Item 1. Financial Statements

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Item 1. Financial Statements

TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(Unaudited)


	For the Fiscal Three				For the Fiscal Nine
	Months Ended				Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Net sales	$	3,411,980	$	3,270,804	$	10,895,900	$	10,198,342
Cost of merchandise sold	2,161,501		2,104,989		6,960,744		6,589,763
Gross profit	1,250,479		1,165,815		3,935,156		3,608,579
Selling, general and administrative expenses	819,311		772,167		2,500,704		2,284,604
Depreciation and amortization	90,263		87,236		289,775		248,242

Operating income	340,905		306,412		1,144,677		1,075,733
Interest expense, net	9,539		6,226		34,562		20,392
Income before income taxes	331,366		300,186		1,110,115		1,055,341
Income tax expense	76,365		66,049		250,792		237,499
Net income	$	255,001	$	234,137	$	859,323	$	817,842

Net income per share – basic	$	2.34	$	2.11	$	7.85	$	7.32
Net income per share – diluted	$	2.33	$	2.10	$	7.81	$	7.27

Weighted average shares outstanding:
Basic	108,774		110,861		109,415		111,660
Diluted	109,342		111,560		110,055		112,461

Dividends declared per common share outstanding	$	1.03	$	0.92	$	3.09	$	2.76

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(Unaudited)


	September 30,		December 31,		September 24,
	2023		2022		2022
ASSETS
Current assets:
Cash and cash equivalents	$	421,693	$	202,502	$	211,241

Inventories	2,834,247		2,709,597		2,678,193
Prepaid expenses and other current assets	278,174		245,676		211,941
Income taxes receivable	—		—		8,430
Total current assets	3,534,114		3,157,775		3,109,805
Property and equipment, net	2,273,646		2,083,616		1,843,324
Operating lease right-of-use assets	3,084,947		2,953,801		2,803,798
Goodwill and other intangible assets	267,329		253,262		55,520

Other assets	44,978		41,536		99,281
Total assets	$	9,205,014	$	8,489,990	$	7,911,728
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,412,186	$	1,398,288	$	1,219,593
Accrued employee compensation	49,957		120,302		80,390
Other accrued expenses	454,513		498,575		453,747

Current portion of finance lease liabilities	3,304		3,179		3,140
Current portion of operating lease liabilities	365,189		346,397		333,388
Income taxes payable	33,647		9,471		4,942

Total current liabilities	2,318,796		2,376,212		2,095,200
Long-term debt	1,728,255		1,164,056		1,077,926
Finance lease liabilities, less current portion	32,156		34,651		35,460
Operating lease liabilities, less current portion	2,848,385		2,721,877		2,608,832
Deferred income taxes	30,006		30,775		39,540

Other long-term liabilities	136,285		120,003		113,625
Total liabilities	7,093,883		6,447,574		5,970,583
Stockholders’ equity:
Preferred stock	—		—		—
Common stock	1,418		1,415		1,414
Additional paid-in capital	1,302,268		1,261,283		1,236,161
Treasury stock	(5,347,302)		(4,855,909)		(4,763,862)
Accumulated other comprehensive income	9,292		11,275		12,298
Retained earnings	6,145,455		5,624,352		5,455,134
Total stockholders’ equity	2,111,131		2,042,416		1,941,145
Total liabilities and stockholders’ equity	$	9,205,014	$	8,489,990	$	7,911,728

Preferred Stock (shares in thousands): $1.00 par value; 40 shares authorized; no shares were issued or outstanding during any period presented.

Common Stock (shares in thousands): $0.008 par value; 400,000 shares authorized for all periods presented. 177,288, 176,876, and 176,771 shares issued; 108,474, 110,251, and 110,587 shares outstanding at September 30, 2023, December 31, 2022, and September 24, 2022, respectively.

Treasury Stock (at cost, shares in thousands): 68,814, 66,625, and 66,184 shares at September 30, 2023, December 31, 2022, and September 24, 2022, respectively.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)


	For the Fiscal Three				For the Fiscal Nine
	Months Ended				Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Net income	$	255,001	$	234,137	$	859,323	$	817,842
Other comprehensive (loss) / income:
Change in fair value of interest rate swaps, net of taxes	(924)		3,150		(1,983)		10,953
Total other comprehensive (loss) / income	(924)		3,150		(1,983)		10,953
Total comprehensive income	$	254,077	$	237,287	$	857,340	$	828,795

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)


