Tractor Supply Company (TSCO) Q4 2013 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Tractor Supply Company's conference call to discuss fourth quarter and full year 2013 results. [Operator Instructions]. Please be advised that reproduction of this call, in whole or in part, is not permitted without written authorization of Tractor Supply Company. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Mr. Randy Guiler of Tractor Supply Company. Please go ahead, sir.

Thank you, operator. Good afternoon, and thank you for joining us. Before we begin, let me reference the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain forward-looking statements that are subject to significant risks or uncertainties, including the future operating and financial performance of the company. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Important risk factors that could cause actual results to differ materially from those reflected in its forward-looking statements are included in the company's filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Lastly, Tractor Supply Company undertakes no obligation to update any information discussed in this call. I'm now pleased to introduce Greg Sandfort, Tractor Supply company's President and CEO. Greg, please go ahead.

Thank you, Randy. And good afternoon, everyone. Thank you for your continued interest in Tractor Supply, and for being on our call this afternoon. With me today are Tony Crudele, our CFO; Steve Barbarick, our EVP of Merchandising and Marketing; and Lee Downing, our Senior Vice President of Store Operations. After our prepared remarks, we will open the call for your questions. We are very pleased with our fourth quarter and full year results and are proud of our many achievements in 2013. The fourth quarter marked the 17th consecutive quarter of positive comp store sales and our 23rd consecutive quarter of positive comp transaction counts. Both our stores and our cross functional support teams at the store support center and the distribution centers continued to execute effectively on our company's initiatives. Our customer satisfaction scores continued to be solid as all of our TSE team members strive to take better care of our customers through meeting their specific-product needs and providing them with a legendary customer service. In addition to delivering record results in 2013, we accomplished several other milestones in our business. Tractor Supply entered 3 new states; opening our first store in Arizona, Nevada and Wyoming. We now operate in 48 states and continue to expand our presence in the West. We opened a new relocated distribution center in Macon, Georgia that also houses our first direct import center. We broke ground on our new Store Support Center located just down the block from our existing offices that will consolidate all of our Store Support Center teams back together under one roof. We celebrated the company's 75th-year anniversary by ringing in the NASDAQ opening bell in October. And lastly, Tractor Supply was added to the NASDAQ 100 Index in late December and to the coveted S&P 500 Index at the close of trading last Saturday -- excuse me, last Thursday. We've come along way in 75 years, but our mission and values remain unchanged. We are driven to be the most dependable supplier of basic maintenance needs to recreational farmers, ranchers and rural consumers. We are continuing to invest and to build a business capable of delivering long-term sustainable growth, and we are committed to achieving our long-term goal growth targets through a balanced approach to managing sales margin, expenses and our capital. We are building our infrastructure with tools and technology to further our ability to offer our customers the right products, at the right time, at the right location and at the right price, no matter if they shop with us in-store or online. We have made great progress over the last several years and believe this is reflected in our earnings growth. We also believe there continues to be a tremendous opportunity ahead to grow our overall business while we invest in the long-term sustainability of our model in the following tiers, those being: merchandising, demand planning and logistics, multichannel retail and customer relationship management. Now let me briefly touch on these areas and provide you with how and where we are investing for long-term sustainable growth. In merchandising, we are constantly evolving our offerings to meet the changing needs of our customers. Our stores average about 15,500 square feet. So it's very important to utilize the 4-wall space effectively. Our customers want a shopping experience where they can get in and out of our stores quickly, and we want them to be confident that we will have the products they are looking for. We know this dependability of always being in-stock is driving sustainable repeat traffic into our stores. In the supply chain, we are investing in tools to help us better plan our assortments and manage our in-stock levels, both at the macro and more importantly, the local level. For example, based on feedback received from our store teams this past year, we made a strategic decision to continue with several spring and summer planograms throughout many of our southern markets. We also refined our assortment of heating products this fall, adding new market-specific products, while revising our price points to address changing market conditions. In both instances, our customers responded positively. Our strategic focus continued in multichannel throughout 2013 and those investments generated a measurable increase in business for the second half. We believe holiday and other seasonal events throughout the year will continue to provide opportunity for both our stores and our multichannel business as we expand our functionality online. Our plan is to continue our strategy of taking a longer term, well-thought through approach, adding platform capabilities based upon a more thorough understanding of our customers' expectations and preferences as they interact with the site. On the customer relationship management side of our business, we are investing in multiple areas to more clearly identify and reach our existing and potential new customer base. We believe there is tremendous long-term opportunity here, and we are progressing thoughtfully with the development of a customer affinity program. We have made improvements in our CRM capability and our customer attribution rates have nearly doubled in the past few years, but there is still a lot more to learn and to do. Now before I turn the call over to Tony, I want to recognize all of our hard-working team members that serve our customers every day and who have delivered the results we will be reviewing with you today. I am proud of them, and proud to be part of this organization that was founded 75 years ago with one focus: taking care of the customer. And just as important, our company mission and values, on which we operate daily, is the foundation that remains as strong and an integral part of the unique culture we embrace here at Tractor Supply as it was back then. I believe our future is bright and I'm extremely excited about the opportunities that lie ahead. I will now turn the call over to Tony for his review of the fourth quarter financials and our forward outlook. Tony?

