Tractor Supply Company (TSCO) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Tractor Supply Company. I am the operator. During the meeting, we'll have a question-and-answer session. Shareholders can submit questions or comments by clicking on the Message icon. It is now my pleasure to turn today's meeting over to Cindie Jamison, Chairman of the Board of Directors of Tractor Supply Company. Ms. Jamison, the floor is yours.

Good morning. My name is Cindie Jamison, and I am the Chairman of the Board of Directors of Tractor Supply Company. On behalf of the company, I'd like to welcome you to the 2021 annual meeting of stockholders. In light of the ongoing public health impact of the COVID-19 pandemic and to support the health and wellbeing of the company's stockholders, team members and their families, we are holding this meeting virtually via webcast. All of us at Tractor Supply hope you are staying safe and healthy during these challenging times. It is now 10:00 a.m., and in accordance with the notice of this meeting, the meeting is now formally called to order. The meeting will be conducted in accordance with the rules of conduct available on the meeting website. The purpose of today's meeting is to consider each of the items set forth in the notice of this meeting. Until voting is closed, you may vote your shares using the Vote function of the meeting website if you have not already done so. If you have a question or comment that relates to a proposal being presented, please submit it through the meeting website as soon as possible and prior to the discussion of that proposal, if possible. Once we have considered each of the items in the proxy statement and voting is closed, we will adjourn the formal business portion of this meeting, and Hal Lawton, our President and Chief Executive Officer, will make some remarks regarding the company. We will have a question-and-answer session following Mr. Lawton's remarks. Following the close of voting, we will announce preliminary results of the meeting. First, let me introduce the other individuals who have been nominated, along with myself, to serve as directors on our Board until the 2022 annual meeting of stockholders. Joy Brown. Joy is the Chief Data Officer for Verizon Media Group. Ricardo Cardenas. Rick is the President and Chief Operating Officer of Darden Restaurants. Denise Jackson. Denise is the Chief Legal Counsel and Corporate Secretary of AMN Healthcare Services. Thomas Kingsbury. Tom previously served as the Chairman of the Board, President and Chief Executive Officer of Burlington Stores. Ramkumar Krishnan. Ram is the Global Chief Commercial Officer for PepsiCo. Edna Morris. Edna is Chief Executive Officer of Range Restaurant Group and is a senior adviser to the Food Retail and Restaurant groups of PJ SOLOMON. Mark Weikel. Mark previously served as the President and Chief Executive Officer of Retail Optical North America at Luxottica Group. And Hal Lawton III. Hal is the President and Chief Executive Officer of Tractor Supply Company. I would also like to recognize George MacKenzie, who is retiring from our Board today. George has served as a director of Tractor Supply since 2007. Thank you, George, for your many contributions to this company as a member of this Board. I would also like to introduce the following members of the Tractor Supply Company management team, who are with us today: Kurt Barton, Executive Vice President, Chief Financial Officer and Treasurer; Noni Ellison, Senior Vice President, General Counsel and Corporate Secretary; Rob Mills, Executive Vice President, Chief Technology, Digital Commerce and Strategy Officer; John Ordus, Executive Vice President, Chief Stores Officer; Seth Estep, Executive Vice President, Chief Merchandising Officer; Colin Yankee, Executive Vice President, Chief Supply Chain Officer; Matthew Rubin, Senior Vice President, Petsense; Christi Korzekwa, Senior Vice President, Marketing; and Melissa Kersey, Executive Vice President, Chief Human Resources Officer. I would also like to introduce Doug Ives from our transfer agent, Computershare, who is serving as our inspector of election. And finally, I'd like to introduce Ritu Furlan from EY, our independent auditors, who will be available to respond to appropriate questions from stockholders later in this meeting. We have, at this meeting, a report of stockholders entitled to vote at this meeting and the proxies received from stockholders, a notice of the annual meeting of stockholders, the proxy statement, the annual report for the most recently concluded fiscal year and an affidavit of service of notice of the meeting, certifying that these documents were mailed to the stockholders of record of Tractor Supply Company on or about March 25, 2021. These documents will be filed with the records of the company and Computershare, our registrar and transfer agent. The list of the stockholders of record at the close of business on March 9, 2021, who are entitled to vote, showing their respective addresses and the number of shares held by each, has been open to the examination of stockholders for more than 10 days prior to this meeting as required by Delaware law and the company's bylaws. In addition, the list is available at this meeting in electronic format for inspection by the stockholders present. The bylaws of Tractor Supply Company require that a majority of the shares of common stock as of the record date must be present in person virtually or by proxy in order to hold this meeting and conduct business. Our Corporate Secretary has been in charge of the proxy process. May I now have the Corporate Secretary's report on whether a quorum is present?

