Thank you, Randy. Good morning, everybody, welcome to Nashville and our city's new Omni Hotel and Music City Center for the Investor Day portion of our annual store managers sales meeting. Now, I just attended a general session, with more than 1,300 store managers and 100 of our multi-unit managers, all of which are front line for Tractor Supply, and they serve our customers every day. We just came over from the convention center. I must tell you that the culture in this company is unlike any I've ever been associated with in the enthusiasm of this group. You'll see that when you go over and travel the store today. It's at an all-time high. The purpose of this annual sales meeting is to bring them together as a team. It's to teach them, it's to learn from them.
It's to prepare them for the all-important spring season and to inspire them with new products on our vendor trade show floor, and most importantly, to recognize them for all the hard work and success they've had in 2013. Now, last evening, I attended a region awards dinner where we presented more than 100 awards for a job well done to those teams. One of the great things about Tractor Supply is that we have a culture here of recognizing success of our top performers among their peers. The culture here is one of teamwork, collaboration, recognition, and that supports the idea that if the team wins, we all win.
Shortly after this presentation, you will have the opportunity to tour the vendor trade show floor, where you'll have the chance to observe 300-plus of our most important vendors who have the responsibility of 70% of our total cost of goods. These vendors have the opportunity to interface with our store managers. They show them products. They share information. They gather feedback, and they teach them how to effectively sell the merchandise. Our managers pass this knowledge along to their store teams when they return. That's what's most important. Now, after my comments this morning, you will hear from our Senior VP of Store Operations, Lee Downing. Following Lee will be our EVP of Merchandising and Marketing, Steve Barbarick. Following Steve, Tony, our CFO, will review our financial performance and discuss our financial targets.
We're asked often by those unfamiliar with our story about who is Tractor Supply, really. I must tell you, what we are really is the largest farm retailer in the U.S. by a long margin. We have nearly 1,300 stores, and we are in every state with the exception of Alaska and Utah, and we anticipate opening our first store in Utah later this year. Our stores are typically located in the counties surrounding metropolitan cities across the country, and many of our customers, matter of fact, most of them, are rural lifestylers who share a common bond. They shop Tractor Supply to purchase the items that they need to care for their home, their land, their pets, and their large animals. They have above-average household incomes, and they live in markets that have a lower cost of living. They're very passionate about this lifestyle. They're do-it-yourselfers.
They're very hardworking people, and they are all financially responsible. In 2013, we exceeded $5 billion in annual sales for the first time in our company's 75-year history. As you'll see and hear today, we feel we are just getting started. Most importantly, we continue to be a mission and values-driven company, and we understand that we are all stewards of our culture. In nearly every meeting and presentation, we discuss our mission and values and what they mean to us as a company. They are the foundation of who we are. It's always discussed throughout the hiring process, and our mission and values dictate how we conduct ourselves every day with both our customers and our vendor community. Our mission here is to work hard, have fun, and make money by providing legendary service and great products at everyday value prices. Our values are straightforward.
They're easily understood. We have these words in print throughout every facility on the walls of every building, and I would bet if you check with the store managers on the floor, they'll all carry this card in their pockets. These have been in place for decades, and they have served us well, and they are the guiding principles how we operate our company today. I had the opportunity in October to celebrate our 75th anniversary, at the Nasdaq opening with Tony, our board chairman, Cindy Jamison, as well as two former Tractor Supply chairman and CEOs, both Joe Scarlett and Jim Wright. Much of the credit for the company's current culture, its ongoing commitment to the mission and values, and its great success really belong to Joe and Jim. Their vision and leadership provided Tractor Supply with the foundation we are continuing to build upon today.
In addition to celebrating our 75th anniversary, last Monday was our 20th anniversary as a publicly traded company on Nasdaq. Over the 20-year period, Tractor Supply has been one of Nasdaq's top-performing stocks. As a company, our primary focus is on growing profit dollars. We consider profit dollar growth to be a more accurate indicator of retail performance than simply focusing on top store sales. To growing operating profit, our philosophy is very simple. It's a balance between managing sales, margins, and expenses. We focus more on growing market share than simply gross margin rate, and we will not risk share for margin rate. We test and learn all the time. Any given time you're in our stores, you will likely see products being tested. Through testing, we stay close to our customer, and we continually learn from them regarding their evolving needs.
We use a process called COE, correction of error, it's not that we mean we've made a mistake. What it means is this, that following every ad, every event or season, we gather individuals from the cross-functional departments within the company, so it could be operations, marketing, merchandising, supply chain, pricing, and others. We bring them together in a conference room, for several hours, we discuss and debate the things that first we did well on that season or event, then secondly, the things we think we can improve upon. We walk away from that meeting after discussing the particular ad or event or season, we've now developed a documented plan for the next year. This is truly how we become more efficient as a company.