Thanks, Greg. And good afternoon, everyone. For the quarter ended December 28, 2013, on a year-over-year basis, net sales increased 10% to $1.42 billion and net income grew 20.6% to $95.9 million or $0.68 per diluted share. Comp store sales increased 3.5% in the fourth quarter compared to an increase of 4.7% in last year's fourth quarter. Comp transaction count increased for the 23rd consecutive quarter, gaining 5.1% on top of a 2.7% increase last year. We are very pleased with our ability to continue driving increased foot traffic through our doors by meeting the everyday needs of our customers. C.U.E. items and strong winter seasonal business were the key traffic drivers in the quarter. Average comp ticket decreased by 1.5% versus last year's 1.8%. The decrease resulted primarily from deflation and reduction in big-ticket sales as we cycled Hurricane Sandy in the earlier part of the quarter. A few key points about the quarter. Comp sales were in line with our expectations. As we had discussed on our last conference call, we anticipated that the prospect of deflation could dampen comp sales for Q4. We anticipated deflation to be relatively flat, but instead we estimate it was 85 basis points in the quarter. Strong sales of, and the mix in, our feed-related products led to the variance in expectations. Big-ticket also had a negative impact on comp sales by an estimated 126 basis points as we cycled emergency response sales last year from Hurricane Sandy. On a regional basis, comp sales were solid across all regions with the exception of the Northeast region. Again, this resulted from the cycling of Hurricane Sandy. Sales of direct import items increased 40% versus Q4 last year and represented 15.8% [ph] of the sales mix in the quarter. Sales of exclusive branded products were also very strong in the quarter and increased 19% year-over-year, and represented approximately 30% of total sales. Turning to gross margin, which increased 90 basis points, to 33.9%. Our initial direct margin continues to improve as a result of the initiatives around price management, markdown management and strategic sourcing. The favorable colder weather provided strong sell-through of our seasonal winter products resulting in fewer markdowns. As we cycled the higher grain prices last year, experienced deflation and maintained our gross margin per unit sold, our gross margin percentage benefited, which we estimated to be about 13 basis points. Additionally, we had a slightly favorable mix variance this quarter as we cycled the emergency response sales of Hurricane Sandy last year. Margin was favorably impacted by a higher number of new stores opened in the back half of the year compared to 2012. Freight as a percent of sales was essentially flat compared to the prior year. For the quarter, SG&A including depreciation and amortization was 22.5% of sales compared to 23.3% in the prior year's quarter. The deleverage in SG&A was caused by several factors, which include we incurred higher cold weather-related costs, including electric, gas, snow removal and floor care. As discussed on our previous conference calls, during our data center relocation, we incurred additional rent while we maintained 2 facilities and depreciation increased as we placed new equipment into service. Also as discussed, we had the increased expense of our relocated Southeast distribution center, which is included in SG&A. We continued to refresh and maintain our store fleet with particular focus as we went into the holiday season. The depreciation increased as we put into service during the year, e-commerce assets, which are part of our replatforming and our other multichannel initiatives. Our effective income tax rate decreased 35% in Q4 compared to 36.2% last year. The decrease was due principally to the reversal of certain FIN 48 reserves. Turning to the balance sheet, we ended the year with $142.7 million in cash compared to $138.6 million last year and within our targeted range. During the fourth quarter under our stock repurchase program, we acquired approximately 535,000 shares for $38.8 million. We estimate that the share repurchase program did not have a material impact on EPS for the quarter. Average inventory levels per store at year end decreased 50 basis points compared to last year as a result of the strong sell-through of seasonal merchandise. Inventory trends for the year improved