Madam Chairman, there are present at this meeting, in person, virtually or by proxy, more than a majority of the shares outstanding at the close of business on March 9, 2021, the record date for this meeting, which constitutes a quorum.

Thank you. This meeting is now duly convened for the purposes of transacting business properly before it. The matters to be acted upon today will be considered in the order set out in the proxy statement. The time is 10:07 a.m. and the polls are now open for these proposals. The report of the inspector of election with respect to the votes cast will be given after the conclusion of the vote on all items. There may be stockholders virtually attending this meeting who have not already voted by proxy or who wish to change their previous proxy vote. If there is anyone in either of these categories, please submit your vote through the meeting website. Stockholders of record as of the record date will be able to ask questions regarding items on the agenda. Please submit any questions through the meeting website. The first item on the agenda is the election of directors. The Board of Directors nominates the following individuals to hold office until the 2022 annual meeting of stockholders or until their successors are duly elected and qualified: Cynthia Jamison, Joy Brown, Ricardo Cardenas, Denise Jackson, Thomas Kingsbury, Ramkumar Krishnan, Edna Morris, Mark Weikel, and Hal Lawton III. As stated in our proxy statement, the Board recommends a vote for each of these nominees. A nominee will be elected to the Board of Directors if the votes cast for the nominee exceed the votes cast against the nominee's election. However, in an uncontested election such as this one, if an incumbent director does not receive a majority of votes cast for his or her election, the director is required by the company's director resignation policy to submit his or her resignation to the Board of Directors for consideration by the Corporate Governance and Nominating Committee. The committee will consider the tendered resignation and make a recommendation to the Board of whether to accept or reject the resignation. The Board will take action within 60 days of receipt of the committee's recommendation and will publicly disclose its decision. I will now pause to consider questions submitted regarding the director nominees.

There are no questions submitted.

Thank you. The company has not received timely notice of any other nominations by a stockholder as required under our bylaws. Therefore, I declare the nominations closed. If anyone is voting through the meeting website, please submit your vote now on item #1. After voting has been completed on all matters on the agenda, the votes for each item will be counted. [Voting]

The second item of business on the agenda is the ratification of EY as the company's independent registered public accounting firm for the fiscal year ending December 25, 2021. As stated in our proxy statement, the Board recommends a vote for such ratification. I will now pause to address questions submitted regarding the ratification of EY as the company's independent registered public accounting firm.

No questions have been submitted.

Thank you. There being no questions on the proposal, the discussion is closed. If anyone is voting through the meeting website, please vote now on item #2. [Voting]

The next item on the agenda is a proposal for a nonbinding advisory vote to approve the compensation of the named executive officers of the company. As stated in our proxy statement, the Board recommends a vote for such proposal. I will now pause to address any questions submitted regarding the advisory nonbinding vote on the compensation of the company's executive officers.

No questions have been submitted.

There being no questions on this proposal, the discussion is closed. If anyone is voting through the meeting website, please vote now on item #3. [Voting]

The next item of business is a vote on the stockholder proposal contained in the proxy statement, titled Transition to Public Benefit Corporation. At this time, Sara Murphy of The Shareholder Commons, as the designated representative of the proponent who submitted the proposal set forth in the proxy, will have an opportunity to make a brief statement regarding the proposal. If there are technical difficulties, Ms. Murphy has authorized our Corporate Secretary to present the proposal and associated resolution. Operator, would you please open the line for Sara Murphy?

Ms. Murphy's line is now open.

Ms. Murphy, the floor is yours.

