Tractor Supply Company (TSCO) Earnings Call Transcript & Summary

So we'll get started. Thanks, everyone, for joining us for Tractor Supply's presentation today. My name is Daniel Imbro. For those of you I haven't met, I'm the broadlines analyst here at Stephens, covering these. These guys -- as a reminder, this is a fireside chat. So I'll kick it off with Q&A, but please ask questions throughout time as all of ours. From the company, please be joined by Kurt Barton and Mary Pilkington. Kurt's CFO has been for a while now. And then Mary Winn with Investor Relations. Hal was going to join us this morning. But unfortunately, he's under the weather, it's not COVID, thank god, but out of an abundance of caution, he decided not to come. So Kurt, you could answer all the questions today. So over to you.

Thank you.

Well, thanks for hosting us in Nashville, is the also hometown, not ours. But most people, I think, know the story, Kurt, but could you provide maybe a brief overview for those that are newer. Where do you fit in retail, kind of what's different about your niche markets that maybe set you guys apart and then we can dive in from there.

Yes, that's great. Well, let me start by saying good morning, everybody. Glad to have the opportunity to spend some time talking about Tractor Supply. I also want to just pass on Hal's regrets, battling a tough cold and would want to be here. But I talked to him this morning and he said, definitely make sure I pass on the regrets on that. But really, I think it's the right thing under the abundance of caution. Your question about, how do we differentiate ourselves and what's unique about it? Let me just tell you a bit about Tractor Supply, the culture, and what we view as the key aspects of our offering? So even though this company is over 80 years old, it's really like a 20-, 25-year-old company that has been growing over the last 20 years at a tremendous pace, 27 years of consistent sales growth, over 10 years of consecutive traffic growth in this business. Why is that? Tractor Supply is a mission and culture-based company. And the best way to describe that is we view our mission is to support a lifestyle. It's not about what category or what transactions do you drive for us. The entire team, whether that's the team members in the stores, those in the distribution center and for us in the store support center is how do we best support a lifestyle. And it's a lifestyle that's been growing. This Life Out Here lifestyle where the consumers that live on 5 acres or more. And when you live on that land and you have a passion towards the land, we have a really high percent of those lifestyle owners and those that live with that own animals. So you think about it, it's a business, it's a retail store, it's an online shop that supports those that choose to live on land that need items. They need feed and food for their companion animal. They need feeder food for their large animals, their livestock or they need product to support their land. And this -- this is an area, a consumer base that's been growing consistently over the last 10-plus years. And then very specifically, in the last 2 years, there's been a catalyst through this pandemic of giving consumers the ability to be more mobile, to move out into exurban or rural or to embrace a lifestyle that is more different than 2 years ago. And one of the fastest-growing areas of our consumer base is the millennial. And the millennial customer who's got a tremendous spending power that may have pre-COVID really embraced more of the urban environment or apartment dwelling are beginning to own houses. And we benefit, we grow and our total addressable market grows as more people own land, own houses and pet adoption and ownership is well disclosed as one of the fastest-growing areas. And in COVID, the number of pet ownership and adoption just grew at record pace. And we're a tremendous resource for your companion animal supplies. And so for Tractor Supply, wrapping it up with what differentiates us, Daniel, it's a -- it's a company that is very purposeful with a small convenient box. The brick-and-mortar location is typically about 15,000 square feet. You can get in and get out quickly. You can park within feet of our front doors. Secondly, we hire our customers. We know that our customers come in with a need oftentimes, especially these new customers, they have a problem they don't know how to fix. So it's important for us to make sure that we recognize the person coming through the door who is entering our website has a problem and needs information. And so it's not a transaction, but it's a partnership. And so we hire our customers. We hire people that are experts in the lifestyle so that when you come in to Tractor Supply, that you're finding someone that can help find that solution. So our box is convenient. Our team members, our greater customer service and knowledge and then the last 2 things that are very distinctful with us is that we've been very purposeful to invest in technology. We believe we've got the opportunity to differentiate not only with the convenient box but an excellent online experience, utilizing technology in our stores to help drive efficiency in your experience. One example of that, last year, we launched our mobile app. And if you've got a mobile app, you know that it's best-in-class. You've got the ability to personalize that. And with GPS-enabled you basically can do your mobile order. If you're like me and your shopping routine items, you're creating your shopping list, you click, you've got your payment method already saved. But then it's even better when you come into our location, we know that you've arrived. We already understand that Kurt's arriving with his white F-150 truck. He said, put the product in the back, and you're parking within feet of our stores. And we've got all of our team members with the earpiece, Theatro device, that tells them that Kurt has arrived, we say copy, bring is buy online, pick up at store order out to his truck, he wants it in the bed of the truck. And our response time within a few minutes of your arrival is best-in-class. So technology is a differentiator. Lastly, supply chain. In a very fragmented market, where Tractor Supply has scale and size, we can offer our product, be that dependable supplier at an everyday low pricing because we've got strong partnerships, a great mature supply chain with over -- with 8 distribution centers. We're growing those in the next few years to where we can get product into our stores and into our customers at the quickest and most efficient bag food and feed and bulk your product. It's not only a differentiator from those are difficult items to ship and just have on your front porch, but we can move it as efficiently as anybody. And so when you think about the differentiators from Tractor Supply, it is the people, it is the box, it is the technology, the online experience and it's the supply chain.

