Tractor Supply Company (TSCO) Earnings Call Transcript & Summary

Good afternoon. Thank you all for joining us today. We're really thrilled to have the attendance that we have. So thank you. With everything going on, thank you for making the special effort to be here. And I'd also like to thank those that are joined by webcast as well. My name is Mary Winn Pilkington. And our focus for our time today is to allow you to interact with our new CEO and President, Hal Lawton. And we're really wanting to allow some time for that. So we'll have prepared remarks, followed by Q&A and then we'll have some time afterwards where we'll have a reception afterwards. So thank you. We would appreciate your questions geared to a meet and greet and introduction of a new CEO. As such, we will not be discussing the current quarter or any components related to our 2020 financial outlook, and I do appreciate your cooperation with that. We have mics on the side when we get ready to get to Q&A, we'll ask you to state your name and your firm and be able to run through the Q&As that are one topic at a time. So before I get started, please take note of our safe harbor. Please note that any forward-looking statements that we make this afternoon are subject to risks and uncertainties, the most important of which are described in our SEC filings. So take note, and now I'll turn it over to Hal. It's my pleasure. Thank you.

Good afternoon. And I'll just reiterate Mary Winn's comments about everybody being here. Thank you. We appreciate you taking the time this afternoon. As I said, again, I know with a lot going on in the market and a lot of distractions that are out there, whether it's some of the oil-related or the coronavirus and whether that's impacting your companies, you individuals, I appreciate you all being here today and look forward to spending some time together. I'm excited just to spend a little bit of time today just talking about my thoughts and some insights from the company. As I said on the earnings call, really am -- just had long admired Tractor Supply. Great -- it's a company that I got to know really well when I was at Home Depot. For those of you who follow Home Depot or cover Home Depot, you know how competitive they are. And so we spent a lot of time in the stores, particularly in like 2007, 2008, 2009 as Tractor Supply was implementing its SKU strategy. And I'd say, really, from that time on, have really just learned to -- from a far until the last 9 weeks, be able to watch the company, the results it's putting up and really just its unique positioning in the marketplace with its customer, with its incredibly tailored format and with this kind of the essence of its mission and values. And you could really see that whenever you were in the stores. And I do think that really speaks to kind of this life out here. And you do hear the company talk about that. If you read the annual reports or you read the 10-K or look at some of the marketing, but I'd tell you, in my first 9 weeks, it's the real deal. The way the company is really just deeply rooted in the lives of its team members, in the lives of its customers and its communities. And there's a quote that's in one of our brand books that really just kind of really resonated with me that said, "We equip a way of life. We respect, love and often live ourselves." And you probably heard us talk about hiring our customers. And I would just tell you, having in my first 9 weeks there, it's so true. And when you're in our stores, you really do feel like you're in an ecosystem of really that life out here regardless of where the store is from a geographic perspective or a suburb, rural, ranch, farm kind of wherever it may be inside of a geography. And I do truly believe that that focus on the life out here is a very distinctive, differentiating element of our business, and is the core foundation for our growth moving forward and the ultimate source of value creation for our shareholders. So as I said, again, it's great to meet everybody today, and look forward to just kind of walking you through 4 or 5 slides here, and then we'll open it up to Q&A. A little bit about the executive team. Hopefully, everybody has had a chance to have either some exposure or read up on the team. I would tell you, I have been incredibly impressed with the team in my first 9 weeks. Very experienced management team, a very talented management team. Today, we have 2 members of our team here. We've got John Ordus, who's our Chief of Stores; and we've got Kurt Barton, who is our CFO. And I'd just tell you, they are just a representative of really the entire executive team; wide range of experiences and backgrounds, and really complement each other really across all facets; know Tractor well and know the customer really well; and importantly, all are stewards of the mission and values in the servant leadership orientation of the company. From my -- from a outside in and then certainly reinforced in my first 9 weeks at the company, I think it's one of the best management teams in retail. I know I'm proud to be a part of it. And I've really enjoyed working with everybody for my first 9 weeks and really excited about working alongside them as we take our journey down towards the future. Maybe a little introduction of myself and some background. So I'm a native of Tennessee. I actually grew up in Kingsport, Tennessee. I went to school at North Carolina State and had a degree in chemical engineering, and some kind of a math and science kid growing up. And then after undergrad, I went to work for a paper mill as an engineer for a few years. I then really started to have a yearning to understand business