Thank you. Shareholders request that our Board take the necessary steps to convert Tractor Supply to a public benefit corporation. Given its adoption of the business roundtable statement on the purpose of a corporation, which commits Tractor Supply to deliver value for all stakeholders. Because Tractor Supply is a conventional Delaware corporation, our director's fiduciary duties emphasize the company and its shareholders but not stakeholders. Legally, directors may consider stakeholder interests only if any decisions made with respect to such stakeholders are in the best interests of the corporation and its stockholders. That contradicts the commitment our company made in the statement. Indeed, employees are stakeholders and yet, our CEO makes 654x more than our median paid employee. And our lowest paid employees don't even earn a living wage. In contrast, directors of a public benefit corporation must balance the interests of shareholders, stakeholders and a specified benefit, giving legal status to the statement's otherwise empty promise. A recent study determined that listed companies create annual social and environmental costs of $2.2 trillion. These costs have many sources, including pollution, climate change and employee stress. That matters to Tractor Supply's shareholders, the majority of whom are beneficial owners with broadly diversified interests. Such shareholders and beneficial owners are unalterably harmed when companies follow Delaware's shareholder promising model and impose costs on the economy that lower GDP, which reduces equity value. While Tractor Supply made profit by ignoring costs it externalizes, diversified shareholders will ultimately pay these costs. As a public benefit corporation, Tractor Supply could prioritize reducing these costs. Our Board understands this. It says as much in its opposition statement to this proposal. Shareholders are entitled to vote on a change that would serve their interests and ensure the commitment made to stakeholders is authentic and lasting. At the shareholder comments, we have deep experience in benefit corporation law, and we would be happy to help the Board to navigate Tractor Supply's conversion. Please vote for item 4.

Ms. Jamison, the line is now back to you.

Thank you, Ms. Murphy. As stated in the proxy statement, our Board has considered this proposal and recommends a vote against the stockholder proposal. I will now pause so that we may address questions submitted regarding the vote on the shareholder proposal. As this matter relates to the legal corporate form of the corporation, Noni Ellison, our Senior Vice President, General Counsel and Corporate Secretary, may address any questions on this proposal.

No questions have been submitted.

There being no questions on the proposal, the discussion is closed. If anyone is voting through the meeting website, please now vote on item #4. [Voting]

This concludes the voting on the items set forth in the proxy statement. I will pause briefly to allow stockholders to submit any final votes. [Voting]

I now declare that the polls to be officially closed for all matters. The time is 10:16. The secretary has presented the preliminary inspector of election report to me, which is as follows. Number one, [Audio Gap] to serve until the 2022 annual meeting or until their successor [Audio Gap] the appointment of EY as the company's independent registered public accounting firm for the 2021 fiscal year has been ratified. Number three, the advisory vote to approve our executive compensation has been approved. And number four, the stockholder proposal contained in the proxy statement has been rejected. At this time, does the representative from EY, our auditor, desire to make a statement?

No. And no questions have been submitted.

Thank you. The formal business portion of this meeting is now adjourned. We will file a Form 8-K, announcing the final results of the meeting after we receive the final inspector of election report and in accordance with the time frame required under the SEC rules. Hal Lawton will now provide an update on the company's business.

