Good morning, ladies and gentlemen, and welcome to the Tractor Supply Company’s Conference Call to Discuss First Quarter 2021 Results. At this time, all participants are in a listen-only. Later we will conduct a question-and-answer session, and instructions will follow at that time. We ask that all participants limit themselves to one question and one related follow-up. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded. I would now like to introduce your host for today’s call, Ms. Mary Winn Pilkington, as Senior Vice President, Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.

Thank you, operator. Good morning, everyone. Thanks for taking the time to join us today, and I do hope you’re doing stay safe and well. On the call today are Hal Lawton, our CEO; and Kurt Barton, our CFO. After our prepared remarks, we’ll open the call up for your questions. Seth Estep, our EVP and Chief Merchandising Officer, will join us for the question-and-answer session. Please note that we’ve made a supplemental slide presentation available on our website to accompany today’s earnings release. Now, let me reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the Company. In many cases, these risks and uncertainties are beyond our control. 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, and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and 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. Tractor Supply undertakes no obligation to update any information discussed in this call. Given the time constraints and the number of people who want to participate, we ask that you please limit your questions to one with a quick related follow-up. I appreciate your cooperation. We will be available after the call for follow-up. Thank you for your time and attention this morning. And now, it’s my pleasure to turn the call over to Hal.

Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. 2021 is off to a great start for Tractor Supply. I’m extremely proud and appreciative of the hard work by the more than 42,000 Tractor Supply and Petsense team members. Once again, they took care of each other and tirelessly served our customers who depend on us to live the Out Here lifestyle. I also want to thank all of our supply chain and vendor partners. We’ve been operating in the COVID-19 environment for over a year now, and the Tractor Supply system has more than risen to the occasion as they strive to serve our mission and values every single day. While we anticipated that we would have our strongest growth of the year in the first quarter, our results were significantly ahead of our expectations. When you couple this performance with the continuing momentum we are seeing in the second quarter, the positive macro environment and our strong customer trends, we are adjusting our comp outlook to mid to high single-digit growth in 2021. Kurt will share more details on the improved financial outlook for the year across our key financial metrics. Throughout the pandemic, our utmost priority has been the health and safety of our team members and customers. We continue to incur significant incremental expense for items like paid time-off, mask and testing. We remain committed to following the advice of the CDC and other medical professionals to protect our team and customers. As we enter the vaccination phase, we are committed to helping our team members who choose to get vaccinated to do so. We are providing a onetime payment of $50 and allowing time-off as needed for all team members who elect to receive a COVID-19 vaccines. To further…

Thank you, Hal, and hello to everyone on the call. We’re excited to be starting fiscal 2021 on such a positive note as we performed well ahead of our expectations. Let me share some further color on our strong first quarter results and our upward revisions to our guidance for the year. Our record first quarter earnings were driven by positive momentum in all areas of the business. Comp sales increased 38.6% as the trends we experienced over the past year continued throughout the first quarter of 2021. Traffic increased 21%, and average ticket grew 17.6%. All geographic areas reported sales gains of at least 30% positive comparison to last year. Big ticket purchases had robust growth, up strong double digits that well outpaced our average comp sales increase. Safes, fencing, utility vehicles, trailers and outdoor power equipment, such as the zero-turn mowers, were some of the notable gainers in the quarter. As Hal mentioned, we did benefit from more transitory factors like stimulus payments, favorable weather and inflation that had a positive impact on the sales in the quarter. In total, we estimate that about one-third of our comparable store sales growth in the first quarter is attributable to these transitory factors. Our best estimate is that more favorable weather for the quarter contributed about 400 basis points to comps. Both January and February were colder than last year, with February being the coldest month in 30 years, while the last few weeks of March turned to a favorable spring weather in many of our markets. We also saw retail price inflation, primarily in commodities, which contributed around 300 basis points to our comp sales performance. The impact of stimulus payments is more difficult to quantify, but we recognize that consumers had more cash to spend during the quarter,…