At Tractor, there is a pipeline full of opportunities for many years to come. We understand that we cannot execute all of them today, and really don't want to, because there's only so much a company can digest effectively. I assure you, there are numerous initiatives that Tractor Supply will execute as we expand our store base and grow our platform on the web. Our Tractor Supply team deserves a lot of credit for the performance detailed on this slide. Tractor Supply has delivered comparable store transaction count increases for 23 quarters. As you can see, these annual increases have ranged from 3%-7.4% over the past five years. This is clearly a result of solid execution from our teams in the stores, the merchandising group, the marketing group, and the supply chain group.
These results would indicate that not only have we become more relevant to our current customers, but that many new customers are being introduced to Tractor Supply as a brand. Steve Barbarick will soon share more details on our merchandising and marketing plans that will ensure that we are building on this sales momentum going forward. Through the macro challenges of weather events, commodity price fluctuations, droughts, hurricanes, political elections, high farm incomes, low farm incomes, overall company growth and investments, et cetera, Tractor Supply has continued to deliver year-over-year operating margin improvements on a quarterly basis. It was only five years ago, in 2009, that our operating margin was just 6%. Our 2014 business plan is projecting continued year-over-year increases, and our current interim target is now 10.5%.
We ended 2013 at 10%. Our plan is to continue growing operating margin by at least 25 basis points annually. The performance displayed on this chart is a result of our balanced approach to managing our business. We are focused on growing operating profit and creating shareholder value every day. Our company has produced solid year-over-year EPS growth as well on a quarterly basis for several years. This again demonstrates the results of our balanced approach to managing our business through growing sales, increasing gross margins, and managing expenses effectively, all while continuing to invest in growing the business for the longer term. I want to reinforce that our strategic focus for right now has not changed. At Tractor Supply, our focus remains on three areas: driving growth, creating efficiencies, and developing our people.
We are driving growth through a number of strategic initiatives, such as leveraging our customer relationship management to increase customer spending, retention, and new customer acquisition. We're testing and developing new destination product categories that have the opportunity to drive incremental gross profit. We're executing on our competitive positioning strategy. We're evolving our multi-channel commerce and social capabilities. Tractor Supply is committed to creating efficiencies through being a lean organization. Through our Tractor Value System, or TVS process, we continue to take waste out, cost out, and we work on the effort upstream in our processes to drive efficiencies. Additionally, our company is creating efficiencies through a number of other initiatives, including systems and technology, supply chain improvements, centralized purchasing, SG&A management, and environmental impact programs. At Tractor Supply, as Lee will soon talk about, it's always been about taking care of the customer and developing our people.
We believe in doing the right thing, respecting others, working as a team, taking individual initiative, and being accountable for our results. Our company was founded on these values, and they remain our company's guiding principles today. As an organization, we are focused on offering the tools to enable our people to learn and grow. We embrace the culture that promotes from within the organization. We provide our people with unlimited opportunity for advancement. As you can see from this map, there is still a substantial amount of growth in the Northeast for Tractor Supply, and there is still considerable growth in the South and Southwest. The upper Midwest is where we have most of our competitors and the independents sit in that green zone. Growth for now will be slower there.
As you've already heard, we've entered three new states in 2013, Arizona, Nevada, and Wyoming. We continue to be very pleased with the performance of our new stores in the West and for the chain in total. Further Western expansion will mean infrastructure builds. We will need to build another distribution center likely in 2015. It'll have to be in the West because today we're fulfilling these locations from as far away as our Waverly, Nebraska, and Waco, Texas, distribution points. It is simply an equation that's easy to understand. As you review the growth plan for new stores, the need for capital spending will be necessary as we move farther west. Here's just two examples of stores that we've opened in the West. Our Greeley location, which was our first store in Colorado, and it's been open for less than two years.
The adjacent photo is one of our Sierra Vista, Arizona, store that opened in October of 2013. Both of these stores are performing very well against their new store pro forma metrics. I'd like to remind you that we are continuing to build our infrastructure with tools and technology that better meet our customers' needs, whether they shop with us in-store or online. We have made great progress over the past several years, and I believe this is reflected in our performance. We also continue to believe that there is tremendous opportunity ahead to grow our overall business while we invest in the long-term sustainability of our model. There's really four key areas that I'll point out here. Merchandising being one, demand planning and logistics being two, multi-channel retail being three, and customer relationship management being the fourth.
Let me briefly just discuss these and provide you with some information about how we're going to sustain the growth of these. In merchandising, we're constantly evolving our offerings to meet the ever-changing needs of our customers. Our stores average about 15,500 sq ft. It's very important we utilize the four wall space effectively. Our customers expect a shopping experience where they can get in and get out of our stores quickly, find what they need. They have the confidence that we'll have the products they're looking for. In the supply chain, we are investing in tools to improve the planning of our assortments and the management of our in-stock levels, both at the macro and, more importantly, the local level.