	Common Stock				Additional Paid-in Capital		Treasury Stock		Accum. Other Comp. Income (Loss)		Retained Earnings		Total Stockholders’ Equity
Shares		Dollars
Stockholders’ equity at December 31, 2022	110,251		$	1,415	$	1,261,283	$	(4,855,909)	$	11,275	$	5,624,352	$	2,042,416
Common stock issuance under stock award plans & ESPP	275		2		8,621								8,623
Share-based compensation expense					14,514								14,514
Repurchase of shares to satisfy tax obligations					(21,643)								(21,643)
Repurchase of common stock	(866)						(197,168)						(197,168)
Cash dividends paid to stockholders											(113,447)		(113,447)
Change in fair value of interest rate swaps, net of taxes									(1,837)				(1,837)
Net income											183,088		183,088
Stockholders’ equity at April 1, 2023	109,660		$	1,417	$	1,262,775	$	(5,053,077)	$	9,438	$	5,693,993	$	1,914,546

Common stock issuance under stock award plans & ESPP	90		1		6,628								6,629
Share-based compensation expense					15,665								15,665
Repurchase of shares to satisfy tax obligations					(1,479)								(1,479)
Repurchase of common stock	(692)						(157,447)						(157,447)
Cash dividends paid to stockholders											(112,774)		(112,774)
Change in fair value of interest rate swaps, net of taxes									778				778
Net income											421,234		421,234
Stockholders’ equity at July 1, 2023	109,058		$	1,418	$	1,283,589	$	(5,210,524)	$	10,216	$	6,002,453	$	2,087,152

Common stock issuance under stock award plans & ESPP	48		—		4,601								4,601
Share-based compensation expense					14,971								14,971
Repurchase of shares to satisfy tax obligations					(893)								(893)
Repurchase of common stock	(632)						(136,778)						(136,778)
Cash dividends paid to stockholders											(111,999)		(111,999)
Change in fair value of interest rate swaps, net of taxes									(924)				(924)
Net income											255,001		255,001
Stockholders’ equity at September 30, 2023	108,474		$	1,418	$	1,302,268	$	(5,347,302)	$	9,292	$	6,145,455	$	2,111,131

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	Common Stock				Additional Paid-in Capital		Treasury Stock		Accum. Other Comp. Income		Retained Earnings		Total Stockholders’ Equity
Shares		Dollars
Stockholders’ equity at December 25, 2021	113,125		$	1,411	$	1,210,512	$	(4,155,846)	$	1,345	$	4,945,243	$	2,002,665
Common stock issuance under stock award plans & ESPP	308		2		7,908								7,910
Share-based compensation expense					12,316								12,316
Repurchase of shares to satisfy tax obligations					(26,442)								(26,442)
Repurchase of common stock	(1,358)						(296,180)						(296,180)
Cash dividends paid to stockholders											(103,467)		(103,467)
Change in fair value of interest rate swaps, net of taxes									5,993				5,993
Net income											187,227		187,227
Stockholders’ equity at March 26, 2022	112,075		$	1,413	$	1,204,294	$	(4,452,026)	$	7,338	$	5,029,003	$	1,790,022

Common stock issuance under stock award plans & ESPP	64		1		5,084								5,085
Share-based compensation expense					12,534								12,534
Repurchase of shares to satisfy tax obligations					(1,230)								(1,230)
Repurchase of common stock	(942)						(188,210)						(188,210)
Cash dividends paid to stockholders											(102,622)		(102,622)
Change in fair value of interest rate swaps, net of taxes									1,810				1,810
Net income											396,478		396,478
Stockholders’ equity at June 25, 2022	111,197		$	1,414	$	1,220,682	$	(4,640,236)	$	9,148	$	5,322,859	$	1,913,867

Common stock issuance under stock award plans & ESPP	28		—		2,502								2,502
Share-based compensation expense					13,681								13,681
Repurchase of shares to satisfy tax obligations					(704)								(704)
Repurchase of common stock	(638)						(123,626)						(123,626)
Cash dividends paid to stockholders											(101,862)		(101,862)
Change in fair value of interest rate swaps, net of taxes									3,150				3,150
Net income											234,137		234,137
Stockholders’ equity at September 24, 2022	110,587		$	1,414	$	1,236,161	$	(4,763,862)	$	12,298	$	5,455,134	$	1,941,145

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TRACTOR SUPPLY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