Thank you, Kurt. I’d like to spend the next portion of the call covering some of the key customer trends we’re seeing in the business, providing an update on our Life Out Here strategy and highlighting our spring programs. Our customer base is experiencing robust, broad-based shopping patterns that provide significant opportunities for growth. These types of trends can simply be described as once in a generation. We’re seeing growth in all our customer segments and across all value tiers of spending with strong retention of existing and new customers. The fastest growth customer segment is our core farm and ranch. This segment is very healthy as rural economies, for the most part, were less impacted by the pandemic and are recovering at a steeper and more robust rate. Importantly, we’re gaining wallet share with our core customer as our highest and medium spend customer tiers are outpacing our lower spend customer tier. As mentioned earlier, we continue to see strong new customer growth and notably, are also seeing strong customer retention. As an example, for our new customers from the first quarter of 2020 last year, more than 50% have returned to shop with Tractor Supply. This is about 300 basis points higher than the cohort from the first quarter of 2019. We are seeing significant growth in our millennial shoppers. Over the last 12 months, we’ve seen a 400 basis-point shift in the customer age cohorts of 18 to 45 years old. This demographic has long resisted many of the traditional generational norms, things like household formation and homeownership. But, the pandemic has shocked this generation and accelerated their embracement of these types of activities. There continues to be a net migration out of urban areas, largely driven by the millennial segment. The most robust homeownership growth is…

[Operator Instructions] Your first question comes from Michael Lasser with UBS.

Good morning. Thanks a lot for taking my question. All the new customer statistics are very helpful. Can you give us a sense for where you think those customers were shopping before Tractor Supply, or is it more likely they’re just new to the farm and ranch retail industry, and as a result, you’re grabbing a disproportionate share of those incremental new customers? And as part of that, can you give us a sense for how many of those new customers are shopping in the CUE categories, such that you think you’ll be able to get those customers in the sustainable patterns of repeat purchases?

Yes. Good morning, Michael, and thanks for your question. As you mentioned, we’ve seen a significant amount of new customers shopping with us over the last 12-plus months with above-average retention rates continuing to hold. And as we mentioned, over 50% of the Q1 2020 cohort has shopped us again in the last 12 months. So, very strong retention. When we look at the additional customer data, I’d highlight two big drivers of the new customers. First would be in the core farm and ranch. And that very much is a market share gain, where these are customers that have land, have animals, have had -- our value proposition has appealed to them over time. And for a variety of reasons, they’re choosing to now shop with Tractor Supply. And I think that has a lot to do with the investments we’ve made in technology, the investments we’ve made in safety and health and cleanliness in our stores and certainly, the focus we’ve had on inventory and customer service. And then, the second thing I’d bring up is kind of the millennial customer, which we highlighted in our prepared remarks. This segment had a very large increase as a percentage of our sales in Q1. And really, when we look at the data, it really is around the migration of people out of urban environments into suburban and rural environments. And that generation’s starting to kind of take -- form households, buy homes, and as part of that, the Out Here lifestyle is part of the aspiration that they have when they moved out to the suburbia or when they moved out to rural America. And we do really feel like this is a structural trend that will continue to provide growth for us as we look out the balance of this year and beyond.

My follow-up question is, if you unpack the math of your 5% to 8% comp guidance for the year, coupled with a mid-single-digit comp for the second quarter, it suggests that you’ll run down, call it, 10% in the back half, at the midpoint of the range, which would be about 1,000 basis-point differential from where you’re going to run in the second quarter on a -- at least, on a arithmetic two-year stack basis, even though the math gets all confusing at this point. Is it right to think that your -- the difference is all going to come from -- you’re getting about 1,000 basis points of stimulus benefit in 2Q, and you probably won’t get that in 3Q or 4Q, or is it more inflation? Weather -- how are you thinking about what’s unique around the second quarter versus not necessarily in the back half?