more, and I went back to -- got my MBA at the University of Virginia. And then after MBA school, I worked at McKinsey for 5 years out of the Atlanta office and did mostly strategy work there, some digital technology-type things and the consumer packaged goods in manufacturing industries. I left as an associate principal, and joined Home Depot and spent 10 years at Home Depot. And I think Home Depot is really where I cut my teeth on retail and also kind of fell in love with retail. And absolutely, I think of myself as very much a retailer now. When I was there at Depot, my first kind of 4 or 5 years, I did -- worked in the strategy team and also worked in finance. And notably, kind of in the finance -- during my finance time there, I kind of ran the merchandising finance organization. I had a chance to work really closely with Craig Menear when he was the Chief Merchant and just taking on that role in 2007. And then with his kind of finance person for 2 or 3 years has really -- he started to roll out the merchandising transformation that's one of the core backbones of Home Depot's turnaround. After doing that for a few years, I then moved and ran the online business at Home Depot. So I ran online at Home Depot from 2009 to 2013. And that's really when Frank Blake, for those who follow -- cover Home Depot, is still the CEO, and that's when really coming out of the Great Recession when Home Depot really started to pivot and invest heavily in online. And I was fortunate enough to be in the role as we led that effort. And then my last 2 years, I ran hardlines merchandising. And so continued reporting to Craig but moved from running online to running hardlines merchandising and I had responsibility for the tools categories in the tools business, the hardware and the hardware business, as well as what they call outdoor garden. So live goods, chemicals, soils and mulches and then indoor garden, which includes everything from patio to grills to chemicals and cleaning and other things. So as you can tell, a lot of overlap with some of the categories that we sell at Tractor. After a 10-year career at Home Depot, I then moved out to the West Coast and ran the North America business for eBay. And a great opportunity to kind of see e-commerce at scale. Their U.S. platform, as an example, is $32 billion. So a great opportunity to see e-commerce at scale, see all the facets of software at work and kind of automated AI and kind of machine learning with the 30 points of margin that eBay has. You really learn to how to really do things with software instead of with people. And then it was just a great opportunity for me to kind of live in the epicenter of kind of technology globally for a few years and got to see that up close. And then I spent the better part of the last 3 years at Macy's, where I was President of the business and of that -- of the iconic retailer that they are. And now kind of 9 weeks into my time at Tractor. And I'd say the last thing that really I would just talk about in terms of me, what I just gave you is kind of a longitudinal narrative of my career and some of the key touch points. But I would say kind of collectively throughout it, I talked a bit about it on the earnings call, is kind of my passion for servant leadership, and it's really started at McKinsey a bit, grew significantly at Home Depot with Bernie and Arthur as well as Frank's focus and Craig's, and then really continued on both at eBay and at Macy's, and it's certainly a core component of or the component of Tractor Supply's culture, all the way down to its store support center being named store support center exactly like it was at Home Depot. And so thrilled to be at Tractor. Thrilled that it has commonality in the core mission and values that I hold in high regard, and I really do think all my previous experiences and kind of philosophies around business have really led up to this point, to really almost like it was meant to be in terms of joining Tractor and kind of taking on the role of CEO. Kind of why Tractor? So I talked a little bit about this earlier, and I think many of you, as I've read your write-ups, a lot of this is very consistent with your views on the company. But I just think it's worth reinforcing. Tractor Supply is absolutely a very unique and differentiated retailer with a clear purpose. And I'd start by just talking about the mission and values of the company. It's something that these mission and -- the company has been around for 83 years this year, and those mission and values have been the core of the company the entire time. And it's something I see us talk about and reference throughout the entirety of the company, and it's very much the essence of who we are not just in the way we conduct our business, but also the way we engage with our customers and our fellow team members. The second thing I'd say is, Tractor Supply is purposely built. And there's not a ton of retailers that you can say that about. We serve a specific customer and a specific lifestyle. We talked about it being kind of Life Out Here, but I would tell you whether it's the marketing that we do, whether it's the store setup, whether it's the team members in our stores, whether it's our online site, it is very purposely built to serve the Life Out Here lifestyle. And I would tell you, I -- that was my impression, as I was -- kind of all the way back from 2007 and 2008, certainly, my 3 months leading up to me starting as I was trying to get a faster ramp-up on the business, all my outside input -- perspectives, and absolutely even been more reinforced in my first 9 weeks at the company. Other thing I talked about is the brand and the business