slightly, up 1 basis point to 3.29x. We are pleased with the productivity of our inventory during the quarter and the year, and we ended the quarter in great shape, well-positioned to exit the winter season in Q1. Capital expenditures for the year were $218 million as compared to $153 million last year. We opened 31 stores in the fourth quarter compared to 25 stores in fourth quarter of 2012. For the year, we opened 102 stores. The year-over-year increase in CapEx relates principally to the construction of the Southeast distribution center placed in service last summer and our Store Support Center, which will be opened in the second half of this year. This increase in capital is consistent with our longer-term capital plan as we estimate spending $250 million each of the next several years. Turning our attention to 2014. We expect full year sales to range from $5.62 billion to $5.7 billion. We have forecasted comp sales to increase between 2.5% and 4%. We're targeting improvement of approximately 20 to 30 basis points in EBIT margin compared to 2013 coming principally from gross margin as a result of several of the key merchandise initiatives. We expect SG&A percent to be generally flat as I'll detail later. We anticipate net income to range from approximately $360 million to $370 million or $2.54 to $2.62 per diluted share. And we expect to open 102 to 106 new stores with approximately 50% to 55% scheduled to open in the first half of the year. We forecast that our effective tax rate will be approximately 37%, a significant increase from the 36.2% rate in 2013. Last year, we had the reinstatement of the WOTC credits in the first quarter, but the program expired at the end of 2013 and was not reinstated for 2014. We also had the release of FIN 48 reserves in the fourth quarter that we do not anticipate having in the same magnitude for 2014. We expect capital expenditures in 2014 to range between approximately $240 million to $250 million. The increase over last year results from the completion of the construction of the Store Support Center this year. And initial development of the Southwest distribution center. We continue to invest in our store fleet and have increased our store growth and maintenance budget by $20 million. We will continue to make purchases under the share repurchase program as part of our long-term objective of reducing cost of capital and maintaining a targeted cash balance of $100 million to $150 million. For modeling purposes, we estimate that diluted shares outstanding inclusive of option grant and share repurchase activity will approximate 141.6 million for the full year. So let me discuss some of the more specific drivers and assumptions that helped us form our projections for 2014. We do not expect that the current retail environment will change dramatically as consumers continue to focus on everyday basic needs with limited spending on discretionary items. There were some positive and negative weather events that impacted the timing of sales in 2013. This has included a late spring and extended spring-summer into the third quarter and a cold December. We believe it was a net neutral year from a weather perspective. Therefore, we do not anticipate that cycling against last year's weather trends will have a significant impact on the full year-over-year results, but as we've emphasized in the past, we believe our business can be more accurately assessed by focusing on halves, not the quarters as weather patterns will change from year-to-year, and shift the timing of the sales between quarters. This year, we expect that we will have a deflationary impact ranging from flat to 1% for the year. And that will be at the higher end of that range in the first half of the year and slightly less in the second half of the year. This will obviously be a headwind to comp sales as this could be up to 170 basis points swing year-over-year. As I commented earlier, we expect gross margin rate to be the principal driver of EBIT margin expansion. We expect to achieve our gross margin rate improvement through the execution of the key gross margin initiatives, continued strong markdown and inventory management, gross margin rate tailwind provided by a deflationary environment. We believe these factors will provide us the ability to overcome an estimated gross margin rate headwind of approximately 10 to 15 basis points from the continuing mix shift