Yes. Michael, this is Kurt. In regards to your question, I’d really point to two things. We just finished first quarter. And as I mentioned in my remarks, we recognize that in this environment, there’s just a lot of uncertainty. We’ve got better visibility on the second quarter and still less visibility on certain factors in the second half. We don’t have significantly greater visibility than we had from our original guidance. And so, that’s one factor, as well as second quarter. As I mentioned, we believe that has some benefit from stimulus, and that begins to moderate in the back half. So, our guidance doesn’t have significant shift from our original guidance on the back half of the year for those reasons.

Your next question comes from Simeon Gutman with Morgan Stanley. Your line is open.

My first question is on Side Lot and Fusion, and second will be a financial question. So, the first, I know it’s early, and it might even be early -- of early to ask some of these questions on Fusion and Side Lot. I don’t know how many real examples you have yet, but thinking about ‘22 and beyond. Any read that you can provide and how much more productive, even some of the handful of stores that you have are, how they performed, if any better, in the first quarter than the stores that haven’t been touched at all?

Hey Simeon, good morning. This is Hal, and thanks for your question. I’d start by just saying we are -- the Life Out Here strategy is off to an excellent start. We are -- across all of the initiatives that we have, they’re all underway and getting excellent traction. As we highlighted, the two Neighbor’s Club relaunched a month ago, off to an excellent start there. The FAST team, multiple months of maturation there, having a big impact. Fusion and Side Lot are early days, as we noted in our prepared remarks, we have implemented them in a large number of stores already. They’ve had good customer reactions early on. And the sales performance is as we expected. And in our Q2 call and beyond, you can expect to hear more on performance of those from us as we get through the all-important spring time, and we’re able to fully evaluate the results.

And then, the follow-up financial is on second quarter gross margins. Assuming the environment in terms of lack of markdown continues, that should still be a good source year-over-year. But Kurt, you mentioned the pressure that you expect. Is there any way you can quantify, relative -- or direction in terms of freight expense and some of the other headwinds just so we can gauge order of magnitude?

Yes. Simeon, to address gross margin, I’d first point to a great basis point to look at is referring back to the drivers of Q2 last year that we’re comping and then even reflecting on the Q1 drivers, and that’s really a great way to reconcile to it. And the reason I’d point that out is, last year, some of the drivers in Q2 that we’re about to lap were with the pandemic, you saw transportation costs and certain commodity prices actually declining. And so, that was really a favorable item in there. We are now lapping that first quarter where there was really no promotional or clearance activity. In Q1, the factors that were drivers that we pointed out in Q1, such as the favorable product mix is the last quarter where before we start lapping some of that favorable product mix where the discretionary higher-margin items were a big portion of the mix. So, to give you the level of quantifying of it coming off of that basis, I’d give you the four key factors, and I’ll put it in the order of magnitude. Lapping those lower transportation costs with higher transportation costs right now would be the first. Lapping a favorable product mix in Q2 last year, where the discretionary higher-margin items were a much higher percent than Q would be second. The inflation impact and then followed by, as I mentioned, the onetime Neighbor’s Club impact for launching the points and rewards-based program is a great way of summarizing it.

Your next question comes from Scot Ciccarelli with RBC Capital Markets. Your line is open.

I have a follow-up on the new customer cohort. My question simply, can you guys quantify the comp impact that you’ve been receiving from new and existing customers, whether it’s this past quarter or the last couple?

Yes. Scot, this is Kurt. We started the pandemic seeing a strong growth in new customers, and we’ve talked about that over the last three quarters. We continue to see a meaningful portion of our growth coming from new customers. And for the first quarter, when looking at the strength of our business, the new customers, both new customers that entered transacting with Tractor Supply in 2020 as well as new in first quarter really represent a key portion of the first quarter results in the high-single-digit range of our mix of the 38.6% comp.

That’s fantastic. And just wanted to clarify one other comment that you made earlier, Kurt. So, basically, you guys had much better than -- much better than expected results on 1Q. You’re raising 2Q. You haven’t changed back half from what your original anticipation was. Is that the right way to read it?