model. It's a brand -- it's a company that's had consistently strong comps, continues to be able to expand and grow not only our market share in our existing markets, but grow market share through new stores. It is one that has just a really strong business model and strong brand, and it's a brand that resonates with customers. I mean when we move into markets that we don't serve, you see an immediate shift in share just because of the strength that our brand has even in markets that we aren't yet in, and certainly in markets where we're expanding our presence, you still -- you see significant propensity towards the brand. Strong foundation for growth. And the other thing I've talked about is we're committed to that growth and investing in the growth, and we're committed to continuing to invest in the business. So yes, I think it's a great time to be at Tractor Supply. I'm very excited about it. Everything that you all know about the business, I've certainly seen and observed in my first 9 weeks here. I can't tell you how thrilled I am to be at the company. All right. Talk first 8 weeks, and then the kind of big slide will be kind of early thoughts on the business. First 8 weeks, I'd say, have been really focused on listening and learning. As many of you all can imagine, when you've started a new job, it's an incredibly busy time, but have been focused a lot dominantly on listening and learning, kind of ramping up and getting to know the team, getting to know our customers, getting to know our team members, getting to know the challenges and opportunities that we face and also our strengths. I spent a lot of time with our executive team. It was a very scripted first 8 weeks, and a lot of time with Greg. Greg's last day was 2 Fridays ago. So the first 7 weeks of my time at the company were very scripted. He and I kind of sat down and literally wrote out the first 7 weeks' calendar. Obviously, with the support of the Board, but it was a very coordinated transition and one that went incredibly well, and I spent a lot of time soaking up his knowledge as well as from the rest of the executive team. Lots of town halls and meet and greets, both at the store support center, at our distribution centers, at our contact center, et cetera. And I've had a chance to walk stores in a number of states now, visited stores in Georgia and Tennessee, Kentucky, North Carolina and New York, New Jersey, Connecticut and also walked a distribution center. And I tell you, all those experiences really do solidify everything I talked about in the last couple of slides in terms of the strength of the business model, in terms of the strength of the brand, the uniqueness of the value proposition of the company and the really tailored purposeful built lifestyle that we serve. So just some early thoughts. On the earnings call 4, 5 weeks ago, I think we were appropriately absent in our commentary much on kind of my early thoughts on the businesses. I had only been in the role 2.5 weeks. So what we thought today was kind of bring you along a little bit in terms of some early thoughts that I and the rest of the executive team have on the business as we continue to evolve. And again, this is all recognizing kind of 8, 9 weeks in. But the first is huge opportunity to leverage our Neighbor's Club foundation, and really put the customer at the center of everything we do. And then what I'd say is, I don't mean that in kind of maybe the generic way that sometimes you hear retailers talk about in terms of just personalization and maybe an e-mail or to look personalized through your website or mobile app, look personalized. But there's a big opportunity for us to leverage the robustness of our Neighbor's Club data in areas like our stores and how do we look at the clustering of our stores, which ones serve equine more, which ones serve pet more, which ones serve -- are more of a tools, hardware, truck store and start to over-index our square footage a little more in those directions and start to really tailor our store assortment based on our local customer, our specific customer needs. Up until now, the prototypes that we rolled out across the company have been dominantly the same across all stores. And there's a large variation in the types of customers we serve by store. And we didn't really have the data set at a customer level prior to rolling out the Neighbor's Club. So a big opportunity there for us is to really start to leverage that Neighbor's Club data and bring it to life in a kind of meaningful ways for our customers and drive growth that way. Also this year, we'll be rolling out a mobile app, and so that would just be great to get a mobile app out. We're certainly a little late to the party on that one. But also gives us an opportunity, the Neighbor's Club foundation, to really make that a robust experience early on. The second thing I'll talk about is the digitization of the business. So we've been pursuing the ONETractor strategy for 3 years now, and it's been an excellent strategy for us. We've made a lot of headway and progress over the last few years. If I look at the work we've done on things like Buy Online Pickup in Store, Buy Online Ship to Store at localized pricing, what I would say is we've made -- we've executed -- while we were behind the curve on this, we've executed all those faster than my experiences of rolling those out either at Macy's or at Home Depot. So I've been very pleased with the pace of execution the team has executed over the last 3 years. But there's definitely more digitization that needs to be done on the things that we've been working on, as I mentioned as an example, rolling out a mobile app, but also opportunities