For example, based on feedback received from our store teams this past year, we made the strategic decision to continue with several spring and summer planograms throughout many of our southern markets. That was something new we hadn't done in the past. Our strategic focus continues in multi-channel. Those investments are generating positive increases in business. Our plan is to continue with this strategy. We're taking very much a longer-term, more disciplined approach, adding platform capabilities based upon a more thorough understanding of our customers' expectations and preferences as we monitor their interaction with our site. On the customer relationship management front, we're investing in several areas to more clearly identify and reach our existing and potential new customers. Steve will talk more about that in detail during his presentation.
I think it's clear that as a management team, we continue to be intensely committed and intensely focused on delivering shareholder value to our investors and driving growth and creating efficiencies through developing our people. Let me turn the presentation over here. Before I turn it over to Lee, let me take a few minutes and tell you a little bit about Lee Downing. Lee joined the company in October of 2010 and has more than 15 years of experience in retail leadership. He is responsible for leading 19,000-plus store team members in 1,300 store locations across nine regions. Lee's teams served our customers more than 116 million times in 2013. They are a key component to driving both repeat traffic and transactions for our stores.
You will hear from Lee from time to time on our quarterly calls. I wanted to provide him today the opportunity to speak to you regarding our store operations initiative. I want to thank each of you for taking time to travel to Nashville today to learn more about our company. Now I'll turn the presentation over to Lee Downing, our Senior Vice President of Store Operations. Thank you.
Thanks, Greg. I'm very excited this morning to be able to present to you the four key operations initiatives that we're working on right now. In operations, we like to keep it simple. In order to do so, we came up with an acronym that really makes our stores understand what we're trying to do. That acronym is TSC&E. That stands for Team, Sales, Customers, and Execution. This is what we talk about at every meeting. This is what we talk about when we're out in stores. This is what we focus on. Let me start with Team. It's all about the people. As Greg said, we say in meetings all the time, it's the who before the what. Our team is the most important thing that we focus on. We start with hiring our customers. It's what makes us different.
It's what makes our customers understand when they come into shop, they talk to our team, and they understand what they're looking for because they are our customer. They have relationships in the community. They're pre-established relationships. They understand exactly how to upsell that customer because they know what they need. Second, we reward success. Every team member in the store is eligible for a bonus. They have a monthly sales goal that they talk about every day. The manager will meet with them and huddle and say, "Here's what we have to do today," and the team gets behind that. On average, over the past three years, our store teams have achieved their sales bonus eight out of 12 months of the year.
Over the past three years, as we talk to our store managers, we have seen them achieve approximately 80% of their bonus on the year. Team retention. Retention. Store manager turnover is in the mid-teens and among the best in retail. Our overall team member turnover, which includes the entire team, is in the low 30%s, which again, best in retail. Last night, I was at the same dinner that Greg was, and it was very exciting as we sat in front of the group, and we had service awards. Greg talked about over 100 profit awards. In the room I was in when we did service awards, we had 15 members of the team that had been with the company more than five years.
This morning, I thought, "Well, gosh, I'm curious just to know exactly how many team members and store managers that we have that have been with the company over five years." Over 661 store managers out of our 1,300 stores have been with the company over five years. Retention is extraordinarily important to us. When somebody comes to Tractor Supply, they stay. They stay because we develop people. We develop people from inside the organization. 70% of our promotions come from within. The reason for that is it maintains our culture. As we talk and we meet with them, they understand where they came from, they understand where we're going, and they have a relationship with all those around them, and it's just a way for us to understand how we're going to move forward. Next, I'll talk about sales.
Sales in the stores, Steve delivers the product, in stores, it's about the know-how. It's what do stores know, and how can they communicate to the customers. We start that with product knowledge training and training programs. It's about not only that we teach them monthly, that we have training categories, but it's that our team teaches each other. They teach each other about farming, they teach each other about welding, and they teach each other about things that they may not know when they first come to work there. We have cross-training in all areas. There's frequent communication. We encourage feedback. Greg and Steve and I get emails from stores almost daily, giving us ideas, talking to us about their feedback.
We have a manager advisory board and a district manager advisory board that come in quarterly, meet with our teams, and give feedback on all the things that they see happening in the stores. Steve and his team have town hall meetings. They go out into the field, they meet to talk about merchandise, they get feedback from the stores about what we can do better. As we're attending this week, we have the semiannual sales meetings. It's an exciting opportunity for all the store managers to interact with us and to interact with the vendors. We have over 300 vendors that they can talk to, find out about new products, and understand how they're going to sell those products. We talk about success.