Scot, there’s no real significant change in top line or other factors on the second half. We have certainly considered and recognized some key factors that we pointed out, such as inflation and some of the cost of doing the business. So, we’ve factored that into our overall guidance, but no real meaningful shift in tailwinds or headwinds in our second half algorithm.

Your next question comes from Kate McShane with Goldman Sachs. Your line is open.

I wondered if I could switch gears a little bit and just ask about your digital business. I wondered if you could talk a little bit more about how customers are using your same-day fulfillment, the BOPIS. I know there’s been a lot that’s been turned on and changed during the pandemic to make it easier to fulfill. I’m just wondering if there is any way to break down how the customer is getting their orders now from digital, and where do you see this going longer term. And then finally, in the same context, are you working towards pushing customers towards the same-day fulfillment and BOPIS options and away from two-day shipping?

Yes. Hey Kate. And good morning and thanks for your questions. We are very pleased with the performance of our online business. As we noted in our press release and in our prepared remarks, our fourth quarter now of over 100% growth in the business and its penetration rates continue to increase as an overall percent of our sales. Buy online pickup in store continues to remain approximately 75% of our digital sales, and with curbside pickup, still being about 75% of that buy online pickup in store. So, that’s -- so the customer behavior, even with the growth, continues to kind of stay similar to what it has been in the past. But, what we are seeing is just a much more -- our execution, both from the customer order, all the way through to customer pickup, is just much more efficient than it was this time last year. And that’s really due to all the investments that we’ve made and just the outstanding execution by the team. And I’ll give a brief example of that. We rolled out our first mobile app last year in the summertime. We now have over 1 million downloads of that app, and it’s becoming a material portion of our digital sales. As the customer does a buy online pickup in store order in our app, they can note the type of vehicle they’re driving, the model, the color and then any special pickup requirements they have, like maybe opening up the back of an SUV and putting it in there without even engaging with a customer. Then, as soon as the order is placed, we have Theatro headsets in our stores for every single team member. That tasks within moments, after the order is placed, to sit down to that store, the…

Your next question comes from Peter Benedict with Baird. Your line is open.

Hal, I was wondering, I want to circle back to the rural revitalization theme you were talking about. And just curious if you had any more data around that. Have you guys learned more about maybe what the populations are doing in your markets? Any data that kind of speak to that? I understand you talked more generally about it, but is there anything else you can share?

Yes. Hey Peter. I’d say, our data sets that we’re looking at as it relates to kind of the urban departure into rural and suburban is really a combination of our own data, plus what we’re pulling in from external data sources. And if you look at the millennial population in general, this is one that for over almost 10, 15 years now, I think all of us have been wondering if that generation will eventually conform to normal generational activities like house-holding and buying homes and such. And I do think that the pandemic really shocked that generation, and you’re pulling forward now three or four years of those sorts of activities into a year. If you look at home purchases, if you look at household formations, that generation is spiking above all the other generations in those activities. And the urban home purchases that generation are declining, but rural and suburban are increasing. And we see that in our data set as well as we talked about the millennial cohort increasing by 4 percentage points as a percent of our business in the first quarter. And we’re seeing it in our stores in the products that they’re buying and in the way they’re engaging. I think we’ve mentioned in the past, we sold 11 million birds last year, and half of those birds went to new customers. And it just shows you a category like poultry, which we’re far and away the market share leader in and it’s a category that really had a renaissance -- went through a renaissance last year and it’s continuing this year in our stores. And you see a lot of new customers coming in buying coops, buying birds, and buying everything that goes along necessary for that passion. And then, they’re taking it out to their new homes in the suburban and rural areas and enjoying the Out Here lifestyle.

That’s great. That’s helpful. Thank you. And then, I guess, just on the competitive environment, we know you guys are joining up now with Orscheln. But just how are you seeing your traditional competitors beyond Orscheln kind of act and behave here and then the nontraditional competitors, anytime there’s a market that gets -- seeing great growth, it will attract interest of others. So just curious what you’re seeing, anything interesting evolving on the competitive front as you move here into the spring?