to our C.U.E. products, which carry a below-chain average margin rate and additional freight. This headwind is less than in prior years. We also will have a headwind from the increased stem miles as we continue to open new stores in the West. In terms of cadence, we expect gross margin percent improvement to be greater in the first half of the year as we will benefit the most from the deflation impact. We believe that the third and fourth quarters will have the toughest comparisons as we cycle the very strong gross margin improvement and very favorable clearance conditions in the prior year. We expect the fourth quarter to decline in gross margin rate based on our modeling. Inventory turns are expected to improve slightly, we would expect per store inventory to increase modestly consistent with investments in key merchandising categories. With respect to SG&A, we did not expect to leverage SG&A this year and anticipate SG&A will be flat even at the high end of our comp guidance. As Greg discussed, we will continue to invest in our business and infrastructure with long-term perspective and as we do so, some of the expected benefits may come in future periods. For example, we continue to invest in our multichannel platform, we will continue to test our mixing center logistics approach, we will continue to pilot stewardship programs such as energy-efficient systems, lighting and solar; and we will embark on new initiatives such as demand planning and clearance price optimization. In addition to driving key initiatives, I had mentioned on our Q3 conference call, we had several items that will impact SG&A as we grow the business this year. I have previously discussed that, we will be transitioning later this year to our new corporate store support center, we will be consolidating 3 leased facilities and we'll incur lease write-off and various transition costs in the second half the year. We believe that this will provide us reduced occupancy costs in the future years compared to a lease scenario. As the Affordable Care Act rolls out, we forecast the medical expense will increase as a result of increased enrollment, along with various charges that are embedded in the Act. In addition to those 2 items that I had previously mentioned, as we continue to expand our Northeast footprint, we anticipate expanding our D.C. capacity in Northeast, and we are currently evaluating leasing additional space in the Northeast in the back half of 2014. In conjunction with our store support center move, we will be relocating our planogram facility to a nearby location to better assist our buying teams to visualize merchandise resets. And finally, we continue to refresh our store fleet as leases renew to maintain a good customer experience. We estimate that these items that I've mentioned represent a drag on EPS of approximately $0.05 to $0.06. As you know last year, we had approximately $0.03 in nonrecurring charges for our distribution and data center relocations, so we expect a net impact of about $0.02 to $0.03 on the P&L. Some key points with respect to the quarters. I remember that last year, we had a late spring and we are hopeful that we'll have an earlier spring, but currently, we anticipate it being warm in March only in the South region. Although the first quarter has gotten off to a good start with the cold weather, let me remind you that March is the most impactful month in the quarter and is very dependent on spring weather. Also with the advent of the colder January-February weather, we will have additional store expenses related to cold weather store maintenance in the first quarter. Also, we have an extended spring/summer selling season which benefited Q3 last year. We believe that this will be the toughest quarter from a sales comparison standpoint. With respect to SG&A items I mentioned earlier, although the larger portion of the expenses are allocated to the third and fourth quarters, the impact is limited since we cycle the greater portion of the nonrecurring D.C. and data center relocation last year in those quarters as well. For modeling purposes, it maybe simplest to just allocate ratably during the year. As in the past, we will provide more color regarding our expectations for the subsequent periods at each quarterly conference call. That concludes our prepared remarks. We will now turn to the operator -- we will now turn -- open for questions.