to do digitization in areas that we have spent a lot of time on, like our stores. And while we have our stores all planogrammed, there's a big opportunity to take the sort of the next level from a digitization perspective and then begin to leverage that across the fullness of our business, whether that's in John's team in terms of the way we execute our operations, whether that's customer wayfinding, like you might see -- as I mentioned earlier, I've worked at Home Depot. One of the big things that we did when I was there was roll out what aisle, what bay and what exact location in a bay an item is, and you can kind of Google Maps almost like your way to an item in a store. There's a lot of opportunities for us to do those sorts of things at Tractor and really drive growth with it, from customer wayfinding, productivity for John's organization as they're taking something from receiving to the stores -- to the doors, and ultimately, all the way to the aisle and then the bay and then in the location. Or whether that's -- whether it's with our merchants in terms of driving the right assortment and the right planograms at an individual store as well. So there's a ton of different ways that we can leverage that data. And that's just one example on the store side, product data, a variety of other ways for us to continue to grow and invest and drive results inside the business. And again, this is a pretty common path that you've seen a few other retailers go down. The third thing I'll talk about is maximizing the productivity of our core with a clear focus on things like space productivity and investing in our stores to keep them fresh. We're now at 1,800-plus stores inside the company and have plans, as we've talked about, to build 80 more this year. But we're still -- we now have a large, sizable scale base of stores. And there's an opportunity to continue to maximize those productivity of the stores through things like unique store planogramming, as I've talked about earlier, around space productivity efforts. And then also John's team is rolling out a number of things like Tractor Way, which are driving improved productivity inside of our stores. We've talked a bit about that. But I think there's a lot more we can talk about that with you. So a lot of opportunities to maximize the core and maximize the 1,800 stores we have there, get more sales out of them, but also productivity out of them. And it's an opportunity. You've seen a lot of other retailers go down, and I think we're excited about that path as well. The fourth thing I'll talk about is investing in our team members. So we have over 32,000 team members. Our team members are absolutely kind of a key competitive advantage for us. We're a relationship retailer. When customers come into our stores, they wanted to help solve problems. They've got something -- some issue, whether it's with their pet, their animal, their land, their farm, they need help, they need a solution. As you've heard us say many, many times, we're needs-based, we're demand driven. And it's very much a relationship sell. I mean there's one thing I've observed, not only do our team members and our stores know our customers' names, they know their animals' names and their pets' names, and there's a strong relationship there. And so investing in our teammates, but doing in ways that are smart. And I think the big thing for us, and we talked about the Tractor Way a minute ago is how do we do less tasking in the stores and take that inefficiency out of the store and then shift those hours over to selling and making it more -- making our team members more customer-focused and investing in ways to make them as productive as possible. And lastly, I'll talk about -- it's around our robust cash flow and kind of healthy balance sheet. It certainly provides us with flexibility and it's a competitive strength for us for our future growth, but we also recognize the need for responsible allocation. And so I want to talk about -- we've got strong cash flows, we have a healthy balance sheet, but we're certainly mindful of being efficient in our resource allocation, also mindful in our capital allocation. Those are themes you'll start to hear more from us. So those are kind of some big early insights I thought I'd just share with you. Look, as we think about the future, we're absolutely going to continue investing in the business and growing. We see significant opportunity to broaden our customer reach and increase our market share. But as we think about change, one I just -- I think some words that are probably appropriate to use. We see the change at Tractor Supply being evolutionary, not revolutionary. We -- there are certainly going to be refinements, there's going to be pivots that we make in our strategy. But these will be -- they won't be -- there will be refinements, and there will be evolutions, not kind of revolutions so to speak. We're absolutely -- our core essence of being that dependable supplier of relevant products and services for Life Out Here is absolutely -- will continue to be our focus and it will be the core epicenter of what we build and grow on. And you are going to see our -- have a strategic focus of continuing to meet the evolving customers' needs out there and generating -- and with a focus on growing the business and generating long-term customer value. So those are just some few early thoughts that I've got on the business and we have on the business. And just thank you all for being here today. I think we're going to open it up. Kurt's going to join me up on stage, and we're going to just take some questions. And I think Mary Winn's going to help coordinate that.