Yes. I’d say, we’ve been really, really focused on our customer over the last 12 or 15 months and with -- are trying to make sure that the competitive -- we stay out ahead of them, and we’re creating a compelling kind of competitive advantage, whether that’s in inventory, and really pleased, as Kurt said, we’d like to have more inventory, but to finish the first quarter, 2 percentage points above last year, given our comp rates. We were relatively pleased there. We have 10,000 more team members than we had this time last year. That’s really indicative of our focus on customer service. And then, if you think about the digital enhancements we made, that’s really about staying ahead of the customer as well. And then, also the investment we’ve made in our brand over the last year. I would be remiss if I didn’t point out the 17-point increase in our unaided brand awareness, moving from 34 points unaided brand awareness to 51 points of unaided brand awareness over the last 15 months. And I think all that kind of comes together to create a really compelling reason to shop Tractor Supply. And we’re certainly seeing the footsteps in our stores and on our website and just staying focused on the customer.

Your next question comes from Steven Forbes with Guggenheim Securities. Your line is open.

I also wanted to sort of focus on customer trends, maybe more broadly. So, Hal, you mentioned 20 million or over 20 million members to date. But, can you remind us how many members transacted during 2020? And then, speak to sort of the differences in behavioral trends, right, maybe just spending trends or trip trends between those 20 million members, right, in the nonmember customer base?

Sorry. Could you repeat that second part of the question. It muffled on. I apologize.

Sorry, Hal. Just curious if you could sort of speak to the spending trends, how they differ, right, between the members -- the Neighbor’s Club members customer base over 20 million members and those customers that you have that transact with you who aren’t part of the loyalty member program? Just trying to better gauge, right, what the potential tailwind could be as the new loyalty member program matures here?

Yes. So, I’d start by first saying our Neighbor’s Club members represent over 60% of our sales. And they shop us much more frequently than our non-Neighbor’s Club members do. And we are seeing equivalent growth in our Neighbor’s Club sales as we are in our non-Neighbor’s Club sales. So, they continue to be very active, very vibrant group. And we’re really excited about the rollout of our new loyalty program because what it does is creates three tiers and rewards our customers based -- the more they spend and the more they earn. And we’re excited about lifting our -- their purchase rates from one tier to the next and kind of driving that upward migration. But they are -- it’s a really strong customer group for us, and we’re really pleased with the results we’ve had in the last year and excited about the ongoing developments in the program.

Yes. And maybe just a follow-up or to ask that a different way. So, over 20 million customers represent 60% of spend, how many customers account for the remaining 40%?

Yes. Steven, it’s Mary Winn. We haven’t given out some of that level of detail, so. But they’re a highly engaged group in Neighbor’s Club. Retention rates are spectacular on it as well. And just…

Yes.

Your next question comes from Elizabeth Suzuki with Bank of America. Your line is open.

You had mentioned that inventory, in general, is a little lighter than you’d like. Are there particular categories that are experiencing more acute shortages due to shipping delays or supply constraints? And could there be some pent-up demand or sales that were left on the table due to those inventory constraints?

Hey Elizabeth, this is Seth. Thanks for the question. Yes. As Kurt mentioned there, we really had strong momentum coming out of Q1 and exiting Q1. And while we would love more inventory, obviously, as we said there to continue, obviously to drive sales. So, we feel very good about our position to continue to drive these sales here in Q2. And I’d really bucket the inventory position that we think about really in kind of three primary buckets. The first bucket would be kind of our CUE based product. The team has done an absolutely excellent job making sure that we can continue to stay in stock and be that dependable supplier. And we feel that we can definitely continue to make sure that we can take care of that shopper and customer that’s coming in. Big ticket is really the second primary bucket, and that’s where we really saw that strong demand exiting Q1. And so, I would say early in Q2, that’s where we’re really focused on here, replanning that product that we could bring that in to make sure that we could continue that momentum. And that product’s flowing and have been flowing into stores. And then, third is more on our import side. And the import side is where we did see a little bit more delays as it relates to our inventory position. Most of that is in, call it, our drive aisle type of category. So, if you go in our stores, some of the décor, some of the discretionary type areas, those items have been flowing in nicely. Actually, it’s really putting us in a great position as we’re entering here in the peak of Q2 to make sure our center courts are going to be locked and loaded and full and ready to drive sales. And then, we also talked about the quality of inventories better than it’s ever been. I mean, our clearance position is in an incredibly good spot. So, as you think about that 2% comp inventory, it’s also due to healthy quality inventory to drive future sales. So, feel really good about where we are to continue to drive that momentum here in Q2.

