Tractor Supply Company Q2 2026 Earnings Call | Rural Lifestyle Store Sales Inflows

Thank you, Mary Winn. And good morning, everyone, and thank you for joining us today. I'd like to begin by thanking our more than 54,000 team members for their continued dedication to serving our customers and communities. Their commitment to our mission and values remains one of Tractor Supply's greatest strengths and continues to differentiate our business every day. I would also like to welcome the veterinarians, clinic teams, and support professionals joining Tractor Supply through our acquisition of VCA Pet Care. We're excited to have them join the family as we continue to strengthen our pet ecosystem. The Tractor Supply business model demonstrated its strength and durability during the second quarter. Our core customer remained engaged with healthy retention. Our needs-based categories continue to perform well, and our competitive position remains solid. We had positive comparable store sales in both April and June. However, they were more than offset by unusually adverse conditions in May, which drove second quarter results below our expectations. Taken together, we believe the underlying business remains healthy. Before turning to our second quarter results, it's worth spending a moment on May. Fuel prices peaked during the height of our spring selling season, putting meaningful pressure on our customers' discretionary spending at the most important time of the quarter. Our customers often drive a longer distance to the shop, frequently in pickup trucks, many of which are diesel-powered, making them especially sensitive to higher fuel costs. At the same time, persistent drought conditions across several key southeastern markets limited normal seasonal activity and reduced demand for lawn care and other outdoor-related purchases. To put that in perspective, performance in our big ticket categories and hardlines spring goods during May alone reduced our second quarter comp sales by approximately two percentage points, highlighting how concentrated the softness was within the quarter. These conditions disproportionately affected discretionary and project-oriented categories, while our needs-based businesses remained resilient.

With that context, let me turn to our second quarter results. Net sales increased approximately 2% to $4.5 billion driven by new store growth and partially offset by lower comparable store sales. Comp sales declined approximately 1.5% reflecting lower transaction counts, which were most pronounced in May, along with modest inflation and softer discretionary demand, particularly in big ticket. Consumable, usable, and edible categories remained positive during the quarter. Big ticket declined in mid single digits, again led by softness in spring and summer categories in May. Digital sales once again experienced double digit growth, driven by strong deliver from store performance, higher traffic, and improved conversion. Net income and earnings per share were below our expectations for the quarter. Even with significant sales pressure during our largest month of the quarter, the team maintained disciplined expense management and continued to deliver productivity improvements that mitigated the impact of the sales pressure. Looking beyond the quarter, our conviction in the business has not changed. At the same time, we recognize that generating modest positive comp sales is not where Tractor Supply should perform over the long term. We're not satisfied with our business and we're taking decisive actions to improve it. Tractor Supply has successfully navigated changing economic environments for nearly 90 years and we remain confident in the durability of our business model. We operate in end markets that are currently experiencing several discrete headwinds. Approximately 40% of our addressable market is tied to farm and ranch and rural economies, where customers continue to navigate a challenging operating environment shaped by elevated gas costs, persistent drought, and more cautious discretionary spending. Approximately 20% is tied to pet, where industry growth remains challenged. And another 20% is tied to home improvement and property maintenance, where demand continues to be constrained by a prolonged period of historically low housing turnover. While these pressures have notable impacts on our first half performance, they do not change our confidence in the long-term opportunity. What has not changed is customer engagement. What has changed is customer spending behavior. Customers continue to invest in the care of their pets, animals, farms, and properties, but they're shopping more deliberately, consolidating trips, and prioritizing needs-based items, while taking a more measured approach to discretionary purchases. Against that backdrop and despite May's performance, our second quarter fell short of expectations. We are not satisfied with the results and we are addressing the challenges facing the business. At the same time, we believe that the fundamentals supporting the rural lifestyle, pet ownership and property maintenance remain attractive. Like we've done throughout our history, we're not waiting for the environment to improve. We understand the moment we're in and we're responding with urgency and much of that work has already begun.