[Operator Instructions] Our first question today, RBC Capital Markets, Scot Ciccarelli.

Can you address any other -- you talked about kind of the cadence for gross margin. While you guys have had kind of the multiple initiative to drive gross margin, is there anything else we should be considering? And do you view the numbers you threw out as kind of realistic or conservative or aggressive? Just kind of the mindset around that.

Scot, when it comes to the margin, again, what I've laid out in the prepared remarks, I think represents looking at the quarters and really trying to dissect them and understand what transpired in 2013. And remember, as much as the initiatives -- really on an ongoing basis will improve our margin, hopefully, year after year, there are many things that impacted margin during the course of a particular quarter. And obviously, the clearance effort is one of those. So as we analyze that throughout the year, we think that the guidance that we provided is very reasonable relative to the sort of a quarter-over-quarter performance that we expect through 2014. As it comes to guidance, again, we take a very diligent approach to putting together our models. And we believe that our guidance is very consistent in -- to the extent in which we've done it in the past years.

Next, we'll hear from John Lawrence, Stephens.

Just quickly, Greg, if you look at the fourth quarter, congratulations on the traffic. What do you think -- I mean, the cold weather, as you look at those baskets, do you think that's new customers? Customer spending more, cold weather have something to do with that or how would you sort of break that down?

John, Greg. This is a great -- It's a great question. And as we track our customer counts in stores, we would have to tell you that there's got to be some new customer acquisition happening because we look at our units that we sell in some of these C.U.E categories and some of these commodity categories. And year-over-year, by having the types of increases we're seeing, it leads us to believe that there's considerable movement with new customers coming through the front doors. I'll also tell you, though, that as you know our customer base, when it gets cold outside, they respond and they typically do a bit of pantry-filling on certain products because the fear of the cold weather and so on. So it's a combination of both.

Great. And could you give us maybe just one deeper dive into what did you learn about the multichannel business, maybe now it's just -- we really had 6 months really going?

Well, we learned several things. One is that there is considerable opportunity over the longer period of time for our customers. They like to go online and they like to research. And they typically come into the store to make the purchase. The second thing I'll tell you is that we got a lot of work to do in that space. We are still in the early stages of a lot of the platform initiatives that are going to make it a much friendlier site to shop and a more full site as far as selections and that to [ph] shop. So I can tell you initial learnings are that there is potential. Initial learnings that our customers are receptive to it. Initial learnings are that we've still got a lot more work to do, and we'll speak more to that as we get into 2014.

Up next from Robert Baird is Peter Benedict. Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division: A couple of questions. First, just -- can you maybe, Greg, speak to the cadence of sales during the fourth quarter? I mean, you guys don't give too much detail there, but as you know, everybody is incredibly nervous around retail right now and these numbers look particularly good, particularly the traffic numbers. So just -- can you give us a flavor of how the quarter went and you said the first quarter is off to a good start. Would that be something that's similar to what you saw across the fourth quarter? Or just anymore color would be very helpful.

Peter, this is Tony. Just a quick snapshot, you can imagine the weather was not as beneficial in October, so that was one of your slower months. When you look at the quarter for us this year, the DAT, day after Thanksgiving shifted into December. So that really distorts those numbers. When I normalize those 2 months, still December comes out as being the strongest performing month in the quarter. So what we see was a real nice trend and we like the trend that continued on into January. Peter S. Benedict - Robert W. Baird & Co. Incorporated, Research Division: That's helpful. And then, I guess a bigger question. On the traffic, is there a point at which you guys start to get concerned about your ability to continue to drive increased trips? I mean, it's obviously been a great run here. I don't know maybe, Steve, if you could speak to some of the merchandising opportunities you see. I mean it's a great run, but how long do you think you can continue doing it?

Peter, this is Steve. I would tell you that we've got a great track record, of 23 straight quarters of continued comp transaction growth. The initiatives that we have out there around new products, C.U.E. items, things we do with localization. I think we're just continuing to get ongoing traffic. I think as we become national, word-of-mouth gets out. And we've been doing a really nice job bringing new customers in. We're really a one-stop shop for our customer in the lifestyle. So we anticipate continued growth.

Next up from SunTrust Robinson Humphrey is David Magee.