Yes. So actually, because of the way this works, we're actually going to have you line up and come through the queue on the microphones here, if you would, please. I think it's the best way on the microphones, in handling the microphones in the current environment. So thank you, Hal. That was great. So with that, we'll just bounce back and forth from one side of the room to the other on the Q&A. If I could again ask you to please state your name and your firm, that would be great. So Scot, I'll start over here on my -- on your side.

Scot Ciccarelli, RBC. Hal, you're newer to the business, and one of the questions I think people have had for a long period of time is, as Amazon has built up their own delivery capabilities, you certainly dealt with this at Macy's in terms of some of the things that Amazon has done to the department store sector. How do you battle that? When you kind of think about the evolution, especially as you're kind of training your own customers to get more used to e-commerce digitization because that's one of your big goals, like how do you think that plays through?

Yes. I, in general, think that what has made retailers great for the last 50 years is what we'll continue to make, would be the bar that retailers have today, which is fantastic customer service and have all the products they need, the solutions that they are looking for, and you have to do it in a way that's convenient for them. And I think that's the bar that people have always had for retail, and it's just -- it's an evolving bar and changing now, whether it's because of technology or other means of delivery, et cetera. And I think Tractor Supply has a real compelling differentiated value proposition in the marketplace. And we're committed to continuing investing in that and making it highly relevant and indispensable to our customers. And one of the early kind of words that we've started to talk about is how do we become more integral to our customers' lives. We talk a lot about in our mission statement around how we want to be the dependable supplier. And kind of a bit of a rift we talked about internally is how to become that indispensable supplier and how to become more integral in our customers' lives. And then there's just a lot of opportunity for us to extend and expand on many of the categories we're destinations for and do that. And I think that will create the competitive advantage that -- continue to build on the competitive advantage that we have now.

All right. The mic will bounce over here.

Chris Horvers, JPMorgan. So Hal, my question for you is sort of the big picture message that we should take in terms of the Board's decision to bring you in. So Greg was a Chief Merchant from -- at Michaels, comes in and sort of -- and does a fantastic job. Gets Steve here, who's a great merchant, did a great job. And obviously, they decided to go in another direction. Your sort of resume is tech-savvy, e-commerce, in addition to retail. So what's the interpretation we should have in terms of what the Board's message is? Is the competitive dynamic around Amazon and e-commerce changing faster now, so therefore they need -- felt like they needed to bring somebody else into the job? Do you think you need to roll out things like click and collect, look into things like delivery? So just how are you thinking about that competitive dynamic? And is the Board telling us that it's now changing at a faster rate?

Yes. So I'll do my best to speak on behalf of the Board. And what I would say is, if I'm on a different public company Board, and I would say, anytime you're going and have gone through a CEO succession before, and any time you do that, I think it's your fiduciary responsibility to step back and say, "Do we have the right person leading the company?" And our job as the Board is to select that right person. And I can't speak to the decision around Steve. I've not ever met Steve. But what I can say is, my understanding from the Board was that they stepped back and said, we want to take a full view of the options, inclusive of Steve, but also external options. And then many the things you articulated are exactly the narrative and the dialogue that I had with the Board, that there is a strong set of experiences, a set of experiences that strongly kind of correlated with Tractor. So my hardlines experience at Home Depot as well as kind of my orientation around servant leadership, so there's a strong, there's some good connectivity there, a bit of the apparel at Macy's. So there was some strong category connectivity as well as the servant leadership, mission and values pieces that the Board was very concerned about and focused on. But then also I think, an orientation around change in digital and technology that I think the Board was also focused on. And so from my perspective, those are the many of the reasons that I was excited about struck terms of my ability to be able to come in and contribute and add value to the company. But I do think the Board also recently named 3 promotions, John and Seth and Colin, and also added Christi to our executive team along with Colin, and I think those are indicative of the Board and myself also being extremely excited to continue with the executive team that we already have in place and just representative of the strength of them and also just how committed we are to that group for the future. So a nice combination there.

And so then just a follow-up there. So do you think something like click and collect or delivery, do you see that as a potential need in terms of the Tractor Supply offering to the customer?

So we already -- we offer a robust kind of omnichannel portfolio. I think we will always continue to add to it. But we have Buy Online Pickup in Store, we have Buy Online Ship to Store. We also have the ability to ship from store to a customer's home same day. And it's -- as we talked about, it's what, Kurt, 70%? What's pick it up...

70%.

70% of our online orders are picked up in store. So all -- I think that's just indicative of our customer and indicative of the features that we've added, but also I think we'll continue to grow those and add to those, and that will continue to be just more robust set of competencies that we have for our customers.

All right, Steve?

Steve Forbes, Guggenheim. So Hal, I wanted to focus on systems and IT capabilities, especially as it pertains to Tractor Supply's localization and personalization initiatives if you think about leveraging that customer data. So maybe just if you can, 8 weeks in, provide your initial review of the company systems, some of the main ones, what you've been impressed with and where you see opportunity as you start evolutionizing your ability on mining data?

