Tractor Supply Company (NASDAQ:TSCO) Q1 2022 Results Conference Call April 21, 2022 10:00 AM ET
Company Participants
Mary Winn Pilkington – SVP, Investor and Public Relations
Hal Lawton – CEO
Kurt Barton – CFO
Seth Estep – EVP and Chief Merchandising Officer
Conference Call Participants
Scot Ciccarelli – Truist
Simeon Gutman – Morgan Stanley
Kate McShane – Goldman Sachs
Michael Baker – D.A. Davidson
Seth Estep – EVP and Chief Merchandising Officer
Steven Zaccone – Citi
Brian Nagel – Oppenheimer
Karen Short – Barclays
Michael Lasser – UBS
Steven Forbes – Guggenheim Securities
Chuck Grom – Gordon Haskett
Chuck Cerankosky – Northcoast Research
Operator
Good morning, ladies and gentlemen, and welcome to Tractor Supply Company’s Conference Call to the First Quarter 2022 Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] Please be advised that the 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, Mrs. Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead.
Mary Winn Pilkington
Thank you, operator. Good morning, everyone. Thanks for taking the time to join us today, and I hope you’re all doing well.
On the call today are Hal Lawton, our CEO; Kurt Barton, our CFO. And 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.
We shortened the prepared remarks to allow more time for Q&A. Given the number of people who want to participate, we respectfully ask that you limit yourself to one question. If you have additional questions, please feel free to get back in the queue. I appreciate your cooperation. We will be available after the call for follow-up. Thank you for your time and attention this morning.
Now, it’s my pleasure to turn the call over to Hal.
Hal Lawton
Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. I’d like to begin by thanking the Tractor Supply team for again delivering strong results. In some ways, this quarter may have been our best relative performance over the course of the last two years. The team demonstrated grit and determination as they overcame the lapping of last year’s robust performance, the impacts of the Omicron variant, particularly in January, the significant inflationary pressures and the ongoing supply chain constraints, the last two of which were both exacerbated by the tragic conflict in Ukraine.
No matter what came at the team, they stepped up to the challenge to be there for our customers as a dependable supplier for the Out Here lifestyle. Our team members, our vendors and other supply chain partners have continued to rise to the occasion as we strive to live our mission and values every day.
Speaking of our mission and values, in recognition of Earth Week, this week, we issued our Stewards of Life Out Here Sustainability Report. This comprehensive report provides detailed information and progress on our ESG efforts. It significantly enhances our transparency and disclosure related to our environmental sustainability actions. Of note, in the report is the establishment of a new water usage goal to reduce on an absolute level our water footprint by 25 million gallons by 2025. ESG makes great business sense for Tractor Supply. And setting targets for ourselves in these areas creates long-term value and allows us to have a positive impact on the world and the communities that we call home. As a purpose-driven company, we remain committed to constant improvement on this journey.
Now, let’s turn to a review of the business for the first quarter of 2022. The year started out on a strong note. We grew net sales by 8.3% with comparable store sales up 5.2%. Diluted EPS was $1.65, an increase of 6.5% year-over-year. Our comparable store sales growth was driven by strong ticket growth of 6.7%, offset by a decline in transactions of 1.4%. Given the remarkable strength in our business last year, and as a reminder, we had a 38.6% comp in Q1 last year. We are very pleased with our sales growth. Last year, we shared with you that we materially benefited in the quarter from a combination of factors, in particular stimulus spending, favorable weather and inflation. This quarter, we successfully navigated the lapping of these factors, despite the spring season getting off to a slow start. On inflation, it benefited sales in the quarter by about 10 percentage points.
As we shared on our last earnings call, we thought there was more pressure to the upside on inflation as we entered the quarter and that is certainly what we saw. We continue to see increasing costs in the commodity inputs and our product categories as well as the underlying variables like higher labor wage rates and transport costs that are impacting our vendor partners.
Shifting to C.U.E. We experienced impressive demand in our consumable, usable and edible categories. As a reminder, these products are need-based and demand-driven, and they’re what drive trips into our stores. Our C.U.E. sales growth was almost 3 times our overall sales growth rate. Our C.U.E. customer trends have never been stronger.
Kind of rounding out the business, seasonal category performance was mixed as we had solid performance in our winter season categories during a much colder January, but our spring season categories performed below average due to colder weather temperatures in the month of March.
Shifting to e-commerce. E-commerce again saw double-digit growth, and this represented our 39th consecutive quarter of double-digit or better growth in e-commerce. We are making great strides in expanding our digital presence. Of note, our mobile app now represents more than 15% of our digital sales. This quarter, we crossed 3 million downloads of the Tractor Supply app. And this is a major milestone in our ONETractor strategy and our ability to offer our customers a more seamless shopping experience.
Our Neighbor’s Club program reached a record 24.8 million members in the quarter, an increase of 24% from last year’s first quarter. It seems like much longer than a year ago, but we recently celebrated the one-year anniversary of the relaunch of Neighbor’s Club to a points-based loyalty program. The relaunch has been an overwhelming success as it has measurably encouraged customers to migrate their spending upwards. Our Neighbor’s Club members are comping at a faster overall rate than our overall company performance, and we’re seeing strong growth and retention in our high-value customers.