As you walk the sales floor today, you'll see that many of the vendors list the top 10, top 15, or top 20 stores in that particular product. Stores come to us and talk to us about, "Hey, do you see us? We're in the top 20." It's a very exciting time. It's all about a sales culture. We complete the project, we offer additional items, and we trust that the team and the customer are communicating to drive that next sale. The customer. We do whatever it takes to make sure our customers are happy, and the way we do that is we GURA the customer. Many of you have probably heard us say this before, but I'll explain it a little bit. GURA stands for greet, uncover, recommend, and ask, and it's what our team does when the customers come in and they look for products.
You may ask, what does this mean besides it's a chant at our meeting? GURA, actually, when we talk to the team, we talk about it actually does drive sales. When we track this measure and we see what do stores do if they get all four of these metrics, it raises their average ticket by 20%. When we get stores to GURA the customer, we drive additional sales. We develop customer relationships. We talk all the time about the difference in Tractor Supply and other retailers is the relationship. We are not transaction-based; we are relationship-based. When someone comes to Tractor Supply, they are coming to see Bill or John or Carrie or whoever it may be in the store. It's not about just coming to get their product.
We talk to store managers about learning a customer's name a week, and more importantly, we need to learn their dog's name. If we know that, we've got them for life. We share success stories. We recognize our teams. In the back rooms, we have special success boards where we put up success stories for our teams. It doesn't have to be big. It can be as small as they did a great job yesterday working in the clothing department, and they helped an extra customer. It can be small, or it can be large. We really get actionable feedback. We have a third-party vendor that tracks our customer loyalty scores, and they've done so for seven years. We're consistently around 80% on highly satisfied customers. That has improved over all the seven years, and today, we believe that we still have an opportunity to improve.
What a highly satisfied customer does is they'll drive by the competitor to get to us, and that's what we encourage our teams to do is find highly satisfied customers. Last is execution. Execution is important here at Tractor Supply because we've got to make sure that we're consistent across the country. When someone shops in California and they shop in Maine, we want them to see a very consistent store. It may have local opportunities. They may be able to find certain products they want. We want them to get the same feel that they're in a Tractor Supply. We have consistent store processes. In order to do that, we utilize TVS. As we move freight, as we clean the store, as we set our circulars, we have specific processes that the stores use to do that. Our leadership visits.
All of this group, our RVPs and our district managers, all visit stores very frequently. When we visit stores, probably different than most companies, we are actually asking for feedback, and that's most of what the visit is about. It's not necessarily about assessing the store because the store manager is capable of doing that. It's about finding feedback and delivering it back to the store support center. Last, we maintain store standards because we measure them. We measure our stores very simply, just like in school. You get an A, a B, a C, a D, or an F. It is all about people, cleanliness of the store, in-stock, and the customer service. We make it very simple for stores.
When we leave, the store manager, the district manager, and any of us all agree on how the store has been measured, and it's all about improving. With that, our store standards and our ability to execute is all driven by the fact that Steve is going to deliver us product. I'm going to get Steve up here to talk about that.
Thank you, Lee. I guess it was about a year ago, I had a chance to get in front of this group and talk about our sales and margin drivers. I'm going to go through and do a bit of a refresher on that. Then I'm going to turn to marketing and go over what our marketing initiatives are and introduce you to that as well. Let's get grounded first in our merchandising principles, this is what we stayed true to. First, we're going to be the most dependable supplier of basic maintenance needs. We're going to differentiate ourselves through our products and the brands that we carry in our stores and online. We will offer value that exceeds our customers' expectations.
We're going to excite the customer with a treasure hunt experience of new products, and we're going to maintain commitment to supporting the Life Out Here lifestyle and customer. As a reminder, these were the merchandising initiatives we went through last year. CUE being consumable, usable, edible. We continue to expand our assortments here. We're doing more investment in inventory, and we're being priced right locally, and we continue to gain market share. Localization. Our customers don't care that we have 1,300 stores. What they care about is the one store in their community, the brands they want, the product they want, when they want it. Drive aisle merchandising.
Again, making that center court more productive, looking at all the events that we have, and you'll see these when you go out to Hendersonville today, the Chick Days event, the Garden event, and other events that we put out there continue to drive comp store sales because there's new products in these events. Finally, new products. At Tractor Supply, it's about a culture of risk-taking and a philosophy of failing early, often, and cheaply. We have a pipeline of opportunities and a structured test program that allows us to roll out new programs. At Tractor Supply, it is not about a silver bullet, but rather 1,000 BBs that will continue to drive comp store sales. In terms of gross margin, we continue to see a real benefit in our pricing team being more integrated in with our merchants.