Yes. So I'll start with, I think, the team has made excellent progress over the last few years on the technology front. Rob Mills, he joined the team 3 years ago...

5 years.

5...

5 years ago now and has done just an outstanding job. He has excellent set of experiences that he brought to Tractor, and I've seen him really leverage that inside the company now. And I'd say if you go through the different technology stacks on the enterprise side, I feel really good about our enterprise systems. I think as it relates to, say, our financial systems, our HR systems, all very strong with robust sets of analytics and tools. And then also the team has made excellent progress on migration of data to cloud. We're one of the only retailers as an example that I'm aware of that is not mainframe-dependent as an example. And then if you look at digital capabilities, I spoke to that earlier. I think we've made a lot of progress over the last 3 years rolling out many of the features that I talked about. But I think we're still early innings with a lot of opportunity ahead of us. And I'm confident that the team will continue to make significant progress on that and do it in a way where we're catching up and getting ahead. And then I'd say, as it relates to kind of other elements of digitization. I think we have opportunities on our stores and digitizing our stores, opportunity on product and further digitizing product data. And then on the customer, I think the team has made excellent progress in the last, call it, 12, 18 months as Neighbor's Club has gotten to scale, moving that data set to the cloud, being able to start to overlay better analytical tools on top of it, and really right now, to start mining it to bring to life that personalization and localization that we have a big opportunity around.

And then maybe just a quick follow-up on that. Because if you think about the second point, right, digitization of the business in the stores and so forth, what's the right time frame, right, as we think about how you kind of view the speed of the initiative?

Yes. So the way I would characterize it is kind of 9 weeks in, dropping a bit of -- dropping some breadcrumbs so to speak here about early thoughts. I think at our earnings call here in another handful of weeks, we will do a bit of an update again. And I think you can just expect to continue to hear more and more from us on these. As it relates to the continued digitization specifically, I think the team has made a lot good progress in the last 3 years. And they've got a road map for the balance of this year and into next year. And we're in the process of saying, "Do we need to add some things to that?" But anyway, more to come on that.

We'll bounce over here to this side.

Peter Benedict of Baird. Hal, just curious, you've talked about opportunities or additional opportunities for Tractor and growth. Obviously, a lot more data today in this business than there was 3, 4 years ago. Maybe talk about what areas you really see the most growth. I mean maybe extending with your existing customer or are there opportunities with adjacent customers in your market that you may not be serving right now?

Yes. So I'd start with we've got a track record of driving comp sales growth, and we will continue to leverage what we've done really well over the last numerous years to continue to do that with great operational capabilities in our stores, in our supply chain, in merchandising prowess. And then at the same time, we'll continue to build new stores. And so those 2 components of our business model and playbook will continue to be executed. And I think that's a really strong foundation and kind of source of growth for us. And then I do think there's opportunities to overlay on top of that and continue to drive more outsized comps. And some of those things are, as we talked about earlier, are we actually clustering and tailoring our store's assortment, footprints and layouts based on the data sets that we have from our customers in that actual store or that geography? And then once we've decided to change, once we've updated the layouts and the assortments and the space we have, then how are we thinking about things like planograms and others and really optimizing even at the micro level down there with our customers? Then also on the e-commerce side, how do we continue to accelerate that business? It's -- the growth in that business is very compelling and it's starting to scale. And how do we keep driving that? And then I think on -- from a product perspective, there's many categories that we are strong in and destinations in that we can extend and expand our services and our opportunities on top of. And I think we've got to really work through a prioritization effort on that. But there's a lot of opportunity to extend and expand with services on top of products that we're already really strong on.

Just a quick follow-up. Just -- and how does ROI kind of fit into your thought process here? I mean there's growth, but then there's high return growth. So just expand on that a little bit.

Yes. So I'll let Kurt just speak a little bit to ROIC over the last handful of years and our focus there, and then I'll take it back from him.

Yes. As you know, Tractor Supply has had a good, consistent, strong return on invested capital. As we calculated, high consistent 18%, 19% return on invested capital. And as Hal and I work together, we've shared our thoughts and emphasis, and we're very much aligned on the fact that with a company that produces a tremendous amount of cash from operations, we've got a great value opportunity here to take the level of investment. But the next chapter is really about how do we make sure that we're returning the best on that, how do we add the disciplines. In the last couple of years, I've talked a lot about more science than art. And I will say, as we've had a lot of dialogue, I can't be more thrilled as we finish each other's sentences or there's a lot of that about adding the disciplines, the science to the system, how to drive, as Hal mentioned earlier, productivity in there. So Peter, we feel like, while there's pressure in retail today on returns and EBIT growth, we believe we've got a lot of opportunity in our investments, direction of the business while driving productivity to have that level of offset to it. So we're very focused on together, return on invested capital, and we think we've got great opportunities in the long term to be able to maintain, potentially even grow return on invested capital.