I guess on a related question, with regard to 2014, what would you consider to be some major merchandise initiatives? In the past couple of years, we've seen [indiscernible] roll out a lot of plans [ph], what do you see for 2014?

Yes, this is Steve again. I mean, we've got 4 major buckets when it comes to driving sales in our stores. And we've got a pretty full test program that we've got a number of categories that we're rolling out right now. We work at them, we test them and we roll. And I would tell you that, that bucket is full. We've got some great learning in '13 that we'll apply to '14. We'll continue to support our C.U.E business. And I will tell you that we'll do more investment when it comes to inventory into those categories. We're going to expand assortments. We're going to be priced right locally, and there's a number of key initiatives that we've got going on within C.U.E. We're still at the forefront of localization, and I believe we've got a lot more upside on opportunity there. You heard Greg talking about some of what we did with our planograms down south, leaving them on year-round. You heard a little bit about what we've done with heating. And just one other quick example is when we looked at our cat litter business, we know there are pockets of the country that do incredibly well with it, and we are expanding our assortments in key geographical areas. So I don't want to get too specific here, but I would tell you that we've got a lot of confidence in what we're doing going forward.

Are you seeing any difference in your customers' behavior with regard to, say, middle-to-upper income versus those that might be a little bit lower income? Are you seeing the latter be more fatigued at this point in time?

No. No, we're not, Dave. As a matter of fact, [indiscernible] seem to be very similar pattern-wise from what they were earlier in the year.

Michael Lasser from UBS is up next.

The SG&A margin is going to be flat this year, flattish after leveraging 25 basis points last year. That's been coming down for the last few years. Do you feel like you're having to invest more in the infrastructure and the sophistication of the business in order to drive similar comp outcome or traffic outcome? And should we expect that to continue to be the case or at some point, will you be able to harvest these investments?

Mike, let me take a shot at that. This is Greg. I would tell you that we talk about longer-term investment because as the business grows, it's changing. And the demands are different from 700 stores to 1,000 stores to 1,500 stores and such. And you have to be more precise. You have to have the information to make good decisions. So we're putting in the systems that allow us to gain that scale and then hopefully, over time, that efficiency in the payback comes. We believe it will. So yes, as you grow larger, the demands on your sophistication and levels that you have to operate by, from a granularity standpoint, do change. So I would say, that's some of the drag, yes.

Okay. And Greg, are you hearing anything from your stores -- rumblings about potentially being nervous on the health of your consumer, given what has happened with grain prices and the commodity infrastructure?

Not at all. As a matter of fact -- again, as I said, we track our units very closely in all of our categories. And as we continue to see units rising, even through the deflationary periods, gives us great confidence that we're taking market share. So no, not at all.

Okay. And the last follow-up question is for Tony. In the third quarter, you outlined $0.04 to $0.05 of investment spending. I think you bumped it up by a $0.01. What was the cause of the increase?

Well, as we noted in the Q3 conference call, one of the items I had mentioned was the stem mile increase as we move out West. That was a gross margin impact item. So I had carved that out. And then in addition, the 2 to 3 other items that I mentioned in the prepared remarks added to that number. So that's how we got up to the $0.05 to $0.06.

From Goldman Sachs, Matthew Fassler is next.

The first question I'd like to ask relates to your commerce business. As you're getting a sense of customers' tastes and demands online, are you finding that they're sort of accepting some logistical limitations on some of the categories you cover? In other words, are they looking for you to do things that make economic sense? Or do you find that they're looking up more seriously on some of the categories that are tougher logistics?

Matt, this is Greg. First of all, our customers are buying across the store online, that includes some big ticket items as well as items that can be either drop-shipped from the vendor or shipped from our distribution point in Franklin, Kentucky, UPS. So there's no preference either way. It's a good mix. They also were very willing and they understand that it costs money to ship something to them, so whether it's an LTL charge or it's a UPS charge, they seems to be a very willing to absorb that.