That makes a lot of sense. And something that's always stood out about Tractor. I think it's the consistent traffic growth. You talked about that as part of that is the CUE, but I'd be curious with all these new customers you're adding, what is that retention looking like? Now that we've lapped the 1-year anniversary kind of a lot of those customers you brought on? Was that retention relative to the past? And are we seeing similar traffic maybe data out of that, that gives you confidence you can hold on to these new customers you've gained for the future.

Yes. I'll give you a few data points on our new customers. We're excited about the new customer growth and all the traffic growth that early in the pandemic, the question was, is it transitory or structural, the new customer and the retention of the new customers and the repeat traffic and the consumable goods that they're buying give us the confidence that the lift in the revenue over the last 2 years is structural, more than it is transitory. We've seen now in the 18 months nearly 17 million new identified customer shop Tractor Supply, 11 million of those in 2020. In Q3, and as an example, the several million new customers that shop Tractor Supply, 40% of those signed up for our Neighbor's Club program. And so we've got a tremendous amount of retention. Our retention rate on these new customers are outpacing previous retention rates, where nearly 50% of our new customers have shopped once again in the first 12 months with Tractor Supply. And so the biggest answer on what's driving the traffic count and what's has us confident in the structural nature of the business is it's really the fact that our existing customers are spending more, and our existing customers are signing up at record pace with our new Neighbor's Club program. Key reason for that is Neighbor's Club, we relaunched it into a loyalty rewards-based program really giving our best customers more value and more reason to shop with Tractor Supply and consolidating their shopping with Tractor Supply to be able to really leverage the points and rewards they gain. And then secondly, it's the new customers that have not only shopped once but are repeat shopping with Tractor Supply. A lot of it goes back to what I mentioned earlier is these new customers are either moving into our market. They -- or they found us as a provider for the new companion animal that they bought during the pandemic. And those new customers come in and they discover more than just that 1 category aspect that may have brought them into Tractor Supply.

Pause and make sure. Okay. Maybe the other side of the equation is just the ticket, right? So for years, you guys have been growing that through more items per transaction, but inflation has been accelerating. And that's topical across retail. I guess what's your outlook for ticket from here? I mean you gave fourth quarter guidance, but how is the consumer handling that? How does that change your thought into next year on the sustainability of these price increases and just the overall ticket outlook at that side of the equation? Should begin to normalize, I would think, but maybe it doesn't, maybe inflation continues.

Yes. Sure. It's a great question and certainly very relevant. We've seen significant inflation in 2021, just like all of the industry has. We started the first quarter out with 300 basis points of inflation in the average ticket. Most of that was from commodities. That's grown to -- as we stated in our last call in Q3, about 700 basis points of inflation benefit in the ticket in Q3, and we said that we expect Q4 would be somewhat similar to the Q3 rate. Our position inflation from what we see, the best we can see it today are structural versus transitory. I think there's -- we've all seen even some of the commentary of late where those that were viewing it as transitory. I think some of those views have begun to change a bit more on the structural side of it as well. We believe it's structural. Wage increases have been meaningful in the last 2 years. The labor shortage and the challenges, we believe that pressure will continue to exist in the next couple of years. Supply chain disruptions. It's a structural challenge in the supply chain, both domestically and import. Those 2, along with other inflationary factors, we would subscribe to the fact that inflation versus deflation. Inflation is more likely to persist in the near term. And while likely to be at growth rates that are more modest to the rates that you see in 2021, but that we're prepared for inflation to be more part of the near-term picture as opposed to seeing any sort of turn in the trend in 2022.

