Tractor Supply (NasdaqGS:TSCO) Q4 2025 Earnings call January 29, 2026 10:00 AM ET Company ParticipantsHal Lawton - CEOJohn Ordus - Executive Vice President, Chief Stores OfficerKurt Barton - CFOMary Winn Pilkington - Senior Vice President of Investor and Public RelationsSeth Estep - Executive Vice President, Chief Merchandising OfficerConference Call ParticipantsBobby Griffin - AnalystChristopher Horvers - AnalystDavid Bellinger - AnalystJonathan Matuszewski - AnalystKate McShane - AnalystMichael Baker - An ...

Financial Data and Key Metrics Changes - Revenue for the December quarter increased year-over-year to $505 million, supported by nearly 11% same-store sales growth [11][12] - Gross profit was $160 million, down from the prior year due to margin pressure, with gross margins over 400 basis points below historical levels [13][14] - Reported net loss per share was $0.36, or $0.21 on an adjusted basis, with adjusted EBITDA at $15.5 million [14][15] - The balance sheet remained strong with nearly $165 million in cash and a healthy net debt to adjusted EBITDA ratio of just over 2x [15] Business Line Data and Key Metrics Changes - Same-store sales performance was supported by premium brand offerings and a shift towards larger products, despite unit volume declining by low- to mid-single digits [7][12] - Higher-margin businesses, such as marinas, finance and insurance, and super yacht services, contributed positively to consolidated gross profit [13][14] Market Data and Key Metrics Changes - Market conditions remained challenging with elevated promotional activity and cautious retail behavior affecting demand patterns [6][9] - The company successfully reduced inventory levels by nearly $170 million compared to last year, indicating progress towards normalized inventory levels [8][15] Company Strategy and Development Direction - The company aims to maintain an appropriate inventory position, deliver a high-quality customer experience, and manage the business with a long-term perspective [9][10] - Continued focus on acquiring complementary, less cyclical, higher-margin operations to build a more durable business model [8] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding early season demand signals from boat shows, indicating potential for growth in the premium segment [10][19] - The outlook for Fiscal 2026 remains balanced due to ongoing uncertainty in the broader consumer and macroeconomic environment, with expectations for adjusted EBITDA in the range of $110 million-$125 million [16][17] Other Important Information - Customer deposits remained flat year-over-year, which is seen as a positive sign given the current environment [15][50] - The company continues to prioritize maintaining inventory levels and enhancing operational efficiency to support long-term value creation [11][19] Q&A Session Summary Question: What are the assumptions regarding the discounting environment as the selling season progresses? - Management expects the promotional environment to remain active during the winter, with potential improvement in margins as inventory levels normalize in the second half of the fiscal year [21][22] Question: Can you quantify the drivers of the decline in gross margin? - The decline in gross margin is primarily driven by promotional pressures rather than mix, with new boat margins being significantly lower than the previous year [66] Question: How is demand across various income groups and price points? - Demand at the premium end has been strong, while the lower end remains challenged, with overall consumer sentiment affected by broader economic uncertainty [38][42]