That's great to hear. And then the second question I have relates to just sort of an annual gut check on what you continue to learn as you grow the business out west. Obviously, that's some of your newer markets, I know the initial efforts have been successful sort of as you close out this year and then through the next one. Any particularly critical learnings about a -- the differences in doing businesses out there and changes that you're making to enter those markets?

Yes, Matthew, this is Steve. It's a similar lifestyle that we support around the country. But I will tell you that the customers out West do have some unique needs. I mean, we do see a higher concentration of some of the C.U.E. businesses that we sell. We're continuing to modify our assortments. The more we learn out there. We went in fairly localized, but we didn't go in as good as we could be, and so we're continuing to tailor our assortments. But a lot of good learnings up to this point and we'll continue to learn as we get more data.

So it sounds like the localization will just potentially come with more knowledge and there's nothing structural about those markets that would be any kind of impediments for you there?

That's correct.

Denise Chai from Bank of America is next.

Just wondering why you're saying that C.U.E. will be a lesser headwind to margins than in the past?

Denise, this is Tony. In the past, as we've looked at those numbers, C.U.E. has grown very substantially. And we expect it to continue to grow, but it becomes a little bit less of an impact. One, because of the deflation. And just again, the sort of the law of large numbers. So we'll continue to grow C.U.E. It's a focus, obviously. And then, of course, as we put initiatives around it, we could become much more efficient as we either move the goods and/or manage -- maintain price and do our price management initiatives around it.

Okay. And then, you mentioned that the first quarter is going very nicely so far. But do you see any of the pantry-filling that took place in the fourth quarter of last year, taking anything away from the first quarter potentially?

Denise, this is Greg. No, we have not. Good steady business, good customer response to the offerings we have out there. So no, we really haven't seen anything change.

Chris Horvers from JPMorgan has the next question. Christopher Horvers - JP Morgan Chase & Co, Research Division: Last year, you laid out a long-term 14%, 16% EPS algorithm and at the midpoint, you're looking at about 11% year-over-year. So I just -- could you talk about the delta versus long-term trend -- perhaps the expense side is 1%. So what are the other drivers and to tag on to Michael's question, is the -- does the stepped up spending, given the organizational change take you off that long-term forecast?

Right. Yes, I think when you look at the numbers, there's one key number and that's the tax impact. And so as we go into that year, go into 2014, some of the headwind that we have around that relative to WOTC and some of the FIN 48 reserve release last year. If you back up and look at just operating income, I still think that we're in the mid teens. Obviously, as we go into a new year, we're looking at a modeling, where we're making sure that we address all the key expenses as we go through that year, of course, we want to -- we do our best to manage against that budget and try to exceed expectations. So we will work hard throughout the year, but we believe that our target still is to stay in the mid-teens. And we put together an operating model for next year that we believe that we can achieve and that is very reasonable. And hopefully, as we more through the years with our initiatives and our eye on cost, we'll be able to achieve better results. Christopher Horvers - JP Morgan Chase & Co, Research Division: So the SG&A, it's not as if you -- this SG&A isn't a structural headwind that takes you off that previous view?

No, it's not. As you move forward and as Greg alluded to, we're constantly going to be investing in the business. There are going to be some years where some of the investment may not be realized until subsequent years. There may be a year like this year where we're going to be moving to the Store Support facility. And those relocation costs and transition costs tend to be -- will be a little bit more impactful this year. So I look at it as a growing business and just continue to make those types of investments that provide us the scalability as we can continue to move forward. Christopher Horvers - JP Morgan Chase & Co, Research Division: Perfect. And as a follow-up on that, the deflation commentary, is that mainly in seed? Is any of that in the pet food business? And then on the cadence of the year, do you suspect -- are you planning for any quarters, perhaps the third, to just be flat, perhaps negative comps?

Yes, we see deflation really in a lot of our C.U.E. businesses. I don't want to get real specific in any one category, but it's across several categories. And what was last question on that? Christopher Horvers - JP Morgan Chase & Co, Research Division: Do you -- comparison-wise you mentioned the third quarter is the toughest compare out there. Are you planning that to be sort of a flattish comp or do you think there's any potential that could be a negative comp?