That makes sense. And maybe tickets out of the equation, whether that is personalization, growing the basket. Can you talk about some of that in the sustainability of those trends?

Yes. The -- 1 example of the things that we're focused on right now is our strategic initiative of the transformation of the inside of our stores. That's what we refer to as our Fusion project as well as our side lot transformation, and I'll speak to each one of those as examples. Our Fusion transformation is 100% of our stores will transform the inside to be a much more productive shopping experience, utilizing more space, driving more assortment and really focusing on sales per square foot inside the store. And over the next 5 years, we'll transform percent of our stores into this. Some of the examples of what a Fusion transformation is doing for us is we're taking some of the stores that [indiscernible]. The layout in a lot of our stores have been consistent with some modifications. But they're the layout we've had for 10 years. And the consumer shopping experience and what they're looking for has changed over that time. And Fusion takes our existing store refixtures it with a brighter, more open, better displayed and a more efficient shopping experience from the aisle ways as well as where we need things like a pallet drop for high-volume food or feed versus where it was on a shelf in the past. And we're also utilizing -- finding ways to be able to utilize our space better. Example of a way that we found 300 square feet of space, Daniel was when we had our service counter in the back in a Fusion store, I mean in existing store. We basically combined the front area into a hub of checkout and customer service. Today, with buy online, pick up in store and customers coming in, they want to engage right away. And so we basically moved everything upfront and utilize that space better and opened up 300 square feet of space where we're now able to add more product. Other things we do is we start to expand things like pet, where we know that it's grown, and we know we can leverage in there. We become more efficient in areas like apparel, even though apparel today is outpacing the comp growth as one of our fastest-growing areas of the business. We can be more efficient with apparel. So Fusion is allowing us to drive productivity and we're very purposeful in transforming and bringing a better, brighter renovated space inside. So those are areas where that's helping the units per transaction. On the Side Lot space, the 1 thing I'd call out with Side Lot is our Side Lot transformation, one of the key things that includes is about 3,000 to 4,000 square feet of space in that Side Lot where we've introduced a greenhouse, where you insert sliding glass doors on the side, easy shopping experience enter into the greenhouse. And Tractor Supply is now growing our assortment in those stores on live goods. And its gardening and landscaping is an area that it's in the top 3 biggest hobbies of the customers of Tractor Supply. And our customers told us that's the 1 area of our top hobbies that we don't get everything that we need from Tractor Supply and you could offer more to us. And so this greenhouse allows us to be able to have flowering plants, fruit, vegetable plants, a lot of other lawn and garden supplies that we can utilize. And so we believe that's something that introduces new customers and then adds items to the basket and over time, helps them transition to other categories within our store. Again, Fusion and Side Lot, these are investments over the next 5 years. We anticipate about 60% to 65% of our stores can have option. Over the next 5 years, those are like annuities where a couple of hundred stores a year, driving additional comps. And we've seen tremendous performance out of the stores. It's right in line with our expectations that [indiscernible] Fusion transformation. They've outpaced the control group showing us that we expect within 1 year, they generally contribute up mid-single digit incremental comp growth. If you have both Fusion and Side Lot, that's high single digit right in line with our expectations. And we believe those are going to be drivers to the ticket, but it's also a key aspect of our expectations and how we can outpace our comp sales growth over the next few years.

And how do you think about the ROI of those investments? I mean, is one more expensive than the other? Or how are you guys viewing that from just a return standpoint in terms of payback on the cash you're spending at least? Like how much do they call? Can you share any metrics around that side?