Thank you, go ahead.

Matt McClintock, Raymond James. So there has been a lot of discussion over the years about Tractor's specific unique positioning in the marketplace, right, and yet, we still get questions from investors every year, every day, questioning that and whether or not that's real, that segmentation. And I was wondering, just given that you formally worked at a competitor, maybe can you give us a little bit of context of some of your experiences trying to go after Tractor Supply's market share? And maybe elaborate that into the e-comm space as well.

Yes. So for me, we were talking about this yesterday. John and I and Kurt, we're in 5 stores yesterday, and almost in every one of the stores, our team members would say, "What's your early impressions of Tractor Supply?" And much of what I talked about today is exactly what I talked about with our team members as well. I'll start with the culture and talk about the servant leadership orientation, the culture, the connectivity with the customer and how impactful that is to the business. And then the second thing I talked about is the purposeful built -- how purposeful built the business is around the customer. And if you're a customer that lives the rural, farm, ranch lifestyle or pursue that kind of out here lifestyle, I mean we really are soup to nuts everything that you're looking for. And I think when I was at Depot, as you mentioned, and we spent a lot of time in Tractor Supply stores, it was -- the thing that we always just acknowledged is we might be able to compete with Tractor on the one-off tool purchase or the one-off hardware purchase. But when you're coming in to basically do a project, whatever that project may be, to feed your animals or to work on your yard or your farm or your ranch, we have everything that you're looking for from the fit T-post, to the gates, to all the bolts, to things you need for your truck to get them home. And I just think like that's the thing I've been most impressed with so far. I really do think it's a competitive advantage. It's very distinctive. There's not a lot of retailers out there, right, that literally serve a purpose in people's lives. And I think online is the exact same way. I mean online, there are retailers out there that I think have built an online experience that is very complementary to the stores. And then I think there's other retailers that have struggled with that. And I'm very confident that what we are doing and what we will do from a digital perspective will be very complementary to our stores and create kind of 1 plus 1 equals 3 for our customers.

Okay. And then just as a follow-up. How do you view -- in the context of what we just discussed, how do you view suburban stores versus your rural stores? Is there more competition or less in those? And again, I'm asking this because we get this question often. Maybe is that something that data can maybe help you more as you -- on your stores become or neighborhoods kind of grow up to your stores?

Yes. I'd start with we really do think about our customers shop kind of in the Life Out Here. And so it doesn't -- they may live in a suburb and then have a chicken coop in their backyard and may think that's Life Out Here. If you have 50 acres in a farm, chickens are not Life Out Here. That's just the beginnings of Life Out Here. But I really think it's a lifestyle, it's a mental way of life. And that's really where Tractor Supply appeals to. And that could -- you can be, like I said, living in a suburb or you can be living on a 50-acre farm. That said, to your point, exactly what I think we can do more and more of now that we have all the customer data is really start to vary the prototype. If the area is much more of a suburb and there's not as many horses in the varying area, I think we can, over time, maybe shrink the equine and start to bring up some of the pet and start to become more destination reflective of our customers in certain categories. And we don't do a lot of flexing of space across our categories. Conversely, if it's a big animal store, we can, I think, spend more space on that. Same thing as it relates to the planograms inside of the categories as well. So I think customer data, with the Neighbor's Club now getting the scale that it has and really the robust data set being built out now, being able to really mine that and then be able to start to tailor our experience at a store level is a big opportunity for us.

Alright. Come back over to the other side.

It's Mike Baker from Nomura. How are you? So one question in 2 parts that really have nothing to do with each other. So here you go. One thing you haven't talked about yet today, but they've come up quite a bit on the last call was some of the brands that you're putting in. So if you could talk about that, maybe as you build scale, are you showing up more on some national brands' radar screen? So that's part one or part A. And then the second part, completely related, oil prices, and this is not -- I'm not talking about this year or guidance, not only that. But in general, when oil prices fall, how does that impact your business? There's got to be a point where maybe do you have contingency plans or something like that when we get to -- where oil went to yesterday?