We're making progress when it comes to price optimization. We've recently extended our contract with our third party in Revionics, and we will be introducing a clearance module in the back half of 2014, which should give us value in 2015, and we continue to see upside in our promotional pricing. At Tractor Supply Company, we will always be a branded house, but we will augment our assortments with exclusive brands. Exclusive brands this past year grew. They are now 30% of our sales or $1.6 billion at retail. In terms of strategic sourcing, we have domestic and we have international. On the domestic front, our merchants are working hard to find multiple suppliers to support us in our exclusive brands, which are bringing value in leveraging our cost and being a more dependable supplier. Internationally, we grew our imports by 30% this past year. Finally, inventory management.
It all starts with the allocation of product. Our planning team is now more seasoned. As an organization, we're embracing the idea of getting $0.60 on a dollar on the forefront rather than a quarter on the dollar after the season. We're taking markdowns earlier, and that's really benefiting us. Let's talk about marketing, and I want to spend a little bit more time here since this is relatively new to this group. There's four key drivers for us in the marketing initiatives we have. The first is increasing our sales to our existing customers. This is really important. At the same time, we want to expand our customer base. We differentiate through how we're local or that community connection that we have. Finally, it's a matter of building the Tractor Supply brand. Let's talk about each one of these.
First, driving traffic with existing customers. We still believe there's more opportunity here. When you look at multi-channel and digital marketing, it's a matter of content online so our existing customers can come and do research before they come into our stores to purchase product. We also believe there's an opportunity as we expand the long tail of assortments that we have today. Finally, emailing our existing customers to bring them back to the web or into our stores. When it comes to advertising distribution, we alter our ad distribution based on the content of our circulars or direct mail. Finally, customer relations management. This slide shows a funnel, and it starts with gathering data.
Our objective when it comes to CRM is to leverage a deep understanding of our customers, who they are, how they shop, and how they want to interact with TSC to deliver personalized and relevant communications that will increase their loyalty to Tractor Supply Company. Again, first, it's a matter of collecting the data. We do so through attribution or purchase behavior, shopping behavior, contact information, and then getting information like profile, lifestyle, and preference data. Today, we're collecting zip codes, phone numbers, and we have tax-exempt numbers. The future is an affinity program where customers opt in to be part of a Neighbor's Club. Once we've got that information, it falls into a database. We do analytics on it. We segment those customers by recency or frequency, could be product preference. We do customer research. Today, that segmentation is based upon store purchase behavior.
The future will be segmented into multidimensional, it'll be behavior-based, and it'll be omni-channel. It's one thing to have the data, and it's another thing to make it actionable. That's where personalized communications come in. This is the action step. These customers want relevant content. They want it to be dynamic versus static communication. They want it to be all through all channels, whether it be through stores, TractorSupply.com, social, mobile, or the customer call center. Today, a lot of that's being done through direct mail and email. The future will be triggered communications. It'll be one-on-one messaging across all channels in real time. What that will result in is increased customer retention and loyalty. Our customer profile today is broken down into 3 buckets. We have the hobby farmer, the lifestyler, and business. A hobby farmer tends to spend more at Tractor Supply. Their ticket's typically larger.
There's a lower household penetration. They tend to buy large animal feed, hardware, lubricants, and pet food. Generally, they're older, they own more land, they live further from our stores and they're destination shoppers. This is the core of our base. The lifestyler, this is an exciting segment here, we believe continues to grow. They spend less, there's more of them. They tend to buy things like pet food, pet supplies, hardware, birdseed. They tend to be younger, own less land, live closer to our stores, and they're a convenience shopper. Finally, business. This is a much smaller percentage of our sales. They tend to buy things like hardware and lubricants, sprayers and chemicals, and hand tools. When it comes to where they're located, they tend to be closer to our stores, and they tend to be a bit more of a convenience shopper.
That's just some insights into our existing customers. It's one thing to talk about our existing customers, and it's another thing to talk about new customers and growing that base. It's important that as we grow that base, that we don't disenfranchise our core customer or dilute the value of the Tractor Supply brand. We'll do this in a couple of ways. We'll market broad appeal categories such as pet, lawn and garden, heating, and apparel. We'll use prospect marketing, which I'll talk about here in a moment, and we'll drive trial with our existing vehicles. Here are some existing vehicles, and I wanted to talk about a couple of them. The first here is a pet insert, okay. Now this pet insert includes strong national brands.
What we've done with this insert is put it through shared mail and put it through newspaper, and we did it between 5 and 10 miles around our stores. Again, trying to attract new customers in as a convenience play. When it comes to lawn and garden, what you'll find there is we'll tend to buy broad search words on the web. Our new mover program introduces the Tractor Supply brand to customers that have just moved into our communities. Another exciting one and one that we tested this past year is we partnered with a third-party mobile vet service that comes in and takes care of customers' animals. It worked incredibly well. We think we brought in some new customers as well, and we'll be rolling that out to more stores this coming year.