There. And as we said, we're -- like the first 100 stores, we're going to learn a lot from those stores. And I'll speak just from a high level on the investment. Our capital spend, as we disclosed when we launched our Life Out Here strategy, we said we're moving from 250 to 300 capital a year to 450 to 550 and likely at the high end of that. The biggest difference in that is Fusion Side Lot investments as well as our supply chain and so a couple of hundred million a year in Fusion Side Lot transformation means it's an important meaningful investment in our capital. But in short, those returns from mid-single digit on Fusion to high single digit on a combo of Fusion and Side Lot gives us an excellent return. And the one thing that we know at this point is we've got opportunity to cut down the amount of time it takes. And we already showed that in the first 6 months, we could really significantly cut down the time and become more efficient in the capital spend there. And we're still very confident that Fusion and Side Lot, with the capital spend, the growth in comps that we've got a solid return on invested capital in line with Tractor Supply's. Really strong positive return on invested capital today. And so it's right in line, and we like the opportunity of the Fusion and Side Lot just as much as we like the opportunity of new store growth and then return on invested capital there.

That's great. And I guess -- okay.

So just one question about the greenhouses and then adding more gardening live items. Does that require a lot of different supply infrastructure? I mean a lot of us have sourced regionally, there's a waste component. I remember, 20 years ago, just [indiscernible] came to our office and like we're going to get out of that business, kind of lead that income centers which have never been in that. That was part of those retransformation. What's changed today in your capabilities that allows you to want to get back into that?

Yes, that's a great question. So the question was, does a greenhouse and the live goods that you're adding assortment, does it have additional supply chain challenges, constraints, resources on that. It does not. We're really excited about our opportunity here. We've been adding to live goods, bagged goods in regards to mulch and other areas over the years and really built our merchandising and supply chain to be able to support it. An important thing is, there's a -- in the industry itself, across the retailers that sell/serve on live goods, there's a heavy portion of that, that's scan-based. It's vendor service. And so we've been able to grow and build our experience with that. And so from a supply chain, it's not an area that adds to our distribution center capacity. For the most part, it's delivered and supplied through your vendors. And as well as any exiting of that at the end of the season. And so it's a really efficient model. And it's really us being able to take what we had on a limited source and be able to expand that into greater volumes and new assortments. And again, like you mentioned, we leverage both national and a heavy amount of regional providers for that. And it's been very successful and not today a constraint on the supply chain.

Are those margins going to be better than the company averages?

They're pretty much in line. You've got a mix, like in anything, you've got a mix of different margin in there. But as we've looked at the full assortment of what we offer in a greenhouse or areas outside of it, we don't see any real significant difference in our margin rates compared to the chain average.

Ask on pricing. So you had a quite big, [ it says ] 100 basis points in Q3. I know certain of your gross margin was down very [indiscernible] kind of the correlated pricing center, [indiscernible] pricing. I'm just curious, what is the pricing architecture? What are you solving 2 years in the gross margin, income cost and the gross profit dollars? Just curious if you talk about that. And then any competitive tension when you comp shop at Walmart on certain items or [indiscernible].

Sure. So the question was about with inflation at its current rate and the pressures there, your gross margin performance has been strong and how do you manage through that? And I'll hit a couple of points. Our approach -- our overarching approach is to ensure that we maintain market share and we drive traffic. So the first thing we manage towards is making sure we are everyday low price, and we give all the reason to continue to shop at Tractor Supply and the reason to be able to come to Tractor Supply versus it. We -- in farm and ranch, our size, and as I mentioned earlier, our supply chain and our -- gives us scale and the ability to be able to be competitive in the areas of the product that we sell. So the important thing is to make sure, one, that we're very much priced right. Secondly, we'll focus on gross margin dollars, with a very conscious, disciplined approach towards the rate. There's no doubt we focus on the rate. And the way we approach managing that delicate balance is that we look at the traffic drivers. We comp shop, to your point earlier -- I mean, very, very rigorously. We've got web scraping and pricing tools that we leverage to look at all the competitive pricing. And we move both online and stores as rapidly as we need to. The -- so we're very conscious of what competitive pricing is and we make sure that we, again, have everyday low pricing. And then in regards to that inflation, we're focused on traffic drivers. We talk about our key merchandise, the consumable, usable and edible merchandise is key. Those are the traffic drivers. And so if those areas are driving higher amounts of inflation, we take a portfolio approach on our retail pricing. We may choose to not pass through on those key areas, but be able to balance that through either our negotiations with our vendors, efficiencies that we find in our supply chain model or our portfolio approach on retail pricing on other categories where we balance that. And our history in the last couple of quarters has shown that with significant inflation, very pleased with our merchandising and supply chain team be able to manage through that level of inflation and be able to maintain margin rate in there. And the last thing I'd say with that is that on our margin rate, our consumer at this point has shown throughout 2021 to have minimal level of elasticity. We believe that, that certainly the stimulus funds and the consumer that has $2 trillion still of savings increase is giving them more the ability today to be able to offset the inflation. And so of late, that's how we view as the consumers' response to it. It's something that we'll watch very carefully as we exit 2021 and you go into 2022, where I mentioned we still believe there's going to be some levels of inflation on the consumers' response, but the consumer is healthy. And the consumer, we believe, is utilizing those savings to be able to offset the pressures on inflation.