We are confident in our business short term and long term. Last quarter, we shared with you several structural trends from which we’re benefiting, including world revitalization, increased pet ownership, home setting and the rise in self-reliance. As the market leader, we are well positioned to continue to benefit from these structural trends. Additionally, we are seeing increasing momentum from our Life Out Here strategic initiatives, enabling us to continue to gain share.
As we look forward, we believe we have many vectors for growth, and our business has never been stronger. That said, we acknowledge that there is significant uncertainty in the macro environment. We have a lot of the year still ahead of us. And in keeping with our longstanding practices prior to the pandemic, we continue to believe that the best way to look at this business is on the half.
On the heels of last year’s record performance and a strong start to the year, we are reiterating our guidance for fiscal year 2022. We continue to see significant opportunities for growth ahead of us.
I’ll briefly address the Orscheln acquisition. We continue to work collaboratively with the FTC towards a positive resolution and hope to have an update in the coming months. Accordingly, we are limited in the comments we can make about the transaction at this time.
Now, I’ll turn the call over to Kurt to discuss some of the details of the first quarter and our outlook for the rest of the year.
Kurt Barton
Thank you, Hal, and hello to everyone on the call.
The Tractor Supply team has started fiscal 2022 with strong performance that came in ahead of our expectations. On a two-year stack, our comparable store sales were 43.8%. Looking at the cadence of the quarter, January and February were the strongest months with March positive, albeit not at the rate earlier in the quarter. We benefited from cold weather trends early in the quarter, while spring is late to break across most of the country. Please keep in mind, we were comping ideal weather conditions in the first quarter of last year with an early spring across many of our markets. This quarter, retail price inflation contributed about 10 points to our comparable store sales as the team continues to navigate the ongoing cost pressures across the supply chain.
As we shared with you last quarter, we anticipated this would be the toughest compare on transactions as we cycled the largest transaction gain since the beginning of the pandemic in Q1 of last year of 21%. To illustrate, we were experiencing positive comp transactions until we cycled the last two weeks of the quarter where we clearly saw the benefits of stimulus on transactions in the prior year. As we expected, big ticket declined given the robust performance we were cycling, driven by stimulus and the early starts of the spring selling season.
Last year, as we reported, big ticket comps significantly outperformed the chain average comps. And on a two-year stack, our big ticket performance exceeded the 43.8% comp growth of the chain.
We continue to see strong C.U.E. performance with strength in categories such as dry dog food, poultry, feed and heating fuel. For instance, dry dog food achieved over a 20% comp. Petsense performed above the company average, which was in line with our pet performance. Overall, we were very pleased with our top line performance.
Turning now to gross margin, which outperformed our expectations. For the first quarter, our gross margin declined by 29 basis points to 34.9% of sales. The decrease in gross margin is primarily attributable to three factors: significant product cost inflation; higher transportation costs; and to a lesser extent, product mix.
We continue to experience broad-based inflation while also seeing a step-up during the quarter in key commodities such as grains and oil. Domestic and import freight costs have increased substantially year-over-year as well as fuel costs. We expect many of these trends in product cost and freight to continue throughout 2022.
The robust growth in our C.U.E. categories, which have a lower gross profit rate did put some pressure on gross margin. The team did a remarkable job of managing these cost increases through our price management actions and other margin driving initiatives. Examples include capturing efficiencies in the supply chain to reduce miles, continuing to limit promotions and leaning into the more efficient value provided through Neighbor’s Club.
SG&A, including depreciation and amortization as a percent of net sales was 26.9%, an improvement of 11 basis points. This improvement was primarily attributable to the normalization of incentive compensation, moderation of COVID-19 response costs and leverage in occupancy and other costs from the increase in comparable store sales. These items were partially offset by investments in store wages and incremental costs related to our Life Out Here strategic investments for growth. This includes a step-up in our depreciation and amortization.
Please also keep in mind, given our results last year, we were cycling strong SG&A leverage, which benefited from 38.6% comp sales in the first quarter of 2021. Net income was $187 million, and diluted EPS was $1.65 compared to $1.55 in the first quarter of 2021. We remain committed to returning cash to shareholders through the combination of a growing dividend and share repurchases. Last quarter, we increased our quarterly dividend by 77% from $0.52 a share to $0.92. During the quarter, we returned $400 million to shareholders through the combination of share repurchases and cash dividends.
Turning now to our balance sheet, which remains strong and provides us the ability to invest in our business for the long term. Merchandise inventories were $2.6 billion at the end of the first quarter, representing an increase of about 21% in average inventory per store. This increase is primarily attributable to inflation, along with our investment in inventory to support the growing demand.
Moving now to our guidance for 2022, which is unchanged. As Hal mentioned earlier, we are reconfirming our guidance for the year. This includes net sales in the range of $13.6 billion to $13.8 billion with comparable store sales growth of 3% to 4.5%. For the year, we forecast an operating margin of 10.1% to 10.3% of sales. We continue to expect diluted EPS in a range of $9.20 to $9.50. We acknowledge that we beat our own expectations for the first quarter and that ongoing inflation should benefit our top line.