	For the Fiscal Nine Months Ended
	September 30, 2023		September 24, 2022
Cash flows from operating activities:
Net income	$	859,323	$	817,842
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	289,775		248,242
(Gain)/loss on disposition of property and equipment	(27,460)		1,453
Share-based compensation expense	45,150		38,531
Deferred income taxes	8,082		41,977
Change in assets and liabilities:
Inventories	(147,521)		(487,001)
Prepaid expenses and other current assets	(28,647)		(47,823)
Accounts payable	13,554		63,963
Accrued employee compensation	(73,019)		(29,228)
Other accrued expenses	(53,795)		(40,241)
Income taxes	24,176		13,612
Other	28,308		5,003
Net cash provided by operating activities	937,926		626,330
Cash flows from investing activities:
Capital expenditures	(526,723)		(451,154)
Proceeds from sale of property and equipment	57,801		169
Proceeds from Orscheln acquisition net working capital settlement	4,310		—
Proceeds from sale of Orscheln corporate headquarters and distribution center	10,000		—
Net cash used in investing activities	(454,612)		(450,985)
Cash flows from financing activities:
Borrowings under debt facilities	1,767,000		120,000
Repayments under debt facilities	(1,195,000)		(30,000)
Debt discounts and issuance costs	(9,729)		—

Principal payments under finance lease liabilities	(3,606)		(3,288)
Repurchase of shares to satisfy tax obligations	(24,015)		(28,376)
Repurchase of common stock	(480,407)		(608,016)
Net proceeds from issuance of common stock	19,853		15,497
Cash dividends paid to stockholders	(338,219)		(307,951)
Net cash used in financing activities	(264,123)		(842,134)
Net increase/(decrease) in cash and cash equivalents	219,191		(666,789)
Cash and cash equivalents at beginning of period	202,502		878,030
Cash and cash equivalents at end of period	$	421,693	$	211,241

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	29,011	$	16,130
Income taxes	215,637		184,887

Supplemental disclosures of non-cash activities:
Non-cash accruals for property and equipment	$	20,359	$	43,984
Increase of operating lease assets and liabilities from new or modified leases	481,177		264,318
Increase of finance lease assets and liabilities from new or modified leases	450		5,143

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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TRACTOR SUPPLY COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – General:

Nature of Business

Founded in 1938, Tractor Supply Company (the “Company,” “Tractor Supply,” “we,” “our,” or “us”) is the largest rural lifestyle retailer in the United States (“U.S.”). The Company is focused on supplying the needs of recreational farmers, ranchers, and all those who enjoy living the rural lifestyle (which we refer to as the “Out Here” lifestyle). The Company's stores are located primarily in towns outlying major metropolitan markets and in rural communities. The Company also owns and operates Petsense, LLC (“Petsense by Tractor Supply”), a small-box pet specialty supply retailer focused on meeting the needs of pet owners, primarily in small and mid-sized communities, and offering a variety of pet products and services. On October 12, 2022, the Company completed the acquisition of Orscheln Farm and Home, LLC (“Orscheln” or “Orscheln Farm and Home”) and will convert the 81 acquired Orscheln stores to Tractor Supply stores by the end of fiscal 2023. At September 30, 2023, the Company operated a total of 2,393 retail stores in 49 states (2,198 Tractor Supply and Orscheln retail stores and 195 Petsense by Tractor Supply retail stores) and also offered an expanded assortment of products through the Tractor Supply mobile application and online at TractorSupply.com and Petsense.com.

Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

Recently Adopted Accounting Pronouncements

In September 2022, the Financial Accounting Standard Board issued Accounting Standards Update (“ASU”) 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”. The ASU requires disclosure about an entity’s use of supplier finance programs, including the key terms of the program, amount of obligations outstanding at the end of the reporting period, and a rollforward of activity within the program during the period. The Company adopted this ASU in fiscal 2023, except for the disclosure of rollforward activity, which is effective on a prospective basis beginning in fiscal 2024.

Supplier Finance Program

The Company has an agreement with a third-party financial institution that allows certain participating suppliers the ability to finance payment obligations from the Company. The third-party financial institution has separate arrangements with the Company’s suppliers and provides them with the option to request early payment for invoices confirmed by the Company. The Company does not determine the terms or conditions of the arrangement between the third-party and its suppliers and receives no compensation from the third-party financial institution. The Company’s obligation to its suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to finance amounts under the arrangement. The Company’s outstanding payment obligations under the supplier finance program, which are included in accounts payable on the Company’s Consolidated Balance Sheets, were $57.8 million, $24.2 million, and $65.3 million at September 30, 2023, December 31, 2022, and September 24, 2022, respectively.

Sale-leaseback Transactions

In the third quarter of fiscal 2023, the Company completed its strategically planned sale-leaseback of 10 Tractor Supply store locations, resulting in proceeds of $55.8 million and a gain of $27.0 million. The Company intends to lease those properties for 15 years, with renewal options thereafter. The transactions met the accounting criteria for sale-leaseback treatment, and the resulting leases were accounted for as operating leases.