Finally, digital ads will help us bring in new customers. At Tractor Supply Company, though, it's about being local, and this is a real differentiator for us. Being a small box retailer that hires our customer, recognizes the value of local assortments, and serves a defined lifestyle gives us a competitive advantage in the markets that we're in. Our support of the 4-H and FFA, these are current future customers as well as future team members. Our sponsorships of local fairs and community events makes us somewhat unique. Finally, we empower our stores by giving them a budget and allowing them to spend money in the communities that they serve. Just a little bit about 4-H. They're focused on elementary and middle school youth. There's 6.3 million active members in the communities that we serve.
In this past year, our store operations team raised over $1 million to support 4-H. When it comes to the FFA, they're focused on the next tier of students, high schoolers. There's approximately 600,000 of these members in the communities that we serve. Last year, we raised about $360,000 to put 284 of these 4-H-ers through college as part of a fund that we raised. What's really remarkable here is the dollars that we're raising are coming from our customers and back to those communities, not just coming from Tractor Supply Company. Finally, it's about awareness. In Tractor Supply being the authority for the lifestyle and our customers who live Life Out Here, as well as developing exclusive brands that support that lifestyle. We want to be all things to all people when it comes to their needs regarding the lifestyle that they live.
Online, for example, if you want to know anything about chickens, go online today and it'll tell you what kind of chicken breed you should have, what to feed them, how to keep them alive and keep them warm, and how to breed them. We do the same thing with a lot of other categories that are important to our customer. It's not a matter of just putting a lot of categories online. We look for those categories that most support the lifestyle that we serve. When it comes to exclusive brand offerings, you can see the portfolio up here. Our strategic approach here is about developing these brands to support that lifestyle. It's about offering high-quality and differentiated products that builds loyalty to the Tractor Supply brand.
We've got a lot going on on the sales side, good work happening on the margin front, and a way to talk to our existing customers as well as new customers and build loyalty long-term with Tractor Supply. At this time, I'd like to bring Tony Crudele to the front.
Thanks, Steve. All right, I'll tell you that Steve and Lee do a terrific job. They make my job very simple. I like just to be able to paint a picture with these numbers that they deliver to me. Take a quick look at 2013 and the recap to just exactly how they did. We opened up 102 stores. We grew our comp sales at 4.8%, and that's on top of the prior year of 5.3%. We also went through a lot of different weather trends, which I really believe shows that we can adjust, we can react, we can deliver in different types of environments and still be able to attain terrific results. We also increased gross margin 40 basis points. We've talked a lot about our initiatives that we've had over the last two to three years.
Steve continues to push through those, We get tremendous results, We still believe there's a long runway ahead of us there. SG&A improved by 20 basis points based on that strong comp. We drove a lot of leverage there. Again, we're very focused on the bottom line and making sure that we become much more efficient as an organization and drive that EPS growth. It gave us the opportunity to return $68.5 million in dividends to our shareholders, as well as the opportunity to repurchase $129 million in stock. That all translates to an increase in EPS of over 22%. This is the fourth straight year that we've topped that number, 22% increase. Looking ahead at 2014. Steve's talked a lot about the sales initiatives he has, the gross margin. I want to touch on just a few of the boxes on this chart.
First, the store growth, again, will be over 100 new store units. Our forecast is at 102 to 106 new units. One of the key boxes here, though, is the store traffic. We've been able to grow traffic increase at 23 consecutive quarters, and we believe we can continue that trend. Steve has the initiatives in place. We have the basic products that our folks need and use out in the rural lifestyle, and we believe that that will continue to drive traffic. When we get them into the store, I know that Lee's team is going to be able to work with them, they'll GURA them, and they'll make that sale so we can continue to drive a strong comp store sales number. Deflation, we talked a little bit about on a conference call that we anticipate a little deflation this year.
We're looking at some flat to potentially 100 basis points of deflation. Last year, we had 70 points of inflation. There's a potential swing of about 170 basis points. I'd like to delve into that in a little bit more detail on the next slide. As we turn over to margin, we have the initiatives that are working. We look at inventory management, we have price management, strategic sourcing, and we continue to drive down markdowns. That on a quarterly basis, as we manage that inventory and we minimize the markdown risk that we have out there, we can continue to drive our gross margin improvement. One of the other boxes I'd like to touch on is really the mixed headwind.
In the past, as we've grown our basic CUE products, we know that they have below average gross margin, below chain average gross margin, and they also require some additional freight. What we've seen over the past two years is that headwind has started to decrease. That has a lot to do with, as we've been able to price manage these CUE items, the gross margin starts to creep a little bit higher and gets much closer to our chain average. The mix headwind has moderated. When we were at generally around 25 basis points headwind, now we've seen, and we estimate go forward to be around 10 to 15 basis points. There's a real positive improvement there as well. I want to take a little time and talk about SG&A.