One follow-up on that. Can you talk about your customer demographic [indiscernible] here?

To get from a customer demographic, first, I'll just say most of our stores are, no surprise, in an ex urban to rural environment. A high percentage are right outside of suburbia, even though we do have some stores in there. It's your typical middle income, U.S. consumer, owns a house, owns a land -- owns land, conservative, minimal debt and -- the levels of income can vary. And we have some that have high income and there's some hobbies they come in and spend for. And you have lower income, but they live off the land, and we're a primary source of some of their key needs for the income they have off their land, and we're a significant percentage of their wallet. And we understand that and view that very carefully, knowing that they spend a lot of time and effort for them to come in and buy an item for us. That's a very purposeful decision, which is, again, why we are very focused on everyday low pricing. We have a pretty close mix of 50-50 male and female. And we recognize that in the home, the female, on a good portion of our categories, companion animal and apparel and other areas are a primary decision-maker in there. And a lot of what we are doing with Fusion is recognizing the demographics on the male-female mix. And our largest growing category of consumers, the millennials, as I mentioned earlier, we've seen a significant lift in this pandemic on a mix of percentage of sales coming from the growth in the millennial customer. And whether or not that, that's them moving into our markets or just moving into our lifestyle and there's a mix of both of that.

I wanted to get back -- you touched on the merchandising team, kind of some of the things set, and then we're doing kind of good, better, best. I always feel like you've been very competitively priced, but you've been expanding that better, best side. I feel like whether it's a private label, store within a store. Can you talk about maybe how that's gone? Apparel sounds like a success, but maybe where you're seeing the best success so far with kind of the expanding merchandising strategy and some of the initiatives that the team are working on?

Yes. I'll mention that. I'll just state that what we've seen is that with a changing demographic and a growing customer base, we recognize that our customers, as I mentioned earlier, have a variety of preferences. And so we've got to that point that the customer that is very cost-conscious, they're looking for that low-price practical product or feed or food for their livestock, their animals. But also we certainly are seeing growth in the other end of the spectrum where higher end, higher quality national brand or our high-quality exclusive brand like a Ridgecut on the apparel and like a duMOR producer pride or 4health product is what they're looking for as well, too. And so what we've had tremendous success with has been in areas like -- and some of these are some of the more recent ones. Carhartt is certainly a national brand that resonates with our customer. And we sell a lot of Carhartt online and in stores. And our customer looks for high-quality, durable, insulated outerwear. And we introduced a couple of years ago, the Ridgecut line that has a very similar quality and it's been a tremendous success for us, and we continue to grow Ridgecut in different areas, including footwear. And so we continue to have outstanding growth in national brands like Carhartt, but also seeing a growth in area like Ridgecut. Other areas that we've expanded in, we introduced a couple of years ago, Toro and introduced their outdoor power equipment line. And from push mowers to zero turns and introduce that high quality, and it's been a success, along with our growth with Cub Cadet and Husqvarna with our zero turns. On the power tools side, our exclusive brand launch with Porter Cable and then introducing Makita. And so Daniel, to your point, we recognize that while we continue to have growth in our exclusive brand JobSmart that is durable, high quality, great price on power tools. Our customers come in looking for Dewalt, Makita and Porter Cable. And I think Seth and the team have done a great job of being able to expand that. And again, with a growing demographic of customers and focusing on making sure that we've got the product to meet the needs of the tradesmen as well as the hobbyist. I think we're hitting on some real great success on having a balance between exclusive brand and national brands.

And do you think the national brands, as they see you investing in the stores through Project Fusion, the Side Lot and that traffic continues to improve. Does that give you more leverage to go to those national brands and maybe get better allocations or bring like Makita into the stores? Is that going to kind of be a continuous process over the next few years?