Financial Data and Key Metrics Changes - The company reported a stable production profile throughout the year, with first-half capital expenditures (CapEx) expected to account for about 60% of the total annual CapEx [9] - Current production levels are generating approximately $30 million annually under the proposed guidance for the 45Z program [11] - The average drilling cost for Utica wells is approximately $1,700 per foot, with performance aligned with expectations [27] Business Line Data and Key Metrics Changes - The RNG business line is experiencing stable pricing in the PA Tier 1 REC market, with a long-term bullish outlook contingent on increased renewable energy contributions to the grid [10] - Coal mine methane volumes have seen a modest year-over-year decline, primarily driven by underlying mining activity, with expectations of stability moving forward [30] Market Data and Key Metrics Changes - The company is currently over 60% hedged for 2027, targeting a weighted average NYMEX price of about $4, which is favorable for business performance [33][34] - The company is not seeing significant price activity beyond February contracts, which influences their decision-making regarding increased frac activity [25] Company Strategy and Development Direction - The company is focused on maintaining production levels while being responsive to material changes in gas prices, with a cautious approach to increasing activity based on long-term demand visibility [39] - There is an emphasis on the importance of infrastructure projects and AI demand for future growth, although current production remains at maintenance levels due to regulatory constraints [39][42] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in operational preparedness during extreme cold weather events, indicating no expected disruptions to operations or volumes [19] - The company is optimistic about the deep Utica program, with ongoing evaluations of well spacing and performance [17] Other Important Information - The company has internalized and adopted the AutoSep technology, which is expected to provide cost savings and environmental benefits, although it has not yet materially impacted financial results [21] - The company is planning to provide updated acreage counts and inventory runway details by the end of Q1 [46] Q&A Session Summary Question: Inquiry about capital and TIL program translating to production profile - Management indicated that first-half CapEx would be about 60% of the total, allowing flexibility for potential acceleration in the second half [9] Question: Outlook on RNG business line and AEC pricing - Management noted that the PA Tier 1 REC market has stabilized, with long-term pricing expected to improve as renewable energy standards tighten [10] Question: Clarification on Utica program size and timing - Management clarified that the smaller program size is due to timing, with confidence in the deep Utica program and plans for future fracking activity [16][17] Question: Expectations for operational disruptions due to weather - Management confirmed that they do not expect any disruptions, as the team has been well-prepared [19] Question: Update on new tech business and AutoSep - Management reported that AutoSep technology has been adopted internally, with positive early results, but no material financial impact yet [21] Question: Hedging strategy for 2027 - Management stated they are over 60% hedged for 2027, targeting a favorable NYMEX price [33][34] Question: Incremental takeaway and infrastructure projects - Management noted that while some low-hanging fruit has been taken, there are still proposed projects that need approval, and current production remains at maintenance levels [42]

Financial Data and Key Metrics Changes - Consolidated net revenue for fiscal year 2025 increased by 30.7% to $26.6 million from $20.3 million in fiscal year 2024 [23][25] - Gross profit rose to $17.7 million, with a gross margin of 66.5%, down from 69.8% in the previous year [25][26] - Operating income increased by 26.6% to $4.5 million, with an operating margin of 17.1% [28] Business Line Data and Key Metrics Changes - Marine technology business revenue increased by 3.2% to $13.2 million, contributing 49.8% of consolidated net revenue [4][23] - Defense engineering services revenue grew by 5.6% to $7.9 million [25] - Acoustic Sensors and Materials business, added in October 2024, generated $5.4 million, contributing 20.4% to consolidated net revenue [23][25] Market Data and Key Metrics Changes - 46% of marine technology business revenue came from the defense sector, while 54% was from the commercial marine sector [31] - Hardware sales in the marine technology business increased by 30.5% to $9.5 million [9] - Rental assets were underutilized, impacting gross profit margins due to changes in U.S. policy on offshore renewables [10] Company Strategy and Development Direction - The company aims to pivot the revenue model of the marine technology business towards a multi-year program-based adoption model [33] - Focus on increasing market share in underwater imaging sensors within the defense sector, leveraging the unique capabilities of the Echoscope and DAVD technologies [6][12] - The launch of the NanoGen series sonar is positioned as a core real-time perception sensor for AI-enabled autonomous platforms [14][32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth potential in the defense sector, highlighting the importance of securing contracts and expanding market presence [31][60] - The company anticipates procurement decisions for active opportunities in early 2026, with expectations for initial deliveries to commence within the 2026 fiscal year [17] - Management noted the challenges posed by the global policy environment but emphasized the solid financial results achieved [4][23] Other Important Information - The company has $28.7 million in cash and cash equivalents with no debt, representing an increase from $22.5 million the previous year [29] - The acquisition of Precision Acoustics Limited is expected to enhance capabilities in underwater acoustics and position the company for larger defense contracts [8][11] Q&A Session Summary Question: Updates on deliveries to the Indian Navy - Management was unclear about the specifics regarding the Indian Navy and did not confirm any new customer relationships [35] Question: Progress in Europe and future orders - Management expressed excitement about delivering systems to a European navy and anticipated that training would catalyze further adoption [36][37] Question: Cumulative deliveries of the DAVD untethered system - In fiscal 2025, the company achieved $3.7 million in DAVD revenue and expects to exceed this in fiscal 2026, pending approval for operational use [39][40] Question: Foreign navies testing DAVD - Management highlighted the importance of U.S. Navy approval for broader adoption and mentioned involvement with multiple foreign navies [42][46] Question: Next generation Echoscope customer feedback - Management reported strong interest in the NanoGen series, indicating it is a game changer for various markets [50][51]