With the dynamic macro environment as a backdrop, we believe it’s prudent to maintain our outlook for the year. Keep in mind, Q1 is our smallest quarter of the year, and it’s great to start out the year ahead of our expectations. We recognize that flowing the first quarter performance through may put pressure towards the top end of our guidance ranges. For those of you who’ve followed us for some time, this is not a new convention to guidance and is in line with how we provided guidance historically prior to the pandemic. We continue to believe the best way to look at our business is not by the quarter, but by the halves of the year.
With as much inflation pressures we’re seeing in our business, we are closely watching comparable average ticket and transactions. We anticipate that the breakdown of growth may be a bit different than our prior expectations, given the high level of inflation benefiting average ticket with transactions seeing incremental pressure. Historically, we’ve experienced trip consolidation by consumers during strong inflationary times. As inflation pressures persist, it puts higher pressure on gross margin, yet provides an offsetting benefit to SG&A leverage. As such, we’re maintaining our expectations on our operating margin.
As a reminder, the prospective acquisition of Orscheln Farm and Home is not included in our guidance.
In summary, — we are very pleased with our performance in the first quarter and our outlook for 2022. The team is executing at a very high level. We remain committed to investing in the business to retain the loyalty of our longtime and newer customers. Our goals are to maintain our everyday low prices and improve customer service, strengthen our supply chain and grow our digital commerce, all in support of our commitment to drive strong shareholder returns for the long term.
With that, I’ll turn the call back over to Hal.
Hal Lawton
Thanks, Kurt.
Last quarter at our Enhanced Earnings Event, we shared significant details on our Life Out Here strategy. We believe we have a robust idiosyncratic drivers for growth over time. Our strategy is gaining traction and the team is executing well. For the remainder of my prepared remarks, I’m going to provide an update on our customer, including our Neighbor’s Club, and provide some highlights of our merchandising initiatives for the spring and summer season.
Our customer trends are in great shape, and we’re committed to capturing wallet share through legendary customer service, our numerous digital properties, our seamless shopping experience and our Neighbor’s Club loyalty program.
Our customer base continues to be remarkably healthy and highly engaged with our brands. In our Q2 2020 earnings call, nearly two years ago, we discussed that our goal was to nurture and capitalize on the generational growth we were seeing in our customer base, seizing on the opportunities to retain millions of new customers and expand share of wallet with our core customers and expand the number of capital categories shopped by both customer sets. And I’m pleased to share with you today that that’s exactly what we’re seeing in our customer base.
Our active customer base is now much larger and coming into the pandemic, as we have retained the majority of the millions of new customers that shopped us the last couple of years. And our active customers are driving frequency and spending more money. On our new customers, we continue to see strong new customer acquisition with absolute run rates that are at pre-COVID levels and very stable.
Continuing on a theme since 2020, our new customers continue to skew younger. We’re seeing ongoing growth in our millennial shoppers as there’s been a net migration out of urban areas, largely driven by millennials. Since the start of the pandemic, the most robust homeownership growth is in the millennial cohort, with the growth coming in suburban and rural areas. We believe the growth in the millennial customer supports the vibrancy and relevance of the Tractor Supply brand well into the future.
Another positive contributor to our strong sales growth has been our Neighbor’s Club. As I mentioned earlier, the revamp of the program in April of last year from an Infinity program to tiered points-based loyalty program has been rapidly adopted by our customers. Neighbor’s Club is a significant growth platform for us.
Notably, we reached our highest level of customer spending over $1,000 annually, and we also reached our highest level of customers ever spending over $2,000 annually. Transactions, total sales and spend per active Neighbor’s Club member, all grew significantly in the quarter. These customer trends are an indication that we continue to benefit from the structural tailwinds I mentioned earlier, such as rural revitalization, pet ownership, home setting and self-reliance. Our brand momentum is stronger than ever, and we’re investing to ensure we continue to play offence in the context of these trends. The overall health of our customer base contributes to our confidence in our outlook for the year.
Let’s shift to spring. Our stores and e-commerce are well-positioned to take advantage of the seasonal change to serve our customers. As of today, we have over 175 garden centers customer-ready for spring. We continue to forecast having garden center transformations of our side lots in over 15% of our stores by the end of the year. Where spring has cooperated, we are very excited about our customers’ response to the expanded product offering and layout.
To capture incremental share of wallet in the lawn and garden category, we’ve expanded our offerings of battery-powered outdoor power equipment. Tractor Supply is the exclusive retailer of the Greenworks Pro 60-volt platform which includes more than 75 battery-operated professional-grade residential tools, including zero-turn riding and push mowers, chainsaws, trimmers, leaf blowers, snow throwers and more. Tractor Supply began offering Greenworks Pro 60-volt products online earlier this year, and we rolled them out in our stores the past few weeks. Notably, the addition of battery-operated zero-turn mower from Greenworks strengthens our position as the zero-turn headquarters with our market-leading assortment from Toro, Bad Boy and Cub Cadet. This past Saturday, we hosted a Try Before You Buy event at our stores that allowed our customers an opportunity to test drive our market-leading assortment and the various models in our stores.