Each year, as we look forward, we will make specific call-outs that we see that will be impacting our performance during the course of the year. I wanted to clarify, in the top box, where we talk about initiatives and technology and building that infrastructure, we've been doing that on various initiatives throughout the last at least eight years that I've been there. We believe that we can drive those initiatives, and we can support those initiatives through our earnings power in the P&L. We believe that basically, those initiatives on an ongoing basis are embedded in our P&L and the way that we look at funding those initiatives. Now, when we look at something like the store support center and the new building that we're building so that we can consolidate our three leases, that's a special call-out for 2014.
Again, when we look at the capital side of that, the focus really is on the long term, because we believe and is a very good use of capital. The impact in 2014 is not necessarily building the infrastructure. It is the transition costs that are involved in moving us to that facility and then the lease exit costs. That's the call-out when it comes to the store support center, not necessarily the building the infrastructure and incurring additional carry for the next several years. We believe that's a positive. It's really the focus is on the transition cost. Then we step down to the DC capacity. The way we look at the capital relative to the distribution centers is that we know we have to build out that infrastructure. As we continue to move west, we need to become more efficient.
There is a potential to have some drag over a period of time as we continue to either upgrade our Northeast facility, as we brought on our Southeast distribution center this year and/or as we expand out into the Southwest and eventually into the Northwest U.S. However, we know, again, long term, great use of capital, it will make us more efficient. The last call-out is the Affordable Care Act. That's something that obviously is new. It's in its initial year. As we move forward into the following years, again, it becomes embedded into our cost structure. We believe that we can drive these initiatives and fund these initiatives as we continue to grow our EPS in the mid-teens. I wanted to touch briefly on managing commodity expense.
As I mentioned earlier, we expect to have some slight deflation during the course of this year, we've adjusted our comp sales accordingly. It's really a very simple process. If in an inflationary time, that will become a tailwind for our comp sales. At the same time, it becomes a headwind for the gross margin rate. As we enter into a period where we have deflation, it of course, will be a negative to our comp sales, but at the same time, it'll be a positive impact to our gross margin rate. We've had in place, we've had processes to manage our pricing effectively, and we've been able to prove this out as in 2009 and the tail end of 2009, Q4, we experienced five quarters of deflation that ranged anywhere from 20 basis points-250 basis points, and we managed to do that very effectively.
In fact, I would represent that we are in a better position now to manage through any pricing changes because we have a much more mature team, and we have a pricing tool in place that gives us the ability to better manage those prices. When you actually look back at a two-year stack, inflation-adjusted, every quarter has actually ranged between about 6.2%-7.7%. Again, we've been able to manage through inflationary periods and deflationary periods with the business. The key is that we are bottom-line oriented. It's not a matter of whether it's the comp sales or the gross margin rate. It's how are we going to translate that to the bottom line? As long as we stay focused on that, we can continue to drive results.
The financial engine, this is really the basis in which we look at driving the business, the financial returns, and rewarding the shareholders. Very simple model. We've talked about this in the past. The first piston in the engine is sales, and we can drive that first with unit growth. We have our 8% unit growth that again, we have been able to demonstrate over the past several years that we can grow at that rate without having any significant impact to our business. We're very comfortable with an 8% growth rate. Comp sales, we have the initiatives in place. Steve's talked about those. We feel we can continue to drive that engine in the sales piston. That translates into profitability. Obviously, sales growth is one of the pistons, as well as improving gross margin.
Again, as Steve has mentioned, we have a lot of headway as we continue on with our initiatives on the gross margin front. We continue to manage SG&A. As much as we need to build our infrastructure, we do that in a very strategic method, and every one of our initiatives is tied back to our strategic planning, and we tie the capital to each one of that, and we allocate in a very efficient manner. We'll continue to watch the expenses and manage those expenses as tightly as possible. That'll generate our cash flow. First and foremost, we need to make sure we have the right merchandise to our customers, so we constantly are investing in inventory.
At the same time, we invest in the tools to manage that inventory properly, and we've been able to increase turns six of the eight years that I've been here. In the last five years, we've been able to increase our turns every year. When it comes to the expense management we talked about. What's critical here is then we're going to take some of this cash, and we're going to reinvest it back in the operations. You've seen that over the years. It might be in infrastructure, it might be initiatives, but we're going to be doing those things that we can continue to drive sales and continue to become a more efficient, continuously improving organization, driving profitability. The bottom line is, we're going to be able to have significant cash available for our shareholders to return in forms of dividends and in share repurchase.
Of course, driving the share performance will be our EPS growth. Let's take a look at the free cash flow. This is very consistent with what we discussed last year at this time. Our model seems to be working very well. On an operating cash flow basis, we anticipate over the next four years to have $2.2 billion in cash flow. As we talked about in capital expenditures, we're trying to maintain CapEx at $250 million a year. We had targeted this year to be around $240 million-$250 million as well. However, we came in actually at $220 million. What we believe is, as we manage that CapEx to $250 million and get that into our run rate, we'll again be able to start to leverage that depreciation runoff.