Financial Data and Key Metrics Changes - In 2025, Group 1 Automotive achieved record revenues of $5.6 billion in Q4 and over $3.6 billion in gross profit for the full year, including nearly $1.6 billion from parts and service [6][11][12] - Adjusted net income for Q4 was $105 million, with adjusted diluted EPS of $8.49 from continuing operations [11] - Gross profit from customer pay and warranty increased approximately 5% and 11% respectively, with overall U.S. business demonstrating strong performance [13][14] Business Line Data and Key Metrics Changes - Parts and service gross profit reached record levels, contributing significantly to overall profitability [4][6] - New vehicle sales in the U.S. declined slightly, while used vehicle operations held volumes flat but increased revenues by approximately 4% [11][12] - F&I gross profits grew nearly 3% in Q4, reflecting improved product penetration across categories [12][15] Market Data and Key Metrics Changes - In the U.K., new vehicle same-store volumes declined 8.2%, while used vehicle same-store revenues increased over 9% [14][15] - The U.K. market faced challenges including weak economic growth and increased competition from new entrants, particularly Chinese OEMs, which held a market share of around 12% [7][31] - The macroeconomic environment in the U.K. remains difficult, with inflation and margin pressure impacting operations [7][14] Company Strategy and Development Direction - Group 1 is focused on operational excellence and capital deployment towards high-value acquisitions, including brands like Lexus and Acura [6][7] - The company is executing restructuring initiatives in the U.K. to improve efficiency and profitability, including reducing headcount and consolidating operations [7][16] - There is an emphasis on leveraging U.S. operational practices in the U.K. to enhance aftersales performance and customer service [8][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about navigating near-term challenges while building a resilient platform for long-term growth [10][69] - The focus remains on controlling costs, managing inventory, and enhancing operational efficiency in response to evolving macroeconomic conditions [9][10] - There is a belief in the potential for organic growth in both the U.S. and U.K. markets, particularly in aftersales and F&I [50][51] Other Important Information - The company disposed of 13 dealerships generating approximately $775 million in annualized revenue while acquiring new dealerships expected to generate $640 million [6][7] - As of December 31, liquidity stood at $883 million, with a rent-adjusted leverage of 3.1 times [16][17] - The company repurchased over 10% of its outstanding shares in 2025, with ongoing buyback plans [17][18] Q&A Session Summary Question: What were the impairments tied to this quarter? - Impairments were primarily related to the U.S. business, particularly within the Audi brand and the Maryland/D.C. market [21][22] Question: Are there specific productivity actions in the U.S. that could impact SG&A? - AI tools are being deployed across various business areas to enhance productivity, with tangible results in technician retention and operational efficiency [24][25][26] Question: What is the status of the U.K. restructuring plan? - The restructuring is ongoing, with more work to be done, and costs will be adjusted throughout 2026 [29][30] Question: How do Chinese OEMs impact the market? - Chinese OEMs have leveled off at around 12% market share, and while they are not slowing down, Group 1 feels well-positioned due to its focus on luxury brands [31][32] Question: What are the expectations for used GPUs and SG&A in the future? - Used GPUs in the U.S. are currently higher than pre-COVID levels, with expectations for improvement in the U.K. as operational discipline is instilled [39][40] Question: How does the company view lease returns impacting the used car market? - An increase in lease returns is expected to provide a controlled source of premium used cars, which is beneficial for the business [52][53]

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