Chick Days are always an exciting time in store and something that our customers look forward to with the change of seasons to spring. We sell millions of birds each year. And this year, we’ve expanded our breed options as well as widened our coop, feed and care assortment. This is a great example of a home setting category for our new millennial customer who’s adopting the Out Here lifestyle. And importantly, our store teams have the knowledge to help a customer in the category, whether they are a novice or an expert.
We have a leading lineup of top selling, highest quality tools that are relative to our customers. Last week, we announced the addition of Dremel and Bosch to our power tool lineup just in time for spring. As mentioned on several previous calls, a key component of Project Fusion is an expansion of our assortment in truck, tool and hardware. Our lineup and tools now include Makita, DeWalt, PORTER-CABLE exclusively, Bosch and Dremel. We are much more of a destination now for our customers in this category. And as an aside, we’re also on track to have Project Fusion implemented in nearly 30% of our stores by year-end.
To wrap up, the Tractor Supply team continues to thrive through the dynamic macroeconomic environment while making incredible progress for laying the foundation for the future. Tractor Supply has a proven business model that has been resilient over numerous different types of business cycles. With significant growth and market share opportunities ahead of us, it’s an exciting time to be at Tractor Supply. My thanks and appreciation go off to the team for their dedication to living our mission and values every day.
And now, we’d like to open up the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Scot Ciccarelli from Truist. Scot, Please go ahead.
Scot Ciccarelli
Good morning, guys. Scot Ciccarelli. So, I guess, my question is, with the 10% impact from pricing in the comp, what kind of, if any, demand structure are you guys seeing? And kind of related to that, how should we think about the impact on the top line from inflation as we get later in the year because obviously, we’re going to be cycling larger impacts as we go? Thanks.
Hal Lawton
Hey Scot. Good morning. And thanks for joining our call. I appreciate the question. I’d start out just at the highest level. Consumer’s very healthy. As Kurt mentioned, we exceeded our expectations in Q1, and kind of a few nuances on that. Where we — in the business where we’re lapping the stimulus from last year, notably in big ticket, we saw some follow-up there, but it was very much in line with what we expected and what we had foreshadowed at our enhanced earnings event, when we talked about some pressure from big ticket dominantly in the last part of Q1 and early part of Q2.
As Kurt mentioned and I mentioned also in the prepared remarks, we’ve seen a little bit of a slow start to spring, but it’s been in the categories you would expect, and spring always comes. We’ve had it — play out in many different ways over the last couple of decades on spring, but otherwise, really seeing no elasticity in the customer. And I’d point to our C.U.E. business as an indication to that, it’s comped 3 times our overall comp rate, dry dog food above 20% comps. In fact, the month of March was our highest dollar volume ever in dry dog food. If I just step back, we serve a lifestyle. It’s a demand-driven need-based kind product categories for the most part and have a track record of consistency and resiliency really across all different types of economic cycles. And in addition to that track record of consistency in the demand-driven business model, two additional factors going for us now. One are the continued kind of macro tailwinds, things like world revitalization and pet adoption that I mentioned earlier, and then also our Life Out Here strategy. And with 175 garden centers, and by the end of the year, 30% of our — nearly 30% of our stores remodel with Fusion. We just got — we’ve got a lot of tailwinds right now. And as it relates to the consumer, we’ve really not seen much reaction to inflation or any other kind of economic elements.
As far as the impact on inflation, to your second point of your question, I’d kind of point to Kurt’s comments in his prepared remarks around we did exceed our expectations in Q1. Just given the — our historic convention of sticking to the half and also just given the macro environment, we thought it was prudent to reiterate our guidance. But certainly, if you roll through the beat in the first quarter, it would take you towards the high end of our guidance for the year. And then, if we were to exceed performance for the rest of the year, we’d end up having a — and continue to do that. We’d end up having a nice year. I do think inflation continues to be persistent. And we continue to see it come through, and we continue to be able to navigate it very effectively.
Operator
Next question is from Simeon Gutman of Morgan Stanley. Simeon, please go ahead.
Simeon Gutman
I’ll ask the two questions now in the interest of time. The first is the business’s mix of needs versus wants. We used to talk about this a while ago. So, how do you — how should we think about the percentage of the business that’s discretionary if the consumer slows?
And then, the second question is a little more tactical. If you look at the earnings complexion for the rest of the year, margins were down a little in the first quarter, but it looks like the incremental margins for the rest of the year look like they’re higher given the per point in comp. So, what’s, I guess, the bridge? Is there less investment? Is there a mapping up cost, et cetera? Thank you.
Kurt Barton
Yes. Simeon, hey, this is Kurt. I’ll hit both of those questions. If I understood the question, your first question generally is around needs discretionary versus a needs-based business, which we’re predominantly, and then really more of a — how do you reconcile and how do you manage the cost, the operating margin throughout the rest of the year.