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Note 2 – Fair Value of Financial Instruments:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1 - defined as observable inputs such as quoted prices in active markets;
Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company’s financial instruments consist of cash and cash equivalents, short-term credit card receivables, trade payables, debt instruments, and interest rate swaps. Due to their short-term nature, the carrying values of cash and cash equivalents, short-term credit card receivables, and trade payables approximate current fair value at each balance sheet date.

As described in further detail in Note 6 to the Condensed Consolidated Financial Statements, the Company had $1.75 billion, $1.18 billion and $1.09 billion in borrowings under its debt facilities at September 30, 2023, December 31, 2022 and September 24, 2022, respectively. The fair value of the Company’s $150 million 3.70% Senior Notes due 2029 (the “3.70% Senior Notes”) and the borrowings under the Company’s revolving credit facility (the “Revolving Credit Facility”) were determined based on market interest rates (Level 2 inputs). The carrying value of borrowings in the 3.70% Senior Notes and the Revolving Credit Facility approximate fair value for each period reported.

The fair value of the Company’s $650 million 1.750% Senior Notes due 2030 (the “1.75% Senior Notes”) and $750 million 5.250% Senior Notes due 2033 (the “5.25% Senior Notes”) are determined based on quoted prices in active markets, which are considered Level 1 inputs. The carrying value and the fair value of the 1.75% Senior Notes and the 5.25% Senior Notes, net of discounts, were as follows (in thousands):


	September 30, 2023				December 31, 2022				September 24, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
1.75% Senior Notes	$	640,252	$	495,027	$	639,220	$	500,065	$	638,876	$	492,902
5.25% Senior Notes	$	740,636	$	708,675	$	—	$	—	$	—	$	—

The Company's interest rate swap is carried at fair value, which is determined based on the present value of expected future cash flows using forward rate curves, which is considered a Level 2 input. In accordance with hedge accounting, the gains and losses on interest rate swaps that are designated and qualify as cash flow hedges are recorded as a component of Other Comprehensive Income, net of related income taxes, and reclassified into earnings in the same income statement line and period in which the hedged transactions affect earnings. The fair value of the interest rate swap, excluding accrued interest, was as follows (in thousands):


	Fair Value Measurements at
	September 30, 2023		December 31, 2022		September 24, 2022
Interest rate swap assets (Level 2)	$	12,477	$	15,146	$	16,537

Note 3 – Share-Based Compensation:

Share-based compensation includes stock options, restricted stock units, performance-based restricted share units, and transactions under the Company's Employee Stock Purchase Plan (the “ESPP”). Share-based compensation expense is recognized based on grant date fair value of all stock options, restricted stock units, and performance-based restricted share units. Share-based compensation expense is also recognized for the value of the 15% discount on shares purchased by employees as a part of the ESPP. The discount under the ESPP represents the difference between the market value on the first day of the purchase period or the market value on the purchase date, whichever is lower, and the employee’s purchase price.

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There were no significant modifications to the Company’s share-based compensation plans during the fiscal nine months ended September 30, 2023.

Share-based compensation expense was $15.0 million and $13.7 million for the third quarter of fiscal 2023 and 2022, respectively, and $45.2 million and $38.5 million for the first nine months of fiscal 2023 and 2022, respectively.

Stock Options

The following table summarizes information concerning stock option grants during the first nine months of fiscal 2023:


	Fiscal Nine Months Ended
	September 30, 2023
Stock options granted	123,414
Weighted average exercise price	$	232.57
Weighted average grant date fair value per option	$	60.10

As of September 30, 2023, total unrecognized compensation expense related to non-vested stock options was approximately $9.7 million with a remaining weighted average expense recognition period of 2.0 years.

Restricted Stock Units and Performance-Based Restricted Share Units

The following table summarizes information concerning restricted stock unit and performance-based restricted share unit grants during the first nine months of fiscal 2023:


	Fiscal Nine Months Ended
	September 30, 2023
Restricted Stock Unit Activity
Awards granted	221,718
Weighted average grant date fair value per share	$	224.45
Performance-Based Restricted Share Unit Activity
Awards granted (a)	53,450
Weighted average grant date fair value per share - awards granted	$	237.69
Performance adjustment (b)	50,411
Weighted average grant date fair value per share - performance adjustment	$	85.82

(a) Assumes 100% target level achievement of the relative performance targets.