As we shared on our last earnings call, we began taking action in two areas where we saw the greatest near-term opportunity. Strengthening our pet business and reinforcing our value proposition through pricing and everyday value. While pet performance remains below where we want it to be, trends improved sequentially from the first quarter and we continue to hold share. We believe the deliberate actions we're taking to strengthen our competitive position and capture additional share wallet are beginning to gain traction. While still in the early stages, we're confident they will continue to build momentum through the back half of the year. The category resets we outlined last quarter are complete, introducing more localized assortments, expanding our presence in faster growing premium nutrition segments and strengthening our exclusive brand portfolio to better meet the evolving needs of pet parents. We're encouraged by the early results. Our rollout of fresh pet continues to perform well. The program was in approximately 250 stores at the end of the second quarter and we remain on track to expand to at least 700 stores in total by year end. We're also leveraging the broader pet ecosystem we built through services while strengthening our marketing, enhancing the digital pet shopping experience, expanding subscription capabilities and improving in-store execution. Together, these initiatives create a more connected experience for pet parents, while strengthening customer loyalty. Additionally, during the quarter, we completed the acquisition of VCA Pet Care, which adds relationships with approximately 1 million pets annually through a network of 2,500 veterinarians across 39 states. The acquisition fills an important gap in our pet ecosystem, allowing us to connect veterinary services, prescriptions, and products across physical and digital channels. At the same time, we're reinforcing our price perception through the launch of our unbeatable price campaign, clearer everyday value messaging, and targeted promotional activity. Consumable, usable, and edible products remain the foundation of Tractor Supply, and we're committed to reinforcing our value proposition where it matters most to our customers. And these investments are already generating encouraging customer response. We're also using this period to critically evaluate our priorities, sharpen our strategic focus, and ensure we're allocating capital to the highest opportunities, generating the strongest customer response, and strong long-term returns. As part of that work, and in light of our updated 2026 outlook, we've decided to withdraw our long-term financial framework. We recognize the importance of providing investors with a clear long-term roadmap, and we're committed to introducing an updated framework in conjunction with our fourth quarter 2026 earnings announcement.

Following a disciplined review of Pet Sense, we've decided to close approximately 75 underperforming stores. We believe these actions will improve returns, simplify the business, and allow us to direct resources towards higher growth, higher return opportunities. We've also concluded that while our new stores continue to generate attractive returns, driving stronger comp sales, and improving the productivity of our existing assets are critical priorities in this environment. To support these priorities, we plan to open approximately 85 to 90 new stores in 2027 compared with our previous expectation of 100 new stores. And we will redeploy that capital toward initiatives such as Project Fusion remodels, store locations, and final mile delivery. Project Fusion remains one of our most important initiatives to improve the performance of our existing store base. We will continue to evolve the program by investing behind the elements delivering the strongest returns, including greater localization and expanded pet wash. Both of which are contributing meaningfully to the performance of Fusion stores. We will also continue investing in our existing stores through technology enhancements, expanded Tractor Vision capabilities, and merchandising concepts such as outdoor recreation, where we're seeing encouraging customer response. Final mile remains one of our most compelling growth opportunities. With customer adoption continuing to exceed our expectations and economics improving as we scale the business. Through the first half of the year, we've already completed as many final mile deliveries as we did during all of 2025, underscoring the strong customer demand and momentum behind the scalability. And as a result, we expect to accelerate the rollout ahead of our original timeline. Together, these investments will improve the customer experience, enhance store execution, and productivity, and drive stronger returns across our existing store base. This work is ongoing. Today's announcements represent important first steps, and we look forward to sharing additional actions and our updated long-term framework over the coming quarters.

We remain confident in Tractor Supply's future. We have a differentiated business model, strong balance sheet, and a proven ability to create long-term shareholder value. The actions we're taking today are designed to further strengthen our competitive position, improve our productivity, and position Tractor Supply for long-term success. And with that, I'll turn the call over to Kurt.