Thank you, Cindie. Honored to share with you more about Tractor Supply and highlights of our 2020 results. It's an honor to talk about Tractor Supply, it's a very special company with a clear purpose. Before we get started, please note that any forward-looking statements that we make this morning are subject to risk and uncertainties. The most important of which are described in our SEC filings. I'd like to start this morning with a few high-level facts about Tractor Supply. We're the largest rural lifestyle retailer in the United States. We serve life out here. We are an integral part of our customers' lives. In 2020, we ranked number 380 in the Fortune 500. At the end of last year, we employed over 42,000 team members across the United States in 1,923 Tractor Supply stores, 182 Petsense stores. In 2020, we hired more than 10,000 net new team members. As an essential needs-based retailer, we equip a way of life, a way of life that we respect, love and often live ourselves. Our long-term success is driven by being differentiated from our competition. We have a very special culture. We serve a unique customer and lifestyle. We have a strong brand and business model and we have a strong foundation for growth. We're investing in the business and committed to growth. We are uniquely positioned to become a more integral part of our customers' lives and we have proven that over the past year. Our culture is a true competitive advantage. Our mission is to work hard, have fun and make money. And this mission is supported by 10 values. Combined, they serve as the underpinning of our culture and the guiding principles for how we conduct our business and we have relied on these heavily over the past unprecedented year. ESG is important to our team members, our customers, the communities we call home and our investors. In 2018, we announced our goal to reduce carbon emissions from our facilities by 25% by 2025. And this past December, we announced that we surpassed that goal 5 years early. In 2020, we also reinforced our commitment to ESG by improving our reporting and transparency. Particularly, through the issuance of 2 inaugural reports, our ESG Tearsheet and our Task Force for Climate-Related Financial Disclosures. And just a couple of weeks ago, we updated our tearsheet and plan to continue to do so. We are also a strong proponent of diversity, equality and inclusion in our workforce with 49% of our team members being female. This past year, we started 4 new team member engagement groups. And we implemented many in activities and initiatives to train, engage, measure and demonstrate internal and external commitment to DE&I. Also notably in 2020, Tractor Supply was designated as a Great Place to Work. Throughout the last year, our utmost priority has been the health, safety and wellbeing of our team members and customers. As an essential needs-based retailer, we executed and continue to execute a number of actions that allow us to protect our team members and better serve our customers during this time of crisis. From adding a dedicated greeter at every store, providing PP&E, paying appreciation bonuses, providing wage increases permanent, extending paid sick leave to dozens of other things. We focused on taking care of our team members, so in turn, they could take care of our customers. This has always been a hallmark of our mission and values. Additionally, we remain committed to supporting the communities we call home. Last year, we donated $12 million to charitable giving, including a $4 million initial funding for our Tractor Supply Company Foundation. Notably, we joined the American Connection Project Broadband Coalition to help bring high-speed internet infrastructure to rural communities. To date, we've provided free WiFi access at more than 1,400 store locations across the country and have committed $1 million in donations to the Broadband Coalition. Tractor Supply has continued to deliver a strong record of results and we have an exciting future ahead of us. With sales in excess of $10 billion in 2020, our compounded growth rate for total sales is over 11.5%. We are winning with our customers. Net new customers were up plus 14% year-over-year last year, with 3.3 million new customers. Our reengaged customers were up 42% year-over-year, with 2 million reengaged new customers last quarter. We are growing share with our existing customers. We have a maniacal focus on legendary customer service in our stores to keep these customers coming back to Tractor Supply. We have constantly delivered strong results over the last decade. We have a track record of positive performance in same-store sales growth. We've generated strong free cash flow, while maintaining discipline on the use of financial leverage. We have a strong and vibrant business that generates strong free cash flow. We're committed to investing in the business for growth, and we have a proven track record for returning cash to shareholders through both dividends and stock repurchases. We've had 11 consecutive years of increasing our quarterly dividend since 2010. We increased our dividend by 30% in February and just this morning, we announced our quarterly cash dividend was approved by our Board of Directors. We rolled out our Life Out Here Strategy in October of 2020. With our strong performance in 2020 and the current momentum in our business, the team at Tractor Supply is excited about investing in the Life Out Here Strategy and accelerating our performance. There are 5 pillars to the Life Out Here Strategy. The first is delivering legendary customer service. The second is advancing our ONETractor capabilities. The third is operating The Tractor Way. The fourth is Going the Country Mile for our team. And the last is generating healthy shareholder returns. Our clear focus enables us to be the innovative leader in our channel and emerge from the pandemic stronger and more scaled than before. To wrap up, Tractor Supply has a resilient business model with a differentiated, loyal and growing customer base. We're moving at a fast pace. With Life Out Here Strategy, we continue to evolve to remain a strong, relevant company into the future. Now is the time for us to invest as we look to drive sustainable growth and create long-term value for our shareholders. Thank you for your time. We will now take any questions from shareholders.

There are no questions from shareholders.

Thank you. We look forward to updating you on the evolution of our business and our continued success. Thank you for your support and the confidence you have placed in Tractor Supply. And this concludes the business portion of our meeting.

Thank you for attending. The meeting has concluded. You may now disconnect.