(b) Shares adjusted for performance-based restricted share unit awards settled during the first three months of fiscal 2023 based on actual achievement of performance targets.

In the first nine months of fiscal 2023, the Company granted performance-based restricted share unit awards that are subject to the achievement of specified performance goals. The performance metrics for the units are growth in net sales and growth in earnings per diluted share and also include a relative total shareholder return modifier. The number of performance-based restricted share units presented in the foregoing table represent the shares that can be achieved at the performance metric target value. The actual number of shares that will be issued under the performance-based restricted share unit awards, which may be higher or lower than the target, will be determined by the level of achievement of the performance goals and the relative total shareholder return modifier. If the performance targets are achieved, the units will be issued based on the achievement level, inclusive of the relative total shareholder return modifier, and the grant date fair value and will cliff vest in full on the third anniversary of the date of the grant, subject to continued employment.

As of September 30, 2023, total unrecognized compensation expense related to non-vested restricted stock units and non-vested performance-based restricted share units was approximately $78.7 million with a remaining weighted average expense recognition period of 2.0 years.

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Note 4 - Acquisition of Orscheln Farm and Home, LLC and Related Divestitures

On October 12, 2022, the Company completed its acquisition of Orscheln, which expands the Company's footprint in the U.S. Midwest. Pursuant to the agreement governing the acquisition, the Company acquired 100% of the equity interest in Orscheln, inclusive of 166 Orscheln stores, the Orscheln corporate headquarters, and the Orscheln distribution center. The total purchase consideration was $393.4 million, exclusive of cash acquired. The acquisition was financed with cash-on-hand and Revolving Credit Facility borrowings under the 2022 Senior Credit Facility (as defined below).

In order to obtain regulatory approval for the Orscheln acquisition, the Federal Trade Commission required the Company to divest of 85 stores, which were sold to two buyers, Bomgaars Supply, Inc. (“Bomgaars”) (73 stores) and Buchheit Enterprises, Inc. (12 stores), on October 12, 2022, concurrently with the closing of the acquisition. Net proceeds from the store divestitures were $69.4 million. In addition, the Company sold the Orscheln corporate headquarters and distribution center to Bomgaars for $10.0 million in the third quarter of fiscal 2023.

The purchase consideration and fair value of Orscheln’s net assets acquired on October 12, 2022 are shown below. The assets and liabilities of the 85 divested stores, along with the Orscheln corporate headquarters and the Orscheln distribution center, are shown as held for sale in the fair value of assets acquired and liabilities assumed.


(in thousands)	Amounts Recognized as of Acquisition Date		Measurement Period Adjustments		Amounts Recognized as of September 30, 2023
Fair value of assets acquired
Cash and cash equivalents	$	6,935	$	—	$	6,935
Accounts receivable	277		—		277
Inventories	168,663		(22,871)		145,792
Prepaid expenses and other current assets	7,222		304		7,526
Property and equipment	13,328		1,804		15,132
Lease right of use assets	82,755		—		82,755
Deferred income taxes	18,481		8,852		27,333
Assets held for sale	173,554		—		173,554
Other assets	160		(14)		146
Less: liabilities assumed
Accounts payable	80,323		344		80,667
Accrued liabilities	20,291		6,108		26,399
Short-term lease liabilities	5,986		—		5,986
Long-term lease liabilities	70,626		—		70,626
Liabilities held for sale	94,190		—		94,190
Goodwill	197,742		14,067		211,810
Total fair value of considerations transferred	$	397,700	$	(4,310)	$	393,390

Note: Amounts may not sum to totals due to rounding.

The $211.8 million goodwill shown above represents the expected synergies from combining the operations of Orscheln with Tractor Supply stores and the expanded footprint that Orscheln brings in the U.S. Midwest. Approximately $130.3 million of this goodwill is deductible for income tax purposes.

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Note 5 – Net Income Per Share:

The Company presents both basic and diluted net income per share on the Condensed Consolidated Statements of Income. Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average diluted shares outstanding during the period. Dilutive shares are computed using the treasury stock method for share-based awards. Performance-based restricted share units are included in diluted shares only if the related performance conditions are considered satisfied as of the end of the reporting period. Net income per share is calculated as follows (in thousands, except per share amounts):


	Fiscal Three Months Ended
	September 30, 2023					September 24, 2022
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
Basic net income per share:	$	255,001	108,774	$	2.34	$	234,137	110,861	$	2.11
Dilutive effect of share-based awards	—		568	(0.01)		—		699	(0.01)
Diluted net income per share:	$	255,001	109,342	$	2.33	$	234,137	111,560	$	2.10