Yes. So I'll handle the first part and then let Kurt handle the second part. We carry -- really fortunate to carry a wide range of brands, both private label brands as well as national brands. And our expansion, our rollout of Toro this year is one example of that. But we've got lots of examples across the business where we continue to either add brands or grow our business with certain brands. And I think all -- with national brands. I think all brands out there right now are looking for growth. In the environment that we're in, even pre kind of corona and pre oil in the kind of 2% to 3% GDP environment, people are looking for growth, and you've got a big shakeup inside of retail right now, and I think we're one of the retailers that are -- that brands and manufacturers can look to and look to growth for. And we see brands investing with us and see brands opening up their distribution to us to the extent we haven't carried them in the past. So very excited about the future of that, the potential of that, and our merchants spend a lot of time thinking about it. Then I'll turn it over to Kurt to talk a little about oil.

Yes. In regards to the oil question, let me give you 2 points as to how we look at it. Yes, generally, over the years, as oil prices increase, we've seen a bit of a tailwind on the top line, whether that be from inflationary impact on some of the commodities or whether it just be the stores within the general oil market having some level of additional volume activity. But the 2 points that I'd say to look at during this volatile time is, first thing is, if you look back on history, comparison of today's environment versus the last time we had some volatility is an important thing to reflect back on. A couple -- a few data points on that. There's a distinct difference as we look back on 2014 and '15, where you had a pretty volatile spike up in the level of oil drilled, the price of oil, et cetera, and then a very quick drop in that price. Cause for a couple of years to have significant tailwind in the business offsetting that. And to that point, today, we look at it in the last couple of years, it's been rather stable at $50, $60. And where you see -- if this drop were to sustain, it's not as severe as maybe the most volatile time back in 2014, '15 and '16. The other point on that, too, is that, back then, it was a higher percentage of our stores. As we've grown stores in Northeast, Northwest, we've been able to have more diversification. What was once high teens percentage of our business, now close to about 10% exposed to the oil markets. So comparison to the prior times is a good reflection back, but things are different as we continue to grow our business. And the second point to make on the oil industry is that while there is a top line pressure in situations like this, we also see cost reduction. So as a freight-intensive business, we also see reduction in some of the cost of goods sold. And so while there might be pressures at the top line, you'll see some reduction in some of the costs in our business as well. And we generally see there to be some of the puts and takes on both top line and bottom line. At this point, 10% of our business, we'll watch this, we'll manage it very carefully, but we think it's manageable.

Now we have hit the top of the hour. Maybe we'll go for one more question, and then we'll wrap up, and we'll have the reception afterwards. How does that sound? So thank you. All right, Kate? Thank you. I'm giving a signal that our webcast is scheduled to end, and so I need to stick on that time.

Kate McShane, Goldman Sachs. I was more curious about what the feedback you're getting from the numerous town halls you've been sitting in. Have there been a consistent question or consistent level of feedback that you've been receiving?

Yes. I'd say from a town hall perspective, the first word that really pops that I would say is pride. There is just a real strong sense of pride inside the company, whether it's at our store support center or in our stores or distribution center to be a part of Tractor Supply. The second thing is I talked a bit about Life Out Here today. I think that just -- there's a strong resonance of it's not just our brand, but it's the lifestyle that many of our team members live. And I'd say, more often than not, when you're talking with a team member in the stores, they all have animals or they have pets, and they have -- it's the way life that Tractor serves is the way of life that many of them live. The other thing I talked about is growth. With the business growing the way it has, both on the comp sales side, but also on the addition of new stores, there's a strong orientation around career growth and career development inside of our stores that allows team members to join, become a team lead, move into an ASM role and then move into a store manager role. And when you're adding 4%, 5% new stores every single year to your fleet, it really does allow for that continued career growth and development inside of our business and with our teams. And I think that we were, John and I, and all of us we just had our annual sales meeting in Nashville a few weeks ago. And I would say those themes of pride, those themes of execution, those themes of really understanding our lifestyle that we serve, and that career growth all were very apparent inside the meeting. It's also a team, though, that really yearns for success and results, and that was a big part of our annual sales meeting as well as recognition of achievement and then really setting the bar and the priorities for 2020. And you could really feel the team embrace that.

Okay, great. Thank you, Kate, for bringing us home here. So that will conclude our prepared remarks and our Q&A session. So thank you all for joining us today on the webcast.

Thanks. Appreciate it everybody.

Yes. I thought we'd talk about coronavirus.

Yes.

So I'm going to just -- we'll take that off-line. So...