Our business continues to be strong in a needs-based, demand-driven versus the discretionary. And as you’ve heard from us in the past, while there is some less needs-based discretionary, the discretionary piece of our business is fairly consistently been a low percentage, roughly like 15% of our business, we’d attribute to those more discretionary pieces of it. And as Hal just mentioned, some of those areas we — as we expected and saw lifts last year with stimulus, we expected and saw some of that trade-off in the back end of Q1.
In regards to our outlook for the year and how we really manage the margins, we expect our gross margin as inflation persists to have some level of pressure on the business. We’re going to see pressure from those three primary categories: product inflation; the supply chain costs; and even considering the strength of C.U.E. as we continue to take market share, puts a little bit of pressure from mix.
But, as we manage through this, we really see the opportunity to take both levers of gross margin and SG&A. And in each quarter could be a bit different as inflation puts pressure on gross margin. We also do see the opportunity for that to help us leverage in SG&A. And in the first half of the year, where inflation year-over-year has more of an impact and not as much stronger compares, where at the back half of the year, we’re really starting to see inflation tick up. You could see as you did in Q1, stronger inflation, but we have opportunity to leverage on SG&A. And that’s how we’re going to view this business. We’re going to manage this as we have the last couple of years through a number of different scenarios, and we do see a scenario where there’s higher inflation. And we’ve got the levers to be able to manage gross margin and SG&A, and it could differ by quarters, but that’s what gives us the confidence to be able to land the target for the year of 10.1% to 10.3% on the operating margin.
Operator
Our next question is from Kate McShane from Goldman Sachs. Kate, you may proceed.
Kate McShane
Thank you again for the detail around the change in composition of the guide. I was just wondering how we should think about potentially the upside and downside risk to the guide. Where do you think there could be elements of where you could be being particularly conservative?
Kurt Barton
Yes, Kate. Hey. Good morning. This is Kurt. In regards to your question on the guide, let me give you a couple of perspectives really how we see the business and how we look at it going forward.
First, I’ll just reiterate what Hal and I’ve said. We’re coming off of Q1 a great start to the year where there’s a strong performance hitting on all metrics. And just to point out, Q1 on a two-year stack basis, from the strength in new customers, the strength in Neighbor’s Club, our transaction toward the highest two-year stack of any of the four quarters. So, the core of the business is strong and healthy.
That said, as I just mentioned earlier, it is right and consistent even in the last two years, we’re managing the business in multiple scenarios. So, to your point in your question, there are various scenarios. And if under one scenario, there’s inflation that drives the comps outside of even the initial expectations, with that inflation, it puts pressure on margins, the leverage and SG&A. We certainly see that with inflation. It could impact some of the transactions. We’ve trip consolidation. We’ve seen customers begin to change in their spending patterns with the inflation. But, that’s not necessarily negative for us as we benefit in ticket and that can help us leverage our SG&A.
And so, the number of various scenarios that we see playing out, we feel very comfortable that in the next three quarters as we manage that, that we can still meet our expectations and our guidance and very confident in the demand of the business and the strength right now going into the rest of the year.
Operator
Our next question is from Michael Baker of D.A. Davidson.
Michael Baker
One question and a follow-up kind of short term and then long term. On the short term, back to –just the weather being a sub par in March, do we expect to — so you’ve lost some sales presumably. So, we should expect to gain that back in the second quarter, I assume. But, we’ve seen — how has April been in terms of the weather? And then, the longer term question. how does — can you remind us how you think about housing and impact to your business, rate drop, housing is probably going to slow, existing home sales have been down six or seven months in a row, although prices have been up. How do you think about that longer term for your business? Thanks.
Hal Lawton
Yes. Hey, Michael, it’s Hal. And I’m going to take the first — the second part of your question first on housing and then have Seth talk a little bit about spring.
On housing, we don’t have as much of a direct correlation to new home starts and existing home sales, like other segments of retail. That said, one of the trends we have been benefiting from is the notion of home setting and people investing in their homes and in their land and also rural revitalization as well as we’ve had kind a shift out of urban and even sub-urban areas into ex-urban and rural. I think all the data sets still suggest that those trends are continuing.
Even if you look at the existing home sales and new home sales, which have come up the last few days, while there were some year-over-year reductions, still very strong absolute numbers, and then if you look at the amount of housing stock that were short in the United States, I think you’re going to continue to see very strong absolute numbers for many years — many quarters and years to come.
And I think you’re going to see more of that outside of the cities, and we’ll continue to benefit from that. Most of our customers own their land, own their homes, and they’ve seen home and land depreciation, particularly out of rural, which has had outsized gains versus urban. They’re benefiting from that. There’s been a bit of a wealth effect. So, certainly feel like that home stetting trend and that rural revitalization trend are still very strong macroeconomic tailwinds for us.
On spring, as Kurt mentioned, we’ve had a — spring has been slow to start, but we are very excited about our spring plans. Inventory is in a great spot, marketing and merchandising, our prime, C.U.E. is driving footsteps. And I’m going to turn it over to Seth to talk a little bit about some of our spring plans in more detail.
Seth Estep
Yes. Hey. Thanks, Hal. Thanks, Mike, for the question. Hey, first and foremost, as Hal mentioned, obviously, a little bit of delay here to the start of spring. But as we’ve seen the weather starts to break off the southern most areas the last couple of weeks, we are very encouraged with seeing our game plan come to life.