	Fiscal Nine Months Ended
	September 30, 2023					September 24, 2022
	Income		Shares	Per Share Amount		Income		Shares	Per Share Amount
Basic net income per share:	$	859,323	109,415	$	7.85	$	817,842	111,660	$	7.32
Dilutive effect of share-based awards	—		640	(0.04)		—		801	(0.05)
Diluted net income per share:	$	859,323	110,055	$	7.81	$	817,842	112,461	$	7.27

Anti-dilutive stock awards excluded from the above calculations totaled approximately 0.2 million shares for the fiscal three months ended September 30, 2023 and 0.1 million shares for fiscal three months ended September 24, 2022. Anti-dilutive stock awards excluded from the above calculations totaled approximately 0.2 million shares for the fiscal nine months ended September 30, 2023 and approximately 0.1 million shares for the fiscal nine months ended September 24, 2022.

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Note 6 – Debt:

The following table summarizes the Company’s outstanding debt as of the dates indicated (in millions):


	September 30, 2023		December 31, 2022		September 24, 2022
5.25% Senior Notes	$	750.0	$	—	$	—
1.75% Senior Notes	650.0		650.0		650.0
3.70% Senior Notes (a)	150.0		150.0		150.0
Senior credit facilities:
November 2020 Term Loan	—		—		200.0
Revolving Credit Facility (b)	200.0		378.0		90.0
Total outstanding borrowings	1,750.0		1,178.0		1,090.0
Less: unamortized debt discounts and issuance costs	(21.7)		(13.9)		(12.1)
Total debt	1,728.3		1,164.1		1,077.9
Less: current portion of long-term debt	—		—		—
Long-term debt	$	1,728.3	$	1,164.1	$	1,077.9

Outstanding letters of credit	$	58.2	$	52.6	$	55.8

(a) Also referred to herein as the “Note Purchase Facility,” referring to the Note Purchase and Private Shelf Agreement dated as of August 14, 2017 by and among the Company, PGIM, Inc. and the noteholders party thereto, as amended through November 2, 2022, under which the notes were purchased.

(b) Outstanding balances as of September 30, 2023 and December 31, 2022 represent amounts drawn under the credit facility (the “2022 Senior Credit Facility”) entered into on September 30, 2022. Outstanding balance as of September 24, 2022 represents amounts drawn under the previous senior credit facility.

Borrowings under the Company’s Revolving Credit Facility bore interest either at the bank’s base rate (8.500% at September 30, 2023) plus an additional amount ranging from 0.000% to 0.250% (0.000% at September 30, 2023) or at adjusted Secured Overnight Financing Rate (5.319% at September 30, 2023) plus an additional amount ranging from 0.750% to 1.250% (1.000% at September 30, 2023), adjusted based on the Company’s public credit ratings. The Company was also required to pay, quarterly in arrears, a commitment fee related to unused capacity on the Revolving Credit Facility ranging from 0.080% to 0.150% per annum (0.100% at September 30, 2023), adjusted based on the Company’s public credit ratings.

The Company has entered into an interest rate swap agreement in order to hedge its exposure to variable rate interest payments associated with its debt. The interest rate swap agreement will mature on March 18, 2025, and the notional amount of the agreement is fixed at $200.0 million.

5.25% Senior Notes

On May 5, 2023, the Company completed the sale of $750 million aggregate principal amount of its 5.25% Senior Notes. The entire principal amount of the 5.25% Senior Notes is due in full on May 15, 2033. Interest is payable semi-annually in arrears on each May 15 and November 15. The terms of the 5.25% Senior Notes are governed by an indenture dated as of October 30, 2020 between the Company and Regions Bank, as trustee, as amended and supplemented by a second supplemental indenture dated as of May 5, 2023 (the “Second Supplemental Indenture”) between the Company and Regions Bank, as trustee.

The 5.25% Senior Notes are senior unsecured debt obligations of the Company and rank equally with the Company’s other senior unsecured liabilities and senior to any future subordinated indebtedness of the Company. The 5.25% Senior Notes are subject to customary covenants restricting the Company’s ability, subject to certain exceptions, to incur debt secured by liens, to enter into sale and leaseback transactions or to merge or consolidate with another entity or sell substantially all of its assets to another person.