I definitely agree with that. The work that we're doing to invest in our business, both online and brick-and-mortar in the stores is certainly one of the strengths we have to be able to offer and having the growth that we've had over the last 2 years, that's some of the basic points of attractiveness to some of these national brands in there. An example of another thing that we've done in the last year is that field activity support team. We introduced a new merchandising support function a little over a year ago. Last year, our field activity support team, roughly 2,000 people in our field focused on ensuring our stores are merchandised fixtured consistently that when you walk in to any of our near 2,000 stores, where it should be consistent, it's executed on time and consistently. In the past, our store team members would put together all the new resets, all the new sales driving initiatives. And now today, we've got a merchandising support team that is out there in the field, and they're executing that for us, for the vendors. And the vendors have been so excited about that. It's a vendor-funded support program, and we have just been pleased on the execution of being able to get merchandising initiatives. Our vendors' product on ourselves in stock faster than ever, which, of course, they recognize it's a win-win for both of us because our product is selling earlier and being -- being able to help drive additional traffic and ticket. And for the vendors it's a win and certainly for Tractor Supply.

Kurt, want to touch on the margins a bit, kind of the financial outlook you provided. I guess the first question I asked is higher level as you guys are in this period of strong demand, how do you weigh reinvesting into the business versus letting that flow through to the bottom line? And how do you manage EBIT margin in an environment where comps are so well above kind of your historical average range?

Yes, sure. In regards to EBIT margin in an environment of tremendous growth, I think you framed it up pretty well. We manage that very purposeful and very strategically. We recognize the opportunity that Tractor Supply has to be able to grow market share in a $110 billion estimated TAM, where we're a small percentage of that. We recognize the opportunity, as I mentioned earlier, with lawn and garden landscaping, where we're not offering everything our customer is looking for in an area that resonates well with them. And so we basically are taking a very purposeful balance, as we've said a number of times, we are investing from a position of strength. And when you look at our long-term outlook and our long-term targets and you read the commentary we've had over the last couple of quarters, we have said everything that we've seen is give us confidence that the lift in revenue is structural versus transitory, -- Most of our EBIT margin growth has come from gross margin improvement, and principally from shedding of a lot of the promotional activity being really clean with clearance. And with that -- with the benefit that we have from growing gross margin and being able to hold on to that gross margin benefit even with some normalization potentially coming back as inventories normalize, you may see some normalization of clearance. That gives us an opportunity to be able to take the leverage on the SG&A, be able to make meaningful investments in our people, meaningful investments in our strategic initiatives for supply chain, digital in in-store like Fusion Side Lot and still be able to grow our EBIT margin. And we see this as a great opportunity. But to your point in the beginning, we believe, in this case, you can walk and chew gum at the same time. And we're seeing great growth in our EBIT margin while we're making tremendous investment for the long term and our ability to continue to grab market share.

And are we seeing any normalization in that promotional or clearance environment yet because as inventories improve? Or is that a forward-looking thing that we'll see probably next year in '22?

So far through 2021, even as we went into the year and said there would be some normalization. We recognize with the pandemic, it's -- we're still in a time of uncertainty as we're sitting here almost at the end of the year, nobody really looked at out in 2021 and saw the -- as much supply-chain disruption or as much inflation or all the aspects that we've been facing. And so at this point, there's been very little incremental promotion. And I think that's pretty consistent across retail as -- as in 2021, very little promotion as you were trying your best not to promote heavy traffic, right, and balance your flow. In 2021, it's about inventory, and we're very pleased with our inventory position. But the demand is strong. And with us being up in comp inventory at the end of Q3, nearly 12%. We're very pleased with our inventory position, but we're able to move inventory faster than we have. And so it's very fresh and not -- there's not really been a need to be able to promote at this point. And we'll be very careful to release or revert back to any promotional environment. We see this as a catalyst to just really hold on to an everyday low pricing strategy with leaning in Neighbor's Club as the reason to continue to shop with Tractor Supply.