First and foremost, I would just say, I was in Texas last week and visited several garden centers. And I would tell you, both our customers and our team members could not be more excited about us really going deeper into live goods and gardening, which we know it has been historically the number one category. So, we were not first in top of mind for them and becoming more of that top of mind, and we are seeing very good positive results, particularly in those garden center stores and being set up for 175 plus as we enter spring here. But it’s also not just about live goods, right? We believe we have the best-in-class zero-turn lineup that’s out there. We spoke a little bit about big ticket at the end of Q1. But what I would tell you is where we’re seeing weather break. We’re seeing very strong demand across the entire zero-turn lineup, both in brands and price point. We’re — our consumer responding with that merchandising. And we’ve spoken some obviously about Greenworks Pro and that exclusive partnership that we have this year. That’s a new real category that we haven’t been able to attack in years past that we know that we can go and take market share.
A couple of other quick things we think about spring and where we’re excited to drive the business. It’s not just about lawn and garden at Tractor Supply, but it’s also about home setting. Chick Days is off to a great start, whether be through new coops or these through new breeds, things of that nature, really, really strong demand that we’re seeing our consumer respond to and then just continue to dive into our C.U.E. related businesses and introducing newness across the four walls. So, excited about spring and what we have here in front of us and the plan coming to life.
Michael Baker
Thanks for the detailed response. I appreciate it.
Operator
Our next question is with Steven Zaccone.
Steven Zaccone
I guess, Hal, I was kind of curious for your sense on the broader macro backdrop. It sounds like you’re comfortable that consumers are in a healthy position, but just curious your input on how you see the consumer environment shaping up over the balance of the year? It’s topical with investors. And I guess if we do get to a scenario where potentially in a recession, how do you think the business performs in that environment?
Hal Lawton
Good morning, Steven, and thanks for joining our call. If we step back and just talk about the macroeconomic environment, what we’re seeing is very consistent with what we’re all reading in the headlines every day. I’ll start with persistent inflation. We had the CPI of 8.5% in the month of March, that we’ve seen 0.5 point increases a month for the last handful of months. It’s tough to say if we’re at peak inflation, the way I think about it is that we’re seeing persistent inflation. And I think we will see, strong inflation, not only through this year, but in the next year.
As it relates to the economy, so far, the consumer has shown real strength and their ability to kind of navigate the inflation. And I think you’re hearing that today in our earnings call, but also hearing it in many other earnings calls that have come out over the last week, and there’s a variety of reasons for that. I mean, you’ve had strong wage growth across the country. You’ve got $2 trillion plus of pent-up savings that people are starting to tap into now, and you can see that in savings rate. You do see a little bit of credit card usage up. But I think if you dig into that what we’re seeing is people using their credit cards and then tapping into their savings to pay those down with default rates not yet moving up. I think, the consumer’s navigating this very well. And I think any talk of recession at this point is premature.
And stepping back, if you look at our business, we’ve had 30 straight years of positive comp transactions. We’ve had 30 straight years of net sales growth, 29 of the last 30, we’ve had positive comp sales growth. This is a business that has been able to navigate all types of economic cycles, whether it was the recession in ‘20, the recession in 2007, ‘08, ‘09, whether it was COVID, just a couple of years ago. All those sorts of scenarios, this business has been incredibly resilient, stable and consistent through.
And as I mentioned earlier, there’s a number of macroeconomic tailwinds that are really benefiting us that I think even accentuate the stability of our business. And then combine that with our Life Out Here strategy, which is just an indicative of just the next leg of growth for our company. And 40 years ago, we doubled down in animal fee, 20 years ago, we doubled down in pet food. Now, we’re doubling down in live goods combined with our Fusion remodel. We’ve never had more customers shopping Tractor Supply. We’ve never had a stronger digital business at Tractor Supply. Our business is incredibly strong right now. And we are very much excited about the business from a short-term perspective and long-term.
Operator
Our next question is with Brian Nagel.
Brian Nagel
Hi. Good morning. Nice quarter. I have two short questions that I’ll merge into one. The first question, I mean, I guess this is just more of a kind of a logistics, not question. But you talk about the quarter tracking above your expectations, but then also some of the weather pressures. So, I guess, my question there is, were you — in your internal plan, were you planning for potentially more challenging weather, or — what drove, so to say, the upside in the quarter to your tier internal plans.
And then my second question, we talked a lot about of this inflation and how the consumer is managing that. Kind of flipping that over, as you look at some of your markets where maybe you’re more of a benefit of — your consumers benefit more from higher oil prices or higher commodity prices? Are you starting to see that sort of say, work its way into the health of your — the consumer shop in your stores?
Kurt Barton
Yes, Brian. Hey, good morning. This is Kurt. So, the two questions, one in regards to some of the puts and takes in regards to our — in comparison to our expectations on Q1; and then, the other one is some of the geo market areas such as oil industry et cetera. So, let me take both of those.