At any time prior to February 15, 2033 (three months prior to the maturity date of the 5.25% Senior Notes), the Company has the right, at its option, to redeem the 5.25% Senior Notes, in whole or in part, at any time and from time to time, by paying the greater of 100% of the principal amount of the 5.25% Senior Notes to be redeemed, or the sum of the present values of the remaining scheduled payments of principal and interest through the par call date, plus, in each case, accrued and unpaid interest to, but not including, the date of redemption. In addition, on or after February 15, 2033, the Company has the right, at its option, to redeem the 5.25% Senior Notes, in whole or in part, at any time and from time to time, at a redemption price equal to 100%

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of the principal amount of the 5.25% Senior Notes to be redeemed, plus accrued and unpaid interest to, but not including, the date of redemption.

If a Change of Control Triggering Event (as defined in the Second Supplemental Indenture) occurs, unless the Company has exercised its right to redeem the 5.25% Senior Notes, holders of the 5.25% Senior Notes may require the Company to repurchase all or any part of such holder’s 5.25% Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest, if any, on such 5.25% Senior Notes to, but not including, the purchase date. Upon the occurrence of an event of default with respect to the 5.25% Senior Notes, which includes payment defaults, defaults in the performance of certain covenants, cross defaults, and bankruptcy and insolvency related defaults, the Company’s obligations under the 5.25% Senior Notes may be accelerated, in which case the entire principal amount of the 5.25% Senior Notes would be due and payable immediately.

Covenants and Default Provisions of the Debt Agreements

As of September 30, 2023, the 2022 Senior Credit Facility and the Note Purchase Facility (collectively, the “Debt Agreements”) required quarterly compliance with respect to two material covenants: a fixed charge coverage ratio and a leverage ratio. Both ratios are calculated on a trailing twelve-month basis at the end of each fiscal quarter. The fixed charge coverage ratio compares earnings before interest, taxes, depreciation, amortization, share-based compensation, and rent expense (“consolidated EBITDAR”) to the sum of interest paid and rental expense (excluding any straight-line rent adjustments). The fixed charge coverage ratio was required to be greater than or equal to 2.00 to 1.00 as of the last day of each fiscal quarter. The leverage ratio compares total funded debt to consolidated EBITDAR. The leverage ratio was required to be less than or equal to 4.00 to 1.00 as of the last day of each fiscal quarter. The Debt Agreements also contain certain other restrictions regarding additional subsidiary indebtedness, business operations, subsidiary guarantees, mergers, consolidations and sales of assets, transactions with subsidiaries or affiliates, and liens. As of September 30, 2023, the Company was in compliance with all debt covenants.

The Debt Agreements contain customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events, and invalidity of loan documents. Upon certain changes of control, amounts outstanding under the Debt Agreements could become due and payable. In addition, under the Note Purchase Facility, upon an event of default or change of control, a whole payment may become due and payable.

The Note Purchase Facility also requires that, in the event the Company amends its 2022 Senior Credit Facility, or any subsequent credit facility of $100 million or greater, such that it contains covenant or default provisions that are not provided in the Note Purchase Facility or that are similar to those contained in the Note Purchase Facility but which contain percentages, amounts, formulas, or grace periods that are more restrictive than those set forth in the Note Purchase Facility or are otherwise more beneficial to the lenders thereunder, the Note Purchase Facility shall be automatically amended to include such additional or amended covenants and/or default provisions.

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Note 7 – Capital Stock and Dividends:

Capital Stock

The authorized capital stock of the Company consists of common stock and preferred stock. The Company is authorized to issue 400 million shares of common stock. The Company is also authorized to issue 40 thousand shares of preferred stock, with such designations, rights and preferences as may be determined from time to time by the Company's Board of Directors.

Dividends

During the first nine months of fiscal 2023 and fiscal 2022, the Company's Board of Directors declared the following cash dividends:


Date Declared	Dividend Amount Per Share of Common Stock		Record Date	Date Paid

August 9, 2023	$	1.03	August 28, 2023	September 12, 2023
May 10, 2023	$	1.03	May 30, 2023	June 13, 2023
February 8, 2023	$	1.03	February 27, 2023	March 14, 2023

August 4, 2022	$	0.92	August 22, 2022	September 7, 2022
May 10, 2022	$	0.92	May 25, 2022	June 8, 2022
January 26, 2022	$	0.92	February 21, 2022	March 8, 2022

It is the present intention of the Company’s Board of Directors to continue to pay a quarterly cash dividend; however, the declaration and payment of future dividends will be determined by the Company’s Board of Directors in its sole discretion and will depend upon the earnings, financial condition, and capital needs of the Company, along with any other factors that the Company’s Board of Directors deem relevant.

On November 8, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $1.03 per share of the Company’s outstanding common stock. The dividend will be paid on December 12, 2023, to stockholders of record as of the close of business on November 27, 2023.

