but I think that helped raise our waterline a little bit on total sales. Also I would say, on the CUE business, in particular on the feed side, well, the CUE business in general, particularly dog food and animal feed, we're gaining share in both. Our share gains in animal Feed, in our view in Q2 were outsized. And I think a lot of that comes down to our scale, our cost position, both with working with our vendors and our partners there, but also our supply chain and whether it's our DCs, our mixing centers, our freight partners and just us having the best cost position in the market, being able to invest that appropriately in price. As you know, we have over 20 price zones. We're able to get really targeted in where we want to price and how we need to price to drive those units. So I think those would be the things I'd speak to. And then the final point would be, of course, our strategic initiatives. And I think as it relates to say like the fusion remodel program, we're approaching half of our store base now being in the fusion remodel program. So I think our store environments relative to the farm and ranch channel are significantly higher-level of a store environment now. Our commitment to customer service, we called that out. So you get, I think a better level of customer service in our stores. And so just all those sorts of things are starting to add up to continue to drive the outsized share gains. Thanks Peter, for the question.

Thank you.

Victoria, we'll wrap-up our call today. To everyone on the call, we look forward to speaking to you at the time of our Q3 call in October.

That concludes today's call. Thank you for your participation and enjoy the rest of your day.