In the quarter, in Q1, weather from a perspective compared to last year, flattish to slightly modestly unfavorable. The point there is, last year we pointed, we had such an early start to the spring, and March is the biggest month that we saw 400 basis points last year in Q1 for weather and we pointed that out. This year, we had early start to the quarter with good cold weather in January that we benefited from, but then we had the offset. So, weather was neutralish from a perspective. Really some of the strengths came in how well C.U.E. performed and our ability to continue to capture market share. So, weather wasn’t necessarily beyond — significantly beyond our expectations. We plan that there could be a scenario that we would not see as much early start to the spring. I hope that helps on that.
In regards to some of the various micro economies, all that, the two key ones that are asked a lot about oil industry, farm economy. In summary, I’d say right now, it’s still too early to tell. We are not seeing any meaningful shift in those markets that indicate anything. And I’ll illustrate why on some of that.
First, we don’t view some of the rise in commodities or oil necessarily as a negative in those industries, but yes, really more of a potential favorable tailwind in the business. Right now, the oil industry is a bit patient, lagging some of the growth and increase in the oil prices. The farm economy takes some time farmers to get product out of the ground. Farmers are faced with higher input costs right now. So, I think it’s a matter of something to watch. Overall, those markets are very healthy and consistent with all other markets. We’ll watch it closely, but we’re certainly ready and prepared to support those industries if and when we begin to see specific lifts because of that.
Brian Nagel
It’s very helpful. I appreciate it.
Operator
Our next question is with Karen Short from Barclays.
Karen Short
Two questions. So one, I guess, the first one is in terms of inflation for the year, what is your actual updated expectation on inflation for the year? And then, embedded within that, on traffic, your traffic was only down 1% with 10% inflation. But on a two- and three-year basis, more or less held. So, could you just clarify how you’re thinking about traffic for the remainder of the year, because presumably, inflation will abate, so that should actually help the traffic overall on a one-, two- and three-year basis?
Hal Lawton
Thanks for joining our call and for the question. On inflation in our enhanced earnings, we mentioned that our assumption was around 4% for the year, but that if anything, we saw a potential for upside to that. And that’s very much what we saw in the quarter. And we’re not providing kind of an update on that 4% number today, but I would say that potential for upside there still remains. Kind of my comment to an earlier question around inflation being persistent, I do think it will continue through the balance of the year and run at 4% or higher. On the traffic, we were very pleased with the traffic in the quarter that we had, and it exceeded our expectations.
To your point on two- and three-year stacks, it was either in line or above sequentially and with our previous quarters. And in particular, if you think about the stimulus benefits from last year, but certainly, the spring differences, the weather differences in the month of March, we were very pleased with how our comp transactions ran. And we’ve never had more customers shopping Tractor Supply than we have on a rolling 12 basis. We’ve done an excellent job of maintaining the tens of millions of new customers that have shopped us over the last two years. Our active customer file is incredibly strong. Our Neighbor’s Club membership program, members have never been higher. The participation, active participation in the Neighbor’s Club program has never been higher. So, we feel really good about our customer trajectory, our transaction trajectory within those customers and our customers kind of navigating inflation in our business kind of in a demand-driven need-based type environment.
Karen Short
Can I just clarify? It was only in the context that I think Kurt made a comment that traffic would continue to be pressured in light of — or would be pressured in light of inflation, but that’s not [Technical Difficulty] I just want to clarify, that’s not what you’re seeing.
Hal Lawton
Yes. I think, to clarify, I think what we’re trying to articulate there was there’s a variety of scenarios that could play out for the balance of the year. And one of those could be that inflation continues to run high. And if so, that might drive some different behavior in customer shopping patterns, notably that they might consolidate trips more. And if they do that, what we might see is a higher basket size with slightly lower transactions. And we just — we’re saying, look, that’s one scenario that could play out and still very much within the context of our guidance.
And then, the same thing on the margin profile side, kind of the point is more around if inflation still runs high, we might see a little bit more pressure than what we had guided on gross margin rates, still excellent margin rate performance, but we see a little bit less pressure on SG&A because our fixed costs would be running on higher sales dollars and that would still deliver us the operating margin rate in the — in line — in the range of our guidance.
And we’re very pleased with our operating margin performance in the first quarter. We really, as Kurt mentioned, exceeded our expectations across all core metrics, traffic, sales and operating margin and EPS.
Operator
Our next question is with Michael Lasser of UBS.
Michael Lasser
There’s a heightened focus on big ticket spending, given some of the indications from others out there around connected fitness equipment, grills, mattresses. Your suggestion is that overall to your big ticket trends are doing better than average, and that’s inclusive of what sounds like a drop-off in the last two weeks of the quarter, which persisted into the first few weeks of this quarter. So, what is driving the strength in big ticket growth for Tractor Supply? And how much is inflation contributing to that growth? Thanks.
Hal Lawton
Good morning. And thanks for the question, Michael. I’d say, probably three things on that to kind of break big ticket up a bit. There are — we saw fall-off in big ticket sales directly attributable to stimulus, very much in line with what we expected. And those were in non-seasonal categories dominantly, things like gun safes. In the seasonal businesses, big ticket, as Seth mentioned, where we’ve seen the spring weather break, we’ve seen excellent results in things like riders and grills, bigger ticket items. And then, as it relates to inflation, we certainly are seeing inflation in those categories, like we’re seeing across the board. But I would say that we’re also pleased with our unit movement in those categories, not just sales driven by inflation.