Great. And just one quick follow-up. I mean, if there are instances where your suppliers are starting to raise prices to you, are you generally able to pass-through those cost increases without much pushback from the customer?

Elizabeth, yes, I mean, we obviously have very robust pricing tool that’s there. Most of our pricing inflation that we’ve seen have been coming from both the grain and steel markets, if you look at what the charts are showing out there. Grain markets have been moderately rising throughout the course of the back half of last year. It’s been pretty steady above, call it, the $5 mark early point this year. We’ve got a very talented team that’s been managing this kind of inflationary environment in the past. And feel very confident in our ability to manage appropriately to make sure we drive market share, but also be able to pass along to drive a level of margin improvement that’s needed as well.

Your next question comes from Scott Mushkin with R5 Capital. Your line is open.

So, my first one is kind of a two-part question regarding the Side Lot. And I guess, going to go back to what Simeon was talking about, I guess, if you guys had more availability to do it, would you speed up, if you could?

Hey Scott. Yes. So first off, on the Side Lot, I’d say we’ve learned a lot over the last six months on the rollout of that program and are very pleased with the progress we’ve made. The team has done just an excellent job navigating through permitting, navigating through kind of COVID and construction crews, also navigating kind of access to steel fixtures and all those sorts of things that are kind of creating a very difficult operating environment. And we’ve done a lot of staffing and hiring of project managers, et cetera, and really pleased with the progress we’re making. The team is working full out on the rollout of them this year. We’re confident and kind of reaffirmed our guidance on $150 million to $200 million by the end of this year. And we’ll update you on our plans for 2022 and beyond as we get further into the year. But we still feel very good about 1,500 plus of our stores being applicable to both Fusion and Side Lot, and remain focused on that goal and executing those initiatives as quickly as possible, but also with outstanding precision of execution as well.

Okay. So, you would speed up or you wouldn’t? I just was…

Yes. I mean, I think we’re running at the right pace right now would be the thing. And if we can speed up as we get further into it, we will. But, I think we’re running at the right pace, right now. There’s -- we’re not -- we’re certainly not constraining ourselves kind of from a kind of capital investment perspective or resourcing perspective. I think, we’re running at the rate that is appropriate for kind of our company right now.

Okay. And then, my follow-up question, and basically, I wonder if you guys had the data of new customers buying pet that are also Neighbor’s Club members?

That’s cutting the data, Scott. I mean, we have all that data -- for insights, and we use it for all of our digital communications in those areas.

Yes. Scott, I’d say…

You guys have the ability to cut it that way, though, or do you…

I’d start by saying, first, a couple -- I’ll give a couple of data points on that, Scott. So, around a third of our new customers join the Neighbor’s Club. And so, we are seeing good movement of those new customers into the Neighbor’s Club program. And the two biggest drivers of new customers into our stores are pet and feed. And that kind of -- to my comments earlier around core farm and ranch customer and kind of the millennial customer, you kind of -- the trends are kind of applicable. The core farm and ranch customers coming in and buying feed, the millennial customers coming in and buying pet food or chicken feed to kind of fuel those passions and that habit -- those habits. And then, of those new customers, about a third are converting to our Neighbor’s Club as they shop with us. And then, obviously, we would look for that to -- that pace to pick up over time. But, feel really good about our customer trends, and about pet as an attraction for those customer trends but also poultry and feed and then the conversion of those new customers into our loyal Neighbor’s Club members.