Net bottom line on free cash flow, we're looking at $1.2 billion of free cash flow that will be available to return to our shareholders. When we look at the capital deployment and the $250 million annually, first, we focus on growth. We are a growth retailer, and there are not many, if any, hardline retailers that are growing at 8%. Secondly, we need to maintain that store base, and we'll continue to invest in our stores and updating those stores. Again, I believe that we have that in our run rate today. We'll look at technology and improving the technology. We'll continue to invest in loss prevention, EAS, camera systems to reduce shrink in the stores. We also are investing in energy management. We're looking at the lighting in the stores as well as some solar power on some of our stores.
We'll continue to make investments, but we believe that they'll be investments that will benefit our stores and make us more efficient as we move forward in the future. Again, we look at the infrastructure, we've talked about the infrastructure, the store support center, the distribution network, and technology. Under the technology caption, we're really looking at initiatives such as the multi-channel CRM that Steve talked about, demand planning. Again, as we make these investments, we fund them out of our run rate, we continue to drive efficiencies into the future. Once we invest in our growth, we look at the remaining cash flow, we want to be able to return that to our shareholders. We have a very disciplined approach, it's a very balanced approach. First, we look at the dividend.
Right now, we're returning $0.13 per share on a quarterly basis. Our target is to have a 20%-25% payout ratio. That is our goal, we are very close within that range. The other key is we want to be a dividend grower. This is where a balance takes place, where we need to make sure that people first and foremost know that we are a growth retailer, at the same time, we want to be able to grow that dividend. Our target is to grow at 15%-20%. Now, we've exceeded those numbers the past two years, again, we believe that we can, on a sustained basis, grow our dividend 15%-20%. On the share repurchase. The share repurchase is really the balancing piece in our allocation.
We have targets there. Again, it forces us to be very disciplined in how we look at capital, how we return shareholder value, and create shareholder value. Now, this is a very critical aspect. With yesterday's announcement of a $1 billion increase in our authorization for the share repurchase, basically doubling our share repurchase program to $2 billion. It's very obvious that this is a critical element in what we believe in generating shareholder value, creating that shareholder value, and returning it to the shareholders. Our targets are to be at 40%-45% of operating cash flow. That is our target as far as share repurchase. Looking at our free cash flow model, that can range between $170 million-$290 million annually. Now, as we've talked in the past, we use a matrix approach during our restricted trading periods.
We'll set a target based on our calculation of the intrinsic value of the stock. There can be some volatility as far as how the program repurchases, but I can assure you that as the stock dips at all from our intrinsic value, the matrix generates much more significant buys relative to the intrinsic value that we set. We want to be in the marketplace. It is our goal to continue to repurchase. We believe there obviously there's a continued upside when it comes to the stock value, and we believe that it's a great way to reward our shareholders. How we've done. I think when you look at the numbers from 2008 to 2013, on a compound annual growth rate, stores have increased 8.3% annually. Sales have increased 11.4% annually. Net income, the CAGR is 24.9%, and split-adjusted EPS has grown at 26.4%.
Again, we believe that the programs that we have in place that are very, again, disciplined, focused, tied to a strategy, we believe return significant results and in turn, significant shareholder value. As far as our growth targets, we again believe that they are very compelling. Store growth at 8%. Comp store sales, we believe will range between 3%-5% on a long-term basis. Obviously, we'll adjust that guidance based on the impact on inflation as we did this year. We have a target of improving operating margin at 25 basis points. Again, we believe that's achievable. This year's range that we provided was 20-30 basis points. On a long-term basis, we want to be able to deliver 25 basis points of operating margin improvement.
We want to continue to invest and grow in the business, we talked about sort of maintaining at that $250 million CapEx investment, then that provides us the ability to return cash to the shareholders through the dividend and the share repurchase. That takes us to our target goal of growing EPS in the mid-teens. Looking at reasons to invest in Tractor Supply. We clearly are a growth company in a very unique niche with a winning strategy, again, very proven over the past several years. There's a lot of passion, a lot of rigor. Hopefully, when you're out on the floor today on the trade show floor, you'll see that energy, not only just with our store management, but also with our vendors. We have key initiatives that are in place. They're working. They have supported our business over the last several years.
Again, we feel that it's a long runway, we can continue to drive sales, drive gross margin improvement, be able to manage those investments. We believe that we have a defined capital allocation strategy. We have a capital allocation process tied to our strategic initiatives, we have very specific goals as far as our dividend and our share repurchase program and how we want to be able to create value for our shareholders and return it to them. With that will conclude our webcast portion of our presentation today.