So, overall, we continue to be — feel very confident in our business short term and long term, inclusive of big ticket. And we’re excited about the rest of the year.
Operator
Our next question is from Steven Forbes from Guggenheim Securities.
Steven Forbes
Good morning. Hal, Seth, I wanted to start with your in-market learnings, right? As it looks like you’ve both been on the road recently. So, can you take us through some of your key learnings? And what I mean by that is really the learnings from the store associates. What are they saying about their own behaviors? And did you notice anything different among the regions that you visited, maybe outside of seasonal trends?
Hal Lawton
Yes. Hey Steven, thanks for the question. And we have all been on the road a lot recently, making sure it’s a core tenant of Tractor Supply’s mission and values and our culture. And I think our team is in great shape. John Ordus and our field organization have just done a fantastic job in hiring. We’re nearly 47,000 team members now, done an excellent job managing attrition. We’ve — our FAST team continues to roll out to more stores in terms of kind of dedicated FAST team members. We’re rolling out new productivity programs, as John outlined in our last earnings call. If you walk our stores right now, they’ve never been in better shape. They — we’ve got great service in our stores right now. Product is well-organized and on the shelves. We’ve got — they’re very clean and orderly. We’ve got really all of the assembly done across Grills and all across riders, and we are ready for spring, ready for the second quarter. And then, in terms of engagement, our store — we had our engagement survey towards the end of last year. Our store team member engagement was at an all-time high.
As I mentioned earlier, we’re doing an excellent job managing attrition and — our team members are really the glue of our company. And we pride ourselves on the customer service that we deliver inside of our stores. And I think we’re only continuing to make progress on that even at an already high level. And I think it’s going to be a big benefit to us as we move into — as we are in the second quarter now.
Operator
Our next question is from Chuck Grom of Gordon Haskett.
Chuck Grom
Kurt, can you provide a sense for how you see the rest of the year playing out on the comp front in order to arrive at that 3% to 4.5% full year view, particularly here in the second quarter, just given the upside here that you posted for 1Q?
And then, on the stores front, can you talk about your confidence levels to open up the 75 to 80 stores, given that you weren’t able to open up any here in 1Q?
Kurt Barton
Yes. Thanks for the questions, two of them there. I’ll just reiterate what Hal and I have talked about in regards to the comp performance and how that plays out for the year. Certainly, as we exceeded our expectation or coming off of strong Q1 performance, as you roll that through the year. And we’ll continue to say as we have the last two years, we are managing this business through multiple scenarios. You could have comp sales at the high end of our guidance range. It’s one quarter into the year as we see the rest of the year. We’ve got good momentum in the business. And so, as you play that out, we recognize that as you flow this through, this could be towards the high end of our guidance range. And as we’ve even indicated, it’s early to predict on levels of inflation, but as inflation persists, it even puts upward pressure on that. And at this point, the best we can do is tell you how we view the business and how we’re managing that.
And then, in regards to our new store openings, I’ll start by saying we are — we have no concerns in regards to opening of new stores. We have confidence in our ability to hit our 70 to 80 stores this year. We’ve got a solid track record of opening 70, 80 stores. Our process is solid. Our pipeline for new stores is really strong right now. And construction is not exempt from some of the challenges of supply chain, labor, et cetera. We put a lot of effort and to complete the 80 stores in the fourth quarter. And some of those scenarios that push stores out, we saw some in Q1 as well. And as those stores have been pushed out of Q1– by the way, Q1 is our — typically our smallest quarter of new stores. Those stores will open up in Q2, Q3. We still have a real strong pipeline and expect to hit our targets this year for new stores.
Mary Winn Pilkington
Austin, if we keep at the top of the hour, maybe we’ll take one more question in and then wrap up our call after the next question, please.
Operator
Of course. Our final question will be from Chuck Cerankosky of Northcoast Research.
Chuck Cerankosky
Good morning, everyone. Nice quarter. When you look at strong level of C.U.E. sales in the first quarter, is there — as a percent of total, is there something else going on besides stimulus spending? And how is that mix shaping up thus far into the second quarter?
Hal Lawton
Yes. Hey Chuck, how are you? And thank you for joining the call today. On C.U.E., I would attribute our strong growth to taking share. As we talked about in our enhanced earnings event, on a two-year stack, our total sales grew 52% relative to the market at 25%, which meant we grew — outgrew the market by 27 points, significant share gain. And that is — we’re the market leader in animal feed. We’re one of the market leaders in pet food and we are gaining significant share in both of those categories. It’s attributable to our business model, our customer service, our Life Out Here strategy, and so we’re — that’s one of the reasons we’re just really excited about C.U.E. and the footsteps that’s driving into our stores and the setup that has for us for the balance of the year.
Mary Winn Pilkington
This completes our call today. We look forward to talking to you at our second quarter earnings call in July. Both Marianne and I are around today. So, please feel free to reach out. But thank you very much for joining our call today.
Operator
That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
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