Your next question comes from Zach Fadem with Wells Fargo. Your line is open.

You mentioned vendor funding and FAST team benefits of 40 basis points to gross margin in Q1. And as we continue to step up the FAST spend on the SG&A side, do you expect these vendor benefits to build through the year? And could these benefits be high enough to offset some of the headwinds from lower promo, freight and the mix that you’ve called out in the back half?

Yes. Zach, this is Kurt. I’ll start, and then I’ll let Seth respond to the last part of your question in there. So, our vendors have certainly been strong supporters of us to be able to fund the cost of the FAST program as we proceed with that. And that’s really our commitment. This team is there to help merchandise and help ensure the sale of that product. And it has been a strong contributor. One of the areas that has been an early win in the Life Out Here strategy. And so, our vendor funding that we anticipated that funding has really began and started to flow through the P&L, pretty consistent about 40 basis points quarter -- throughout all four quarters of the year on the gross margin side. The only thing I’ll remind you is that we said in the back half of last year that we would begin to make the investments in the SG&A to build that team, and that cost actually went through the P&L unfunded. And so, the SG&A cost today for FAST is larger than the funding. And as we begin to build this program, it will eventually neutralize over the years. But for this year, there will be starting to lap in the third and fourth quarters some costs on there. But again, for the year, it will average out about 40 basis points of incremental in SG&A, with 40 basis points of benefit on vendor funding. It will differ between the quarters a bit. And then, I know Seth can go ahead and talk about the investment.

Hey Zach. Just a couple of other points there I’d just roll out. As Kurt mentioned, just one of the big early wins with our Life Out Here strategy. And I’d just say, the timing of the FAST program could not have been better to roll this out with the record volumes that are going through our stores today. Execution has been absolutely excellent among the store teams. Our planogram resets right now are on time, in full, north of 95%, which is a major -- it’s a really good improvement from the past. And it’s allowing our store teams really to focus on the cleanliness as well as to take care of our customers, which has also been a great win for our supplier partners as well. I mean, they’re there to sell products, take care of them and offer that customer service. And then, finally, from a merchant perspective, we plan to have record number of planogram resets occurring throughout the course of this year. And we were able to uptick that last year. And as we’ve been able to operate, and we have been operating in this record sales volume windows, our merchants in the past, we did not have a great avenue at times to go after opportunistic buys, things of that nature to really be able to fill in our drive aisles. And we’ve been able to leverage the FAST team as well as our supplier partners to go after those kind of opportunistic buys, so that we can really maximize the sales trends that are out there. So, I would just say, overall, I’m just incredibly pleased by the FAST program and just really big high marks to the team that’s out there for standing this up and taking care of our supplier base.

Okay, perfect. And on the loyalty program updates this month, I know it’s early, but any feedback or customer response to reports, thus far? And then, also just quickly on gross margin. You mentioned a slight Q2 headwind to accrue for the elevated benefits or discounts. Is this just a one quarter phenomenon, or a headwind that should persist through the year?

Yes. So, the Neighbor’s Club program is off to a -- the relaunch is off to an excellent start. At this point, the customer comments are more anecdotal in nature in terms of their positive orientation around the tiers and the excitement about some of the special perks that come along with an around free same day, next-day delivery for a top-tier as well as access to trailer rentals and such. And then, I’d say, we just had our first drop of points going to customers earlier this week. And so, we’re just starting to see some of those redemptions and such. And we’ll be able to talk a bit more about migration of customers over the next couple of quarters. And then, the gross margin impact and modest sales impact that Kurt mentioned in his prepared remarks, is really more of a Q2 phenomenon that abates as we get further into the year.

Given that we’re past the top of the hour, let’s go wrap up our call today. So, Denise, thank you for being our operator today. And this will conclude our call. And thank you to everyone for joining us. We look forward to speaking to you on our second quarter call in July. So, thank you.

This concludes today’s conference call. You may now disconnect.