As we planned the year, we do not expect any quarter to have a negative comp.

Your next quarter comes from Adam Sindler, Deutsche Bank.

So first question is on comp guidance for the year. Last year, at the Analyst Day looking [ph] about 3% to 5% longer term. Is the change in comp guidance for 2014 due to your change in the deflation outlook? That's the first question and then just 1 or 2 follow-ups.

Adam, this is Tony. Definitely, the deflation is the most significant impact relative to our outlook on comps. As I've stated earlier, it could have between an inflation of over 100 basis points this year versus 100 next year of deflation. You could have almost a 200-point swing. So that really is the main driver in lowering our comp guidance. And so we believe that, that's really the most impactful number.

Okay. And then, as you grow out West, sort of as you're looking, building out the stores, I know you have a lot of build out in the Northeast you want to accomplish. But just sort of as you're looking at your growth model, about how long do you think it will take you to reach a point where you start to get some scale on distribution and things like that?

This is Greg, Adam. We are forecasting that in sometime in '15, we're going to have to have a new distribution center up functional because the store base will be large enough to support it. So that's our target for right now -- sometime in '15.

And next from Crédit Suisse is Gary Balter.

It's actually Andrew on for Gary. Just a quick question around the farm bill. It just passed. I realize the farm bill is more geared to larger farms, but are there any provisions that may impact your results?

This is Tony. When we look at that and obviously studied it prior to being passed, we really believe that there's no significant impact on the business. Again, in the past, a lot of people like to associate farmers and how well they're doing in a particular area to impacting the business. But again, we serve a lifestyle. We serve the rural lifestyle, and that is the preponderance of where our business comes from. And right now, we don't see that customer acting any differently than they have over really the last 2 years.

And we'll now go to Eric Bosshard of Cleveland Research Company.

Two questions for you. First of all, Tony, could you clarify the deflation, what that number was in '13 and what the range of assumptions are for deflation next year?

Sure. When it comes to '13, we looked overall about 70 basis points. I think going into the fourth quarter, we anticipate it to be maybe about 100 basis points on a full year basis. But with the deflation that we experienced in Q4, it wound up to be about 70 basis points for the full year. As we look out into 2014, when we say a range of deflation of about flat to 100 basis points. Again, that's on average for the full year. We expect the first half of the year to be at that higher end of that range, say, around obviously 80 to 100% -- 100 basis points. And then tailing off in the back half, seeing a little bit closer to flattish. Let's say 0 to 20 basis points in the back half of the year.

Great. And then secondly, you gave us some indication of what the Sandy impact was on the compare in 4Q? In terms of where that impact hit, is the bulk of that in November-December? Is that something that has an influence on comps in the early months of 2014? Or how did you see that layer in and influence last year's results?

It's a good question. We had talked last year. And obviously, there are other companies that experienced a much longer tailwind from the hurricane, especially one as destructive as Sandy was. But we generally have our pickup in the front end, actually, before the hurricane with the hurricane preparedness. And then usually for a month to 6 weeks after, we'll experience the most significant lift. So as we looked at the numbers in Q4, the greatest impact really was in the October timeframe. And tailed off fairly dramatically as we moved into the November timeframe. So there would be very little impact that we would cycle into the first half or first quarter of 2014.

And at this time, there are no further questions. I'll hand things back to our speakers for any additional or closing remarks.

Thank you, operator. While our first quarter has gotten off to a good start with the cold weather, let me remind you that March is the most impactful month in the quarter and is very dependent on our spring weather. I want to thank all of those who are invested in Tractor Supply, and I want to personally thank all our team members out there who serve our customers daily and who drive our results. At Tractor Supply, it's always all about the people. Thank you, and we look forward to speaking to you again on our next call regarding our first quarter performance of 2014.

And ladies and gentlemen, that does conclude today's program. Thank you, all, for your participation.