Note 8 – Treasury Stock:

The Company’s Board of Directors has authorized common stock repurchases under a share repurchase program which was announced in February 2007. The total authorized amount of the program, which has been increased from time to time, is currently $6.50 billion, exclusive of any fees, commissions, or other expenses related to such repurchases. The share repurchase program does not have an expiration date. The repurchases may be made from time to time on the open market or in privately negotiated transactions. The timing and amount of any shares repurchased under the program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability, and other market conditions. Repurchased shares are accounted for at cost and will be held in treasury for future issuance. The program may be limited, temporarily paused, or terminated at any time without prior notice. As of September 30, 2023, the Company had remaining authorization under the share repurchase program of $1.16 billion, exclusive of any fees, commissions, or other expenses.

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The following table provides the number of shares repurchased, average price paid per share, and total amount paid for share repurchases during the fiscal three months and fiscal nine months ended September 30, 2023 and September 24, 2022, respectively (in thousands, except per share amounts):


	Fiscal Three Months Ended				Fiscal Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Total number of shares repurchased	632		638		2,190		2,938
Average price paid per share	$	214.45	$	193.70	$	222.20	$	206.95
Total cost of share repurchases (a)	$	136,778	$	123,626	$	491,394	$	608,016

(a) Effective January 1, 2023, the Company’s share repurchases are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. Excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as a part of the cost basis of the shares within treasury stock. The cost of shares repurchased may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period and excise taxes incurred on share repurchases.

Note 9 – Income Taxes:

The Company’s effective income tax rate was 23.0% in the third quarter of fiscal 2023 compared to 22.0% in the third quarter of fiscal 2022. The Company’s effective income tax rate was 22.6% in the first nine months of fiscal 2023 compared to 22.5% in the first nine months of fiscal 2022. The increase in the effective income tax rate in the first three and nine months of fiscal 2023 compared to the corresponding periods in fiscal 2022 was driven primarily by state audit settlements and decreased state tax credits.

Note 10 – Commitments and Contingencies:

Construction and Real Estate Commitments

As of September 30, 2023, the Company had contractual commitments of approximately $48.4 million related to the construction and onboarding of new distribution centers.

Letters of Credit

At September 30, 2023, the Company had $58.2 million in outstanding letters of credit.

Litigation

In March 2023, U.S. Customs and Border Protection (“U.S. Customs”) sent the Company a notice that proposed to classify certain of our imports from China as subject to anti-dumping and countervailing (“AD/CV”) duties. We have responded to U.S. Customs outlining the reasons for our position that these imports are not subject to AD/CV duties. The Company currently expects this matter will be resolved without material adverse effect on its consolidated financial position, results of operations or cash flows. However, this matter is subject to inherent uncertainties and management’s view of this matter may change in the future.

The Company is involved in various litigation matters arising in the ordinary course of business. The Company believes that, based upon information currently available, any estimated loss related to such matters has been adequately provided for in accrued liabilities to the extent probable and reasonably estimable. Accordingly, the Company currently expects these matters will be resolved without material adverse effect on its consolidated financial position, results of operations, or cash flows. However, litigation and other legal matters involve an element of uncertainty. Future developments in such matters, including adverse decisions or settlements or resulting required changes to the Company's business operations, could affect our consolidated operating results when resolved in future periods or could result in liability or other amounts material to the Company's Condensed Consolidated Financial Statements.

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Note 11 – Segment Reporting:

The Company has one reportable segment which is the retail sale of products that support the rural lifestyle. The following table indicates the percentage of net sales represented by each of our major product categories during the fiscal three and nine months ended September 30, 2023 and September 24, 2022:


	Fiscal Three Months Ended				Fiscal Nine Months Ended
Product Category	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Livestock, Equine & Agriculture (a)	29	%	30	%	29	%	29	%
Companion Animal (b)	26		24		25		23
Seasonal & Recreation (c)	20		21		22		23
Truck, Tool & Hardware (d)	17		17		16		16
Clothing, Gift & Décor (e)	8		8		8		9
Total	100	%	100	%	100	%	100	%

Note: Net sales by major product categories for prior periods have been reclassified to conform to the current year presentation.

(a) Includes livestock and equine feed & equipment, poultry, fencing, and sprayer & chemicals.

(b) Includes food, treats and equipment for dogs, cats, and other small animals as well as dog wellness.

(c) Includes tractor & rider, lawn & garden, bird feeding, power equipment, and other recreational products.

(d) Includes truck accessories, trailers, generators, lubricants, batteries, and hardware and tools.

(e) Includes clothing, footwear, toys, snacks, and decorative merchandise.

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