And what -- so I think last year, the enhanced earnings, you guys have kind of given an outlook that we'll see maybe a normalization in comps before we grow off this higher base. Obviously, that didn't happen. Comps continued to increase. I guess as you look in your crystal ball now, I mean what -- what should this normalization look like? I mean, you said it's structural, but do we grow from this space? Do we continue to up this upward trend? Is there a bit of a kind of consolidation period? How do you think that demand outlook looks?

Yes. I'll mention it from -- I'll maybe have 2 statements on there, Daniel. We -- it's important for us, one, to recognize there's still a lot of uncertainty, right? What's become more certain is the structural nature of our lift compared to when we had our enhanced earnings event. With all the uncertainty out there. I think there's still -- I think it's still prudent not to come out with some crystal ball, so we're not going to try to do that. But that the graph that I presented 15 months ago with that post-COVID flattish line, everything that's indicated as we started to cycle it with the comps that we've had has really shown the strength of the lifestyle and our initiatives that we've got really helping us gain market share. So we're very optimistic on our ability to continue to grow comps from this point. But those are the things we're evaluating right now. Certainly, as you understand, we're going through our planning stage and as we give -- as we plan to go into our Q4 call and in any level of insight on 2022, those are the things that we're very focused on, and certainly, we'll give more information in the near term.

Makes sense. And on the expense side, obviously, you mentioned you've taken a few wage increases in the last 18 months, that's clearly helped retain talent. What is your high level of thought on that trajectory of that slope of the wage investments? Do those continue into next year? Is that something that labor is still tough to find? Are you guys adequately staffed because you're paying above market? And how do you kind of balance that into next year?

Yes. On the topic of labor pressures and wage investments, I'll first start from a macro perspective, that there's no doubt, it's a tough labor market right now. We believe the employers who have a great culture, who have -- who take care of their team members are winning right now. We've hired up early over the last 12 months. We were 32,000 team members in pre-pandemic. And we've now hired up over 40 -- to a number of over 45,000. And we've made purposeful investments in our people. We celebrated 8 weeks of team member appreciation over the back half of 2021. And we believe our culture, the fact that we hire our customers has allowed us in this environment to maintain a strong, steady workforce, 1 that our stores -- if not all, a really high -- vast majority of our stores are adequately staffed, fully staffed in there. It's a constant area of investment or an area of focus that you've just got to hire. But we are pleased with our distribution and store operation teams on how they've done in hiring, and we believe our investments we've made as well as our culture is really helping us lead in that area. In regards to wage pressures from a macro standpoint, wage pressure, I think, will continue to be higher than historical norms. We've made those investments. We'll exit this year where on an hourly wage, all in, our average wage is around $15 an hour. And so I think that puts us in a good position, but we'll continue to put team members as they are a critical aspect of our differentiator, as I mentioned, it's a high priority for us. And so that's been part of our long-term target on the SG&A side. We've anticipated even in our enhanced earnings event 15 months ago when we put long-term targets that wage investments are above historical norms.

And then maybe wrapping up, I've got a couple of minutes left here. Just heading into next year, a lot of uncertainty, what excites you most about the story here? And what kind of keeps you going and get you up in the more excited about Tractor story?

The things that excite me the most, and we've mentioned most of them that the consumer is healthy. Our customer, those that live the Life Out Here is that customer base is growing. And the outdoor Out Here lifestyle is resonating, that sustainable living resonates with the millennial customer. Tractor Supply is a place where you can come in and get the product you want and need for our lifestyle, including organics, including things that are meant to support a sustainable lifestyle. And we believe that's a tailwind and a focus on consumers. We're excited about that. We're excited about the traffic trends and the -- the retention of new customers. And the investments that we've made in the past and the investments we're making the future on digital, in supply chain and in our stores, positions us to continue to have a differentiator. And we believe we're not only taking market share right now and it's taking market share from a number of aspects, whether that's farm and ranch or it's mass merchant, there's different aspects that the market share is coming from. But we're taking market share. We've got a great opportunity to be able to -- we're well positioned to be able to continue to take market share with the investments that we have and the strategy we have with Life Out Here. And I think this -- I think while we've had in my 22 years, a tremendous bright past, it's even brighter in the future with what we have as an opportunity to just continue to grow in a total addressable market that's growing and an area that we believe we're well positioned to take market share.

Great. Well, Kurt, were going to leave it there at the end of the time. Thanks so much for joining us today, and I hope the conference goes well for everyone today.

Thank You, Dan.